Federal Circuit Requires Pleading with Particularity in False Marking Lawsuit
By Raquel Acosta – Edited by Jonathan Allred
In re BP Lubricants USA Inc., No. 960 (Fed. Cir. March 15, 2011)
The U.S. Court of Appeals for the Federal Circuit granted in part the petition for a writ of mandamus filed by BP Lubricants USA Inc. (“BP”), reversing in part the District Court for the Northern District of Illinois, which had denied BP’s motion to dismiss on the grounds that the particularity requirement of Fed. R. Civ. P 9(b) was not met.
The Federal Circuit held that in qui tam false marking suits, cases must be plead with particularity in accordance with Rule 9(b) requirements regarding the circumstances constituting fraud or mistake. The court goes on to state that conclusory allegations are not entitled to an assumption of truth, citing Exergen in support of their holding that a proper pleading cannot merely aver substantive elements of a fraud complaint. Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009) (holding in cases involving fraud, plaintiff must plead in specific detail the “who, what, when, where, and how” of the circumstances surrounding the intent to deceive). The court reasoned that there must be facts in support of the allegation that BP acted with knowledge or intent to defraud the public. Merely alleging that BP dealt with patents often enough that they knew or should have known the patents had expired was insufficient.
The Inventive Step Blog provides an overview of the case. PatentlyO presents a brief legal analysis on why this decision establishes that the recent influx of false marking lawsuits will not be a lasting trend.
The complaint was filed by a patent attorney against BP pursuant to the Patent Act’s false marking statute, 35 U.S.C. § 292. The statute allows a fine of up to $500 against a party that falsely marked their product as patented for the purpose of deceiving the public, and permits anyone to sue on behalf of the United States and receive half the fine collected. In this case, the complaint alleged that BP continued to mark their products with patent numbers despite the patent having expired February 12, 2005. The complaint alleges intent to deceive based upon “(1) BP knew or should have known that the patent expired; (2) BP is a sophisticated company and has experience applying for, obtaining, and litigating patents; and (3) BP marked [their products] . . . for the purpose of deceiving the public and its competitors.” The Federal Circuit reasoned that sophistication does not indicate knowledge, and the presence of a false marking is not necessarily indicative of intentional fraud. The connection between factual falsity and a guilty state of mind is not always clear.
This holding establishes that false marking suits must be pled with particularity in accordance with Rule 9(b). The circumstances constituting fraud or mistake are subject to a heightened pleading requirement, while malice or intent internal to a person’s mind may be plead generally. This heightened pleading requirement had previously been applied to inequitable conduct allegations. The Federal Circuit had not previously spoken on whether Rule 9(b) should be applied to false marketing claims, and the trial courts had been divided on the issue. This ruling clarifies the issue for lower courts and discourages frivolous complaints of fraud in cases of mere negligence.