Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc: District Court Holds Unconstiutional Qui Tam Provisions of False Marking Statute

Unique Prod. Solutions, Ltd. v. Hy-Grade Valve, Inc., No. 5:10-CV-1912 (N.D. Ohio Feb. 23, 2011) Slip opinion hosted by Inventive Step

The U.S. District Court for the Northern District of Ohio granted defendant Hy-Grade’s motion to dismiss on the grounds that the qui tam provision of the Patent Act’s False Marking statute, 35 U.S.C. § 292, is unconstitutional.

The district court held that the qui tam provision of 35 U.S.C. § 292(b) violated the Take Care Clause of the Constitution because it does not provide the Department of Justice with the adequate statutory controls under the “sufficient control” analysis of Morrison v. Olson, 487 U.S. 654 (1988). In so holding, the court relied on the Federal Circuit’s statement in Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010) that “the statute is a criminal one[,]” while simultaneously rejecting the Pequignot district court’s historically-grounded analysis of the qui tam provision. The court found instead that “[t]he False Marking statute essentially represents a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the U.S. Department of Justice.”

Law360 provides an overview of the case. IPFrontline believes this decision suggests that “we may see some clarity regarding the constitutionality” of the False Marking statute from the Federal Circuit in the pending case FLFMC, LLC v. Wham-O, Inc., No. 2011-1067.

Last August, Unique Product Solutions claimed that Hy-Grade marked a series of industrial valves with U.S. Patent Number 4,605,041 and used the patent marking in advertising after the patent had expired on April 5, 2005. The False Marking statute, 35 U.S.C. § 292(a), makes it unlawful to mark a product with a patent number when that product is not patented and provides for a penalty of up to $500 for violations. Section 292(b) includes a qui tam provision which states that “[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.” While this provision was enacted in 1952, qui tam litigation under § 292 has seen a recent surge as a result of the decision in Forest Group, Inc. v. Bon Tool Company, 590 F.3d 1295 (Fed. Cir. 2009). The court in Forest allowed the $500 penalty to be applied to each improperly marked product, rather than just once to punish the decision to improperly mark products. As a result, qui tam litigation under § 292 has become a more profitable venture than it once was.

The court here reasoned that since the False Marking statute was deemed criminal rather than civil in Pequignot, the Morrison “sufficient control” test provided the grounds for examining the constitutionality of the statute. In applying the Morrison factors, Judge Dan A. Polster concluded that the statute, in its delegation of prosecutorial authority, does not allow for adequate control to enable the President to “take Care that the Laws be faithfully executed.” He listed a range of justifications for this holding: (1) “any private entity . . . can file a criminal lawsuit in the name of the United States” without the approval of the Department of Justice; (2) “case[s] can be litigated without . . . oversight by the Department of Justice”; (3) “the government has no statutory right to intervene nor . . . stay discovery”; (4) “the government may not dismiss the action”; and (5) the litigant can “settle the case and bind the government without . . . approval.”

This decision is significant because it represents another in a series of approaches to deciding similar litigation. Where the Sixth Circuit applied the Morrison factors and found the qui tam provision of the False Claims Act constitutional in Taxpayers Against Fraud v. General Electric Co., 41 F.3d 1032 (6th Cir. 1994), the Fifth Circuit found Morrison inapplicable to the same statute in Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749 (5th Cir. 2001). Relying on Riley, the district court in Pequignot upheld the constitutionality of the qui tam provision of the False Marking statute. On appeal, the Federal Circuit did not address the question of constitutionality. Hy-Grade represents yet another line of attack, utilizing pieces of the Federal Circuit’s Pequignot holding to apply Morrison and finding the qui tam provision of § 292 unconstitutional.

Nathan Lovejoy is a 1L at the Harvard Law School.