Real Problems with Virtual Patent Marking

By Scott Simmonds
February 21, 2020


• Categories: 03-Manufacturing Execution, 05-Quality/Regulatory, Business Analysis, Market Access

There were major changes in the patent marking laws in 2011, when the America Invents Act (AIA) went into effect, that impact how patent owners communicate, or mark, their devices to identify applicable patents that affect affects how much they are eligible to receive in damages in the event of a patent infringement. As the changes have been implemented across corporate America, new challenges have arisen related to the effectiveness of marking and the way marking is dealt with by licensees and others who acquire patent rights. This article will explain those challenges and provide some thoughts on how to address them.

What Changed?

The America Invents Act (AIA) implemented a number of changes to the prevailing patent law, including modification of the laws related to patent marking. The section on false marking was amended to eliminate a provision that allowed individuals to sue on behalf of the United States and share in any fines for false marking.¹ The effect of the change in the law is to reduce the exposure to device makers who accidently improperly mark their devices. However, maintaining marking in a reasonable way is still a requirement.

Additionally, the patent marking statute now provides for virtual marking of devices.² Constructive notice that a patent covers an article can be achieved through a “virtual mark,” which significantly simplifies the process for patent owners to mark their products. Patent owners apply a label pointing to a website to list their devices and the patents that apply to those devices.³

This benefits patent owners in that they do not need to change tooling or packaging every time they are issued a new patent or a patent expires. That information may now be maintained on a website by using unique URLs, significantly lowering the burden for managing accurate patent marking.

Effective marking is critical to maximizing the damages available to a patent owner when an infringer is identified. When proper marking is absent, damages begin after the alleged infringer is made aware of a patent. This can be months, or even years, after an infringement begins because the patent owner may not be aware of the infringement.

Virtual marks were a welcome resolution of issues that made accurate patent marking difficult and the penalties for incorrectly marking costly. Now, with many years of experience behind us, unexpected challenges with the implementation of the new system are being discovered and must be addressed.

The Adequacy Conundrum

Adequacy of marking is a concern, even when using a website to list devices. At least one court has found that simply listing patents on a website is insufficient; the law requires that the appropriate patents and devices be specifically associated.⁴ The conundrum this creates is in determining how to provide an adequate association where multiple devices are covered by multiple patents.

Simply identifying a device, even by a trademark name, may be inaccurate; if 40% of the devices under a specific trademark include a particular option, it is likely not adequate to mark all of the devices with a patent that includes only that option. A better approach is to identify the particular option in connection with the trademarked device name.

Even more challenging is when patents that cover options vary by model year. A best practice is to include the model years applicable for the particular patent. A device maker needs to think carefully about the marking scheme they will employ before embarking upon a virtual patent marking initiative.

The M&A Effect

Another significant problem arises when product lines and entire business units are being acquired and divested by a device maker. When a patent or device is transferred between entities, it is important to identify who has the responsibility for maintaining the marking. Because the law changed to allow for a device to be marked with a unique URL, devices in the field must be properly marked. Courts have held that the law requires that “substantially all” products are marked and that the marking is “substantially consistent and continuous.”⁵

When a patent changes hands, or a division of a company is sold, the original unique URL may be associated with the seller or parent company, creating confusion as to maintaining marking; many companies mark multiple products on a single URL. Parties to such a transaction should carefully consider how marking is going to be handled in the transition. The proper approach will certainly be impacted by the type of device, whether it is a consumable with a short life or a durable device in the field for years.

If the URL used for a particular business unit’s devices includes devices from other business units prior to the divestiture, any devices sold will point to the original URL. Eliminating the reference on the original website could be considered breaking the cycle of continuous marking. The acquiring business should assure that the divesting entity maintains appropriate marking to provide “substantially consistent and continuous” marking.

Understandably, this may conflict with the divesting business’ goals. In addition, including reference to divested devices may cause confusion in the eyes of customers or suggest an ongoing liability by the divesting business. Such issues should be carefully considered prior to embarking upon a virtual patent marking initiative.

Licensing Infractions

Issues also tend to arise under the patent marking laws with licensed patents or private-label devices. A licensee may not wish to have a URL that points to a supplier’s or competitor’s website for marking. Yet, under the marking statute, “substantially all” of the patented devices must be marked to meet the requirements for eligibility of past damages. Courts have made clear that this includes devices produced by others under license.⁶

This creates competitive tension. The patent owner/licensor wants to make sure that all devices are marked to preserve the damages under the constructive notice provisions of the patent marking statute, but ensuring compliance by a licensee is difficult. Licensees may want to avoid any association with the licensor in the competitive environment. These issues must be addressed at the licensing stage to assure that the competitive needs of both parties are addressed.

Wrapping It Up

Considering all of these issues, the implementation of an efficient and adequate patent marking program requires a bit of forethought, especially for device makers with large patent portfolios and extensive product offerings. Some things to consider include:

1. Is a single URL appropriate, or should a different URL be used for each division, business unit, product family, or product line? Multiple URLs may help with providing the association required under the law, as well as making divestiture of a particular business easier.
2. When acquiring or divesting a business, has the deal team adequately considered the effect on patent marking? Many times, the damages that could be lost by failing to adequately consider the patent marking issues will easily justify a well-planned and well-executed strategy for transitioning the patent marking.
3. When granting a patent license, has the licensor considered the requirements for proper marking by the licensee? That is the time to establish the safeguards necessary to protect the damages potential from an infringer.
4. Has patent marking been explicitly covered in any indemnity provisions in a deal or license? One way to help assure compliance with patent marking requirements is for the entity responsible for maintaining adequate marking to be required to indemnify the new patent owner or the licensor for any loss of damages due to insufficient marking by the prior owner or a licensee.

Ultimately, the issues around patent marking are not quite as straightforward as they seem. Before embarking on a virtual patent marking program, a patent owner should carefully consider the effect of their marking strategy on the business in the future, allowing for as many strategic scenarios as could be reasonably foreseeable.

References

1. 35 U.S.C. 292 (2011)
2. 35 U.S.C. 287 (2011)
3. See, e.g. https://www.pg.com/patents/brands.shtml for an example
4. Mfg. Res. Int’l v. Civiq Smartscapes, LLC, 397 F.Supp.3d 560, 577-578 (D.De. 2019)
5. Nike, Inc. v. Wal-Mart Stores, 138 F.3d 1437, 1446 (Fed. Cir. 1998)
6. Maxwell v. J.Baker Inc., 86 F.3d 1098, 1111-12 (Fed. Cir. 1996).

This article should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.