A well-known American lawyer, Bill Lerach, once stated: “I have the greatest practice of law in the world. I have no clients.” Peter J. Henning, Behind the Rise and Fall of a Class Action King, New York Times (March 1, 2010). Lerach’s practice was focused on class actions, but American law also provides other opportunities for lawyers to litigate without clients. American law provides lawyers with a number of opportunities to litigate without clients. One of these opportunities is the qui tam action. In such actions, the lawyer sues a private entity for injury to the federal government or a state government and seeks damages, which are shared with the respective government. The lawyer does this acting on his own and without seeking prior approval of that government. Qui tam actions are analogous to private prosecutions, which have fallen into disuse in America but are still permitted in other parts of the world.
The most publicized type of qui tam actions are those brought under the federal False Claims Act, 31 U.S.C. §§ 3729-3733. The American government employs a great many contractors. There have for many years been widespread suspicions that these contractors commonly cheat the government. See Riley v. St. Luke’s Episcopal Hospital, 252 F.3d 749, 752 (5th Cir. 2001) (en banc) (“[Q]ui tam . . . enjoyed a renaissance during the Civil War era [1861-65]. This renaissance was precipitated by a desire to combat widespread corruption and fraud amongst defense contractors who supplied the Union Army.”). The False Claims Act allows private lawyers to profit by uncovering such cheating and suing the perpetrators, sharing whatever recovery they make with the federal government.
In patent law there is also a qui tam provision. 35 U.S.C. § 292(b). It pertains to false marking, i.e., marking an article with a patent which does not cover it or which has expired. Anyone may sue a company which has committed false marking. Although the suit is civil, the damages are up to $500 per copy of a wrongly marked article, being shared equally between the plaintiff (usually a patent lawyer) and the federal government. The Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1304 (Fed. Cir. 2009). The damages per copy are set by the district court in its discretion, with the value of the falsely marked article being a possible consideration in the exercise of this discretion. See id. (“In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.”). Following the Forest Group v. Bon Tool decision, there has been a “flood of litigation over false patent marking” such that “the number of false marking suits increased from virtually none in the past to hundreds, if not thousands, in 2010.” Lynn Tyler, Patent Reform: Much Ado About Nothing or Will 2011 Be The Year?, Inside Indiana Business.
No proof of harm is required to obtain the $500 damages. Stauffer v. Brooks Brothers, Inc., 619 F.3d 1321, 1325 (Fed. Cir. 2010) (involving bow ties marked with patents that had expired in 1954 and 1955). A recent Federal Circuit panel calculated that, in the lawsuit on appeal, these damages at $500 per copy would amount to over $10 trillion. It noted the gratifyingly positive effect that a payment of half that amount to the federal government would have on the United States’ national debt. Pequignot v. Solo Cup Co., 608 F.3d 1356, 1359 n.1 (Fed. Cir. 2010).
However, despite the positive revenue prospects for the American government, a federal district judge recently held the patent marking qui tam provision unconstitutional. Memorandum Opinion and Order, Case No. 5:10-CV-1912 (N.D. Ohio Feb. 23, 2011). This was Judge Dan Aaron Polster of the United States District Court for the Northern District of Ohio, who was appointed to the bench by President Clinton.
Judge Polster’s reasoning was based on the limited amount of control which the United States can exercise over patent marking suits. In the False Claims Act, found to be constitutional by a number of federal courts of appeal, the plaintiff must file the complaint under seal and then give the Justice Department of the federal government sixty days to review it to see if it would want to take the case over. United States ex rel. Taxpayers Against Fraud v. General Electric Co., 41 F.3d 1032. 1035 (6th Cir. 1994). In contrast, in a patent marking suit, the Patent and Trademark Office is notified up to thirty days after the filing of the complaint. The government does not have the right to take over the litigation if it wishes but must instead request that the judge hearing the lawsuit permit it to intervene. See Stauffer v. Brooks Brothers, Inc., 619 F.3d 1321, 1328-29 (Fed. Cir. 2010) (holding that the district court abused its discretion in not permitting the government to intervene).
The constitutional provision relied on by Judge Polster is the Take Care clause. The Take Care clause provides that the president “shall take Care that the Laws be faithfully executed.”
The district court relied on United States ex rel. Taxpayers Against Fraud v. General Electric Co., 41 F.3d 1032. 1041 (6th Cir. 1994), for its understanding of the Take Care clause. Taxpayers Against Fraud upheld the constitutionality of the False Claims Act against a Take Care clause challenge. The court of appeals relied there the right of the government to take over the case, as well as some other lesser rights of the government, to find that the Take Care clause was met. As the panel stated, these provisions “have been crafted with particular care to maintain the primacy of the Executive Branch in prosecuting false-claims actions.” Id.
Judge Polster found that the lack of similar provisions for false marking suits meant that the Take Care clause had been violated. He noted in particular the possibility that the lawsuit could settle before the PTO is even notified.
As with all other patent cases, appeal from Judge Polster’s decision goes to the Federal Circuit. The Federal Circuit sometimes defers to regional circuits for questions not unique to patent law. The regional circuit owed deference is the one in which the district court sits, here the Sixth Circuit. However, in this case the Federal Circuit will probably not view itself as bound by the Sixth Circuit’s decision, but rather will see itself as required to decide independently whether the qui tam false marking provision is constitutional or not, because it must apply the patent laws uniformly throughout the country. In addition, as Judge Polster notes, the constitutionality of the qui tam false marking provision is already before the Federal Circuit in United States ex rel. FLFMC , LLC v. Wham-O, Inc., appeal no. 2011-1067, where an interesting amicus brief has been filed.
Regarding the rationale of Judge Polster’s decision, query what could motivate the US government to intervene in a false marking suit, such that Congress should reform the law to give it a greater right to intervene as Judge Polster’s view of the Take Care clause requires. In a False Claims Act suit, the agency which was supposedly defrauded could well take the position “we were not cheated, indeed the contractor is doing a perfectly fine job, we’re happy with their performance, and we want to keep the relationship going.” The agency could alternatively take the position that they had no clue the cheating was occurring, and they don’t just want a monetary recovery; they want the con men to do hard time. In false marking suits the affected agency is the PTO, which continues to experience difficulty with its backlog of pending applications, and no analogous motivations for intervention can be made out.
Flavio M. Rose, Irell & Manella LLP