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Brian Buehlhorn, Lois Hess, and Kay Klausner v. Universal Valve Company

March 31, 2011

BRIAN BUEHLHORN, LOIS HESS, AND KAY KLAUSNER, PLAINTIFFS/RELATORS,
v.
UNIVERSAL VALVE COMPANY, INC., DEFENDANT.



The opinion of the court was delivered by: Murphy, District Judge:

MEMORANDUM AND ORDER

Relators Brian Buehlhorn, Lois Hess, and Kay Klausner filed this qui tam action for false patent marking under 35 U.S.C. § 292. Many such cases have been filed since the United States Court of Appeals for the Federal Circuit's opinion in Forest Group, Inc. v. Bon Tool Company, 590F.3d 1295 (Fed. Cir. 2009). This action, and four other similar actions, came before this Court on January 31, 2011, for hearing on various motions.

FACTUAL AND PROCEDURAL BACKGROUND

Relators claim that Defendant Universal Valve Company, Inc., has advertised, marked, or caused to be marked certain products with expired patents and continues to do so. Specifically, they allege that U.S. Patent No. 2,872,142 (the '142 Patent), entitled Retrieving Device, was issued on February 3, 1959, and expired no later than March 14, 1977. They allege that U.S. Design Patent No. 309,024 (the '024 Patent), entitled Observation Monitoring Well Manhole Cover, was issued on July 3, 1990, and expired no later than July 3, 2004. Relators claim that Defendant (1) has in the past and continues to falsely advertise and mark (or cause to be marked) with the expired '142 Patent a product entitled Hose Retriever and (2) has in the past and continues to falsely advertise and mark (or cause to be marked) with the expired '024 Patent a product entitled Triangular Manhole Bolted. Relators allege, upon information and belief, that Defendant knew or reasonably should have known that these products are not covered by the expired patents and that Defendant falsely marked these products with the expired patents "for the purpose of consciously deceiving the public into believing that its products are covered by the ['142 and '024 Patents]" (Doc. 3, ¶¶ 31-32, 42-43). Relators seek injunctive relief, damages, attorneys' fees, and costs.

Defendant filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) attacking the sufficiency of the pleadings under Rules 9(b) and 8(a) and, alternatively, attacking the constitutionality of 35 U.S.C. § 292. Defendant alternatively filed a motion to transfer venue pursuant to 28 U.S.C. § 1404 because the District of New Jersey is a more convenient forum. Since the date of the hearing, the Federal Circuit decided In re BP Lubricants USA Inc., Misc. No. 960, 2011 WL 873147 (Fed. Cir. Mar. 15, 2011), in which the Federal Circuit granted a petition for a writ of mandamus and directed the United States District Court for the Northern District of Illinois to grant a motion to dismiss a complaint asserting a false marking claim. Defendant seeks leave to supplement its motion to dismiss to incorporate the BP Lubricants decision and a decision by the United States District Court for the Northern District of Ohio finding the false marking statute unconstitutional. The motions to supplement are granted in part and denied in part. The Court is aware of and has considered the decisions cited by Defendant; there is no need to file them on the Court's docket.

DISCUSSION

The false marking statute provides, in relevant part:

(a) .. Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word "patent" or any word or number importing that the same is patented for the purpose of deceiving the public . [s]hall be fined not more than $500 for every such offense.

(b) Any 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.

35 U.S.C. § 292. The statute's reference to "any person" operates as a statutory assignment of the United States's rights, and a violation of the statute inherently constitutes an injury to the United States. Stauffer v. Brooks Bothers, Inc., 619 F.3d 1321, 1325 (Fed. Cir. 2010). Therefore, so long as a relator alleges a violation of the statute, which suffices to allege an injury in fact to the United States, then the relator has standing to pursue the claim as the United States's implicit assignee. Id. at 1324-25.

In additional to establishing a relator's jurisdictional standing to pursue such claims, the Stauffer Court also impliedly held that Rule 9(b) applies to false marking claims brought under § 292 when it remanded the case to the district court to "address the merits of the case, including [the defendant's] motion to dismiss pursuant to Rule 12(b)(6) 'on the grounds that the complaint fails to state a plausible claim to relief because it fails to allege an 'intent to deceive' the public -- a critical element of a section 292 claim -- with sufficient specificity to meet the heightened pleading requirements for claims of fraud imposed by' Rule 9(b)." 619 F.3d at 1328. The Court did not remand the case for a determination whether Rule 9(b) applied; rather, it remanded the case for a sufficiency of the pleadings determination. Nonetheless, the Federal Circuit now specifically has held that Rule 9(b)'s particularity requirement applies to false marking claims brought under § 292.

BP Lubricants, 2011 WL 873147, at *1. The Court further held that, under Rule 9(b), "a complaint alleging false marking is insufficient when it only asserts conclusory allegations that a defendant is a 'sophisticated company' and 'knew or should have known' that the patent expired." Id.

To satisfy Rule 9(b), although knowledge and intent may be averred generally and a plaintiff may plead upon information and belief, the complaint must contain sufficient underlying facts from which a court may reasonably infer that the defendant acted with the requisite state of mind. Id. at *3, citing Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009). To allege the requisite intent to deceive in the § 292 context, the complaint must provide "some objective indication to reasonably infer that the defendant was aware that the patent expired." BP Lubricants, 2011 WL 873147, at *3, citing Clontech Labs, Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005) (proof that the party making a misrepresentation had knowledge of its falsity "is enough to warrant drawing the inference that there was fraudulent intent").

During the hearing, Relators argued -- and the Court was inclined to agree -- that their allegations are sufficient to plead the requisite intent to deceive when read in combination with the rebuttable presumption recognized in Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010). In Pequignot, the Federal Circuit first established that articles covered by expired patents are unpatented for purposes of liability for false marking. 608 F.3d at 1361. Next, it held that "the combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of ...


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