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IP Alert: Federal Circuit Offers First Insight into Post-AIA “Competitive Injury” Standing Requirement Needed to Bring False Marking Actions

May 8, 2015

On May 4, 2015, in Sukumar v. Nautilus, Inc., the Court of Appeals for the Federal Circuit considered for the first time what constitutes a “competitive injury” under the federal false patent marking statute. Specifically, the court considered whether an entity that has not yet entered the relevant market can ever suffer a competitive injury. The court held that there are circumstances under which a potential competitor could be found to suffer a competitive injury, but only if that potential competitor has attempted to enter the market. Such an attempt is shown by intent to enter the market with a reasonable possibility of success, coupled with an action to enter the market. In this case, the Federal Circuit held that the plaintiff did not suffer a competitive injury and thus did not have standing to maintain its false marking claims.

In 2010 the plaintiff, Ponani Sukumar, brought suit against defendant Nautilus, Inc., alleging, among other claims, false marking under the former 35 U.S.C. § 292. This statute was in the nature of a qui tam statute that allowed any person to bring a suit against a third party to allege false patent marking and to recover damages. Nautilus is a supplier of fitness machines and Sukumar alleged that Nautilus listed several patent numbers on its fitness machines despite the fact that the machines did not fall within the scope of those patents. The district court initially agreed with Sukumar and granted partial summary judgment on the false marking claims.

While the case was still pending, the America Invents Act (AIA) went into effect. The AIA amended section 292 to limit the category of plaintiffs who may bring false marking suits to those who suffer a “competitive injury.” The Federal Circuit has held the amendment to apply retroactively to existing suits. Thus, upon the statutory amendment, the district court was required to consider whether Sukumar suffered a competitive injury at the time he first brought his lawsuit. The district court held Sukumar had not and granted summary judgment to Nautilus.

On appeal, the Federal Circuit held that the plain meaning of “competitive injury” encompasses both potential and actual competitors. Potential competitors, however, must still suffer some disadvantage in their ability to compete. The court held that this requires more than just a subjective or speculative intent to compete. In addition, the court noted that sometimes an improperly marked product is also properly marked with other patents that do cover the device. In that instance, held the court, the potential competitor must show that the falsely marked patents deterred the market entry, while the properly marked ones did not. 

Applying these holdings to the facts before it, the court agreed that when Sukumar first filed suit against Nautilus he did not yet have any business in place. Nautilus alleged that any business plans Sukumar had in 2010 did not involve selling fitness equipment to compete with Nautilus, but instead were limited to plans to use such equipment in rehabilitation centers. The Federal Circuit again agreed, finding that Sukumar’s evidence of intent to enter the market at the time he filed suit in 2010 to be unavailing. While Sukumar presented evidence purporting to show preparations to compete undertaken only well into the pendency of the litigation, the court discredited this evidence, explaining that the admission of such evidence would only encourage fabrication of evidence during false marking litigation. Additionally, the court determined Sukumar failed to show that the patents falsely marked on the Nautilus machines actually deterred his market entry.

The court went on to find that Sukumar failed to show an action to enter the market. Sukumar did not take basic steps that would be necessary to enter the market for fitness equipment, such as developing a business plan, hiring employees, or investigating developing manufacturing capabilities. Accordingly, the Federal Circuit affirmed the district court’s finding that Sukumar did not suffer a competitive injury under section 292 as amended, and thus lacked standing to bring a false marking claim.

This case is significant in that it is the first time the Federal Circuit has weighed in on the new standing requirement of section 292. It provides insight into what evidence is necessary to bring, or defend against, new claims of false marking, and how businesses can position themselves when confronted with such claims.

If you have any questions regarding this case, please contact Fitch Even attorney Nicole L. Little, author of this alert.

 

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