District Court Holds Qui Tam Provision of Patent Marking Statutes Unconstitutional Under Take Care Clause

The decision, handed down yesterday, is Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (N.D. Ohio). An excerpt:

Under 35 U.S.C. § 292 (the “False Marking Statute”), it is unlawful to mark a product with, or use in advertising, a patent number in connection with products that are not patented. 35 U.S.C. § 292(a). The penalty for violating the statute is a fine of “not more than $500 for every such offense.” Id. “[D]espite being punishable only with a civil fine,” “the false marking statute is a criminal one.” Pequignot v. Solo Cup Co., 608 F.3d 1356, 1363 (Fed. Cir. 2010) (citing S.Rep. No. 82-1979, 1952 U.S.C.C.A.N. 2394, 2424 (1952)). The False Marking Statute contains a qui tam provision, whereby “[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.” 35 U.S.C. §292(b)….

Applying the Morrison “sufficient control” analysis to the False Marking statute, it is clear the government lacks sufficient control to enable the President to “take Care that the Laws be faithfully executed.” As discussed, supra, unlike the FCA, the False Marking statute lacks any of the statutory controls necessary to pass Article II Take Care Clause muster. The False Marking statute essentially represents a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the Department of Justice. See Pequignot, 608 F.3d at 1363 (False Marking statute is criminal). It is unlike any statute in the Federal Code with which this Court is familiar. Any private entity that believes someone is using an expired or invalid patent can file a criminal lawsuit in the name of the United States, without getting approval from or even notifying the Department of Justice. The case can be litigated without any control or oversight by the Department of Justice. The government has no statutory right to intervene nor does it have a right to limit the participation of the relator. The government does not have the right to stay discovery which may interfere with the government’s criminal or civil investigations. The government may not dismiss the action. Finally, the relator may settle the case and bind the government without any involvement or approval by the Department of Justice.

There are very practical policy reasons why the Take Care Clause vests federal law enforcement power in the hands of the President, and why delegation of that power to a private entity must be sufficiently controlled by the Attorney General. Prosecutors are granted power not given to private parties, and with that power comes the responsibility to use it to benefit the public welfare, and not some private interest. The doctrine of prosecutorial discretion vests each attorney with the responsibility to determine whether or not a particular enforcement action is fully supported by the law and the facts, and whether it is in the public interest to initiate it. A government attorney must take into consideration the impact of any enforcement action upon the system as a whole and upon the administration of justice; a private attorney has no such responsibility. There may be situations where there is evidence of a violation but the appropriate course is to forebear from initiating any enforcement action. These responsibilities arise in the criminal arena as well as in the civil arena.

The danger of this uncontrolled privatization of law enforcement is exacerbated by the financial penalties in this statute. The penalty is up to $500 for each article falsely marked. Forest Group, 590 U.S. at 1302-1303. Depending upon the number of items, this could be a staggering amount of money or a trivial amount. The statutory penalty is not calibrated to the size or economic strength of the defendant, the significance of the product, or to the degree of competitive harm the false marking may have had beyond simply the gross number of articles falsely marked. See id. at 1303 (“[t]he more articles that are falsely marked the greater the chance the competitors will see the falsely marked article and be deterred from competing”). It is therefore essential that the government have control over when such cases are brought, and most importantly, how they are settled. Such decisions should be made by government attorneys who have no financial stake in the outcome of the litigation or settlement, not by private parties motivated solely by the prospect of financial gain. [Footnote: The Court’s decision on the Take Care Clause renders it unnecessary to address Plaintiff’s Appointments Clause argument. The Court notes, however, that the Sixth Circuit’s holding that FCA qui tam relators are not inferior officers of the United States with “tenure, duration, continuing emolument, or continuous duties” and therefore are not subject to the Appointments Clause would likely apply to False Marking qui tam relators. See Taxpayers Against Fraud, 41 F.3d at 1041 (citing Auffmordt v. Hedden, 137 U.S. 310, 327 (1890)).]

For the reasons discussed, supra, the qui tam provision of the False Marking Statute, 35 U.S.C. §292(b) is unconstitutional under the Take Care Clause of the United States Constitution, U.S. Const. Art. II, § 3.

Thanks to Eliot Williams for the pointer.