Whistleblower Lawsuit on “False Marking” Theory of Liability

The National Law Journal recently published an article about the increase in whistleblower lawsuits that are based on a “false marking” theory of liability in the wake of the recent appellate court decision in The Forest Group Inc. v. Bon Tool Co. The “false marking” theory of liability encompasses labeling products or packaging with an expired patent or one that doesn’t cover the product’s technology. This decision is bad news for companies with patents.

Before the decision, companies were usually subject to a penalty of only $500 per incident of false marking, regardless of how many individual products were mismarked. In Forest Group, the court held that the statute required a per-article penalty, vastly increasing the incentives for plaintiffs to file suit. According to the article, since the decision, plaintiffs’ lawyers have filed over 130 new lawsuits under this theory, targeting big name companies, such as Costco and Kimberly-Clark.

But, as the National Law Journal notes, two pending cases could turn the tide. One case may restrict the right to file suits to those actually harmed by the company’s actions, such as competitors, and the other will decide how courts should determine a company’s intent to harm buyers or competitors when engaging in the false marking. There is also support in Congress for a bill that would allow only competitors harmed by the false marking to bring suit.

There’s a split between those who believe that these whistleblower suits are an important check against consumer harms and those who believe they are a tool for bounty hunters. On one side, there are those who argue that the public is harmed by false markings that are misleading about the patentee of the product. But, as opponents note, most of these suits have been filed by patent lawyers, not competitors, suggesting less-than-noble incentives.

Either way, it’s important to be aware of the scope of potential liability that companies can be subject to, as well as the potential opportunities for whistleblowers to reap a large reward.

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