Legal Quirk Lets Anyone Sue Firms over Old Patents

Look carefully at the lid to your coffee cup or the handle of your disposable razor. A recent ruling on an obscure, century-old statute has opened the door for people familiar with the finer points of patent law to sue companies that stamp their products with expired patent numbers.

A couple of sharp-eyed lawyers are shooting for a financial windfall through the nearly forgotten law, and the Justice Department says they have a case.

The ruling in federal court in Alexandria appears to be the first of its kind upholding the constitutionality of a law allowing anyone to sue in the name of the government if they have evidence that a company is guilty of “false markings” — namely, claiming patent protections that have expired or never existed.

The person who sues gets to keep half of any money awarded, with the rest going to the government. Damages of up to $500 per violation are allowed, which for mass-produced items with “Patent” stamped on every product could theoretically run into billions of dollars.

Despite the financial incentive to sue, lawyers in the Virginia case say no one other than businesses with a financial stake availed themselves of the law.

No one, that is, until Matthew Pequignot.

A Washington patent attorney, Pequignot noticed the patent marks on the lid to his daily cup of coffee, did some research and found that the lid’s maker, Solo Cup Co., was continuing to claim patent protections for disposable lids that had expired nearly 20 years ago. Depending on a variety of factors, most patents expire after a set period of time, often after 14 to 20 years.

In 2007, he sued Highland Park, Ill.-based Solo Cup, which makes the red and blue plastic cups seen at parties and barbecues and also supplies disposable cups and lids to retailers like Starbucks and McDonald’s.

Pequignot says the lawsuit addresses a problem in the patent community: companies using false marks to make products look impressive or to scare off competitors, who must do significant legal work to research the patents. He likens false patent marks to placing “No trespassing” signs in public park lands.

Pequignot followed the Solo Cup case by suing razor company Gillette, owned by Cincinnati-based Procter & Gamble Co., and Arrow Fastener Co. Inc., a manufacturer of staplers and similar products. The case against Saddle Brook, N.J.-based Arrow has been withdrawn, but Pequignot retains the right to revive it.

Gillette is seeking to dismiss the case, arguing Pequignot shouldn’t be allowed to sue unless he can show Gillette acted with “an intent to deceive.”

“False markings claims come cheap: They damage defendants’ reputations. … Numerous complaints can be filed at almost no cost,” Gillette’s lawyers wrote, noting Pequignot’s multiple lawsuits.

In the Solo Cup case, court papers indicate Pequignot offered to settle for $9 million. Instead, Solo Cup argued that allowing a private citizen to sue on behalf of the government is an unconstitutional violation of separation of powers. Solo Cup also argued the law violates constitutional requirements that a plaintiff must suffer some type of harm to bring a lawsuit.

U.S. District Judge Leonie Brinkema concluded in March that the provision allowing Pequignot to sue in the name of the government, though rare, is constitutional. Called “qui tam” statutes, most have been repealed because of concerns they were being abused.

Despite Brinkema’s ruling, there are still concerns over the law’s use. In May, a federal judge in New York tossed out a similar lawsuit filed by a patent attorney who sued Brooks Brothers over expired patents on its “original Adjustolox” bow tie.

The judge ruled that if the plaintiff, Raymond E. Stauffer, wants to sue on behalf of the United States, he must prove the government suffered harm, a standard he said Stauffer failed to meet.

Brinkema, on the other hand, said in her ruling that the U.S. suffered harm by the very fact that its laws were being broken.

The Justice Department is siding with Brinkema. On May 29, the government moved to intervene on Stauffer’s behalf and said the New York judge’s analysis is flawed.

Neil Friedman, the lawyer who represented Brooks Brothers, likened Stauffer and Pequignot to “bounty hunters” looking to collect an easy payoff. He said he is aware of several similar lawsuits that have been filed since the Pequignot and Stauffer’s cases.

Pequignot, for his part, says he does not expect an avalanche of false markings lawsuits, despite the fact that Stauffer and some others have already followed in his footsteps. He said that, even as a patent attorney, it took him many hours of research to be able to file his lawsuit.

Dennis Crouch, a law professor at the University of Missouri and author of the Patently-O blog, said lawsuits like Pequignot’s had been “almost unheard of” before his filing. He said the effect could be significant, though, since he estimates there are millions of false markings in the marketplace.

In her ruling, Brinkema suggested Congress may want to close the loophole.

“It is likely an accident of history that (the law) survives as one of the few remaining qui tam statutes in American law,” Brinkema wrote in her opinion which grudgingly acknowledged Pequignot’s right to move forward with his case.

With the law’s constitutionality upheld, Solo Cup says it plans to offer a “good-faith” defense that it relied on lawyers’ advice and did not intend to deceive.