Navigating Patent Damages Part I: A Primer on the Failure to Mark Defense

By: Charles Koole

Navigating damages in patent cases is a complex exercise. In this series, beginning with the marking statute, we explore various nuances of damages analysis.

Pursuant to statutory authority, it is well known that a patent holder may recover infringement damages for the six years preceding the filing of a complaint, as well as ongoing damages accrued after filing through the expiration of the patent. See 35 U.S.C. § 286. However, there are a number of different legal theories and defenses that may limit the potential exposure faced by a defendant in a patent case. One such legal defense - the failure to mark defense - can potentially limit the damages faced by a patent defendant to only those damages accrued after notice or the filing of a complaint.

35 U.S.C. § 287(a) requires patent holders to mark any patented articles made, offered for sale, or sold in the United States with the patent number in order to recover damages prior to actual notice of infringement. The requirements of 35 U.S.C. § 287(a) apply to apparatus claims, but also apply to method claims if a patent-holder asserts both method and apparatus claims and a tangible item that could be marked exists. 1 See American Medical Systems, Inc. v. Medical Engineering Corp., 6 F.3d 1523, 1538-39 (Fed. Cir. 1993) (“Where the patent contains both apparatus and method claims, however, to the extent that there is a tangible item to mark by which notice of the asserted method claims can be given, a party is obliged to do so if it intends to avail itself of the constructive notice provisions of section 287(a).”). Compliance with the marking statute requires that a patent holder must have consistently marked substantially all of the patented products, and is no longer distributing unmarked products. Id. at 1538.

Although the lack of a product embodying the patented invention exonerates a patent holder from having to comply with the marking requirement to recover damages prior to actual notice,2 an often-overlooked aspect of the marking defense is that the defense doesn’t apply just to the current patent-holder – it also applies to prior owners and assignees of the patent, and any licensees of the patent. See Maxwell v. J. Baker, Inc., 86 F.3d 1098, 1111 (Fed. Cir. 1996); K&K Jump Start/Chargers, Inc. v. Schumacher Elec. Corp., 52 F. App’x 135, 141 (Fed. Cir. 2002). Where the marking of products by a licensee is at issue, courts apply a “rule of reason” approach to determine whether a patent holder is in “substantial compliance” with the statute by considering “whether the patentee made reasonable efforts to ensure compliance [by the licensee] with the marking requirements.” Maxwell, 86 F.3d at 1112. Additionally, while the failure to mark is often pleaded as an affirmative defense, the burden of pleading and proving compliance with the marking statute is on the patent holder, not the alleged infringer. Id. at 1111.

In practice, the failure to mark defense may actually apply in many situations. Many patent holders file patent infringement cases in waves. As defendants in earlier cases settle, the patent holder is responsible for ensuring compliance with the marking statute by the earlier defendants in order to claim the benefit of the marking statute against defendants in later-filed cases and preserve damages prior to notice of infringement. In some cases, these earlier defendants may have obtained a license to entire patent portfolios owned by the patent holder as part of the settlement agreement, meaning that the marking statute may also apply to all of the other patents in these portfolios, even the ones that were not asserted against the earlier defendants. For example, suppose a patent holder files suit asserting Patent No. 1 against Company A for patent infringement. Company A settles shortly after in a license agreement that includes Patent No. 1 and Patent No. 2. One year later, the patent holder files suit asserting Patents No. 2 against Company B, Company A’s competitor, without providing any pre-filing notice to Company B. If licensed Company A makes products which practice the claimed invention in Patent No. 2 (e.g., potentially the same type of products manufactured and accused against Company B) and doesn’t mark those products, then the marking defense will likely apply and the patent holder could be barred from recovering pre-notice damages against Company B in the case of infringement. This example highlights the importance for both patent holders and patent defendants to pay close attention to the marking requirements in all relevant license agreements, and demonstrates how the failure to mark defense is an effective tool that can be used to limit potential exposure for patent infringement. Additionally, in some rare situations, such as for expired patents or discontinued products, the failure to mark defense may even be case dispositive.

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1 Note that if a patent holder only asserts method claims, then the marking statue doesn’t apply regardless if a tangible item that could be marked exists. See Crown Packaging Tech., Inc. v. Reexam Bev. Can Co., 559 F.3d 1308, 1316 (Fed. Cir. 2009); see also ActiveVideo Networks, Inc. v. Verizon Comms., Inc., 694 F.3d 1312, 1334-35 (Fed. Cir. 2012).

2 See Texas Digital Sys., Inc. v. Telegenix, Inc., 308 F.3d 1193, 1220 (Fed. Cir. 2002) (citing Wine Railway Appliance Co. v. Enterprise Railway Equipment Co., 297 U.S. 387, 393 (1936)) (“The recovery of damages is not limited where there is no failure to mark, i.e., where the proper patent notice appears on products or where there are no products to mark.”) (emphasis added).