It’s likely that there were many patentees doing  a victory dance yesterday when the Federal Circuit  imposed a stricter pleading requirement in false marking cases.  In the In re BP Lubricants USA decision, the Court held that plaintiff’s must now plead with particularity the specific facts underlying the false marking allegations.  Foley & Lardner Partner and Practice Center Contributor Jeanne Gills sent in this alert which discusses the decision and what effect it may have on both pending and future false marking cases.

On March 15, 2011, the Federal Circuit held that “Rule 9(b)’s particularity requirement applies to false marking claims and that a complaint alleging false marking is insufficient when it only asserts conclusory allegations that a defendant is a ‘sophisticated company’ and ‘knew or should have known’ that the patent expired.” In re BP Lubricants USA Inc., No. 2010-M960, at *1 (Fed. Cir. Mar. 15, 2011). In granting BP Lubricants’ mandamus petition (in part), the Court agreed that this case “warrant[ed] the extraordinary remedy of mandamus” since the Court had not previously decided “whether Rule 9(b) applied” or “discussed the requisite level of pleading required.” Id. at *11. The Court directed the district court to dismiss the relator’s complaint with leave to amend in accordance with 9(b)’s pleading requirements. Id. This decision may lead to the dismissal of similarly pled complaints filed by other qui tam plaintiffs. 

In adopting the heightened Rule 9(b) pleading standard, the Court looked to the pleading standard required for claims under the False Claims Act: “Like the False Claims Act, § 292 condemns fraudulent or false marking. Rule 9(b)’s gatekeeping function is also necessary to assure that only viable § 292 claims reach discovery and adjudication.” Id. at *6. In particular, the Court stated, “Permitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.” Id.

Beyond setting forth the appropriate standard, the Court also examined the underlying complaint allegations. Id. at *6 – 10. Reviewing the district court’s denial of BP Lubricants’ motion to dismiss, the Court rejected the relator’s barebones complaint allegations, stating, “Because the relator’s complaint here provided only generalized allegations rather than specific underlying facts from which we can reasonably infer the requisite intent, the complaint failed to meet the requirements of Rule 9(b).” Id. at *8.

The Court further emphasized that the 9(b) pleading standards from Exergen applied to false marking actions (not just inequitable conduct claims) and rejected the relator’s four arguments that such requirements had been met, as explained below. Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009).

First, the Court rejected the relator’s argument that assertions in the complaint that BP Lubricants is a “sophisticated company and has experience applying for, obtaining, and litigating patents” is enough under Rule 9(b). The Court stated, “That bare assertion provides no more of a basis to reasonably distinguish a viable complaint than merely asserting the defendant should have known the patent expired. Conclusory allegations such as this are not entitled to an assumption of truth at any stage in litigation.” Id. at *8 (citing Ashcroft v. Iqbal, 129 S. Ct. 1937, 1954 (2009)).  

Second, the Court rejected the relator’s argument that “false marking inherently shows scienter.” Id. at *9. The Court held that false marking is not akin to certain statements wherein to show that the statement is false is to show scienter. Id.

Third, while the Court acknowledged that specific individuals with the alleged intent to deceive may not always need to be identified, the complaint must “set forth facts upon which intent to deceive can be reasonably inferred.” Id. at *9. Such allegations were not present in the relator’s complaint, but could include allegations such as “the defendant sued a third party for infringement of the patent after the patent expired or made multiple revisions of the marking after expiration.” Id.

Fourth, while the Court acknowledged Pequignot’s rebuttable presumption, it noted that where the “relator pled the facts necessary to activate the Pequignot presumption [it] is simply a factor in determining whether Rule 9(b) is satisfied; it does not, standing alone, satisfy Rule 9(b)’s particularity requirement.” Id. at *10.

This decision will likely provide defendants with more ammunition to obtain dismissal of frivolous false marking complaints at the pleadings stage. Under the heightened 9(b) standard, false marking complaints that contain mere barebones or conclusory allegations, as have been filed in numerous cases, should not survive.

Tags: Exergen Corp. v. Wal-Mart Stores, False Claims Act, False Marking, False marking pleading requirments, Federal Circuit, In re BP Lubricants USA, Rule 9(b)

This entry was posted on Wednesday, March 16th, 2011 at 16:24 and is filed under False Marking, posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.