Patent Marking is not Conclusive Proof of Patent Infringement

April 11, 2013

By: Brian T. Moriarty

Hamilton Brook Smith Reynolds Alert

  • Marking a product with a patent number and paying royalties are merely rebuttable evidence that a product may be covered by a patent.
  • A licensee's marking of a product with a patent number is not conclusive proof that the licensee's product is covered by the patent.

On March 15, 2013, the Court of Appeals for the Federal Circuit reviewed the impact of patent marking in a dispute about an alleged breach of a patent license agreement and rejected the supposed doctrine of "patent marking estoppel."  In Frolow v Wilson Sporting Goods, the Court found that marking a product with a patent number, as well as providing royalty payments for the patents marked, did not prevent, or estop, the licensee from later claiming that the product did not, in fact, fall within the claims of the patent.

The Opinion

Frolow v Wilson Sporting Goods was not a patent infringement lawsuit, but rather, a suit for breach of contract for failure to pay royalties for "Licensed Articles."  The Licensed Articles were defined as "tennis rackets which are covered by one or more unexpired or otherwise valid claims" of the patent.

The patent holder, Frolow, claimed that the licensee was not paying full royalties.  The licensee, Wilson Sporting Goods, argued that many racket models were not Licensed Articles, and offered test data that indicated that some of the racket models did not meet the requirements of the claims in the patent.  The patent holder countered that the licensee was "estopped" from denying the models were licensed products because several of the disputed racket models were marked with the patent number, and because the licensee had been paying royalties on many of the disputed racket models.  The licensee contended that such payments were inadvertent and based upon an erroneous belief that such racket models were Licensed Articles.

The district court agreed with the licensee, and granted summary judgment in their favor, in part because the patent holder had solely argued that the licensee had marked certain racket models with the patent number and had paid royalties relating to the patent, and had failed to provide any other evidence that those racket models were in fact Licensed Articles within the scope of the patent claims.

The Federal Circuit affirmed.  The court first noted that under the so-called doctrine of "marking estoppel," which had been recognized by some courts, "a party that marks its product with a patent number is estopped from asserting that the product is not covered by the patent."  The court specifically declined to adopt this doctrine, and instead opted to analyze the issues based on the normal rules of evidence.

The court indicated that the marking of a product with a patent number may be considered an admission of a fact, but that such an admission would not be considered to be binding and incontestable during litigation.  Instead, a licensee could provide evidence to refute, contest or explain its marking practices.  The court also found that evidence of past royalty payments would similarly be considered evidence that could be presented in court, but also evidence that the licensee could challenge.  The court specifically held that there was no bright-line rule that marking of a product or payment of royalties would automatically be enough to prove a product was covered by a patent.

Importantly, the court also brought up an issue that neither party had raised:  the burden of proof on remand.  The court held that the burden was on the patent holder to prove that the products in question were Licensed Articles within the patent claims.  On the specific facts of the case, the court granted judgment as a matter of law for the licensee because the patent holder did not provide any credible evidence that the disputed product fell within the scope of the patents.

Interestingly, a concurring opinion took issue with the burden of proof, pointing out that the suit related to the breach of a license agreement and that contract law principles therefore should have been applied.  Under contract law, the licensee would have had the burden of proof:  the licensee would have to counteract the marking evidence and demonstrate that the products should not have been considered Licensed Articles, rather than having the patent holder prove infringement of the patent by the Licensed Articles.

Business Implications

This decision is of concern for patent owners who license out patents because it places the burden of proof on the patent holder, even when the licensee takes actions indicating that a product is covered by a marked patent.  Patent holders that seek to enforce license agreements may need to evaluate questions of infringement of the licensed patents in order to properly address the evidentiary burden in a dispute concerning a license agreement.  The licensor should also consider adopting stronger contract language that places the burden of proof upon the licensee.  In view of the concurring opinion and the fact-specific holdings by the Federal Circuit, the full impact of patent marking evidence in suits over license agreements remains uncertain.

To learn more about patent marking, contact Brian Moriarty or your regular practitioner at Hamilton Brook Smith Reynolds.

Overview

April 11, 2013

By: Brian T. Moriarty

Hamilton Brook Smith Reynolds Alert

  • Marking a product with a patent number and paying royalties are merely rebuttable evidence that a product may be covered by a patent.
  • A licensee's marking of a product with a patent number is not conclusive proof that the licensee's product is covered by the patent.

On March 15, 2013, the Court of Appeals for the Federal Circuit reviewed the impact of patent marking in a dispute about an alleged breach of a patent license agreement and rejected the supposed doctrine of "patent marking estoppel."  In Frolow v Wilson Sporting Goods, the Court found that marking a product with a patent number, as well as providing royalty payments for the patents marked, did not prevent, or estop, the licensee from later claiming that the product did not, in fact, fall within the claims of the patent.

The Opinion

Frolow v Wilson Sporting Goods was not a patent infringement lawsuit, but rather, a suit for breach of contract for failure to pay royalties for "Licensed Articles."  The Licensed Articles were defined as "tennis rackets which are covered by one or more unexpired or otherwise valid claims" of the patent.

The patent holder, Frolow, claimed that the licensee was not paying full royalties.  The licensee, Wilson Sporting Goods, argued that many racket models were not Licensed Articles, and offered test data that indicated that some of the racket models did not meet the requirements of the claims in the patent.  The patent holder countered that the licensee was "estopped" from denying the models were licensed products because several of the disputed racket models were marked with the patent number, and because the licensee had been paying royalties on many of the disputed racket models.  The licensee contended that such payments were inadvertent and based upon an erroneous belief that such racket models were Licensed Articles.

The district court agreed with the licensee, and granted summary judgment in their favor, in part because the patent holder had solely argued that the licensee had marked certain racket models with the patent number and had paid royalties relating to the patent, and had failed to provide any other evidence that those racket models were in fact Licensed Articles within the scope of the patent claims.

The Federal Circuit affirmed.  The court first noted that under the so-called doctrine of "marking estoppel," which had been recognized by some courts, "a party that marks its product with a patent number is estopped from asserting that the product is not covered by the patent."  The court specifically declined to adopt this doctrine, and instead opted to analyze the issues based on the normal rules of evidence.

The court indicated that the marking of a product with a patent number may be considered an admission of a fact, but that such an admission would not be considered to be binding and incontestable during litigation.  Instead, a licensee could provide evidence to refute, contest or explain its marking practices.  The court also found that evidence of past royalty payments would similarly be considered evidence that could be presented in court, but also evidence that the licensee could challenge.  The court specifically held that there was no bright-line rule that marking of a product or payment of royalties would automatically be enough to prove a product was covered by a patent.

Importantly, the court also brought up an issue that neither party had raised:  the burden of proof on remand.  The court held that the burden was on the patent holder to prove that the products in question were Licensed Articles within the patent claims.  On the specific facts of the case, the court granted judgment as a matter of law for the licensee because the patent holder did not provide any credible evidence that the disputed product fell within the scope of the patents.

Interestingly, a concurring opinion took issue with the burden of proof, pointing out that the suit related to the breach of a license agreement and that contract law principles therefore should have been applied.  Under contract law, the licensee would have had the burden of proof:  the licensee would have to counteract the marking evidence and demonstrate that the products should not have been considered Licensed Articles, rather than having the patent holder prove infringement of the patent by the Licensed Articles.

Business Implications

This decision is of concern for patent owners who license out patents because it places the burden of proof on the patent holder, even when the licensee takes actions indicating that a product is covered by a marked patent.  Patent holders that seek to enforce license agreements may need to evaluate questions of infringement of the licensed patents in order to properly address the evidentiary burden in a dispute concerning a license agreement.  The licensor should also consider adopting stronger contract language that places the burden of proof upon the licensee.  In view of the concurring opinion and the fact-specific holdings by the Federal Circuit, the full impact of patent marking evidence in suits over license agreements remains uncertain.

To learn more about patent marking, contact Brian Moriarty or your regular practitioner at Hamilton Brook Smith Reynolds.

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