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Federal Circuit Holds Marking Statute Limits Damages Even After Sale of Unmarked Products Ceases

General / Feb 20, 2020

Article by Clyde Shuman

The U.S. Court of Appeals for the Federal Circuit held that the patent marking statute, 35 U.S.C. § 287, limits damages even after a patentee or licensee ceases sales of unmarked products, and that willful infringement does not establish actual notice under § 287, affirming the lower court judgment that plaintiff Arctic Cat Inc. was not entitled to recover pre-complaint damages from defendant Bombardier Recreational Products Inc. due to the failure of Arctic Cat’s licensee to mark products in accordance with § 287. See, Arctic Cat Inc. v. Bombardier Recreational Prods., Appeal No. 2019-1080.

By way of background, Artic Cart owned two patents directed to thrust steering systems for personal watercraft (“PWCs”) but had stopped selling the products before either patent issued. In 2002, Arctic Cat entered into a license agreement with Honda that included the patents at issue. The original draft required Honda, as licensee, to mark all licensed products with the applicable patent numbers. However, that provision was deleted during negotiations, and the final version of the license agreement expressly stated that Honda had no marking obligations. Honda subsequently began making and selling unmarked PWCs, and Arctic Cat made no effort to ensure that PWCs sold by Honda were marked.

On October 16, 2014, Arctic Cat sued Bombardier for patent infringement. Pre-trial, Bombardier moved to limit Arctic Cat’s potential damages because of Honda’s sales of unmarked products. The court denied the motion, holding that Bombardier, as defendant, bore the burden of proving that Honda’s PWCs practiced the asserted claims and, finding no proof. At trial, the jury found the patents valid and willfully infringed, and awarded Arctic Cat a royalty to begin six years before it filed suit. The court denied Bombardier’s renewed motion for JMOL on marking and willfulness, holding that Bombardier had failed to meet its burden of proving that Honda’s PWCs practiced the asserted claims.

On appeal, the Federal Circuit affirmed as to willfulness but vacated and remanded as to marking, holding that the district court erred in placing the burden on Bombardier to prove that the Honda PWCs practiced the claimed invention. The Court held that once an alleged infringer identifies products that it believes are unmarked patented articles subject to the notice requirements of § 287, the patentee bears the burden of proving that the identified products do not practice the claimed invention.

On remand, Arctic Cat moved for summary judgment of entitlement to receive pre-complaint damages. Arctic Cat argued that the damages limitation of § 287 applies only while a patentee is actively making, using, or selling unmarked products, and thus did not apply after Honda stopped selling unmarked products, and Arctic Cat was therefore entitled to damages during the period after the cessation of Honda’s sales but before the filing of its suit against Bombardier. Arctic Cat also argued that it was entitled to damages for the full six-year period prior to suit allowed under 35 U.S.C. § 286—including when Honda was selling unmarked products—because the jury’s finding of willful infringement was sufficient to demonstrate actual notice under § 287.

Bombardier moved for summary judgment that Honda’s PWCs were unmarked patented articles and Arctic Cat failed to provide constructive or actual notice under § 287, and Arctic Cat therefore could not receive any pre-complaint damages. Bombardier argued that non-compliance with § 287 could be cured only by either beginning to mark or providing actual notice to an alleged infringer. The district court granted summary judgment in favor of Bombardier, and Arctic Cat appealed.

On appeal, the Federal Circuit began by discussing the parameters of § 287. Specifically, the Court reiterated that the notice provisions of § 287 do not apply to patents directed to processes or methods, nor do they apply when a patentee never makes or sells a patented article. “Thus, a patentee who never makes or sells a patented article may recover damages even absent notice to an alleged infringer.” If, however, a patentee makes or sells a patented article and fails to mark in accordance with § 287, the patentee cannot collect damages until it either begins providing notice or sues the alleged infringer and then only for the period after notification or suit has occurred.

Further, a patentee’s licensees must also comply with § 287.  In this case, Arctic Cat’s license agreement with Honda expressly stated that Honda had no obligation to mark. “Thus,” per the Court, “it is does not excuse Arctic Cat’s lack of marking that it is Arctic Cat’s licensee, rather than Arctic Cat itself, who sold un-marked products.”

The Court also noted that, here, a discontinuity existed in which unmarked products were sold. The Court said that Arctic Cat could not receive damages before providing notice, and held that the cessation of sales of unmarked products before filing suit does not excuse noncompliance with § 287, and that a patentee may not recover damages for the period after sales of unmarked products ceased but before the filing of a suit for infringement.

As for Artic Cat’s marking obligation, the Court found that this arose when its licensee began selling patented articles. The Court found that the cessation of sales of unmarked products did not fulfill or remove the notice requirement of the statute. Per the Court, “The notice requirement…cannot be switched on and off as the patentee or licensee starts and stops making or selling its product… [O]nce a patentee begins making or selling a patented article, the notice requirement attaches, and the obligation imposed by § 287 is discharged only by providing actual or constructive notice.”

The Court concluded, “Here, where Honda merely stopped selling unmarked products but Arctic Cat otherwise took no action to remedy prior noncompliance or to provide notice that the articles were actually patented, Arctic Cat never complied with the notice requirement of § 287 and thus cannot recover damages for any period prior to the filing of its complaint.”

The Court also rejected Arctic Cat’s argument that, regardless of its failure to mark, it should nevertheless recover the maximum amount of pre-suit damages allowed by 35 U.S.C. § 286 because the jury’s finding of willful infringement should establish actual notice under § 287. However, as the Court noted, “Arctic Cat acknowledges, as it must, that this argument is foreclosed by our precedent.”

The Court reiterated that willfulness, as an indication that an infringer knew of a patent and of its infringement, does not serve as actual notice as contemplated by § 287. “While willfulness turns on the knowledge of an infringer, § 287 is directed to the conduct of the patentee. The marking statute imposes notice obligations on the patentee, and only the patentee is capable of discharging those obligations.”