Panel:  Judges Rader, Lourie (Solo Cup Case) and Moore (Forest Group case)

The Parties and Procedural Posture on Appeal  

Appellee Stauffer is a patent attorney in private practice in New York. In 2007, he sued Brooks Brothers under the qui tam provisions of 35 U.S.C. §292 for adjustable bow tie slides with patent numbers that had expired 50 years ago.

Brooks Brothers Inc. makes and sells men’s clothing. The adjustable bow tie slides in question were purchased from a third party manufacturer who sold those same devices with the same markings to competitors of Brooks Brothers. The slide manufacturer provided Brooks Brothers with a ribbon associated with the slide that bears the two patent numbers and a trademark registration number. Brooks Brothers sewed the slide and ribbon into its bow ties of various designs.

Brooks Brothers moved to dismiss Stauffer’s complaint under Fed.R.Civ.P. 12(b)(1) on the grounds that the complaint failed to identify an injury-in-fact (i.e., a pecuniary injury) that would provide Stauffer with standing under Article III of the U.S. Constitution. Specifically, Brooks Brothers pointed to: (a) the absence of a harm to competition (as seen from the parallel sales to competitors) and (b) the absence of facts in the complaint that would identify a demonstrable pecuniary harm to the U.S. that could have been assigned by operation of Section 292(b) to Stauffer. The district court had agreed and granted the motion to dismiss.

The Department of Justice (DOJ) moved to intervene in the district court case as a matter of right or permission under Fed.R.Civ.P. 24. Its motion was denied by the district court on the grounds that the Constitutionality of Section 292 was not involved in the decision to dismiss the complaint. The DOJ motion to intervene in the appeal was granted by the Federal Circuit.

The Oral Arguments

Stauffer began his arguments with two points. The first was that standing had already been decided by omission by the Federal Circuit in its earlier decision in the Solo Cup case, i.e., the Court had the obligation to raise standing if there was any doubt. Because it did not do so, standing must have existed. Judge Moore responded and pointed out that if an issue is not considered, then it cannot be deemed to have been decided.

The second point was that a pecuniary harm could be found in the violation of the Trademark Counterfeiting Act by the use of an expired trademark registration number on the label along with the expired patent numbers. Judge Lourie dismissed this argument by noting that such “shotgun arguments” as to harm were unavailing. Proper standing under Article III required that the alleged harm be traceable back to the statute giving rise to the claim.

Is A Pecuniary Harm Required?

The DOJ counsel presented arguments in support of Stauffer’s standing. Specifically, the DOJ argued that the harm was of a sovereign nature (i.e., a law was violated). This position raised a number of questions from the Court as to the proper balance of pleaded facts, facts alleged “on information and belief” and the history of presumed correctness in such allegations at the stage of this case where a motion to dismiss was presented.

Judge Lourie asked whether Section 292 requires an inquiry into standing due to the “any person” language in the statute that purports to provide the right for any person to sue on behalf of the government. Brooks Brothers argued that Article III does require such an inquiry, but that constitutionality was not raised in the motion to dismiss, and the district court did not decide the motion based on any issue of constitutionality.

Brooks Brothers addressed the “harm” arguments of the DOJ by noting Brooks Brothers had submitted unrebutted evidence which showed that competition was not harmed in bow ties for any reason related to the markings on the adjusting device. The supplier sold to Brooks Brothers and many of its competitors. This lack of harm, and no actual evidence to the contrary, meant that there was no Article III standing, thereby requiring the Court to affirm the dismissal on appeal.

Is the Case Futile Because There Was No Intent to Deceive?  

Judge Moore raised the issue of whether it might still be a matter of statutory interpretation that “marking” could be found from the acts of sewing the marked third party label into the Brooks Brothers product. Counsel responded that such a rule would place an impossible burden on manufacturers who buy component products from other manufacturers and cause chaos in the courts as they try to unravel allegations of a conspiracy to deceive.

There were a number of questions posed on the interactions of well pleaded complaints under Fed.R.Civ.P. 9 when deceitful intent is involved as a required element. Also discussed was the analysis that relies on a presumption of correctness of alleged facts when deciding motions to dismiss at the pleadings stage. The Court noted that the failure to plead a deceitful intent was enough to destroy standing in a sovereign interest case because the “harm” was the deceitful intent. The DOJ pointed to the Court’s presumption of deceitful intent from intentional marking of expired patent numbers under Clontech Labs. Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005) as sufficient to establish Article III standing. Brooks Brothers noted that such intent-based pleadings must bear some relationship to real facts or chaos would ensue.

For more information, email Lance Johnson or call 202-659-9076.