wham-o brief - final
TRANSCRIPT
Case No. 2011-1067
IN THE
United States Court of Appeals for the Federal Circuit
FLFMC, LLC,
PLAINTIFF-APPELLANT,
––v.––
WHAM-O, INC.,
DEFENDANT-APPELLEE,
––v.––
UNITED STATES,
INTERVENOR.
–––––––– APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA IN CASE NO. 10-CV-0435, JUDGE ARTHUR J. SCHWAB
BRIEF OF DEFENDANT-APPELLEE WHAM-O, INC.
ANDREW J. DHUEY 456 Boynton Avenue
Berkeley, California 94707 (510) 528-8200 Attorney for Defendant-Appellee,
WHAM-O, INC. 22 February 2011
124
FORM 9. Certifi cate of Interest
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
____________________________ v. ____________________________
No. _______
CERTIFICATE OF INTEREST
Counsel for the (petitioner) (appellant) (respondent) (appellee) (amicus) (name of party) _______________________ certifies the following (use “None” if applicable; use extra sheets if necessary):1. The full name of every party or amicus represented by me is:_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________2. The name of the real party in interest (if the party named in the caption is not the real party in interest) represented by me is:_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________3. All parent corporations and any publicly held companies that own 10 percent or more of the stock of the party or amicus curiae represented by me are:_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________4. The names of all law firms and the partners or associates that appeared for the party or amicus now represented by me in the trial court or agency or are expected to appear in this court are:__________________________________________________________________________________________________________________________________________________________
_____________________ _______________________________ Date Signature of counsel _______________________________ Printed name of counselPlease Note: All questions must be answeredcc: ___________________________________
Form 9
USA, ex rel., and FLFMC, LLC Wham-O, Inc.
2011-1067
Wham-O, Inc.
Wham-O, Inc.
None.
None.
✔
Heather S. Heidelbaugh - BASST, CALLAND, CLEMENTS & ZOMNIR, PC Andrew V. Jablon - RESCH POLSTER & BERGER LLP Christopher M. Helms - BASST, CALLAND, CLEMENTS & ZOMNIR, PC Andrew J. Dhuey
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TABLE OF CONTENTS Page
CERTIFICATE OF INTEREST ...................................................................... i TABLE OF AUTHORITIES .......................................................................... v STATEMENT OF RELATED CASES ......................................................... xi STATEMENT OF THE ISSUES ................................................................... 1 STATEMENT OF THE CASE ...................................................................... 2 SUMMARY OF ARGUMENT ...................................................................... 4 ARGUMENT:
I. A de Novo Standard of Review Applies to the District Court’s Judgment of Dismissal .. ............................................... 7
II. FLFMC, Having Suffered No Injury in Fact, Lacks Standing to Assert a False Marking Claim under 35 U.S.C.
§ 292(b) .. ................................................................................... 8
III. Section 292(b) Violates the Take Care Clause by Permitting Any Person to File, Prosecute and Terminate False Marking Cases on Behalf of the Government, but Failing to Require Notice to the Government of False Marking Cases, and Failing to Provide the Government with Any Means of
Controlling their Initiation, Prosecution or Termination .. ........ 9
A. Where a Statute Gives Someone Outside of the Executive Branch the Authority to Prosecute an Action on Behalf of the United States, It Must Provide the President with Sufficient Control over the Action to Ensure That He Is Able to Perform His Constitutionally Assigned Duty to
Take Care That the Laws Be Faithfully Executed... ........ 9
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B. Whether a Qui Tam Statute Violates the Take Care Clause Depends on Whether the Statute’s Provisions, Taken as a Whole, Give the Executive Branch Sufficient Control over a Relator to Ensure That the President Is Able to Perform His Constitutionally Assigned Duty to
Take Care That the Laws Be Faithfully Executed ... .... 13
C. Section 292(b) Fails the “Sufficient Control” Test of Morrison Since It Provides No Notice to the Government of False Marking Cases, and It Fails to Provide the Executive Branch with Any Control over the Initiation,
Prosecution and Termination of False Marking Cases. . 18
1. There Are No Executive Branch Notice or Control Provisions in Section 292 ....................... 18
2. The Government Receives No Notice of False Marking Cases ..................................................... 19 3. Section 292(b) Gives Relators Complete Control over the Initiation of False Marking Cases ......... 24
4. Section 292(b) Gives Relators Complete Control over the Prosecution of False Marking Cases ..... 30
5. Section 292(b) Gives Relators Complete Control
over the Termination of False Marking Cases Where the Government Does Not Intervene, and Even If the Government Intervenes, It Cannot Terminate a False Marking Case over a Relator’s Objection nor Can It Veto a Privately-Negotiated
Settlement ............................................................ 34
D. The District Court’s Rejection of a Take Care Clause Challenge to Section 292(b) in Pequignot v. Solo Cup Co. Is Fundamentally Unsound and Should Be
Disregarded. ................................................................... 42
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1. The History of Qui Tam Statutes Has No Bearing on Whether Section 292(b) is Constitutionally
Valid .................................................................... 44
2. No Less Executive Branch Control over Qui Tam Relators Should Be Required Than Was Required
over the Independent Counsel in Morrison ......... 47 3. The District Court in Pequignot Erred in
Tolerating the Complete Lack of Executive Branch Notice and Control in False Marking Cases ........ 51
4. The District Court in Pequignot Erred in Limiting
Its Constitutional Analysis to the Facts of the Case Before It, Rather Than Considering Statutory Executive Branch Control Mechanisms in False
Marking Cases as a Whole .................................. 53
E. Upholding the Constitutionality of Section 292(b) Would Conflict with the Decisions of Other Courts in
FCA Cases ... ................................................................ 55
IV. Section 292(b) Also Violates the Appointments Clause of Article II .. ............................................................................... 58
V. The Judgment of Dismissal Should Also Be Affirmed on the
Ground that FLFMC Has Failed to Meet the Heightened Pleading Standard of Fed. R. Civ. P. 9(b).. .............................. 59 CONCLUSION ............................................................................................. 61 PROOF OF SERVICE .................................................................................. 62 CERTIFICATE OF COMPLIANCE WITH FED.R.APP.P. 32(a)(7). ........ 63
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TABLE OF AUTHORITIES Page
CASES Aptix Corp. v. Quickturn Design Systems, Inc., 269 F.3d 1369 (Fed. Cir. 2001) .................................................................... 51 Buckley v. Valeo, 424 U.S. 1 (1976) ............... 12-14, 27, 41, 48-49, 53, 55, 59 Chemical Bank New York Trust Co. v. Steamship Westhampton, 268 F. Supp. 169 (D. Md. 1967) ............................................................. 32, 58 Chou v. Univ. of Chicago, 254 F.3d 1347 (Fed. Cir. 2001) ........................... 7 Federal Data Corp. v. SMS Data Products Group, Inc., 819 F.2d 277 (Fed. Cir. 1987) ...................................................................... 38 Forest Group, Inc., v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) .............................................. 5, 24, 43, 49, 51 Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S. Ct. 3138 (2010) .................................................................................. 43 Hudson v. United States, 522 U.S. 93 (1997) ............................................... 37 In re BP Lubricants USA, Inc., Misc. Docket No. 2010-960 (Fed. Cir. filed Sept. 14, 2010) .......................................................... 32-33, 61 In re FEMA Trailer Formaldahyde Products Liability Litigation, 628 F.3d 157 (5th Cir. 2010) ......................................................................... 39 In re Sealed Case, 838 F.2d 476 (D.C. Cir. 1988) ....................................... 12 Juliano v. Federal Asset Disposition Ass’n, 736 F.Supp. 348 (D.D.C. 1990) .................................................................... 19 Morrison v. Olson, 487 U.S. 654 (1988) ........... 4, 9-19, 24-26, 30-31, 41-48, 50-51, 53-55, 59-60
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Nader v. Saxbe, 497 F.2d 676 (D.C. Cir. 1974) ........................................... 48 Patent Group LLC v. Oatey Co., No. 6:10-cv-00146 (E.D. Tex. filed April 15, 2010) .............................................................. 28-30 Pequignot v. Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010) ......................................... 6, 20-21, 49, 51, 61 Pequignot v. Solo Cup Co., 640 F. Supp.2d 714 (E.D. Va. 2009) ............................................ 21-22, 42-56 Presidio Components, Inc. v. American Technical Ceramics Corp., 723 F.Supp.2d 1284 (S.D. Cal. 2010)...................................................... 21-23 Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102 (1968) ..................................................................................... 35 Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749 (5th Cir. 2001) (en banc) ............. 8, 31, 37, 44-45, 47-49, 55-56 Riley v. St. Luke’s Episcopal Hosp., 196 F.3d 514 (5th Cir. 1999) (panel decision later vacated) ................... 44, 56 Rothe Development Corp. v. Dep’t of Defense, 545 F.3d 1023 (Fed. Cir. 2008) .................................................................... 20 San Francisco Technology, Inc. v. Aero Products International, Inc., et al., No. 5:10-cv-02994 (N.D. Cal. filed July 8, 2010) ......................... 28-30 SKF USA, Inc. v. U.S. Customs and Border Protection, 556 F.3d 1337 (Fed. Cir. 2009) ...................................................................... 8 Shizzle Pop, LLC v. Wham-O, Inc., 2010 WL 3063066 (C.D. Cal. 2010) ................................................ 21, 23, 43 Simonian v. Hunter Fan Co., 2010 WL 2720749 (N.D. Ill. 2010). ............. 27 Simonian v. Irwin Industrial Tool Co., 2011 WL 147717 (N.D. Ill. 2011). 30 Smith v. Meese, 821 F.2d 1484 (11th Cir. 1987). .......................................... 48
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Stauffer v. Brooks Brothers, Inc., 619 F.3d 1321 (Fed. Cir. 2010). ..... 1, 8, 37 Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003) ...................... 26, 57-58 Thomson Multimedia, Inc. v. United States, 340 F.3d 1355 (Fed. Cir. 2003) .................................................................. 3, 7 United States Dept. of Housing and Urban Develop. ex rel. Givler v. Smith, 775 F. Supp. 172 (E.D. Pa. 1991) ..................................................... 17 United States ex. rel. Amin v. George Washington Univ., 26 F. Supp.2d 162 (D.D.C. 1998) ................................................................. 17 United States ex. rel. Butler v. Magellan Health Services, Inc., 74 F. Supp.2d 1201 (M.D. Fla. 1999) ........................................................... 17 United States ex. rel. Kelly v. Boeing Co., 9 F.3d 743 (9th Cir. 1993) .......................................... 14-15, 31, 40, 46, 55, 59 United States ex. rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994) ........................................................................... 24 United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148 (2nd Cir. 1993) .................................................................. 13-14 United States ex. rel. Phillips v. Pediatric Services of America, Inc., 123 F. Supp.2d 990 (W.D.N.C. 2000) .................................................... 17, 47 United States ex rel. Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d 925 (10th Cir. 2005) ........................................... 16-17, 19, 39, 57-58 United States ex. rel. Robinson v. Northrop Corp., 824 F. Supp. 830 (N.D. Ill. 1993) ................................................................. 17 United States ex rel. Schweizer v. Oce, N.V., 681 F. Supp.2d 64 (D.D.C. 2010) ................................................................. 19 United States ex. rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998) ..................................... 19, 26, 40, 57-58
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United States ex rel. Stone v. Rockwell Int’l Corp., 282 F.3d 787 (10th Cir. 2002) ....................................................................... 16 United States ex rel. Taxpayers Against Fraud v. General Electric Co., 41 F.3d 1032 (6th Cir. 1994) ............................................................ 15, 31 United States ex rel. Wickliffe v. EMC Corp., 2009 WL 911037 (D. Utah 2009) ...................................................... 16-17, 19 United States ex. rel. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450 (5th Cir. 2005) ......................................................................... 61 Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000) ..................................................................... 44-45, 49, 53 Zadvydas v. Davis, 533 U.S. 678 (2001) ...................................................... 16 Zojo Solutions, Inc. v. Stanley Works, 712 F. Supp.2d 756 (N.D. Ill. 2010) ............................................................. 43 PROVISIONS OF THE U.S. CONSTITUTION Article II .................................................... 2, 8-9, 12, 43, 45-47, 53, 55-56, 61 Article II, Appointments Clause ..................................... 1, 4, 45, 48-49, 59-61 Article II, Take Care Clause ........ 1, 4, 9, 13, 24, 27, 41-45, 47-49, 53, 56, 61 Article III ................................................................................................. 1-2, 8 Fifth Amendment ............................................................................... 46, 50-51 Fifth Amendment, Double Jeopardy Clause ........................................... 30, 37 Sixth Amendment ......................................................................................... 50 STATUTES United States Code, Title 31, Section 3730(b) .................................................................... 26 Title 31, Section 3730(b)(1) ............................................................... 36 Title 31, Section 3730(b)(5) .............................................................. 27 Title 31, Section 3730(c)(1) ......................................................... 15, 31 Title 31, Section 3730(c)(2)(C) .................................................... 31, 33 Title 31, Section 3730(c)(3) ............................................................... 31
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Title 35, Section 290 .......................................................... 20-23, 34, 52 Title 35, Section 292 ........................................................... 6, 18, 35, 41 Title 35, Section 292(a) ......................... 6, 26-28, 30, 34, 37, 49, 51, 61 Title 35, Section 292(b) ............................................................... passim ACTS OF CONGRESS Act of Apr. 30, 1790, ch. 9, §§ 16, 17 ..................................................... 45-46 Act of May 3, 1802, ch. 48, § 4 .................................................................... 46 Ethics in Government Act ............................................. 9-12, 26, 48, 50-51, 54 False Claims Act ....... 8, 13-18, 23-27, 31-33, 35, 37, 39-42, 44, 47-49, 52-59 REGULATIONS 28 C.F.R. § 0.45(f) ....................................................................................... 34 RULES Federal Circuit Rule 30(a)(2)(E)(i) ................................................................ 2 Federal Rule of Civil Procedure 9(b) ........................................... 1-2, 4, 32, 61 Federal Rule of Civil Procedure 19 .............................................................. 35 Federal Rule of Civil Procedure 19(a) ..................................................... 35-36 Federal Rule of Civil Procedure 19(a)(1)(B) ................................................ 35 Federal Rule of Civil Procedure 19(a)(2) ..................................................... 35 Federal Rule of Civil Procedure 24 .............................................................. 32 Federal Rule of Civil Procedure 24(a) .......................................................... 32 Federal Rule of Civil Procedure 26(c) .................................................... 33, 52 Federal Rule of Civil Procedure 41(a)(1)(A)(ii) ............................... 35, 38, 52 Federal Rule of Civil Procedure 41(a)(2) ......................................... 38, 39, 58 OTHER AUTHORITIES 2009 Annual Report of the Director of the United States Courts, http://www.uscourts.gov/uscourts/Statistics/JudicialFactsAndFigures/2008/Table407.pdf .................................................................................................... 20 Brief for the United States as Amicus Curiae Supporting Respondents in United States ex rel. Eisenstein v. City of New York, 129 S. Ct. 2230 (2010) available at http://www.justice.gov/osg/briefs/2008/3mer/1ami/2008-0660.mer.ami.pdf) ........................................................................................ 36
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McDonnell Boehnen Hulbert Berghoff LLP, False Patent Marking, Cases, District Court, http://www.falsemarking.net/district.php (last visited Feb. 17, 2011)........................................................................ 5, 25 Response of the United States as Amicus Curiae Supporting Petitioner in In re BP Lubricants USA, Inc., Misc. Docket No. 2010-960 (Fed. Cir. filed Sept. 14, 2010) .............................................................................................. 32
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STATEMENT OF RELATED CASES
The following case, pending before this Court, is potentially a “related
case” under Federal Circuit Rule 47.5(b): In re BP Lubricants USA, Inc.,
Misc. Docket No. 2010-960. In that false marking case, the defendant has
filed a petition for mandamus which “presents the question whether general
allegations of intent to deceive based upon information and belief and
supported by little more than the allegation of a patent’s expiration are
sufficient to survive a motion to dismiss.” Id. (Pet. for Writ of Mandamus,
filed Sept. 14, 2010 at 1).
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STATEMENT OF THE ISSUES
1. Whether a private litigant who has suffered no injury in fact has standing to assert a false marking claim under 35 U.S.C. § 292(b).1
2. Whether 35 U.S.C. § 292(b) violates Article II, section 3 of the
Constitution (the President “shall take Care that the Laws be faithfully executed”) by permitting any person to file, prosecute and terminate false marking cases on behalf of the government, but failing to require notice to the government of false marking cases, and failing to provide the government with any means of controlling their initiation, prosecution or termination.
3. Whether 35 U.S.C. § 292(b) violates the Appointments Clause
(Article II, section 2) of the Constitution by improperly vesting in a self-appointed relator the unbridled power to file and prosecute an unlimited number of false marking cases, failing to provide the government with any power to remove a relator from a false marking action, and failing to give the government any means of controlling the initiation, prosecution or termination of false marking actions prosecuted on the government’s behalf.
4. Whether a false marking relator’s allegations that a manufacturer
falsely marked a product with long-expired patents, coupled with an allegation that the patents-at-issue were among the assets the manufacturer purchased from a corporate predecessor after the patents’ expiration, are sufficient to meet the heightened pleading standards of Fed. R. Civ. P. 9(b) in a false marking action.
1 Defendant-Appellee WHAM-O, INC. concedes that Plaintiff-Appellant FLFMC, LLC has Article III standing under the Court’s intervening decision in Stauffer v. Brooks Brothers, Inc., 619 F.3d 1321 (Fed. Cir. 2010). With respect, Wham-O contends that Stauffer was wrongly-decided and preserves this issue for review in potential en banc and certiorari petitions.
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STATEMENT OF THE CASE
Defendant-Appellee WHAM-O, INC. disagrees with the Statement of
the Case submitted by Plaintiff-Appellant FLFMC, LLC in that it omits
essential procedural facts. FLFMC is correct that in the district court Wham-
O contended that FLFMC had suffered no injury in fact and that the court
dismissed FLFMC’s complaint on that ground. FLFMC neglected to
mention, however, that Wham-O contended that the complaint should be
dismissed for “three independent reasons”:
i) FLFMC failed to meet the heightened pleading standard of Fed. R. Civ. P. 9(b);
ii) FLFMC lacks Article III standing; and
iii) the false marking statute upon which FLFMC bases its claim, 35 U.S.C. § 292(b), violates Article II of the Constitution.
Memorandum in Support of Motion to Dismiss (docket no. 14) at 1-2.2
FLFMC opposed and fully briefed each of the three separate
arguments Wham-O asserted in its motion to dismiss. Plaintiff’s
Memorandum in Opposition to Defendant’s Motion to Dismiss (docket no.
22) (“FLFMC Opp.”). With regard to Wham-O’s constitutional challenge,
FLFMC provided the district court with copies of the government’s briefs
2 Due to Fed. Cir. R. 30(a)(2)(E)(i), Wham-O did not include in the Appendix the parties’ legal memoranda related to the motion to dismiss. None of the exceptions to this rule appear to apply here.
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defending the constitutionality of section 292(b) in other litigation. FLFMC
Opp., Exhs. A & B. (Please note that Wham-O makes several references
infra to positions the government took in these briefs in defending the
constitutionality of section 292(b).)
The district court acknowledged that Wham-O had raised challenges
to the sufficiency of FLFMC’s complaint and to the constitutionality of
section 292(b), but its “resolution of the threshold jurisdictional challenge
obviate[d] the need to address these other matters.” A 3, n.2.
The foregoing procedural history is essential for the Court’s
consideration of whether to affirm the judgment of dismissal based on an
alternate ground that Wham-O raised at the district court. Thomson
Multimedia, Inc. v. United States, 340 F.3d 1355, 1360 n.3 (Fed. Cir. 2003).
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SUMMARY OF ARGUMENT
The judgment of dismissal should be affirmed on the ground that the
statute upon which Plaintiff-Appellant FLFMC, LLC basis its claim, 35
U.S.C. § 292(b), violates the Take Care Clause in Article II of the
Constitution. Although the district court did not base its judgment of
dismissal on this ground, Defendant-Appellee WHAM-O, INC. made this
argument in its motion to dismiss and it is now properly before the Court.
Additionally, the judgment should be affirmed on the grounds that section
292(b) violates the Appointments Clause, and that FLFMC’s complaint fails
to meet the heightened pleading standard of Fed. R. Civ. P. 9(b).
The appropriate test in this Take Care Clause challenge to section
292(b) is whether its qui tam provisions accord the Executive Branch
“sufficient control” over the conduct of false marking relators “to ensure that
the President is able to perform his constitutionally assigned duties.”
Morrison v. Olson, 487 U.S. 654, 696 (1988). This is the same test that four
circuit courts and district courts in five other circuits have applied in Take
Care Clause challenges to the False Claims Act, another qui tam statute.
Section 292(b) fails the “sufficient control” test of Morrison because
it provides the Executive Branch with no control whatsoever over false
marking suits, nor does it even provide the government with notice of their
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filing and resolution. In false marking cases where the government does not
intervene – nearly all of the roughly 800 false marking cases filed since this
Court’s decision in Forest Group, Inc., v. Bon Tool Co., 590 F.3d 1295 (Fed.
Cir. 2009) – relators have unbridled control over the filing, prosecution and
settlement of actions they bring under section 292(b).3
In the very rare case where the government does intervene as a party,
it has no ability to take over the prosecution of the false marking case, nor
can it limit the relator’s involvement. As an intervening co-plaintiff, the
government could object to a settlement between the relator and the
defendant by withholding its consent to dismiss, but that would merely force
the private parties to seek a court-ordered dismissal. A district court would
have wide discretion to accept or reject the government’s objections to a
settlement agreement, and if dissatisfied with a dismissal, the government
would confront the demanding abuse of discretion standard if it were to
appeal.
The free reign relators enjoy under section 292(b) thwarts the public
interest in both innocent and deliberate cases of false marking. Where a
patent marking was erroneous but done with no deceptive intent (i.e., not a
3 See McDonnell Boehnen Hulbert Berghoff LLP, False Patent Marking, Cases, District Court, http://www.falsemarking.net/district.php (last visited Feb. 17, 2011).
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violation of section 292(a)), a relator can file suit and cynically pursue a
monetary settlement below the enormous defense costs inherent in patent
litigation. However confident the government might be that a false marking
action is meritless, it has no power to block the filing or force the dismissal
of the relator’s action. The practical result is that for many innocent acts of
mismarking, section 292 has become a strict liability criminal statute with a
substantial penalty.4
For acts of false marking that are both deliberate and commercially
harmful, the absence of notice and control provisions in section 292(b)
largely defeats its purpose of deterring mismarking that stifles innovation
and competition. Relators can bargain away the government’s right to pursue
the most egregious cases of false marking for a pittance if they wish, and
with no government oversight. Happenstance determines whether a
deliberate mismarker faces a lazy relator who pursues a cheap and early
settlement, or one willing and able to fight for an appropriate penalty.
Moreover, it is inevitable that some deliberate violators of section 292(a)
will collude with hand-picked, less-than-zealous relators to minimize their
exposure to the statutory penalty. Nothing in section 292(b) or any other
4 Pequignot v. Solo Cup Co., 608 F.3d 1356, 1363 (Fed. Cir. 2009) (“[T]he false marking statute is a criminal one, despite being punishable only with a civil fine.”).
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statute or rule prevents or remedies inappropriately low settlements
negotiated by relators with false marking defendants.
ARGUMENT I. A de Novo Standard of Review Applies to the District Court’s
Judgment of Dismissal.
Wham-O based its motion to dismiss on FLFMC’s lack of standing,
the unconstitutionality of the statute (section 292(b)) upon which FLFMC
asserts its claims, and FLFMC’s failure to state a sufficiently-pled claim for
false marking. Memorandum in Support of Motion to Dismiss (docket no.
14) at 1-2. The district court acknowledged these three independent
arguments Wham-O raised in moving to dismiss, but based its dismissal
solely on the standing issue. A 3, n.2. A de novo standard of review applies
to dismissals based on lack of standing. Chou v. Univ. of Chicago, 254 F.3d
1347, 1355 (Fed. Cir. 2001).
In reviewing the district court’s judgment of dismissal, the Court may
affirm based on any argument Wham-O raised below and is supported in the
record. Thomson Multimedia, Inc. v. United States, 340 F.3d 1355, 1360 n.3
(Fed. Cir. 2003) (“Although the appellee in this appeal, the government is
permitted to make this argument as an alternate basis for affirmance because
the argument was raised below and is supported by the record.”). This rule
applies with equal force to constitutional issues raised but not addressed in
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the district court.5 Wham-O’s constitutional challenge to section 292(b) and
its challenge to the sufficiency of FLFMC’s complaint are purely legal
issues, supported by the record in this case. Thus, the Court may affirm the
judgment of dismissal on either or both of these grounds.
II. FLFMC, Having Suffered No Injury in Fact, Lacks Standing to Assert a False Marking Claim under 35 U.S.C. § 292(b).
Since FLFMC alleges no injury in fact to itself, and since it is not a
valid assignee of the government’s right to assert a claim for false marking,
the district court correctly dismissed FLFMC’s complaint for lack of
standing. However, under the Court’s intervening decision in Stauffer v.
Brooks Brothers, Inc., 619 F.3d 1321 (Fed. Cir. 2010), FLFMC does have
Article III standing to bring this action. Wham-O raises this issue on appeal
solely to preserve it for inclusion in potential en banc and certiorari
petitions.
5 SKF USA, Inc. v. U.S. Customs and Border Protection, 556 F.3d 1337, 1349 (Fed. Cir. 2009) (“Although the Court of International Trade did not reach SKF’s First Amendment claims, on appeal SKF urges its First Amendment theory as its primary ground for affirming * * *. We first consider that question * * *.”); see also Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 751 (5th Cir. 2001) (en banc) (Court of Appeals considered the merits of an Article II challenge to the False Claims Act not addressed by the district court in its dismissal for lack of Article III standing.).
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III. Section 292(b) Violates the Take Care Clause by Permitting Any Person to File, Prosecute and Terminate False Marking Cases on Behalf of the Government, but Failing to Require Notice to the Government of False Marking Cases, and Failing to Provide the Government with Any Means of Controlling their Initiation, Prosecution or Termination.
A. Where a Statute Gives Someone Outside of the Executive
Branch the Authority to Prosecute an Action on Behalf of the United States, It Must Provide the President with Sufficient Control over the Action to Ensure That He Is Able to Perform His Constitutionally Assigned Duty to Take Care That the Laws Be Faithfully Executed.
In Morrison v. Olson, 487 U.S. 654, 693-96 (1988), the Supreme
Court considered, inter alia, a Take Care Clause challenge to the
independent counsel provisions of the Ethics in Government Act (“EGA”).
Morrison defined the appropriate test for such a challenge: whether the
statute’s provisions “taken as a whole” violate the principle of separation of
powers by unduly interfering with the President’s constitutional role. Id. at
693.
The nature of the constitutional challenge in Morrison and the
Supreme Court’s analytic framework for addressing it shed much light on
the appropriate means of resolving Wham-O’s Article II challenge to section
292(b). In Morrison, former Assistant Attorney General Theodore Olson,
served with a subpoena issued by an independent counsel, moved to quash
on the ground “that the independent counsel provisions of the Act were
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unconstitutional and that [the independent counsel] accordingly had no
authority to proceed.” Id. at 668. Mr. Olson argued that the constitutional
defects of the independent counsel provisions included, inter alia, judicial
power to terminate an independent counsel (id. at 682-83), a “good cause”
requirement for removal of an independent counsel with judicial review of
removals (id. at 691-93) and the Attorney General’s inability to select and
define the jurisdiction of the independent counsel (id. at 695). The Supreme
Court agreed that these provisions reduce “the amount of control or
supervision that the Attorney General and, through him, the President
exercises over the investigation and prosecution of a certain class of alleged
criminal activity.” Ibid.
Nonetheless, other features of the EGA gave “the Executive Branch
sufficient control over the independent counsel to ensure that the President is
able to perform his constitutionally assigned duties.” Id. at 696. The
Attorney General had the unreviewable discretion not to request the
appointment of an independent counsel, and the Attorney General’s factual
findings controlled the scope of the independent counsel’s jurisdiction. Ibid.
The independent counsel was required to “abide by Department of Justice
policy unless it is not ‘possible’ to do so.” Ibid. And “[m]ost importantly, the
Attorney General retains the power to remove the counsel for ‘good cause,’
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a power that * * * provides the Executive with substantial ability to ensure
that the laws are ‘faithfully executed’ by an independent counsel.” Ibid.
It bears emphasis that in Morrison none of the statutory provisions
that provided or diminished Executive Branch control were factually at
issue. Mr. Olson did not argue that the Attorney General was dissatisfied
with the selection of Alexia Morrison as an independent counsel or with the
definition of her jurisdiction. The Attorney General had not attempted to
remove Ms. Morrison from her position; there was no allegation that she had
violated any Department of Justice policy; and the judicial panel overseeing
her investigation had not attempted to use its termination power to influence
the pace or depth of her activities.6 Still, the Supreme Court determined that
all of the statutory provisions and reductions of Executive Branch control
were relevant in answering the question of “whether, taken as a whole” the
independent counsel portions of the EGA violate “the separation of powers
by reducing the President’s ability to control the prosecutorial powers
wielded by the independent counsel.” Id. at 685.
6 Although the judicial panel overseeing Ms. Morrison’s investigation had not threatened or attempted to exercise its termination power, the Supreme Court nonetheless considered it constitutionally necessary to interpret this provision of the EGA narrowly. “The provision has not been tested in practice * * * but it is the duty of federal courts to construe a statute in order to save it from constitutional infirmities, and to that end we think a narrow construction is appropriate here.” 487 U.S. at 682 (citation omitted).
~ 12 ~
In the decision under review in Morrison, the D.C. Circuit explained
why it was addressing Executive Branch power to remove the independent
counsel, even though the Attorney General had never attempted to do this.
Although no independent counsel has been removed to date, consideration of the impact of these restrictions is now ripe because the tenure they create for the independent counsel has a “here-and-now” impact upon the appellants. * * * [T]he removal restrictions grant the independent counsel a “here-and-now” freedom from supervision and control by the President inconsistent with the constitutional doctrine of a unitary executive.
In re Sealed Case, 838 F.2d 476, 496, n.36 (D.C. Cir. 1988) (emphasis in
original). While the Supreme Court reversed the D.C. Circuit’s holding that
the independent counsel provisions violated the Take Care Clause, it agreed
that the removal provision and other EGA provisions were important
considerations in resolving the Article II challenge. Indeed, the provision for
judicial removal of an independent counsel was not merely relevant in the
constitutional analysis – it presented such a separation of powers concern
that the Supreme Court needed to construe the provision narrowly in order to
preserve the statute’s constitutionality. See n.6, supra.
The focus in Morrison on statutory provisions that raise Article II
concerns, and not the application of those provisions to the particular facts in
the record of the case before it, echoes Buckley v. Valeo, 424 U.S. 1, 138-41
(1976). In Buckley, the Supreme Court invalidated on Article II grounds
~ 13 ~
statutory provisions that gave law enforcement powers to the Federal
Election Commission. Ibid. The Commission had not yet exercised any of
those powers, and the D.C. Circuit thus declined to address the Article II
question on the merits. Id. at 114-15. The Supreme Court reversed, citing the
inevitability that the Commission would exercise its statutory law
enforcement powers, and, as in Morrison, the urgent need to address
separation of powers violations when they occur. Id. at 123 (“This Court has
not hesitated to enforce the principle of separation of powers embodied in
the Constitution when its application has proved necessary for the decisions
of cases or controversies properly before it.”).
B. Whether a Qui Tam Statute Violates the Take Care Clause Depends on Whether the Statute’s Provisions, Taken as a Whole, Give the Executive Branch Sufficient Control over a Relator to Ensure That the President Is Able to Perform His Constitutionally Assigned Duty to Take Care That the Laws Be Faithfully Executed.
In Take Care Clause challenges to the False Claims Act (“FCA”), four
circuit courts as well as district courts in five other circuits have applied
Morrison to determine whether the FCA provides the Executive Branch
“sufficient control” over qui tam relators who sue on the government’s
behalf. The Second Circuit issued the first appellate opinion on the question,
concluding with little discussion that the FCA’s qui tam provisions provided
“substantial control” over litigation brought by relators. United States ex rel.
~ 14 ~
Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1155
(2nd Cir. 1993).7
The Ninth Circuit provided a thorough analysis of Article II issues
raised by the FCA in United States ex. rel. Kelly v. Boeing Co., 9 F.3d 743
(9th Cir. 1993). To resolve the Take Care Clause challenge, the court held
that it must look at “all possible means of executive control in the qui tam
provisions, and then compare them in toto to the means of control identified
in Morrison.” Id. at 752. The court recognized that under Morrison and
Buckley, it “must not hesitate” to invalidate any provisions of law which
violate the separation of powers principle. Id. at 750.
In light of the many Executive Branch control mechanisms provided
in the FCA, the Ninth Circuit concluded that the “FCA permits a degree of
executive control sufficient to satisfy the Morrison standard.” Id. at 752.
7 While the Second Circuit did not cite Morrison as the source for the “control” test it applied, it cited portions of district court decisions that applied the Morrison test to the FCA’s qui tam provisions. 985 F.2d at 1155.
~ 15 ~
Under the FCA, the Executive Branch can control a qui tam relator’s exercise of prosecutorial powers in several ways. The government can intervene in a case and then take primary responsibility for prosecuting the action; it can seek judicial limitation of the relator’s participation; it can move for dismissal of a case which it believes has no merit, after notice to the relator and opportunity for a hearing; it can seek a judicial stay of the relator’s discovery regardless of whether it intervenes; and it remains free to seek any alternate remedies available, including through any administrative proceeding. 31 U.S.C. § 3730(c).
Id. at 753 (footnote omitted). The court placed “particular” emphasis, id. at
757, on how the government’s qualified right to dismiss or settle an FCA
action over a relator’s objection was analogous to the Attorney General’s
power to remove an independent counsel for “good cause” in Morrison. Id.
at 755.
The Sixth Circuit followed Kelly and upheld the constitutionality of
the FCA in United States ex rel. Taxpayers Against Fraud v. General
Electric Co., 41 F.3d 1032, 1041 (6th Cir. 1994). The court emphasized the
Executive Branch controls that apply even where the government does not
exercise the right the FCA itself provides the government to intervene in an
FCA action: “Indeed, if the government decides against intervening in the
relator’s case, it may still require the relator to inform it of developments
and to forward copies of the claims, the material evidence and information,
and copies of depositions taken.” Ibid.
~ 16 ~
The Tenth Circuit in United States ex rel. Stone v. Rockwell Int’l
Corp., 282 F.3d 787 (10th Cir. 2002) joined with other circuits in upholding
the constitutionality of the FCA based on the “sufficient control” test of
Morrison, id. at 805-07, but the court limited its holding to FCA cases in
which the government intervenes. Id. at 806, n.6. In United States ex rel.
Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d 925, 934 (10th Cir. 2005) the
court confronted a question left open in Stone: whether in an FCA case
where the government initially declines to intervene, the government must
“intervene with a showing of good cause before moving to dismiss a qui tam
action.” Out of constitutional necessity, the court answered this question in
the negative:
Although the qui tam provisions have thus far withstood constitutional challenge, we conclude that to condition the Government’s right to move to dismiss an action in which it did not initially intervene upon a requirement of late intervention tied to a showing of good cause would place the FCA on constitutionally unsteady ground. Because we are to interpret statutes in a manner that renders them constitutionally valid, we should avoid an interpretation that unnecessarily binds the Government.
Id. at 934-35 (citing Zadvydas v. Davis, 533 U.S. 678, 689 (2001)).
Addressing the government’s discretion to dismiss an FCA action
during the “sealed” period (i.e., while the government has an absolute right
to intervene in and take primary control of the case), the court in United
~ 17 ~
States ex rel. Wickliffe v. EMC Corp., 2009 WL 911037 (D. Utah 2009)
applied Ridenour and concluded that in such circumstances, the
government’s “authority to dismiss a qui tam case is virtually unfettered.”
Id. at *4. “[T]o impose more onerous requirements on the United States in
this situation might render the FCA constitutionally infirm.” Ibid.
Using the same analytic framework as the circuit court decisions
discussed above, district courts in the Third, Fourth, Seventh, Eleventh and
D.C. Circuits have applied the “sufficient control” test of Morrison in Take
Care Clause challenges to the FCA. United States Dept. of Housing and
Urban Develop. ex rel. Givler v. Smith, 775 F. Supp. 172, 175-78 (E.D. Pa.
1991); United States ex. rel. Phillips v. Pediatric Services of America, Inc.,
123 F. Supp.2d 990, 992-93 (W.D.N.C. 2000); United States ex. rel.
Robinson v. Northrop Corp., 824 F. Supp. 830, 837-38 (N.D. Ill. 1993);
United States ex. rel. Butler v. Magellan Health Services, Inc., 74 F. Supp.2d
1201, 1212 (M.D. Fla. 1999); United States ex. rel. Amin v. George
Washington Univ., 26 F. Supp.2d 162, 169 (D.D.C. 1998).
~ 18 ~
C. Section 292(b) Fails the “Sufficient Control” Test of Morrison Since It Provides No Notice to the Government of False Marking Cases, and It Fails to Provide the Executive Branch with Any Control over the Initiation, Prosecution and Termination of False Marking Cases.
1. There Are No Executive Branch Notice or Control
Provisions in Section 292. Section 292(b) itself (“Any person may sue for the penalty, in which
event one-half shall go to the person suing and the other to the use of the
United States”) contains no provisions whatsoever for Executive Branch
notice or control over false marking actions. None of the “tools” that the
government claims provide the Executive Branch with the requisite control
are found in section 292, the statute at issue; they appear instead in unrelated
statutes and procedural rules. FLFMC Opp., Ex. A at 23, n.11. This renders
inapplicable the “duty of federal courts to construe a statute in order to save
it from constitutional infirmities” since there is no way to construe section
292 to provide notice or control. See Morrison, 487 U.S. at 682. The
Supreme Court in Morrison and many lower courts in FCA cases considered
it necessary to utilize this doctrine of construction in order to save the
~ 19 ~
statutes at issue.8 Here, however, the constitutionality of these other statutes
and rules is not at issue or in doubt, so no special rules of interpretation
apply when considering what, if any, Executive Branch notice and control
they provide in false marking cases.
2. The Government Receives No Notice of False Marking Cases.
For the Executive Branch to assert control over false marking actions,
it must have timely awareness of their initiation and be given prior notice of
settlement agreements and stipulated dismissals that bargain away the
8 Morrison, 487 U.S. at 682 (“[I]t is the duty of federal courts to construe a statute in order to save it from constitutional infirmities, and to that end we think a narrow construction is appropriate here.”) (citation omitted); Ridenour, 397 F.3d at 934-35 (“[W]e conclude that to condition the Government’s right to move to dismiss an action in which it did not initially intervene * * * tied to a showing of good cause would place the FCA on constitutionally unsteady ground.”); United States ex. rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (“Moreover, such a rational relation test avoids any separation of powers concerns that this court addressed in Kelly.”); United States ex rel. Schweizer v. Oce, N.V., 681 F. Supp.2d 64, 68 (D.D.C. 2010) (Interpreting FCA to require judicial review of government’s settlement would be “constitutionally doubtful.”); Wickliffe, 2009 WL 911037, at *4 (The government’s “authority to dismiss a qui tam case is virtually unfettered. * * * [T]o impose more onerous requirements on the United States in this situation might render the FCA constitutionally infirm.”); Juliano v. Federal Asset Disposition Ass’n, 736 F.Supp. 348, 351 (D.D.C. 1990) (“The controlling point is that to construe the statute as qui tam plaintiff insists would raise serious constitutional questions. Under our federal scheme, the Attorney General, through those acting in his name, decides whom to prosecute for violations of federal law.”).
~ 20 ~
government’s criminal law enforcement rights. The general notice statute for
patent cases, 35 U.S.C. § 290, provides neither of these prerequisites for
control. While section 290 applies to patent cases generally, it contains no
requirement to distinguish false marking cases from the thousands of other
patent cases filed each year.9
While in the abstract section 290 requires clerks of federal courts to
notify the Director of the United States Patent and Trademark Office of any
patent suits within one month of their filing, this case shows that section 290
is a highly imperfect safeguard. Here, as the docket sheet shows, no notice
was ever given to or received by the USPTO. A 22-28. This is likely because
the civil cover sheet filed by FLFMC listed the nature of the suit as a
“Forfeiture/Penalty” (code 690). A 22.10 This also occurred in Pequignot v.
Solo Cup Co., 608 F.3d 1356 (Fed. Cir. 2010), where the relator there listed
9 In 2008 there were 2,895 patent cases filed. 2009 Annual Report of the Director of the United States Courts, http://www.uscourts.gov/uscourts/Statistics/JudicialFactsAndFigures/2008/Table407.pdf. See Rothe Development Corp. v. Dep’t of Defense, 545 F.3d 1023, 1046 n.15 (Fed. Cir. 2008) (court may take judicial notice of facts available from federal agency website). 10 This would also explain why the district court initially forwarded the appeal in this case to the U.S. Court of Appeals for the Third Circuit. See A 27.
~ 21 ~
the case as “Other Statutory Action” (code 890).11 The government thus
never had notice in Pequignot of its potential (theoretical, at least) to recover
half of the $10.8 trillion penalty sought. Id. at 1359.
The requirements of section 290 were met in an earlier case where
Wham-O was sued for false marking, but even then the government had no
specific notice of a false marking case or its settlement. In Shizzle Pop, LLC
v. Wham-O, Inc., No. 2:10-cv-03491 (C.D. Cal. filed May 10, 2010), the
district court’s two notices to the USPTO did not give any indication of the
presence of a false marking claim.12 All that anyone can learn from these
notices is that a patent case involving U.S. Pat. No. 3,359,678 was filed and
settled.
The recent case of Presidio Components, Inc. v. American Technical
Ceramics Corp., 723 F.Supp.2d 1284, (S.D. Cal. 2010), illustrates how the
lack of a notice provision in section 292 leaves the government oblivious to
11 The district court docket sheet in Pequignot is available on PACER at https://ecf.vaed.uscourts.gov/cgi-bin/login.pl (case no. 1:07-cv-00897). The applicable USPTO database confirms that the district court gave no notice of the filing of the complaint or of the judgment in Pequignot. See http://portal.uspto.gov/external/portal/pair (“Transaction History” for U.S. Pat. No. 4,589,569). 12 The Shizzle Pop docket is available on PACER at https://ecf.cacd.uscourts.gov/cgi-bin/login.pl (case no. 2:10-cv-03491). Notices to the USPTO are docket entries 3 and 42.
~ 22 ~
its interests in cases involving serious violations of the false marking statute.
Presidio is an ordinary action for patent infringement but with a
counterclaim for false marking. See id. at 1332-35. On April 30, 2009, the
counterclaimant won summary judgment on its false marking claim. Id. at
1291. Nearly a year later, the district court set the amount of the fine for
false marking at $228,086.25. Id. at 1335. The district court docket shows
and the applicable USPTO database confirms that the only notice the
government received in Presidio was of the initial pendency of a case
concerning U.S. Pat. No. 6,816,356.13 The notice did not and could not
indicate anything about the false marking counterclaim, which the defendant
asserted long after the notice was filed.
Like the district courts in the instant case and in Pequignot, the district
court in Presidio failed to provide the USPTO with notice of the entry of
judgment, as required under section 290. But even if it had provided the
required notice, it would not have been due until November 26, 2010 – one
month after the entry of judgment and 18 months after the court had granted
13 The Presidio docket is available on PACER at https://ecf.casd.uscourts.gov/cgi-bin/login.pl (case no. 3:08-cv-00335). Notice to the USPTO is an attachment to docket entry 1. See also http://portal.uspto.gov/external/portal/pair (“Image File Wrapper” for U.S. Pat. No. 6,816,356).
~ 23 ~
summary judgment on the issue of false marking.14 And as the post-
judgment notice in Shizzle Pop shows, nothing in section 290 requires any
specific mention of a false marking claim.
As of the filing of this brief, the government has not intervened in
Presidio, either at the district court or in the appeal to this Court. See Fed.
Cir. Case Nos. 11-1089 and 10-1355. There is no record in the district court
docket that the government has sought to enforce its half share of the false
marking penalty of $228,086.25, nor has the false marker posted an appeal
bond to protect the government’s judgment during the pendency of the
appeal. There is good reason to believe the government is completely
unaware that it stands to recover over $114,000 in Presidio.
Since summary judgment for false marking was granted in Presidio in
April 2009, the parties could have settled their overall dispute in a way that
would have greatly diminished or eliminated the false marking penalty.
Indeed, doing so would be in the parties’ mutual interest since each dollar
reduction of the false marking penalty costs the counterclaimant only 50
cents. Should the parties settle, they have a strong incentive to characterize
whatever payment the defendant-counterclaimant makes in settlement as
royalties only. The FCA provision requiring government consent for
14 See Presidio docket entry 387 (Judgment, filed Oct. 26, 2010).
~ 24 ~
dismissal prevents this sort of private bargaining to the public detriment in a
case with multiple claims. See e.g., United States ex. rel. Killingsworth v.
Northrop Corp., 25 F.3d 715, 724 (9th Cir. 1994) (“We construe the [FCA]
as authorizing the district court to bar a qui tam plaintiff and defendant from
artificially structuring a settlement to deny the government its proper share
of the settlement proceeds.”). Nothing, however, prevents this from
occurring in a patent case with both infringement and false marking claims.
Simply put, the government cannot take care to control or safeguard
an action of which it is not aware. The lack of notice to the Executive
Branch in false marking cases creates an enormous control problem not
present in Morrison or the FCA cases involving Take Care Clause
challenges. As discussed below, this contributes to the government’s
inability to control the initiation, prosecution and termination of suits
brought under section 292(b).
3. Section 292(b) Gives Relators Complete Control over the Initiation of False Marking Cases.
Allowing private relators unbridled control over the initiation of false
marking cases is not merely bad policy. It completely deprives the Executive
Branch of its core constitutional function of deciding which violations of
federal criminal law to prosecute. In the 14 months since the Court’s
decision in Forest Group, relators have initiated roughly 800 false marking
~ 25 ~
cases against over a thousand defendants.15 Relators have brought these
cases without any prior government approval. Even if a given false marking
case lacks merit, duplicates other litigation or in some way harms the
interests of the United States, the Executive Branch has no ability to prevent
a relator from initiating an action under section 292(b). Nothing remotely
like this could occur with the independent counsel provisions of the EGA in
Morrison or with FCA litigation due to the controls specified in the statutes
governing those cases.
It is highly unlikely that the government would have initiated the
instant action against Wham-O. No one who has visited a toy store in the
past two decades could reasonably believe that old patent numbers on
Frisbee discs were deceiving Wham-O’s competitors or the general public.
Had this unintentional marking prompted the government to investigate,
Wham-O would have gladly explained how some of its vendors’ molds
contained the old patent numbers while newer molds did not. Regardless,
Wham-O would have promptly removed the numbers for all future
production.
Of course, these facts are not in the record of this case (no facts are).
The point is that if these facts are true, the government would have no reason
15 McDonnell Boehnen, http://www.falsemarking.net/district.php.
~ 26 ~
to treat this mismarking as a criminal violation of section 292(a). A false
marking relator, however, is indifferent to whether these facts are true or
false – the only relevant question is whether there is money to be made in
suing and settling a case against Wham-O, however meritless and regardless
of the interests of justice.
In both the independent counsel provisions of the EGA and in the
FCA, the Executive Branch’s control over the initial decision to prosecute is
an essential control mechanism. Under the EGA, the Attorney General had
the absolute power not to appoint an independent counsel, and the ability to
define the jurisdiction of any independent counsel appointed.16 Although the
FCA permits a relator to initiate litigation, an FCA complaint remains under
seal and unserved until the government decides whether to intervene in the
case. 31 U.S.C. § 3730(b). Since the government has either unfettered
discretion to dismiss an FCA case during this sealed period, Swift v. United
States, 318 F.3d 250, 252 (D.C. Cir. 2003), or has only to satisfy the very
deferential “rational relation test” for dismissals, Sequoia Orange, 151 F.3d
at 1145, the initiation of an FCA action, as a practical matter, is within the
absolute or nearly complete control of the Executive Branch.
16 Morrison, 487 U.S. at 696 (“No independent counsel may be appointed without a specific request by the Attorney General, and the Attorney General’s decision not to request appointment * * * is committed to his unreviewable discretion.”).
~ 27 ~
The decision to initiate a false marking action, however, is within the
sole discretion of the relator. As discussed above, the Executive Branch does
not even receive notice that the relator has brought a false marking action in
the name of the United States. A “lawsuit is the ultimate remedy for a breach
of the law, and it is to the President, and not to the Congress, that the
Constitution entrusts the responsibility to ‘take Care that the Laws be
faithfully executed.’” Buckley, 424 U.S. at 140. However, section 292(b)
entrusts self-interested relators, not the President, with the decision of
whether to initiate a lawsuit for violation of section 292(a).
Predictably, giving relators unbridled control over the initiation of
false marking case has led to bizarre and disturbing duplicative litigation. In
Simonian v. Hunter Fan Co., 2010 WL 2720749 (N.D. Ill. 2010), the
defendant moved to dismiss a false marking case on the ground that it had
already been sued in the Eastern District of Texas by another relator for the
same alleged violation of section 292(a). The defendant argued that the first-
to-file provision of the FCA, 31 U.S.C. § 3730(b)(5), also applies in false
marking cases. Id. at *1. The court rejected this argument and denied the
motion to dismiss on the ground that this FCA provision was limited to FCA
actions; no such first-to-file rule applied in false marking cases. Id. at *2.
~ 28 ~
Having to defend two cases for the same alleged violations of section
292(a) is unfairly burdensome on defendants. It does have an upside for
defendants, though: the potential to play one relator off against another.
False marking litigation regarding the plumbing products of Oatey Co.
illustrates the strange results that flow from letting relators control the
initiation of false marking cases. On April 15, 2010, Patent Group LLC sued
Oatey in the Eastern District of Texas for falsely marking certain products
with two expired patent numbers.17 On July 8, 2010, San Francisco
Technology, Inc. sued Oatey in the Northern District of California for false
marking with regard to other products and patents not at issue in the Texas
action.18 Eight days later, Patent Group amended its complaint to include the
false making claims pending in the California action.19 Oatey then settled
with Patent Group, resulting in a stipulated dismissal with prejudice of the
Texas action on July 22, 2010.20 Unhappy to be preempted by a competing
17 Patent Group LLC v. Oatey Co., No. 6:10-cv-00146 (E.D. Tex. filed April 15, 2010) (docket entry 1). Available on PACER at https://ecf.txed.uscourts.gov/cgi-bin/login.pl. 18 San Francisco Technology, Inc. v. Aero Products International, Inc., et al., No. 5:10-cv-02994 (N.D. Cal. filed July 8, 2010) (docket entry 1 at 21-22). Available on PACER at https://ecf.cand.uscourts.gov/cgi-bin/login.pl. 19 Patent Group (docket entry 13 at 7-13). 20 Patent Group (docket entry 15).
~ 29 ~
relator, San Francisco Technology has informed the California court that it
will seek to intervene in the Texas action “for the purpose of obtaining relief
from the settlement.”21
Due to the absence of any Executive Branch control over the initiation
of false marking cases, Oatey was essentially plea bargaining with
competing prosecutors who were seemingly indifferent to the interests of
justice, and concerned instead with their 50 percent share of any penalty
Oatey was willing to pay the low bidder. A mere 14 days separated the filing
of false marking claims against Oatey in California and the settlement of
those same claims by a different relator in Texas. The dockets of both
actions reveal that no notice of either case was given to the USPTO.22 One
of Oatey’s co-defendants, Woodstream Corp., similarly pitted the same two
relators against each other. Woodstream settled with Patent Group, and now
21 San Francisco Technology (docket entry 405). 22 In San Francisco Technology, the relator listed the false marking case against Oatey and 24 other defendants as “Other Statutory Action” (code 890); as with the instant case and Pequignot, the district court did not send any notice of the case to the USPTO.
~ 30 ~
asserts res judicata and Double Jeopardy defenses in the California action.23
FLFMC, the relator in the instant case, has also been involved in a
multidistrict battle involving relators fighting over the right to settle the
same false marking claim. See Simonian v. Irwin Industrial Tool Co., 2011
WL 147717 (N.D. Ill. 2011). The unseemly competition between relators as
sellers of releases from liability under section 292(a) amply illustrates how
the Executive Branch has no control whatsoever over false marking
litigation.
4. Section 292(b) Gives Relators Complete Control over the Prosecution of False Marking Cases.
The independent counsel provisions of the EGA and the qui tam
provisions of the FCA provide the Executive Branch with important control
mechanisms over the prosecution of cases brought under those statutes.
Under section 292(b), however, false marking relators are free to prosecute
their cases however they choose.
The independent counsel in Morrison was, as her title suggested,
independent from much Executive Branch influence. Still, as the Supreme
Court observed, she was required to “abide by Justice Department policy
23 San Francisco Technology (docket entry 409 at 2) (“Woodstream attempted to negotiate with both plaintiffs to settle both actions so as to avoid the costs of protracted litigation in either forum. The Texas plaintiff was willing to negotiate a reasonable settlement covering Woodstream’s products, and that case was quickly settled and dismissed.”).
~ 31 ~
unless it is not ‘possible’ to do so.” 487 U.S. at 696. The independent
counsel was thus required to prosecute cases based generally on the interests
of justice, as opposed to her personal financial interests – the likely sole
motivation of a qui tam relator. Furthermore, the Attorney General had the
power to control the scope of an independent counsel’s jurisdiction. Ibid.
Similarly, Executive Branch control over the prosecution of FCA
cases is very substantial. The Government can intervene as a matter of right
within the first 60 days or for “good cause” thereafter.24 If the Government
intervenes, “it shall have the primary responsibility for prosecuting the
action, and shall not be bound by an act of the person bringing the action.”25
With court approval, the government can minimize the relator’s involvement
in the litigation.26 If the Government does not intervene and “so requests, it
shall be served with copies of all pleadings filed in the action and shall be
supplied with copies of all deposition transcripts.”27
24 31 U.S.C. § 3730(c)(3). See Riley, 252 F.3d at 753; Taxpayers, 41 F.3d at 1035, 1041; Kelly, 9 F.3d at 746, 753-54. 25 31 U.S.C. § 3730(c)(1). See Taxpayers, 41 F.3d at 1035; Kelly, 9 F.3d at 746. 26 31 U.S.C. § 3730(c)(2)(C). See Taxpayers, 41 F.3d at 1035; Kelly, 9 F.3d at 746. 27 31 U.S.C. § 3730(c)(3). See Riley, 252 F.3d at 754; Taxpayers, 41 F.3d at 1035, 1041; Kelly, 9 F.3d at 746.
~ 32 ~
The language of Section 292(b) leaves the prosecution of false
marking cases strictly in the hands of the relator – it says nothing about the
government. The government generally has the right to intervene under Fed.
R. Civ. P. 24(a), but even that right could be lost if the government’s motion
to intervene is untimely. Chemical Bank New York Trust Co. v. Steamship
Westhampton, 268 F. Supp. 169, 172 (D. Md. 1967) (“[T]he requirement of
timeliness under Rule 24, F.R.Civ.P., does not except the United States from
its terms and in a proper case should be enforced against the government.”).
As an intervening co-plaintiff in a false marking case, the government does
not have the right as it does in FCA cases to take primary responsibility over
the prosecution of the litigation, nor can the government seek to limit the
relator’s involvement.
Indeed, the government and false marking relators can have
conflicting positions on whether the case itself should have been brought. In
re BP Lubricants USA, Inc., Misc. Docket No. 2010-960 (Fed. Cir. filed
Sept. 14, 2010) illustrates how this is no means a hypothetical concern.
There, the government has taken the position that the false marking relator’s
complaint fails to meet the heightened pleading standards of Fed. R. Civ. P.
9(b). Id., Response of the United States as Amicus Curiae in Support of the
Petitioner, filed Oct. 20, 2010, at 16. The government has not intervened as a
~ 33 ~
party in BP Lubricants, but even if it did, it would have no power to stop or
limit the relator’s prosecution of a false marking action that the government
itself believes is based on a defective complaint.
Unlike in FCA cases, the government cannot prevent a false marking
relator from using burdensome and expensive discovery requests as a
bludgeon in order to extract nuisance settlements from defendants who
mismarked with no deceptive intent. See 31 U.S.C. § 3730(c)(2)(C). This
concern is particularly great given the enormous cost of defending patent
litigation.
The government has asserted in other litigation that Fed. R. Civ. P.
26(c) (Protective Orders) is among the Executive Branch control
mechanisms in false marking cases, but by its terms, Rule 26(c) is at most a
discovery resistance mechanism, and only for the party “from whom
discovery is sought.” FLFMC Opp., Ex. A at 23, n.11. In the rare case where
a relator would even be interested in seeking discovery from the
government, the ability to move for a protective order can hardly be
described as an Executive Branch control mechanism over the false marking
relator.
~ 34 ~
5. Section 292(b) Gives Relators Complete Control over the Termination of False Marking Cases Where the Government Does Not Intervene, and Even If the Government Intervenes, It Cannot Terminate a False Marking Case over a Relator’s Objection nor Can It Veto a Privately-Negotiated Settlement.
Relators have almost complete control over the termination of false
marking cases – a major constitutional defect of section 292(b). Where the
government has not intervened, relators and defendants can settle and
dismiss the false marking case with prejudice, and without the government’s
prior notice or consent. This deprives the government of any means to
enforce section 292(a) in cases involving the most deliberate and harmful
false marking. A company that has committed pernicious violations of
section 292(a) has a powerful incentive to resolve a section 292(b) action
quickly and long before discovery might reveal to a relator how intentional
and injurious the false marking was. Even more ominous, a deliberate false
marker could arrange for a less-than-zealous relator to file suit against it and
reach a quick settlement. In either case, section 290 does nothing to assure
that the Department of Justice – the agency responsible for representing the
United States in patent litigation under 28 C.F.R. § 0.45(f) – receives timely
notice of either the pendency or settlement of the case.
~ 35 ~
The government asserts that the joinder provisions of Fed. R. Civ. P.
19(a) provide the necessary tools to prevent or undo inadequate false
marking settlements:
[T]he United States may also be subject to notice and joinder pursuant to Rule 19(a)(1)(B) * * *. Since the United States has an interest in half of any settlement of a Section 292 qui tam action, any settlement that the United States found objectionable would be void if it interfered with the right provided to an absent party under Rule 19.
Under Rule 19(a)(2), if the existing parties have not joined a person whose absence would impair its ability to protect its interests, then the Court has an obligation to add the person as a party so that the absentee’s interests may be heard. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 111 (1968). Thus, even if the relator plaintiff and the defendant were to engage in a collusive attempt to settle a Section 292 qui tam action on terms the United States might find objectionable, the United States would be entitled to notice of the proposed action from the Court and possible joinder under Rule 19 to make its objections known to the Court and perhaps to block such an objectionable settlement by withholding its consent to dismissal pursuant to Rule 41(a)(1)(A)(ii).
* * * To the extent that a Court might determine that it no longer would have jurisdiction over the action being settled, the United States could challenge the objectionable settlement by initiating its own separate civil action either as a direct challenge to the settlement or as a new civil action under Section 292 where the defendant would presumably attempt to raise the validity of the settlement as a defense based on res judicata. FLFMC Opp., Ex. B at 7-8. It appears that the government has been taking contradictory positions
regarding its necessity as a party in qui tam actions. Before the Supreme
Court in an FCA case, the government took this position:
~ 36 ~
The government’s ability to choose whether to intervene in particular qui tam actions is crucial to ensure that such suits do not impose unmanageable burdens on federal personnel. If the United States were treated as a “party” to all qui tam suits for purposes of the Federal Rules generally, the government would be subject to substantial litigation burdens, most notably the requirements governing party discovery imposed by Federal Rules of Civil Procedure 26-37, simply as a result of private relators’ decisions to initiate qui tam actions.
United States ex rel. Eisenstein v. City of New York, 129 S. Ct. 2230 (2010)
(Brief for the United States as Amicus Curiae Supporting Respondents at 24,
available at http://www.justice.gov/osg/briefs/2008/3mer/1ami/2008-
0660.mer.ami.pdf). On the one hand, the government has asserted that it
must not be required to join as a party qui tam cases, and on the other hand
the government has asserted that it must also be free to challenge inadequate
settlements in qui tam cases based on Rule 19(a), which defines
circumstances in which a party “must be joined.”
The government has thus failed to provide a satisfactory answer the
question of how it could prevent or challenge inadequate settlements. More
than that, it makes the alarming assertion that settlements under section
292(b) are void where the government has not been joined as a party under
Rule 19(a). Essentially, the government is trying to find in Rule 19(a) the
same right to veto settlements that it has in FCA cases under 31 U.S.C. §
3730(b)(1) (“The action may be dismissed only if the court and the Attorney
~ 37 ~
General give written consent to the dismissal and their reasons for
consenting.”). However, Rule 19(a) never requires joinder of the
government in a false marking suit since section 292(b) is a qui tam statute
providing that “[a]ny person may sue for the penalty.” The government is no
more a required party in false marking cases than it is in the many thousands
of FCA cases where the government chooses not to intervene. See Riley, 252
F.3d at 767, n.24 (Smith, J., dissenting) (FCA case statistics).
By focusing on collaterally attacking an inadequate settlement via a
new action of its own, the government implicitly acknowledges how
challenging it would be to reopen a settled and dismissed false marking case.
As the government concedes, it would need to overcome a res judicata
defense in a new action. See Stauffer, 619 F.3d at 1329 (“Furthermore, the
government would not be able to recover a fine from Brooks Brothers if
Stauffer loses, as res judicata would attach to claims against Brooks
Brothers for the particular markings at issue.”). Indeed, the government
would also have to overcome a Double Jeopardy defense if it seeks
additional fines after a defendant has already been punished under section
292(a).28
28 Whether the Double Jeopardy Clause applies to the fine imposed by section 292(a) is an open question under Hudson v. United States, 522 U.S. 93 (1997).
~ 38 ~
Even if the government intervenes in a false marking case, the
government cannot prevent the relator from settling and dismissing the case.
The most the government can do in that situation is withhold its consent to
dismiss under Fed. R. Civ. P. 41(a)(1)(A)(ii). That would force the relator
and the defendant to move for dismissal under Rule 41(a)(2). Then the
district court would have discretion to judge the adequacy of the settlement
and whether to dismiss the case. The court would surely consider the
government’s objections, but it would also be mindful of how courts
generally favor dispute resolution through voluntary settlements even where
there is some question over the financial merits of the settlement from the
government’s perspective.29 Thus, the government’s right to withhold
consent for a dismissal of a false marking case is nothing like the “veto”
power the government claims it to be. FLFMC Opp., Ex. A at 23, n.11. It is
better described as a short filibuster that leaves the decision on whether to
dismiss to the district court’s discretion. If dissatisfied with a dismissal, the
29 See Federal Data Corp. v. SMS Data Products Group, Inc., 819 F.2d 277 (Fed. Cir. 1987) (Court held that General Services Board of Contract Appeals abused its discretion in subordinating the parties’ interests and the public interest in settlement to what the Board considered to be overriding public policy considerations.).
~ 39 ~
government would need to overcome the demanding abuse of discretion
standard on appeal.30
Where the government wishes to terminate a false marking case, it has
no power to do so. Unless the government intervenes, it has no standing
under section 292(b) or any other statute or rule to seek a dismissal.31 In the
extraordinarily rare case where the government does intervene, it has at most
an opportunity to move for dismissal over a relator’s objection under Fed. R.
Civ. P. 41(a)(2). The district court would have wide discretion on whether to
grant the government’s motion to dismiss, and any legal prejudice to the
relator would be a relevant consideration. In re FEMA Trailer
Formaldahyde Products Liability Litigation, 628 F.3d 157, 163 (5th Cir.
2010) (“When a court is faced with a Rule 41(a)(2) motion * * * prejudice to
co-plaintiffs may also be considered.”).
The government’s utter inability to dismiss false marking litigation
brought in the name of the United States constitutes a deep intrusion into a
core Executive Branch function. There can be constitutionally permissible
judicial review of the government’s decision to dismiss a case, such as in
30 Federal Data, 819 F.2d at 279. 31 Note that in Ridenour, the Tenth Circuit held that conditioning the government’s right to dismiss an action on intervention with a showing of good cause “would place the FCA on constitutionally unsteady ground.” 397 F.3d at 934-35.
~ 40 ~
criminal and antitrust cases brought by the United States. See Kelly, 9 F.3d
at 754, n.12. And in FCA cases, some courts apply a very deferential
“rational relation test” to the government’s decision to dismiss. Sequoia
Orange, 151 F.3d at 1145. Still, in these cases the government controls the
initiation of the action, either by filing the criminal/antitrust complaint, or in
FCA cases, by choosing not to intervene and thus allowing the relator to
serve the complaint on the defendant. In false marking cases brought under
section 292(b), the relator – not the government – has complete control over
the initiation of the litigation.
The disturbing result of section 292(b)’s lack of a government
dismissal provision is that the United States is unable to end a criminal law
enforcement proceeding it had no say in bringing. The government has
conceded in other litigation the gravity of this constitutional concern, but it
has advised courts to ignore this problem unless and until a case arises in
which the government unsuccessfully moves to dismiss:
~ 41 ~
Defendant here has nevertheless hypothesized that the qui tam provisions of Section 292(b) might nevertheless impermissibly intrude on the Executive’s constitutional functions in a case — unlike this one — in which the Executive wishes to intervene and take the litigation in a different direction, such as by dismissing it. As noted at the outset of this brief, that concern would raise serious constitutional issues. That is a question, however, that this Court should not address, because this is not a case in which the Government has attempted to participate on behalf of the United States in any way other than to defend the constitutionality of Section 292.
FLFMC Opp., Ex. A at 23.
The government is quite correct that its inability to dismiss false
marking cases raises serious constitutional issues, but it is plainly wrong to
suggest that this concern is not at issue until the government tries to dismiss
a false marking case. As discussed above, the Take Care Clause analyses in
both Morrison and Buckley focused on statutory reductions of Executive
Branch control that were not factually at issue in the records of those cases.
The same is true of all cases involving Take Care Clause challenges to the
FCA. The government’s inability to terminate false marking litigation is thus
an important consideration for the Court in resolving Wham-O’s Take Care
Clause challenge to section 292(b).
The government’s inability to terminate false marking cases contrasts
sharply with the Executive Branch’s power to remove an independent
counsel and to dismiss an FCA case. In Morrison, the Supreme Court
~ 42 ~
considered the Attorney General’s ability to remove an independent counsel
for good cause to be the most critical Executive Branch control mechanism.
487 U.S. at 696 (“Most importantly, the Attorney General retains the power
to remove the counsel for ‘good cause,’ a power that we have already
concluded provides the Executive with substantial ability to ensure that the
laws are ‘faithfully executed’ by an independent counsel.”).
In Take Care Clause challenges to the FCA, the government’s control
over the termination of FCA litigation was held to be of paramount
importance. Several courts considered the government’s termination power
so important that they invoked the rule of statutory interpretation to preserve
the constitutionality of the FCA in holding that the government’s right to
dismiss is at the very least entitled to great judicial deference. See n.8, supra.
D. The District Court’s Rejection of a Take Care Clause Challenge to Section 292(b) in Pequignot v. Solo Cup Co. Is Fundamentally Unsound and Should Be Disregarded.
To date, the only reported decision to analyze whether section 292(b)
violates the Take Care Clause is Pequignot v. Solo Cup Co., 640 F. Supp.2d
~ 43 ~
714 (E.D. Va. 2009).32 The district court in Pequignot committed four
separate errors by placing undue weight on the historical pedigree of qui tam
statutes, failing to apply the “sufficient control” test of Morrison, tolerating
the complete lack of Executive Branch notice and control in false marking
cases and limiting its Take Care Clause analysis to the factual record in the
case before it.
Additionally, the Pequignot court appeared to give improper
deference to the government’s views on whether section 292(b) is invalid
under Article II. Id. at 728 (“That the Executive Branch * * * has actually
supported Pequignot’s action in all respects – is additional persuasive
evidence that separation-of-powers principles have not been violated here.”).
Whatever position the government takes in a Take Care Clause challenge is
a legal argument, not evidence, and it is entitled to no judicial deference.
Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S. Ct.
3138, 3155 (2010) (“[T]he separation of powers does not depend on the
views of individual Presidents * * * nor on whether the encroached-upon
32 Another district court adopted the analysis and conclusion of Pequignot in rejecting Wham-O’s constitutional argument. Shizzle Pop, LLC v. Wham-O, Inc., 2010 WL 3063066 (C.D. Cal. 2010). The court in Zojo Solutions, Inc. v. Stanley Works, 712 F. Supp.2d 756, 758 (N.D. Ill. 2010) rejected a Take Care Clause challenge to section 292(b) on the ground that “if the Federal Circuit had perceived [in Forest Group] that the statute posed a subject matter jurisdictional problem, it would have been obligated to raise and address that issue sua sponte.”).
~ 44 ~
branch approves the encroachment.”) (citations and internal quotation marks
omitted).
1. The History of Qui Tam Statutes Has No Bearing on Whether Section 292(b) is Constitutionally Valid.
The district court in Pequignot relied heavily on the analysis of Riley
v. St. Luke’s Episcopal Hosp., an FCA case. In Riley, the Fifth Circuit twice
parted ways with the above-cited decisions of courts in nine circuits on the
question of whether the FCA violates the Take Care Clause. A divided panel
held that the qui tam provisions of the FCA failed the “sufficient control”
test of Morrison. 196 F.3d 514, 523-31 (5th Cir. 1999). Sitting en banc, the
court vacated the panel’s decision and concluded that the Morrison test was
inapplicable. 252 F.3d 749, 754 (5th Cir. 2001) (en banc). The full circuit
court upheld the Article II constitutionality of the FCA based primarily on
the historical pedigree of qui tam statutes, Id. at 752-53.
Following Riley, the district court in Pequignot based its rejection of a
Take Care Clause challenge to section 292(b) mostly on historical evidence:
“First, like Justices Souter and Stevens and the Fifth Circuit, the Court finds
the long history of qui tam statutes * * * highly persuasive as to their
constitutionality.” 640 F. Supp.2d at 726 (alluding to Vermont Agency of
Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 801 (2000)
(Stevens, J., dissenting) and Riley).
~ 45 ~
Riley and Pequignot stand alone with this conclusive, history-based
answer to the question Stevens left open: “[W]e express no view on the
question whether qui tam suits violate Article II, in particular the
Appointments Clause of § 2 and the “take Care” Clause of § 3.” 529 U.S. at
778, n.8. Note that this question in Stevens was directed to qui tam suits in
general. The two dissenters in Stevens responded with a similarly general
answer: “[Historical] evidence, together with the evidence that private
prosecutions were commonplace in the 19th century, is also sufficient to
resolve the Article II question that the Court has introduced sua sponte.” Id.
at 801 (Stevens, J., dissenting) (citations omitted). Even assuming that
Justice Stevens, in the majority in Morrison, is correct that based on
historical evidence qui tam suits can be valid under Article II, that says
nothing about the level of control the Executive Branch must have over a
relator to satisfy the requirements of the Take Care Clause.
Two early qui tam statutes reveal the folly of placing emphasis on the
history of such statutes when determining whether a modern qui tam statute
can withstand an Article II challenge. One allowed a relator to conduct a
prosecution and receive half of the fine for criminal larceny or receipt of
stolen goods. Act of Apr. 30, 1790, ch. 9, §§ 16, 17, 1 Stat. 116. It is unclear
from the statute if the relator was entitled to administer half of the blows
~ 46 ~
when a convict was “publicly whipped, not exceeding thirty-nine stripes.”
Id. at § 16. With no notice or control mechanisms, this delegation of
prosecutorial power to any comers would surely run afoul of the Article II
requirements set forth in Morrison.
Another early qui tam statute provided that an individual could
prosecute on the government’s behalf employment of other than a “free
white person” in the postal service. Act of May 3, 1802, ch. 48, § 4, 2 Stat.
189, 191. Relators could pocket $25 for every non-white or non-free postal
carrier they spotted, sued and convicted. Id. Without hesitation, a court today
would invalidate such a statute based on the same Fifth Amendment due
process clause in force at the time Congress enacted the statute.
The Ninth Circuit had it right – historical evidence of qui tam statutes
has no role to play in determining whether a modern statute provides
sufficient Executive Branch control over relators. Kelly, 9 F.3d at 760, n.23
(“The [historical] evidence presented by those urging affirmance in this case
does not appear to rise” to the level where it would affect the court’s
decision.). All of the other courts to consider Article II challenges to the
FCA were likewise correct to apply Morrison and base their decisions
strictly on an analysis of whether the FCA provides sufficient control over
~ 47 ~
relators.33 For these reasons, historical evidence should not be part of the
Court’s analysis in resolving Wham-O’s Take Care Clause challenge to
section 292(b).
2. No Less Executive Branch Control over Qui Tam Relators Should Be Required Than Was Required over the Independent Counsel in Morrison.
In upholding the Article II constitutionality of section 292(b), the
district court in Pequignot followed Riley not only in placing great weight on
the historical pedigree of qui tam statutes, but also in finding Morrison
inapplicable. 640 F. Supp.2d at 726 (“Second, it is not necessary for §
292(b) to meet the demanding standard applied by the Supreme Court in
Morrison to withstand an Article II challenge, given that the intrusion of §
292(b) into Executive Branch power is minor in comparison.”) (citing Riley,
252 F.3d at 755). As discussed above, every other court to decide a Take
Care Clause challenge to the FCA applied Morrison.
The Fifth Circuit reasoned that unlike the independent counsel who
could bring a criminal action “as” the United States, an FCA relator sues “in
the name of the United States” in a civil action. 252 F.3d at 754-55. “First,
the EGA assigns the independent counsel to act as the United States itself, in
33 One district court did consider the history of qui tam statutes to be an additional consideration in upholding the constitutionality of the FCA, but it based its decision primarily on the “sufficient control” test of Morrison. Phillips, 123 F. Supp.2d at 993.
~ 48 ~
contrast to the FCA’s qui tam provisions, which only authorize the relator to
bring a lawsuit in the name of the United States. * * * Second, in contrast to
independent counsel who undertake functions relevant to a criminal
prosecution, relators are simply civil litigants.” Id. at 755. Thus, the Riley
court concluded, a control test less demanding than in Morrison applied, and
the FCA satisfied that test. Id. at 757.
The Riley court’s sole authority for making this criminal/civil
distinction in the President’s Take Care Clause duties was an article in the
December 2000 issue of the Environmental Litigation Reporter. Id. at 755.
The court did not cite decisions of the Eleventh and D.C. Circuits that
expressly rejected this supposed criminal/civil distinction with regard to the
President’s Take Care Clause duties. Smith v. Meese, 821 F.2d 1484, 1492,
n.4 (11th Cir. 1987); Nader v. Saxbe, 497 F.2d 676, 679, n.19 (D.C. Cir.
1974). Nor did the Riley court observe that the constitutional text – the
President “shall take Care that the Laws be faithfully executed” – makes no
such criminal/civil distinction. U.S. Const. art. II, § 3. And the Supreme
Court certainly did not make such a distinction in Buckley when it
invalidated, based on the Take Care and Appointments Clauses, statutory
provisions that gave the Federal Election Commission the authority to bring
civil actions for election law violations. 424 U.S. at 140 (“We hold that these
~ 49 ~
provisions of the Act, vesting in the Commission primary responsibility for
conducting civil litigation in the courts of the United States for vindicating
public rights, violate Art. II, s 2, cl. 2, of the Constitution.”).
The district court in Pequignot took the error in Riley of making a
criminal/civil law distinction in the President’s Take Care Clause duties and
compounded it by ignoring how unlike the FCA at issue in Riley, section
292(b) is a purely criminal statute with a deterrent, not compensatory
purpose. The FCA’s remedial provisions serve both punitive and
compensatory purposes. See Stevens, 529 U.S. at 784-85. However, as this
Court observed on appeal in Pequignot, “the false marking statute is a
criminal one, despite being punishable only with a civil fine.” 608 F.3d at
1363. The civil fine of section 292(a) serves an exclusively punitive
purpose: to prevent acts of deliberate false marking that can deter
innovation, stifle competition in the marketplace and “cause unnecessary
investment in design around or costs incurred to analyze the validity or
enforceability of a patent whose number has been marked upon a product
with which a competitor would like to compete.” Forest Group, Inc. v. Bon
Tool Co., 590 F.3d 1295, 1302-03 (Fed. Cir. 2009). Section 292(b) thus puts
criminal law enforcement – a core Executive Branch function – in the hands
of self-interested and politically-unaccountable private prosecutors.
~ 50 ~
The district court in Pequignot was wrong to require less Executive
Branch control over false marking relators than the Supreme Court required
over the independent counsel in Morrison. The EGA’s independent counsel
provisions were narrowly directed to the investigation and prosecution of
criminal conduct at the highest levels of the Executive Branch itself.
Morrison, 487 U.S. at 661, n.2. Thus, the diminishment of Executive Branch
control was necessary to achieve the EGA’s very purpose of insulating
independent counsel from interference by the targets of their investigations
and prosecutions. There is no reason whatsoever to insulate qui tam relators
from Executive Branch control; indeed, the relators’ self-interested, financial
motivations only heighten the need for control.
Unlike targets of an independent counsel’s investigation, false
marking defendants do not have the constitutional protections of defendants
in criminal actions even though they are being sued under a criminal statute.
In a civil false marking case, a criminal defendant’s rights to a speedy trial
and to confront accusers do not apply. U.S. Const. amend. VI. A false
marking defendant can assert its Fifth Amendment privilege against self-
incrimination, but that would likely function as an admission in a civil qui
tam action. See Aptix Corp. v. Quickturn Design Systems, Inc., 269 F.3d
1369, 1374 (Fed. Cir. 2001). Perhaps most detrimental to false marking
~ 51 ~
defendants, a relator need only prove a violation of section 292(a) by a
preponderance of the evidence. Forest Group, 590 F.3d at 1300.
Thus, compared to the independent counsel provisions of the EGA in
Morrison, the false marking statute removes the control mechanisms the
Constitution itself imposes in criminal actions, and it puts unbridled
prosecutorial discretion in the hands of a relator who stands to collect half of
any penalty. As the $10.8 trillion penalty sought in Pequignot shows,
relators can threaten defendants with exposure to ruinous fines. 608 F.3d at
1359, n.1. With such obvious and enormous potential for self-interested
relators to thwart the public interest while they sue in the name of the United
States, there is no reasonable basis to relax the Morrison test for “sufficient
control” over false marking relators.
3. The District Court in Pequignot Erred in Tolerating the Complete Lack of Executive Branch Notice and Control in False Marking Cases.
Almost as an afterthought, the district court in Pequignot listed the
notice and control provisions of other statutes and rules that the government
claims give it sufficient control over false marking cases:
~ 52 ~
[D]espite the lack of control mechanisms in § 292(b) itself, the Executive Branch is not without the ability to assert its interests in a § 292(b) qui tam action. The clerks of federal courts are required to notify the Director of the United States Patent and Trademark Office of any patent suits within one month of their filing. See 35 U.S.C. § 290. The United States may intervene in a qui tam action * * *. If the United States intervenes and the qui tam relator attempts to voluntarily dismiss the case, it cannot do so without a court order if the United States does not consent. * * * Finally, the United States may apply for a protective order if the relator’s action interferes with a government investigation or prosecution. See Fed.R.Civ.P. 26(c). Although these mechanisms concededly do not rise to the same level of government control provided by the FCA, the FCA’s strict safeguards are not required because, as discussed supra, § 292(b) represents a minimal intrusion onto Executive Branch power.
640 F. Supp.2d at 727-28.
This concession by the Pequignot district court that Executive Branch
control mechanisms over false marking relators “do not rise” to the level of
control over FCA relators is quite an understatement. As discussed above,
section 290 provides no notice of false marking cases, the government’s
ability to intervene does not give it any control over a false marking case and
Rule 41(a)(1)(A)(ii) merely gives the government a chance to persuade a
district court not to dismiss. These are not notice provisions or control
mechanisms; they are instead statutes and rules of general application that in
an exceptional case might provide the government with an opportunity to
present its objections concerning a relator’s litigation conduct to a district
~ 53 ~
court. If these other statutes and rules provide sufficient control over section
292(b) relators, then it is difficult to imagine how any qui tam statute could
be invalid under the Take Care Clause. History alone would answer the
Article II question the Supreme Court left open in Stevens, and for all civil
qui tam statutes.
4. The District Court in Pequignot Erred in Limiting Its Constitutional Analysis to the Facts of the Case Before It, Rather Than Considering Statutory Executive Branch Control Mechanisms in False Marking Cases as a Whole.
The district court in Pequignot upheld the constitutionality of section
292(b) based only on the factual record of the case before it. 640 F. Supp.2d
at 728. (“It is unnecessary to decide whether, on different facts, Article II
might be violated. On the record before the Court, there is no constitutional
violation.”). By limiting its constitutional analysis of the Take Care Clause
challenge to section 292(b) to the factual record of the case before it, the
district court in Pequignot contradicted Morrison, Buckley and every single
decision addressing the Article II constitutionality of the FCA. The
government urged the district court in Pequignot to make this analytical
error, and it will likely encourage this Court to do the same.
~ 54 ~
The United States urged the court in Pequignot, as it does here, not to consider hypothetical facts not present in the litigation before the court. * * * As the court in Pequignot noted, the Supreme Court has instructed courts not to consider hypothetical facts not in the record when ruling on constitutional matters.
FLFMC Opp., Exh. B at 4-5.
What the government fails to recognize is that none of the limitations
on Executive Branch control created by the independent counsel provisions
of the EGA were factually at issue in Morrison. Still, the Supreme Court did
not leave for another day questions that might arise if an independent
counsel faces improper termination by an overseeing judicial panel or
removal by an Attorney General. 487 U.S. at 682. Likewise, even though
there was no allegation that the Attorney General was dissatisfied with the
selection of Ms. Morrison or with the scope of her jurisdiction, the Supreme
Court considered the inability of the Attorney General to select the
independent counsel of his choice and to define her authority as relevant
factors in “whether, taken as a whole, the [EGA] violates the separation of
powers by reducing the President’s ability to control the prosecutorial
powers wielded by the independent counsel.” 487 U.S. at 685 (emphasis
added). The government’s suggestion that the false marking statute’s
~ 55 ~
provisions be taken not as a whole but instead strictly as applied in a
particular case, is thus inconsistent with Morrison.34
All of the circuit and district courts that have analyzed the Article II
constitutionality of the FCA – even the Fifth Circuit in Riley – considered
statutory provisions and limitations of Executive Branch control over
relators that were not factually at issue in the particular cases before them.
This is because the very authority Congress has given to a qui tam relator
raises separation of powers concerns, regardless of how a particular relator
happens to apply that authority in a given case. The decisive question is not
whether in the record of a given case the Executive Branch retained
sufficient control over a particular false marking relator; it is instead whether
the false marking statute itself provides sufficient control over relators who
sue in the name of the United States.
E. Upholding the Constitutionality of Section 292(b) Would Conflict with the Decisions of Other Courts in FCA Cases.
The concession by the Pequignot district court that Executive Branch
control mechanisms over false marking relators “do not rise” to the level of
control over FCA relators, 640 F. Supp.2d at 728, reveals how upholding the
34 The government and the district court in Pequignot support this argument with inapposite cases that did not involve Article II challenges. FLFMC Opp., Ex. A at 24, Ex. B at 4-5; Pequignot, 640 F.Supp.2d at 728.
~ 56 ~
constitutionality of section 292(b) would conflict with other circuit and
district court decisions involving Take Care Clause challenges to the FCA.
The qui tam provisions of the FCA are very close to the constitutional
line. Indeed, the Fifth Circuit panel in Riley held that they provided
constitutionally insufficient Executive Branch control over FCA relators.
196 F.3d at 523-31. Even the Fifth Circuit’s en banc decision in Riley to
uphold the FCA was based in part on the FCA’s control mechanisms. 252
F.3d at 757. It is far from clear whether even the Fifth Circuit would uphold
section 292(b), given its complete lack of notice and control provisions, and
its solely punitive purpose.
What is abundantly clear, though, is that upholding section 292(b)
would conflict with all FCA decisions where the courts considered it
necessary to interpret FCA provisions in order to preserve the statute’s
constitutionality. The starkest conflict would be with the Tenth Circuit,
which concluded in Ridenour that “to condition the Government’s right to
move to dismiss an action in which it did not initially intervene * * * tied to
a showing of good cause would place the FCA on constitutionally unsteady
ground.” 397 F.3d at 934-35. In false marking cases, the government has no
power to dismiss, whether it intervenes or not.
~ 57 ~
In Sequoia Orange, the Ninth Circuit implied that subjecting the
government’s motion to dismiss to anything more than its highly deferential
“rational relation test” would present “separation of powers concerns.” 151
F.3d at 1145. The D.C. Circuit in Swift considered even this test for
dismissals too demanding and interpreted the FCA to give the government a
virtually unfettered right to dismiss. 318 F.3d 250, 253. At least three district
courts have likewise considered it constitutionally necessary to give judicial
deference to the government when it seeks to dismiss an FCA case. See n.8,
supra.
There can be little doubt that this lack of control over dismissals in
false marking cases is constitutionally intolerable under Ridenour, Sequoia
Orange, Swift and several district court FCA cases. As discussed above, the
government in a false marking case is entitled to no deference at all when it
seeks a dismissal. Unlike with the FCA, the government must first intervene
in order to have standing to dismiss, and its motion to intervene as a matter
of right can be denied if untimely. Steamship Westhampton, 268 F. Supp. at
172. If the relator withholds consent, the court will rule on the government’s
motion to dismiss based on Fed. R. Civ. P. 41(a)(2), which gives the
government no greater rights than any party seeking to dismiss over the
objection of a co-plaintiff.
~ 58 ~
To be sure, there is nothing inherently wrong for the Court to reject
the decisions of its sister circuits. Still, when several courts in different
circuits have reached a consensus like this, there is very good reason to
believe that these applicable decisions are legally correct.
IV. Section 292(b) Also Violates the Appointments Clause of Article II.
Basing its analysis on Buckley and other Supreme Court cases, the
Ninth Circuit in Kelly set forth the correct analysis for whether a qui tam
statute violates the Appointment Clause:
The appropriate questions in this case, therefore, are whether qui tam relators exercise “significant authority” under the FCA, and whether the FCA vests in relators “primary responsibility” for enforcing the Act by litigating in the federal courts. Our answers to these questions follow logically from our determination * * * that the qui tam provisions do not violate the separation of powers principle.
9 F.3d at 758. As discussed above, Executive Branch has absolutely no
control over relators in false marking litigation; for this reason alone section
292(b) is invalid under the Appointments Clause.
The list of false marking cases reveals how many limited-liability
companies have been created for the sole and permanent purpose of filing
and settling false marking cases. Several relators have filed over 100 false
marking cases each. They have become, in essence, full-time federal
prosecutors with complete control over the initiation, prosecution and
~ 59 ~
settlement of false marking litigation. Placing this kind of unbridled control
over federal criminal law enforcement in the hands of self-interested, self-
appointed prosecutors runs afoul of the Appointments Clause.
V. The Judgment of Dismissal Should Also Be Affirmed on the Ground that FLFMC Has Failed to Meet the Heightened Pleading Standard of Fed. R. Civ. P. 9(b).
The judgment of dismissal should also be affirmed on the ground that
FLFMC has failed to state of cause of action upon relief can be granted. As
in BP Lubricants, FLFMC’s complaint makes general allegations of intent to
deceive based upon information and belief and supported by little more than
the allegation of the patents’ expiration. These allegations fail to meet the
heightened pleading standard for intent to deceive under Fed. R. Civ. P. 9(b).
FLFMC’s attempt to satisfy the heightened pleading standard of Rule
9(b) by focusing on the duration of the mismarking and on corporate
restructurings fails. See A 19-20. Alleging a long duration of mismarking is
not by itself sufficient to plead an intent to deceive. Indeed, the inclusion of
a long-expired patent number is if anything evidence of inadvertent
mismarking, since it is very easy for anyone to see that the mismarked
patents in question (issued in 1965 and 1967) have expired long ago. For at
least two decades, there has been no difficulty or cost for anyone to
determine that these patents have expired. See Pequignot, 608 F.3d at 1362.
~ 60 ~
FLFMC’s allegations regarding corporate restructurings similarly fail
to surmount the Rule 9(b) hurdle. That the ownership of these expired
patents changed hands in two corporate restructurings does nothing to create
an inference of deceptive intent. Considering all of the matters parties to a
corporate restructuring need to address in their due diligence, it is difficult to
imagine why anyone would give any thought to expired patents. This is
particularly true with regard to restructurings that occurred at a time when
false marking litigation was very infrequent and when the requirements of
section 292(a) were seldom on the minds of legal counsel.
While the Court can and should also affirm the judgment of dismissal
based on FLFMC’s insufficient pleadings, it is important that this not be to
the exclusion of resolving Wham-O’s Article II challenge to section 292(b).
FLFMC would likely seek remand in order to amend its complaint to meet
whatever pleading standard the Court announces in BP Lubricants. This
would cause Wham-O to bear still more expense in defending a case brought
under a constitutionally invalid statute. Indeed, Wham-O could be subjected
to the enormous expense of discovery and a trial if FLFMC were to amend
its complaint successfully on remand, and the district court were to reject the
same Article II challenge Wham-O presents now to the Court.
~ 61 ~
Even if the Court were to affirm solely on Rule 9(b) grounds, Wham-
O could still be burdened with the same claim brought by a different relator,
who would argue that res judicata does not apply to an earlier qui tam suit
dismissed under Rule 9(b).35 As discussed above, false marking relators are
showing no reluctance to initiate litigation on claims previously raised by
other relators. To avoid this contingency, Wham-O respectfully requests that
the Court also address this Take Care Clause challenge and invalidate
section 292(b).
CONCLUSION
The district court’s judgment of dismissal should be affirmed for the
reasons stated above.
Respectfully submitted,
_____________________ ANDREW J. DHUEY
Attorney for Defendant-Appellee, WHAM-O, INC.
35 See United States ex. rel. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 455 (5th Cir. 2005) (“[W]e find that the district court abused its discretion in dismissing the claims as to the United States with prejudice after holding that the qui tam complaint failed to meet the heightened pleading standard of Rule 9(b).”).
~ 62 ~
PROOF OF SERVICE
The undersigned attorney hereby certifies that two true and correct
copies per recipient of the following document:
BRIEF OF DEFENDANT-APPELLEE WHAM-O, INC.
were deposited in the United States mail on the 18th day of February 2011 in
postage-paid envelopes addressed to the following attorneys:
David G. Oberdick, Esq. Meyer, Unkovic & Scott LLP 535 Smithfield St., Ste. 1300 Pittsburgh, PA 15222 Douglas N. Letter, Esq. U.S. Dept. of Justice – Civil Div., Rm. 7513 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530
On this 18th day of February 2011, I declare under penalty of perjury
that the foregoing is true and correct.
By: ________________________ ANDREW J. DHUEY Attorney for Defendant-Appellee,
WHAM-O, INC.
~ 63 ~
CERTIFICATE OF COMPLIANCE WITH FEDERAL RULE OF APPELLATE PROCEDURE 32(a)(7)
The undersigned attorney hereby certifies, on this 18th day of Feburary
2011, that this brief was produced using 14 point Times New Roman font in
Microsoft Word, 2007 version, and contains exactly 13,986 words and 1,416
lines of text, which is in compliance with the typeface and length limitations
of Fed.R.App.P. 32(a)(7).
By: ___________________________ ANDREW J. DHUEY Attorney for Defendant-Appellee,
WHAM-O, INC.