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Bentley A. Hollander v. Ranbaxy Laboratories Inc

July 18, 2011

BENTLEY A. HOLLANDER,
PLAINTIFF/RELATOR,
v.
RANBAXY LABORATORIES INC.,
DEFENDANT,
v.
UNITED STATES OF AMERICA, INTERVENOR.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM REGARDING CONSTITUTIONALITY OF 35 U.S.C. § 292(b)

I. Introduction

Plaintiff Bentley A. Hollander ("Hollander") initiated this qui tam action against Defendant Ranbaxy Laboratories, Inc. ("Ranbaxy") for alleged violations of the False Marking Statute, 35 U.S.C. § 292. Section 292 penalizes the marking of products with false or expired patent numbers and allows "[a]ny person" to sue for the statutory penalty. See § 292(a), (b). The Court previously denied Ranbaxy's Motion to Dismiss for failure to state a claim and Hollander's Cross-Motion for Judgment on the Pleadings. (Order, ECF No. 31.) Ranbaxy has now filed another Motion to Dismiss arguing that § 292(b) violates the Take Care Clause of Article II of the Constitution. (Mot. to Dismiss, ECF No. 45); see U.S. Const. Art. II, § 3 ("[The President] shall take Care that the Laws be faithfully executed.").

Hollander initiated this qui tam action in connection with Ranbaxy's marking of certain dermatology products with expired patent numbers. Hollander alleges that Ranbaxy has marked these products with, and used in advertising, expired patent numbers for the purpose of deceiving the public. (Compl., ECF No. 1 ¶¶ 27-28.) He seeks imposition of a fine, up to $500 for each "offense," one-half of which will be paid to the United States and the other half he will retain. (Id. at 9); see 35 U.S.C. § 292(b).

The Court is now faced with the latest challenge to the False Marking Statute -- whether § 292(b) violates the Take Care Clause of Article II by failing to afford the Executive Branch sufficient control over litigation which clearly intends to benefit the government. Several district courts have already weighed in on this issue, some very briefly and others with more extensive and insightful analysis. According to Hollander, a "veritable avalanche" of decisions -- all of about ten cases as of the time of this Memorandum -- hold § 292(b) constitutional. (Opp'n, ECF No. 48 at 2.) On the other hand, Ranbaxy can point to only two decisions that have found § 292(b) unconstitutional -- one now pending appeal to the Federal Circuit and the other from this District. (Mot. to Dismiss Memo., ECF No. 45-1 at 10-15; Suppl. Auth., ECF No. 81); see Rogers v. Tristar Prods., Inc., No. 11-1111, 2011 WL 2175716, at *10-11 (E.D. Pa. June 2, 2011) (Robreno, J.). On June 23, 2011, the Court entered an Order denying Ranbaxy's Motion to Dismiss. (Order, ECF No. 90.) This Memorandum will state the reasons.

The Court also denied Ranbaxy's Motion to Stay (Mot. to Stay, ECF No. 51) in its June 23, 2011 Order. In light of subsequent events, particularly both houses of Congress passing legislation to amend § 292(b) to require a false-marking relator to have suffered a competitive injury,*fn1 which Hollander agrees he cannot show, the Court has reconsidered the merits of a stay. Because the proposed legislation would vitiate Hollander's standing to proceed as a qui tam relator, and to prevent the parties from incurring the unnecessary costs of continued litigation, and after a hearing on the issue on July 8, 2011, the Court concludes it is appropriate to stay this matter for ninety (90) days after the close of discovery on July 15, 2011. An appropriate Order will follow.

II. Parties' Contentions

Ranbaxy contends that § 292(b) lacks sufficient controls to allow the President to comply with his constitutionally assigned duty "to take Care that the Laws be faithfully executed." See U.S. Const. Art. II, § 3. Ranbaxy asserts that the False Marking Statute is a criminal statute and, therefore, the Supreme Court decision in Morrison v. Olson, 487 U.S. 654 (1988), establishes the requisite controls. Not only does § 292(b) lack the controls found sufficient in Morrison, it also lacks the controls found sufficient for the False Claims Act, a civil action, to survive constitutional scrutiny. In particular, § 292(b) does not require notice to the United States of the relator's false marking case and does not provide the United States any control over the course of the litigation.

Hollander opposes Ranbaxy's Motion and relies on the United States's brief filed with the Federal Circuit in Wham-O. (Opp'n Ex. 8.) The United States argues that the False Marking Statute is constitutional because qui tam statutes have a long history in England and the American colonies and Congress has the power to choose the method of enforcement. Further, § 292(b) does not facially aggrandize Executive power or impermissibly undermine Executive power because Article II does not make the Executive the sole means of law enforcement. The United States also contends Morrison is distinguishable because a false marking relator does not sue as the United States, but only in the name of the United States, and the United States has sufficient means of controlling the litigation. Finally, there is no constitutional concern under the facts as applied in this case because the United States has intervened.*fn2 (See Order, ECF No. 76.)

In reply, Ranbaxy adopts the amicus brief of the United States Chamber of Commerce in Wham-O. (Reply, ECF No. 49 Ex. E.) Unlike the False Claims Act, § 292(b) has no internal control mechanisms and there is no guarantee the United States could intervene in all cases. Further, the history of qui tam actions, which is relevant to the question of Article III standing, is not relevant to the Article II question.*fn3 Further, Article II does not draw a distinction between criminal and civil laws and, therefore, the requisite degree of control under Morrison should not differ even if § 292(b) is a civil action.

III. Discussion

A. The False Marking Statute

Under § 292(a), "[w]hoever marks upon, or affixes to . . . any unpatented article, the word 'patent' or any word or number importing that the same is patented for the purpose of deceiving the public . . . [s]hall be fined not more than $500 for every such offense." To state a claim under § 292, a plaintiff must show (1) a marking on an unpatented article, (2) done with intent to deceive the public. Forest Grp., Inc. v. Bon Tool Co., 590 F.3d 1295, 1300 (Fed. Cir. 2009). Marking a product with an expired patent constitutes marking an unpatented article. See Pequignot v. Solo Cup Co., 608 F.3d 1356, 1361 (Fed. Cir. 2010).*fn4 Further, any person may sue to collect the penalty under § 292(b) and need not have personally suffered an injury-in-fact to have standing. See Stauffer v. Brooks Bros., Inc., 619 F.3d 1321, 1325 (Fed. Cir. 2010). The person filing suit under § 292(b) can collect the penalty on a per article basis.*fn5 Forest Grp., 590F.3d at 1295. According to some, this series of decisions from the Federal Circuit has spurred hundreds of lawsuits throughout the country. See MichaelR.O'Neill, False Patent Marking Claims: The New Threat To Business,22 Intell. Prop. & Tech. L.J. 22, 22-23 (2010).

The § 292(b) qui tam action is civil in form though it arises under what various courts describe as a criminal statute.*fn6 See Pequignot, 608 F.3d at 1363; Filmon Process Corp. v. Spell-Right Corp., 404 F.2d 1351, 1355 (D.C. Cir. 1968). The Federal Circuit characterizes the penalty under § 292 as a civil fine.*fn7 Pequignot, 608 F.3d at 1363; Clontech Labs., Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005). This understanding is consistent with the legislative history of the False Marking Statute. The original version, enacted in 1842, and the revised version, enacted as part of the Patent Act of 1870, authorized private suits as the exclusive means of enforcing its provisions. See Rogers, 2011 WL 2175716, at *4 (citing Patent Act of 1870, ch. 230, § 39, 16 Stat. 198, 203); Act of Aug. 29, 1842, ch. 263, § 5, 5 Stat. 543,544. ...

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