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Any foreign company looking to enter the U.S. market must consider the U.S. patent landscape for its products and services, both to avoid costly infringement battles and to maximize the value of its own intellectual property. Part I of this series discussed the importance of freedom-to-operate and noninfringement opinions as a shield against meritless claims of infringement from owners of U.S. patents. In this installment, we’re examining the paramount importance of marking patented products destined for the U.S. market.

Patent marking is one of those things that may seem inconsequential until it suddenly becomes the most important thing in a courtroom – or significantly impacts a company’s valuation. Indeed, for any foreign company entering the U.S. market with patented products, building a marking process — and maintaining it — should be on the pre-launch checklist right alongside distribution agreements and customs compliance.

Marking may not be glamorous, but getting it wrong can cost a patentee millions of dollars – unnecessarily.

What is patent marking?

Patent marking is a way to put the world on notice that a product is protected by a specific patent (or several). Traditionally, marking was done by physically stamping or printing the relevant patent number on the product or its packaging. With so much of the information about products moving online, it is also possible to mark products virtually. Virtual marking means that the product or its packaging is labeled with a website address (or a QR code) that points to an online page that lists which patents cover which products.

Both methods of marking a product are equally valid and one does not provide a bigger benefit than the other. For companies with an innovation pipeline that continually expands its patent portfolio and product offerings, virtual marking may make the process of keeping marking current less onerous than physically changing the marking on the product or packaging. The critical part of marking is getting it right – ensuring that a product is marked with all unexpired and valid patents that cover it and only with the unexpired and valid patents that cover it.

Why does marking matter?

There are four main reasons why marking is important.

First, and most important, marking protects a patentee’s ability to recover damages for infringement because it provides constructive notice of the patent.

Second, marking provides a marketing advantage. A live patent number on a product signals to buyers that the product is novel and carries with it the imprimatur of the U.S. patent system.

Third, a clearly marked product may deter competitors from direct copying. Instead, they may prefer to design around the patent, thus delaying their own entry into the market or producing a product that lacks some of the advantages of the patented original.

Fourth, for innovative, product-centric companies, patent marking is a consideration during due diligence and may impact investor interest and valuation.

Constructive notice

Under U.S. patent law, proper patent marking puts an infringer on “constructive notice,” which means that the infringer is presumed to have known about the patent, even if the infringer was never told about it directly by the patentee. Without constructive notice, the damages clock starts running only once the patentee has explicitly notified the infringer. With constructive notice, however, the patentee’s damages claim can potentially reach back up to six years from the filing of the patent infringement lawsuit regardless of whether a cease-and-desist letter was ever sent.

The difference in dollar amounts can be staggering. We have litigated several cases in which the patentee failed to mark its products correctly and consequently lost 5-6 years of damages to the tune of tens of millions of dollars.

Beware of unmarked licensee products

Many patentees assume that their marking obligation is satisfied as long as they themselves mark their products. But that is not so. If a patentee licenses its patents to others who offer covered products in the U.S., it is important that those products be properly marked as well. Without ensuring that the license agreements require the licensee to mark their products – and policing the licensee’s compliance with this contractual obligation – the advantage of constructive notice is lost. For example, the Federal Circuit reduced a $15.7 million jury damages award by $4 million in a case where a license did not require the licensee to mark its products. The Federal Circuit agreed with the infringer that damages were owed solely for the period after that patentee gave proper notice to the infringer.

Marking must be current

Unfortunately marking isn’t a set-it-and-forget-it exercise, and the patentee must ensure that products are marked with only unexpired and valid patents that actually cover the product (that is, where at least one claim of the patent covers a real and specific aspect of the product). Marking a product with an expired or invalid patent – or with a patent that doesn’t cover the product – is considered to be false marking, which carries heavy penalties.

Thus, a patentee should establish a process for periodically reviewing and maintaining accurate marking, especially if its patent portfolio is growing rapidly or if its products change often.

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In Part III of this series, we will examine the availability of third-party funding to maximize the value of a foreign patentee’s U.S. patent portfolio.

If you have questions about how to access U.S. capital markets and set up a U.S. corporate entity, read our prior article on this topic here.

If you are considering expansion into the U.S. and would like more information about the marking process, we can help. Reach out to Kate Cassidy, Katie Rubino, or Maria Granovsky to discuss your company’s specific situation.