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

Form 9 FORM 9. Certicate of Interest

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

USA, ex rel., and FLFMC, LLC Wham-O, Inc. ____________________________ v. ____________________________
2011-1067 No. _______

CERTIFICATE OF INTEREST
Counsel for the (petitioner) (appellant) (respondent) (appellee) (amicus) (name of party)
Wham-O, Inc. _______________________ 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:

_____________________________________________________________________________ Wham-O, Inc. _____________________________________________________________________________ _____________________________________________________________________________ 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: _____________________________________________________________________________ None. _____________________________________________________________________________ _____________________________________________________________________________ 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: _____________________________________________________________________________ None. _____________________________________________________________________________ _____________________________________________________________________________ 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:
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

_____________________________________________________________________________ _____________________ Date _______________________________ Signature of counsel _______________________________ Printed name of counsel Please Note: All questions must be answered cc: ___________________________________

124

~i~

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. II. A de Novo Standard of Review Applies to the District Courts Judgment of Dismissal .. ............................................... 7 FLFMC, Having Suffered No Injury in Fact, Lacks Standing to Assert a False Marking Claim under 35 U.S.C. 292(b) .. ................................................................................... 8 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

III.

~ ii ~

B.

Whether a Qui Tam Statute Violates the Take Care Clause Depends on Whether the Statutes 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 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. 2. 3. 4. 5. There Are No Executive Branch Notice or Control Provisions in Section 292 ....................... 18 The Government Receives No Notice of False Marking Cases ..................................................... 19 Section 292(b) Gives Relators Complete Control over the Initiation of False Marking Cases ......... 24 Section 292(b) Gives Relators Complete Control over the Prosecution of False Marking Cases ..... 30 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 Relators Objection nor Can It Veto a Privately-Negotiated Settlement ............................................................ 34

C.

D.

The District Courts 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

~ iii ~

1.

The History of Qui Tam Statutes Has No Bearing on Whether Section 292(b) is Constitutionally Valid .................................................................... 44 No Less Executive Branch Control over Qui Tam Relators Should Be Required Than Was Required over the Independent Counsel in Morrison ......... 47 The District Court in Pequignot Erred in Tolerating the Complete Lack of Executive Branch Notice and Control in False Marking Cases........ 51 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

2.

3.

4.

E.

Upholding the Constitutionality of Section 292(b) Would Conflict with the Decisions of Other Courts in FCA Cases ... ................................................................ 55

IV. V.

Section 292(b) Also Violates the Appointments Clause of Article II .. ............................................................................... 58 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

~ iv ~

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 Assn, 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

~v~

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. Lukes Episcopal Hosp., 252 F.3d 749 (5th Cir. 2001) (en banc) ............. 8, 31, 37, 44-45, 47-49, 55-56 Riley v. St. Lukes Episcopal Hosp., 196 F.3d 514 (5th Cir. 1999) (panel decision later vacated) ................... 44, 56 Rothe Development Corp. v. Dept 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 ~ vi ~

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 ~ vii ~

United States ex rel. Stone v. Rockwell Intl 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 ~ viii ~

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/T able407.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/20080660.mer.ami.pdf) ........................................................................................ 36 ~ ix ~

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

~x~

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 patents expiration are sufficient to survive a motion to dismiss. Id. (Pet. for Writ of Mandamus, filed Sept. 14, 2010 at 1).

~ xi ~

STATEMENT OF THE ISSUES 1. 2. 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 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. 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 governments behalf. Whether a false marking relators 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.

3.

4.

Defendant-Appellee WHAM-O, INC. concedes that Plaintiff-Appellant FLFMC, LLC has Article III standing under the Courts 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. ~1~

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 WhamO contended that FLFMC had suffered no injury in fact and that the court dismissed FLFMCs complaint on that ground. FLFMC neglected to mention, however, that Wham-O contended that the complaint should be dismissed for three independent reasons: i) ii) iii) FLFMC failed to meet the heightened pleading standard of Fed. R. Civ. P. 9(b); FLFMC lacks Article III standing; and 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. Plaintiffs Memorandum in Opposition to Defendants Motion to Dismiss (docket no. 22) (FLFMC Opp.). With regard to Wham-Os constitutional challenge, FLFMC provided the district court with copies of the governments 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. ~2~

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 FLFMCs 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 Courts 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).

~3~

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 FLFMCs 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 ~4~

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 Courts 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 relators 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 governments 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). ~5~

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 relators 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 governments 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.). ~6~

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 Courts Judgment of Dismissal. Wham-O based its motion to dismiss on FLFMCs lack of standing, the unconstitutionality of the statute (section 292(b)) upon which FLFMC asserts its claims, and FLFMCs 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 courts 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 ~7~

the district court.5 Wham-Os constitutional challenge to section 292(b) and its challenge to the sufficiency of FLFMCs 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 governments right to assert a claim for false marking, the district court correctly dismissed FLFMCs complaint for lack of standing. However, under the Courts 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.

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 SKFs 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. Lukes 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.). ~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. 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 statutes provisions taken as a whole violate the principle of separation of powers by unduly interfering with the Presidents constitutional role. Id. at 693. The nature of the constitutional challenge in Morrison and the Supreme Courts analytic framework for addressing it shed much light on the appropriate means of resolving Wham-Os 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 ~9~

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 Generals 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 Generals factual findings controlled the scope of the independent counsels 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, ~ 10 ~

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 Presidents ability to control the prosecutorial powers wielded by the independent counsel. Id. at 685.
6

Although the judicial panel overseeing Ms. Morrisons 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). ~ 11 ~

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-andnow 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. Circuits 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 statutes 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 ~ 12 ~

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 Statutes 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 governments behalf. The Second Circuit issued the first appellate opinion on the question, concluding with little discussion that the FCAs qui tam provisions provided substantial control over litigation brought by relators. United States ex rel. ~ 13 ~

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.

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 FCAs qui tam provisions. 985 F.2d at 1155. ~ 14 ~

Under the FCA, the Executive Branch can control a qui tam relators 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 relators 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 relators 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 governments qualified right to dismiss or settle an FCA action over a relators objection was analogous to the Attorney Generals 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 relators 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. ~ 15 ~

The Tenth Circuit in United States ex rel. Stone v. Rockwell Intl 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 Governments 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 governments 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 ~ 16 ~

States ex rel. Wickliffe v. EMC Corp., 2009 WL 911037 (D. Utah 2009) applied Ridenour and concluded that in such circumstances, the governments 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).

~ 17 ~

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. There Are No Executive Branch Notice or Control Provisions in Section 292.

1.

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

~ 18 ~

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 Governments 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 governments settlement would be constitutionally doubtful.); Wickliffe, 2009 WL 911037, at *4 (The governments 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 Assn, 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.). ~ 19 ~

governments 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

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/T able407.pdf. See Rothe Development Corp. v. Dept of Defense, 545 F.3d 1023, 1046 n.15 (Fed. Cir. 2008) (court may take judicial notice of facts available from federal agency website). 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. ~ 20 ~
10

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 courts 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. ~ 21 ~

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

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). ~ 22 ~

13

summary judgment on the issue of false marking.14 And as the postjudgment 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 governments 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). ~ 23 ~

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 governments 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 Courts decision in Forest Group, relators have initiated roughly 800 false marking ~ 24 ~

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-Os 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. ~ 25 ~

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 Branchs 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. Morrison, 487 U.S. at 696 (No independent counsel may be appointed without a specific request by the Attorney General, and the Attorney Generals decision not to request appointment * * * is committed to his unreviewable discretion.). ~ 26 ~
16

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 firstto-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.

~ 27 ~

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. 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 2122). Available on PACER at https://ecf.cand.uscourts.gov/cgi-bin/login.pl.
19 20 18

Patent Group (docket entry 13 at 7-13). Patent Group (docket entry 15). ~ 28 ~

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 Oateys co-defendants, Woodstream Corp., similarly pitted the same two relators against each other. Woodstream settled with Patent Group, and now

21 22

San Francisco Technology (docket entry 405).

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. ~ 29 ~

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 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 Woodstreams products, and that case was quickly settled and dismissed.). ~ 30 ~
23

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 counsels 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 relators 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. 31 U.S.C. 3730(c)(1). See Taxpayers, 41 F.3d at 1035; Kelly, 9 F.3d at 746.
26 25

31 U.S.C. 3730(c)(2)(C). See Taxpayers, 41 F.3d at 1035; Kelly, 9 F.3d at 746.

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. ~ 31 ~

27

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 governments 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 relators 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 relators 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 ~ 32 ~

party in BP Lubricants, but even if it did, it would have no power to stop or limit the relators 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.

~ 33 ~

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 Relators 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 governments 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.

~ 34 ~

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 absentees 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:

~ 35 ~

The governments 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/20080660.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 ~ 36 ~

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). ~ 37 ~

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 governments 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 governments perspective.29 Thus, the governments 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 courts 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.). ~ 38 ~

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 relators objection under Fed. R. Civ. P. 41(a)(2). The district court would have wide discretion on whether to grant the governments 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 governments 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 governments decision to dismiss a case, such as in
30 31

Federal Data, 819 F.2d at 279.

Note that in Ridenour, the Tenth Circuit held that conditioning the governments 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. ~ 39 ~

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 governments 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:

~ 40 ~

Defendant here has nevertheless hypothesized that the qui tam provisions of Section 292(b) might nevertheless impermissibly intrude on the Executives 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 governments inability to terminate false marking litigation is thus an important consideration for the Court in resolving Wham-Os Take Care Clause challenge to section 292(b). The governments inability to terminate false marking cases contrasts sharply with the Executive Branchs power to remove an independent counsel and to dismiss an FCA case. In Morrison, the Supreme Court ~ 41 ~

considered the Attorney Generals 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 governments control over the termination of FCA litigation was held to be of paramount importance. Several courts considered the governments termination power so important that they invoked the rule of statutory interpretation to preserve the constitutionality of the FCA in holding that the governments right to dismiss is at the very least entitled to great judicial deference. See n.8, supra. D. The District Courts 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

~ 42 ~

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 governments views on whether section 292(b) is invalid under Article II. Id. at 728 (That the Executive Branch * * * has actually supported Pequignots 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-Os 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.). ~ 43 ~

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. Lukes 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 panels 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). ~ 44 ~

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 ~ 45 ~

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 governments 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 courts 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

~ 46 ~

relators.33 For these reasons, historical evidence should not be part of the Courts analysis in resolving Wham-Os 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 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. ~ 47 ~
33

contrast to the FCAs 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 courts sole authority for making this criminal/civil distinction in the Presidents 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 Presidents 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 ~ 48 ~

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 Presidents 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 FCAs 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. ~ 49 ~

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 EGAs 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 EGAs 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 counsels 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 defendants 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 selfincrimination, 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 ~ 50 ~

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:

~ 51 ~

[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 relators 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 FCAs 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 governments 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 relators litigation conduct to a district ~ 52 ~

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.

~ 53 ~

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 Presidents ability to control the prosecutorial powers wielded by the independent counsel. 487 U.S. at 685 (emphasis added). The governments suggestion that the false marking statutes

~ 54 ~

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

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. ~ 55 ~

34

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 Circuits en banc decision in Riley to uphold the FCA was based in part on the FCAs 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 statutes constitutionality. The starkest conflict would be with the Tenth Circuit, which concluded in Ridenour that to condition the Governments 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.

~ 56 ~

In Sequoia Orange, the Ninth Circuit implied that subjecting the governments 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 governments 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. ~ 57 ~

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 ~ 58 ~

settlement of false marking litigation. Placing this kind of unbridled control over federal criminal law enforcement in the hands of self-interested, selfappointed 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, FLFMCs 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). FLFMCs 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. ~ 59 ~

FLFMCs 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 FLFMCs insufficient pleadings, it is important that this not be to the exclusion of resolving Wham-Os 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.

~ 60 ~

Even if the Court were to affirm solely on Rule 9(b) grounds, WhamO 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 courts judgment of dismissal should be affirmed for the reasons stated above. Respectfully submitted, _____________________ ANDREW J. DHUEY Attorney for Defendant-Appellee, WHAM-O, INC.

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).). ~ 61 ~

35

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.

~ 62 ~

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.

~ 63 ~