Federal Court Decision Cements Need for Proper Patent Licensing and Product Marking

A recent decision by the Court of Appeals for the Federal Circuit in Packet Intelligence LLC v. NetScout Systems Inc., Case No. 2019-2041 (Fed. Cir. July 14, 2020), highlights an important consideration in patent licensing: requiring the patent licensee to mark the licensed products with the licensed patent number.

Under 35 U.S.C. § 287(a), a patent owner is not entitled to recover damages for any infringement that occurs prior to the lawsuit being filed if the patent owner or its licensee failed to mark a patent notice on product covered by the patent. Marking is accomplished either by affixing on the product a notice including the patent number or by fixing thereon the word “patent” or the abbreviation “pat.” together with an address of a posting on the Internet that associates the patented article with the number of the patent. If the patentee or licensee fails to provide such a mark, the patentee is not entitled to recover damages for patent infringement until the accused infringer receives actual notice of the claim of infringement in the form of a cease and desist letter or the filing of a patent infringement action.

Packet Intelligence owns several patents for apparatuses and methods for network monitoring. It has licensed several manufacturers to make network monitoring equipment that use these patents. One of the licensees sold equipment which did not include the apparatus patent number.

Packet Intelligence later sued NetScout asserting that some of NetScout’s equipment infringed its patents. A jury found that NetScout infringed the apparatus patent but not the method patents. The jury awarded Packet Intelligence damages for sales of infringing product that occurred both before and after the complaint was filed.

On appeal, the Court of Appeals for the Federal Circuit reversed the award of pre-complaint damages. The appellate court determined that NetScout proved that the licensee’s equipment failed to include a patent marking and that Packet Intelligence failed to show that its licensee’s product was not covered by the patent. This resulted in a 60% reduction in the total jury damages award.

This decision highlights the need for patent owners to make sure that their license agreements include a provision requiring the licensee to mark the licensed product with the patent number. However as this case makes clear, the mere provision of such a requirement is not enough. Where a portfolio of patents are licensed, the patent owner needs to carefully monitor the products sold by the licensee so that the patent marking includes all of the licensed patents that are covered by the licensed product. If any patent is not included among the patents marked by the licensee, the patent owner should prepare documentation in advance that demonstrates why it does not believe that a particular patent is covered by a licensed product. The patent owner would then be bound by the interpretation that it uses, but so long as the patent owner is consistent in its claim interpretation it will not run afoul of the patent marking requirements.