Many companies today have adopted the SaaS (software as a service) business model for deploying software to customers. In the SaaS model, software applications are hosted for customers who access the application across a network such as the Internet. The SaaS business model is attractive because it eliminates the need for customers to install the application on their hardware and reduces their overall IT burden by shifting software maintenance and version upgrades back to the software provider.
Innovative companies that are patenting the methods employed by their SaaS products need to carefully consider the need to appropriately mark their SaaS products as required by the marking statute (35 U.S.C. § 287). Historically, patents with method claims have not required marking because there was no tangible product to mark. Recently, however, the courts have been applying the marking requirements to Web site operators, finding that a Web site is a tangible item that can be marked, thereby providing a vehicle for constructive notice of the patent to potential infringers, which is a goal of the marking statute.
The penalty for failure to mark is the inability to recover damages for any infringement that took place prior to the infringer receiving actual notice of the infringing activity. Under the marking statute, filing a patent infringement lawsuit constitutes actual notice.
When marking a SaaS product, the software provider needs to use only those patent numbers that have claims that cover the product to avoid false marking. False marking is placing (with the intent to deceive) a patent number on a product that is not covered by any claim of that patent, or placing "patent pending" on a product when no patent application related to the product is pending. False marking also includes continuing to mark a product with the number of an expired or invalid patent.
The penalty under the false marking statute (35 U.S.C. §292) is a fine of up to $500 per offense. The false marking statute allows any person to file the lawsuit, and that person receives one-half of the fine, while the United States receives the other half.
The potential economic exposure under the false marking statute is staggering. Recently, an individual sued Solo Cup Co. for false marking of its cup lid products based in part on Solo failing to remove certain patent numbers from its products after those patents had expired. The plaintiff is seeking damages of $100 billion under the false marking statute, the aggregate of $500 per unit.
For companies employing the SaaS model and receiving recurring revenue, each revenue period could be considered a separate offense under the false marking statute. Companies employing the SaaS model to distribute patented or patent pending technology should therefore review their marking practices to ensure marked products are covered by each patent listed on the product. The recommended practice is to document the reason for marking each patent number or "patent pending" on a product to negate the intent to deceive requirement under the false marking statute.
Rawlins is a partner at Procopio, Cory, Hargreaves & Savitch LLP whose practice encompasses all aspects of intellectual property law.