Opinion ID: 2798236
Heading Depth: 3
Heading Rank: 1

Heading: The Competitive Injury Requirement

Text: Section 292(b)’s “competitive injury” standing requirement was added in 2011 by the AIA. The parties do not dispute that Sukumar was not selling products in competition with Nautilus at the time this suit was filed. 2 This case thus presents the question of whether (or to what extent) an entity that has not entered the relevant market can suffer “competitive injury.” Nautilus argues that an entity cannot suffer competitive injury unless it actively sells products in the market. Sukumar contends that a potential competitor may suffer competitive injury 2 A plaintiff must possess standing as of the time the suit was filed. See Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 191 (2000). 6 SUKUMAR v. NAUTILUS, INC. if it intends to enter the market. We hold that a potential competitor may suffer competitive injury if it has attempted to enter the market. An attempt is made up of two components: (1) intent to enter the market with a reasonable possibility of success, and (2) an action to enter the market. 3 This court has yet to address the meaning of “competitive injury,” so we begin with its plain meaning. Black’s Law Dictionary defines “competitive injury” as “[a] wrongful economic loss caused by a commercial rival, such as the loss of sales due to unfair competition; a disadvantage in a plaintiff’s ability to compete with a defendant, caused by the defendant’s unfair competition.” Black’s Law Dictionary (9th ed. 2009). This definition, while hardly conclusive, lends some support for Sukumar’s position. A potential competitor would generally not be considered a “commercial rival,” but a potential competitor may suffer “a disadvantage in [its] ability to compete” if another’s actions impair its ability to enter the market. Still, this definition does not include all potential competitors. To suffer a disadvantage in the “ability to compete,” an entity must have some present ability to compete—if only in part—that is disadvantaged. Therefore, Black’s Law Dictionary defines “competitive injury” to encompass some potential competitors, but only those that suffer “a disadvantage in [their] ability to compete.” 3 Satisfaction of this competitive injury requirement, however, does not mean that a party necessarily has standing under § 292(b). The statute also imposes a causation requirement. Standing under § 292(b) is limited to those who have suffered a competitive injury “as a result of a violation of [section 292(a)].” 35 U.S.C. § 292(b). SUKUMAR v. NAUTILUS, INC. 7 Because the text of the statute is inconclusive, we next consider the legislative history. The House of Representatives’ report on the AIA provides the most succinct summary of congressional intent with respect to the amendments to § 292. The report notes a recent “surge in false-marking qui tam litigation” and explains that most of the new suits involve a product that was originally properly marked, but no longer was once the patent expired. H.R. Rep. 112-98, 53, 2011 U.S.C.C.A.N. 67, 84. According to the report, “[i]t is doubtful that the Congress that originally enacted this section anticipated that it would force manufacturers to immediately remove marked products from commerce once the patent expired, given that the expense to manufacturers of doing so will generally greatly outweigh any conceivable harm of allowing such products to continue to circulate in commerce.” Id. The report concludes that [t]o address the recent surge in litigation, the bill replaces the qui tam remedy for false marking with a new action that allows a party that has suf- fered a competitive injury as a result of such marking to seek compensatory damages. The United States would be allowed to seek the $500- per-article fine, and competitors may recover in relation to actual injuries that they have suffered as a result of false marking, but the bill would eliminate litigation brought by unrelated, private third parties. 4 4 Congress explicitly preserved the ability to seek a $500-per-article fine in § 292(a), but limited enforcement to the government. As such, the statute uses the threat of a government suit—rather than the previous mechanism of qui tam actions—to deter businesses from falsely marking their products. 8 SUKUMAR v. NAUTILUS, INC. Id. Nautilus seizes on the language that “competitors may recover in relation to actual injuries that they have suffered as a result of false marking” to argue that only current market participants have standing to bring a false marking action. But the use of the word “competitors” just begs the question of what “competitors” means. In the same sentence, the report juxtaposes “competitors” with “unrelated, private third parties.” Entities actively attempting to enter the market are not “unrelated, private third parties.” As such, the legislative history is inconclusive. Another source to inform the meaning of “competitive injury” is the term’s use in analogous areas of law. Although the phrase is not identical, “injury to competition” is a common concept in antitrust law. See, e.g., Razorback Ready Mix Concrete Co. v. Weaver, 761 F.2d 484, 488 (8th Cir. 1985); Midwest Underground Storage, Inc. v. Porter, 717 F.2d 493, 498 (10th Cir. 1983). In that context, preventing market entry unquestionably qualifies as “injury to competition.” For example, the Supreme Court has held that injury to competition includes “creat[ing] barriers to entry of new competitors in the market.” Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 14 (1984), abrogated in part on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006). In addition, the Ninth Circuit has stated that “[v]ertical agreements that foreclose competitors from entering or competing in a market can injure competition by reducing the competitive threat those competitors would pose.” Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1198 (9th Cir. 2012). Similarly, on another occasion the Ninth Circuit has reasoned that “[t]ying arrangements are forbidden on the theory that, if the seller has market power over the tying product, the seller can leverage this market power through tying arrangements to exclude SUKUMAR v. NAUTILUS, INC. 9 other sellers of the tied product.” Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 912 (9th Cir. 2008). We also find persuasive Sukumar’s argument that “competitive injury” in § 292 must include what is arguably the most egregious type of competitive injury: the prevention of market entry altogether. The rule Nautilus proposes would exclude this important circumstance. Indeed, competition is certainly harmed when a market participant’s false marking deters a would-be competitor from attempting to enter the market. This was recognized as one of the original rationales for allowing qui tam actions to remedy false marking. See Forest Grp., Inc. v. Bon Tool Co., 590 F.3d 1295, 1303 (Fed. Cir. 2009) (“If an article that is within the public domain is falsely marked, potential competitors may be dissuaded from entering the same market.”). The AIA’s removal of qui tam claims for false marking did not indicate disapproval of this rationale. Rather, the AIA recalibrated the enforcement mechanism for false marking in response to a flood of false marking claims that did little to achieve the original objective of minimizing anticompetitive conduct. From the above review of the statutory text, legislative history, analogous areas of law, and policy rationale, we conclude that § 292(b) extends standing to sue for a violation of § 292(a) to some potential competitors. Nevertheless, it is equally clear that the amended statute does not confer standing upon any entity that claims a subjective intent to compete. Rather, § 292 limits standing to entities that have “suffered a competitive injury as a result of a violation of [section 292(a)].” A potential competitor can only suffer a competitive injury if it engages in competition. Dreaming of an idea but never attempting to put it into practice is insufficient. Otherwise, market entry is too speculative and, thus, competition cannot be harmed by the false marking. Likewise, sometimes a falsely marked product is also properly marked with other patents. In that case, a potential competitor 10 SUKUMAR v. NAUTILUS, INC. must show that the falsely marked patents deterred market entry, but that—for some reason—the properly marked patents did not deter market entry. Therefore, an injury is only a “competitive injury” if it results from competition, and a potential competitor is engaged in competition if it has attempted to enter the market, which includes intent to enter the market and action to enter the market. And, for the sake of completeness, an entity has standing under § 292(b) if it can demonstrate competitive injury that was caused by the alleged false marking.