Preponderance insufficient

IV. Insufficiency of the Preponderance Standard as Applied to Patent False Marking Under the Due Process Clause The final and most compelling reason why the burden of proof for false marking must be raised is that the preponderance standard is constitutionally insufficient here. Section § 292 is - at the very least - a quasi-criminal provision. Consequently, the Due Process Clause of the Fifth Amendment demands a stricter burden of proof in connection with false-marking claims. A. Section 292 as a (Quasi-)Criminal Statute The Supreme Court provided a two-factor test in United States v. Ward for determining whether a given statutory penalty is civil or criminal, a distinction of "constitutional import." 151 The first factor asks "whether Congress, in establishing the penalizing mechanism, indicated either expressly or impliedly a preference for one label or the other." 152 The second factor, which applies only "where Congress has indicated an intention to establish a civil penalty," asks "whether the statutory scheme was so punitive either in purpose or effect as to negate that intention." 153 Accordingly, [*1413] the first Ward factor may be determinative where Congress indicated an intention to establish a criminal penalty. Here, the language of the false-marking statute does not explicitly contain the word "criminal" or "civil." 154 However, the legislative history of § 292 evidences that Congress (or at least the Senate) expressly intended for this to be a criminal provision. 155 Therefore, the first Ward factor weighs in favor of finding that the penalty under § 292 is criminal. Even if the first Ward factor were not determinative - which it arguably is here - applying the second Ward factor to § 292 further supports the criminal nature of this provision. In Ward, the Court referenced a list of factors from its earlier decision in Kennedy v. Mendoza-Martinez that is "helpful" in applying the second Ward factor. 156 That list includes: Whether the sanction involves an affirmative disability or restraint, whether it has historically been regarded as a punishment, whether it comes into play only on a finding of scienter, whether its operation will promote the traditional aims of punishment-retribution and deterrence, whether the behavior to which it applies is already a crime, whether an alternative purpose to which it may rationally be connected is assignable for it, and whether it appears excessive in relation to the alternative purpose assigned are all relevant to the inquiry, and may often point in differing directions. 157 In a later case, the Court explained that when Congress "confers authority upon administrative agencies" - as opposed to judicial bodies - to impose statutory penalties, this serves as "prima facie evidence" that Congress intended the penalties to be civil. 158 Here, multiple Kennedy factors weigh in favor of finding that Congress created a punitive scheme in § 292. 159 First, in the past, many courts that addressed this issue deemed § 292 and its predecessor statutes to be either criminal or at least highly penal, which suggests that the false- [*1414] marking penalty has historically been regarded - at least in some courts - as a punishment. 160 Second, the § 292 penalty comes into play only after a finding of scienter, given that intent to deceive the public is a key element of the false-marking cause of action. 161 Third, § 292 exists to "punish[] the defendant for conduct that deceives the public regarding the patented status of the marked product and seeks to deter such behavior in the future." 162 Fourth, "while unfair competition claims may provide compensation to competitors harmed by false marking, only § 292 makes certain acts of false marking criminal." 163 Furthermore, the penalty under § 292 may be imposed only by a court of law, not by an administrative agency (such as the USPTO). 164 Finally, § 292 penalties do not compensate the government for damages it suffered directly as a result of the defendant's alleged acts of false marking, which further supports the punitive nature of this statute. 165 Therefore, under the Supreme Court's tests, § 292 appears to impose a criminal rather than a civil penalty. However, one cannot overlook the fact that false-marking suits are nevertheless civil in form because they involve only private litigants. 166 In considering the repercussions of imposing criminal penalties in civil lawsuits, one court poetically summarized the problem by asking, "Is a wolf in sheep's clothing a wolf or a sheep?" 167 Perhaps the best solution is to classify § 292 as a quasi-criminal provision, given its hybrid nature. 168 This classification does not change the fact that the preponderance standard as applied to § 292 is unconstitutionally low. The Supreme Court has held that "punishment cannot be imposed "without due process of law.'" 169 Because even a quasi-criminal statute is punitive, imposition of its statutory penalty must comply with due process. The preponderance standard as applied to § 292 simply does not meet this requirement. [*1415] B. Due Process Requirements The Due Process Clause (DPC) of the Fifth Amendment states, "No person shall … be deprived of life, liberty, or property, without due process of law." 170 This clause is "intended to secure the individual from the arbitrary exercise of the powers of government." 171 Due process encompasses both substantive and procedural aspects. First, substantive due process - which is not implicated by § 292 - "bars certain government actions regardless of the fairness of the procedures used to implement them," and thus "serves to prevent governmental power from being used for purposes of oppression." 172 Second, procedural due process - the variety relevant here - acts as a "guarantee of fair procedure" that prevents the government, inter alia, from "taking [a defendant's] property without providing appropriate procedural safeguards." 173 Procedural due process "imposes constraints on governmental decisions which deprive individuals of "liberty' or "property' interests within the meaning of the Due Process Clause." 174 Importantly, when a law violates procedural due process, "it is not the deprivation of property or liberty [under the law] that is unconstitutional; [rather] it is the deprivation of property or liberty without due process of law - without adequate procedures." 175 The Supreme Court put forth a three-factor analysis in Mathews v. Eldridge for identifying the "specific dictates of [procedural] due process" in a given legal context: First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail. 176 [*1416] Applying this framework to the false-marking statute illustrates that a higher burden of proof than a mere preponderance must be imposed on § 292 to satisfy due process requirements. 177 Each of the three Mathews factors is discussed in turn below. 1. The Private Interests at Stake The first Mathews factor looks to the private interests affected by the official action. 178 First, false-marking defendants have a property interest in the money they stand to lose under § 292. The Supreme Court has emphasized that "the property interests protected by procedural due process extend well beyond actual ownership of real estate, chattels, or money," 179 which implicitly encompasses money as a protected property interest. 180 Courts have also explicitly recognized money as a property interest under the DPC. 181 After Forest Group, Inc. v. Bon Tool Co. - in which the Federal Circuit held that the $ 500 penalty under § 292 applies on a per-article basis - defendants stand to lose enormous sums of money if found liable for falsely marking a large quantity of mass-produced products. 182 Second, false-marking defendants may possess a liberty interest in preserving their professional reputations in order to ensure their ability to garner future business. In Board of Regents of State Colleges v. Roth, the Supreme Court suggested that governmental action may implicate a protected liberty interest by imposing a stigma on one's "good name, reputation, honor, or integrity" that "forecloses [one's] freedom to take advantage of other employment opportunities." 183 The Court clarified this [*1417] notion in Paul v. Davis by holding that although one's "interest in reputation [alone] … is neither "liberty' nor "property' guaranteed against [governmental] deprivation without due process of law," due process protections are implicated when one's reputation suffers from stigma caused by governmental action and one's "[previously recognized] right or status … [is] distinctly altered or extinguished." 184 This has become known as the "stigma-plus test." 185 Some courts have interpreted Roth and Davis - at least in the government-employment context - to mean that an employee's liberty interest in "pursing the occupation of his choice" may be infringed when a government-employer's termination of the employee somehow publicly "stigmatizes" the latter, thereby causing the employee to "suffer[] a tangible loss of other employment opportunities." 186 In the false-marking context, defendants facing § 292 claims stand to have their professional reputations significantly damaged by the stigma that attaches through false-marking liability. 187 As a result of this stigma, a false-marking defendant's ability to secure future business could be jeopardized, especially if the public learns of the defendant's false-marking activity and thereafter boycotts the defendant's products. 188 This situation is analogous to that described above where the government terminates an employee in a publicly stigmatizing fashion and thereby interferes with the latter's liberty to "pursue the occupation of his choice." 189 In both situations, the government's actions negatively impact the public's perception of the stigmatized party, thereby endangering the latter's opportunity to pursue desired employment or business prospects. Accordingly, false-marking defendants arguably hold a protected liberty interest in their business reputations. 190 2. Insufficiency of Existing Procedures and Proposed Alternative Procedures The second Mathews factor addresses the sufficiency of current procedures and the benefit of alternative procedural safeguards. 191 Here, the [*1418] only contested aspect of existing procedures is application of the preponderance standard to § 292 claims. As previously discussed, courts generally apply the preponderance standard in civil disputes for which society has the least concern for the outcome and feels comfortable allocating the risk of error equally among the litigants. 192 In light of this observation, the preponderance standard is inappropriate as applied to § 292. More specifically, the mandatory rebuttable presumption of intent under § 292 - which arises once a plaintiff has shown that the defendant's product was falsely marked and that the defendant knew the marking was false - should rest on a greater evidentiary showing than a mere preponderance. 193 First, § 292 is at minimum a quasi-criminal, punitive provision, which renders false-marking litigation quite unlike typical civil disputes. 194 Second, given that § 292 is a quasi-criminal provision, society demands greater assurance than the preponderance standard can provide that false-marking defendants have not wrongfully been found liable. Finally, the risk of error in a false-marking suit should not be allocated equally among the litigants because the interests as stake for the defendant are much more significant than those of the qui tam plaintiff, particularly when the latter has suffered no competitive injury (as is usually the case) and seeks only financial gain. 195 As an alternative procedure, courts should require false-marking plaintiffs to prove the elements of § 292 claims by clear and convincing evi [*1419] dence. 196 Furthermore, the rebuttable presumption of intent to deceive should not arise unless a plaintiff has shown the predicate facts by clear and convincing evidence. This standard is preferable because: it allocates a greater risk of error to the qui tam plaintiffs whose interests are less significant than those of the defendants; 197 it better reflects society's level of concern that false-marking defendants not be erroneously found liable for a quasi-criminal act; 198 and it offers greater protection against the probable reputational harm faced by false-marking defendants. 199 Furthermore, applying the clear and convincing standard to § 292 would better ensure that penalties are imposed against only those defendants who actually engaged in the egregious practices § 292 seeks to deter. Nevertheless, the burden on defendants to rebut the presumption of intent (by showing that they did not act with a deceptive purpose) should remain preponderance of the evidence. 200 There is no reason why defendants should face a higher hurdle than they already do for proving that their false-marking activities resulted from legitimate business decisions. 3. The Government's Interests The final Mathews factor examines any additional fiscal and administrative burdens the proposed alternative procedural safeguards would impose on the government. 201 Because false marking harms the public, the government has a legitimate interest in deterring the practice and seeing that those who falsely mark their products are appropriately punished. 202 However, requiring plaintiffs to prove false-marking claims under § 292 by clear and convincing evidence - rather than by a mere preponderance - will not negatively impact the government's interest. In fact, elevating the burden of proof may actually benefit the government. First, although qui tam plaintiffs facing an elevated burden will likely have to expend greater resources to investigate their cases than they otherwise would if the preponderance [*1420] standard applied, 203 this extra cost will be imposed on the plaintiffs, themselves, and not on the government. Accordingly, wealth-seeking qui tam plaintiffs who have suffered no competitive injury may be deterred from bringing frivolous lawsuits under § 292, which would in turn conserve judicial resources for legitimate false-marking cases. 204 Second, the government has an interest in ensuring that only those defendants who acted with intent to deceive the public are penalized under the statute in order to instill public confidence in the just operation of the government's laws and to enhance the statute's deterrent effect. The clear and convincing standard is better able to achieve this objective than the less stringent preponderance standard.