The Qui Tam Blog

A qui tam case filed in the Texas Northern District Court by a patent watchdog group (The Patent Compliance Group, the PCG) against Activision Video Game Products, the firm that owns the Guitar Hero line of video games and video game products, accuses the company of patent law infringement.

The lawsuit accuses the Activision brand of improperly labeling its products with the patent and patent-pending notation used to protect brand names from copyright infringement. The case involves provision 35 U.S.C. 292(a) which establishes that, “”… whoever marks upon, or affixes to, or uses in advertising in connection with any article the words “patent applied for,” “patent pending,” or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public - Shall be fined not more than US$500 for every such offense (in this case per item sold).”

Even though Activision does have some patents currently pending, PCG claims that the patents the company has filed do not cover the scope the packaging notation has claimed.

A Qui Tam suit has been brought against J-M Manufacturing Co and Formosa Plastics Corp, the manufacturing company’s previous parent company. Four states, twenty-one water districts and twenty-two cities in California have brought the lawsuit following reports that J-M Manufacturing had been supplying sub-standard PVC pipe.

The suit accuses J-M of taking several “cost-cutting” measures, including producing inferior quality PVC pipe, filling supervisor positions with inexperienced workers and providing independent quality-testers with a higher quality sample of product than what was actually being provided to customers.

For cities using these PVC pipes for water management, inferior quality product means a bad investment in public infrastructure. John Hendrix, who worked as an engineer in the J-M’s product assurance department, blew the whistle on the manufacturing company’s product quality issues and was reportedly fired by the company a week later.

The suit states that Hendrix’s employment was terminated after he wrote a memo to upper management informing them that the tensile strength of the PVC pipe being supplied was below the certification agency standards provided by Underwriters Laboratories, Inc.

By: Joel Androphy, Rachel Grier and Stephanie Gutheinz

To establish liability for submitting false claims under the FCA, it must be shown that the defendant acting knowingly.  Knowing conduct can be demonstrated by showing that the defendant either acted (1) with actual knowledge that the information was false, (2) with deliberate ignorance of the truth or falsity of the information, or (3) with reckless disregard of the truth or falsity of the information. 

A finding of knowing action on the part of the defendant may be precluded, however, if it can be shown that the government had ample knowledge of the defendant’s conduct.  The burden of proof required to obviate a defendant’s liability based on government knowledge is considerable and can only be satisfied with evidence that the defendant and the government had an ongoing dialogue about the activities underlying the submission of the false claims. 

It must also be shown that the defendant completely cooperated and shared all information with the government in such a way that it would not have been possible for the defendant to knowingly submit false claims.  Mere allegations that the government had some knowledge of the defendant’s conduct, audited the defendant, or even reviewed thousands of documents related to the claims are not sufficient to negate the defendant’s liability.  Rather, courts will only find as a matter of law that the defendant could not have possessed the requisite state of mind to be liable under the FCA where the government approved of the defendant’s conduct, or where the government had extensive knowledge of the defendant’s conduct.  United States ex rel. Maxwell v. Kerr-McGee Oil & Gas Corp., 2009 WL 3161828 (D. Colo. Sept. 30, 2009).

By: Joel Androphy, Rachel Grier, and Stephanie Gutheinz 

In Rodriguez v. Our Lady of Lourdes Medical Center, the Third Circuit noted that it has declined to adopt either an express or implied false certification theory.  The court further held that even if it did adopt such a theory, FCA liability will not attach unless the relator shows that a defendant’s certification of compliance with applicable regulations is a condition of payment of federal funds.  Under the express false certification theory, a defendant is liable for falsely certifying its compliance with statutory or regulatory requirements in connection with the receipt of federal funds.  Under an implied certification theory, FCA liability can attach even when the defendant has not expressly certified that it complied with the regulations that it violated.  While declining to adopt either false certification theory, the Third Circuit noted that, under either false certification theory, it is still the relator’s burden to demonstrate that the defendant failed to comply with applicable regulations, and that the payment of federal funds was conditioned on compliance with those regulations.  In affirming the dismissal of the case, the court held that the relator did not satisfy this burden because the relator did not even suggest a connection between certification and condition of payment.

 By: Joel Androphy, Rachel Grier, and Stephanie Gutheinz         

A district court in the Southern District of Texas recently held that nothing in the text of the FCA or its legislative history prevents employment-related retaliation claims from being arbitrated under a valid and enforceable arbitration agreement.  Under the Federal Arbitration Act, a valid agreement to arbitrate certain disputes is valid and enforceable unless Congress has precluded arbitration of the statutory right at issue.  The relator argued that the FCA precludes arbitration of retaliation claims because arbitration of such claims would allow defendants to immunize themselves against relator-initiated claims of FCA violations, undermining the purpose of the FCA to protect whistleblowers.  The relator further argued that such arbitration proceedings could constitute public disclosures, thereby unfairly triggering the public disclosure bar.  The court reasoned, however, that relators can avoid this issue by filing their retaliation claims with or after the qui tam claims.  The case is United States ex rel. Cassaday v. KBR, Inc.

By: Joel Androphy, Rachel Grier, and Stephanie Gutheinz 

In order to be successful, a relator must establish that a fraudulent statement or record was material to the government’s decision to pay a false claim.  For claims reimbursed under a diagnosis related group (“DRG”) code system, only identifying line items on a patient’s bill may fall short of this materiality requirement.  Reimbursement under the DRG system provides a fixed payment based on the patient’s DRG, which is calculated based on the patient’s diagnosis and age.  In most circumstances, the DRG rate satisfies full payment for all services provided, including prescription drugs.  Thus, under the DRG system, individual prescriptions are immaterial to the amount the government pays for the treatment of a given patient because payment is based solely on the DRG rather than any individual charges on the patient’s bill.  As such, those line item charges cannot serve as the basis for FCA liability under these circumstances.  The case is United States ex rel. Kennedy v. Aventis Pharmaceuticals, Inc., a court in the Northern District of Illinois.

Federal False Claims Act and Qui Tam Actions
Law Journal Press Webinar
By: Joel M. Androphy, Sarah Frazier and Rachel Grier

View Presentation (.ppt)

The False Claims - Mens Rea section of this blog is currently being developed.  For more information, visit the Qui Tam section of the Berg & Androphy web site.

The False Claims - Types section of this blog is currently being developed.  For more information, visit the Qui Tam section of the Berg & Androphy web site.