When a Patent 'Laches' on to Doctrine: Should There be a Patent-Specific Approach to the Defense of Laches?

Patent Law

When a Patent “Laches” on to Doctrine: Should There Be a Patent-Specific Approach to the Defense of Laches?

CASE AT A GLANCE

The Supreme Court decided in 2014 that the doctrine of laches could not be invoked to shorten the three-year statutory limit for obtaining legal relief in a copyright-infringement lawsuit. In a subsequent case, the United States Court of Appeals for the Federal Circuit decided that the Patent Act’s six-year statutory damages period presented different circumstances, and the Federal Circuit held en banc that laches could shorten the time for legal relief in a patent-infringement lawsuit. The Supreme Court will now decide whether this different result is warranted in patent law. 

SCA Hygiene Products v. First Quality Baby Products, LLC

Docket No.15-927

Argument Date: November 1, 2016

From: The Federal Circuit

ISSUE

Whether and to what extent the defense of laches may bar a claim for patent infringement brought within the Patent Act’s six-year statutory limitations period, 35 U.S.C. § 286.

FACTS

Petitioners SCA Hygiene Products Aktiebolag and SCA Personal Care, Inc. (collectively “SCA”) sell adult incontinence products and own United States Patent No. 6,375,646 (“the ’646 patent”) directed to such products. The ’646 patent issued with 28 claims in 2002. Respondents First Quality Baby Products and three related entities (collectively “First Quality”) produce and sell a disposable version of an adult incontinence product that competes with SCA’s and that SCA believes infringes the ’646 patent.

On October 31, 2003, SCA contacted First Quality, asserting infringement of the ’646 patent. In response, on November 21, 2003, First Quality advised SCA that it believed SCA’s patent to be invalid in light of a patent that was filed before SCA’s, U.S. Patent No. 5,415,649 (“the ’649 Patent”). After First Quality’s response, SCA and First Quality did not communicate further about the alleged infringement. 

SCA later sought review from the United States Patent and Trademark Office (“PTO”) as to the validity of its ’646 patent. On July 7, 2004, SCA filed a request for reexamination of the ’646 patent in light of the ’649 patent. Reexamination, or “reexam,” is an administrative proceeding within the PTO whereby a requesting party, including the patentee, may seek review of an issued patent in light of one or more specific patents or printed publications cited in the reexamination request. If the PTO grants the request for reexamination, and the patent survives reexamination, the PTO issues a certificate confirming patentability. If the PTO determines that any claim of the patent is unpatentable over the cited reference or references, it issues a certificate cancelling any invalid claims. During reexam, a patentee may also amend the existing claims or add new claims to the patent, which the PTO will allow to issue if they are deemed patentable.

In this case, the PTO granted SCA’s request for reexamination and, on March 27, 2007, confirmed the patentability of all of the original claims. The PTO also issued several new claims that SCA had added during reexam. SCA did not notify First Quality of the reexamination request because reexam proceedings are available to the public and, in SCA’s view, First Quality therefore could monitor the proceedings itself. First Quality, however, believed that SCA had dropped its infringement allegations against First Quality after the November 21st letter. Starting in 2006, First Quality made significant investments in its adult-incontinence business, expanding its product line and acquiring other capital assets to do so.

SCA was aware of First Quality’s activities but did not contact First Quality about the ’646 patent again until August 2, 2010, when SCA filed the instant patent-infringement lawsuit against First Quality in the United States District Court for the Western District of Kentucky. After discovery and an order construing the claims of the ’646 patent, First Quality filed a motion for summary judgment. Among other things, First Quality sought to limit its liability based on the doctrine of laches, a judicially created, equitable doctrine that can restrict a right-holder who “sits on her hands” rather than acting in later asserting her rights against an adverse party. First Quality noted that service of the complaint had occurred over three years after the reexam concluded and was the first time in nearly seven years that SCA had communicated with First Quality about the ’646 patent. Laches can generally bar claims for certain equitable remedies, but First Quality also sought to use the doctrine to restrict SCA’s ability to recover legal relief, specifically back damages for the infringement, relying on precedent of the United States Court of Appeals for the Federal Circuit.

SCA argued in response that the doctrine of laches did not apply to prevent legal relief for infringement that falls within the Patent Act’s six-year damages recovery period. To support its argument, SCA relied on the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), which had recently held that the doctrine of laches could not bar legal relief within the Copyright Act’s three-year statute of limitations. The district court disagreed with SCA, however, holding that the doctrine of laches can apply to bar legal relief in patent suits and that SCA failed to raise a genuine issue of material fact regarding the reasonableness of its delay or First Quality’s presumed economic prejudice. The court granted summary judgment on the issue of laches in First Quality’s favor.

On appeal to the Federal Circuit, the panel affirmed the district court’s judgment, holding that an unreasonable delay in suing for patent infringement can result in the loss of the right to seek legal relief. The court rejected SCA’s argument that the Petrella decision effectively abolished the doctrine of laches in patent law. SCA sought rehearing en banc, which the Federal Circuit granted “to resolve whether, in light of the Supreme Court’s recent decision in Petrella[,] . . . laches remains a defense to legal relief in a patent infringement suit.”

In a close, 6-5 split decision, the Court of Appeals adhered to the panel’s view. Chief Judge Prost wrote the majority opinion, which relied heavily upon section 282(b)(1) of the Patent Act. That provision provides: “Defenses.—The following shall be defenses in any action involving the validity or infringement of a patent and shall be pleaded: (1) Noninfringement, absence of liability for infringement or unenforceability.” En banc precedent of the Federal Circuit in A.C. Auckerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992) (en banc), had held that laches as a defense to legal relief was codified in that general language of 35 U.S.C. § 282 based on the well-established existence of the defense at the time the patent laws were recodified in 1952, the legislative history, and commentary from one of the principal drafters of the legislation. The SCA court conducted its own analysis and review of the precedents and other authorities and reaffirmed the A.C. Auckerman court’s interpretation of section 282(b)(1). Chief Judge Prost then explained that the court had no authority to question the statute’s propriety. She concluded, “If . . . Congress decides that the § 286 damages limitation and the § 282 laches defense are incompatible, it can change the law. As a court, however, we must apply the law as enacted, which means that the § 286 damages limitation and the § 282 laches defense must continue to coexist.”

As a final point in reaching its conclusion, the majority reasoned that differences between copyright law and patent law also justified the outcome. Specifically, the court noted that defendants accused of copyright infringement had a greater ability to insulate themselves from damages through evidence of independent creation, whereas independent invention is no defense to patent infringement. Thus, the court found persuasive the arguments of many industry groups that retaining laches in patent law was necessary to provide a safeguard against stale claims brought long after companies have lost the ability to choose an alternative technology to avoid infringement.

The court determined that the Petrella decision did not alter the foregoing outcome: “Whether Congress considered the quandary in Petrella is irrelevant—in the 1952 Patent Act, Congress settled that laches and a time limitation on the recovery of damages can coexist in patent law.” The court held that Petrella and other Supreme Court precedent did, however, require modification of the laches defense. In particular, the Court’s precedent made clear the importance of maintaining the distinction between equitable estoppel, which can bar a patentee’s claim completely and is tantamount to a patentee granting a license to an accused infringer based on misleading actions by a patentee and resultant loss to an accused infringer, and laches. The Federal Circuit majority accordingly held that laches can “only foreclose an ongoing royalty in extraordinary circumstances.” Otherwise, if laches bars legal relief, as the court held it can, and all equitable relief, the outcome would be the same as that reached through equitable estoppel, a result against which Petrella cautioned.

The five judges concurring in part and dissenting in part agreed, in an opinion written by Judge Hughes, that laches continues to be a defense to equitable relief such as an injunction or ongoing royalties, when warranted by the circumstances. They disagreed, however, with the majority’s holding that Congress had codified the defense of laches as to legal relief in section 282. Instead, they reasoned that, to the extent that section 282 codified the common law, that common law derived from Supreme Court precedent relating to the doctrine of laches generally, not the common law of laches in the limited context of patent law. That Supreme Court precedent held that laches was only a defense to equitable actions and therefore, the five judges in the minority concluded, laches could not serve to bar legal relief in patent-infringement actions. They rejected a patent-specific approach to laches, emphasizing that “[p]atent law is governed by the same common-law principles, methods of statutory interpretation, and procedural rules as other areas of civil litigation.”

CASE ANALYSIS

In 35 U.S.C. § 286, entitled “Time limitation on damages,” the Patent Act limits the recovery of damages for patent infringement to the six years preceding the filing of the claim of infringement, stating: “Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.” The Court will now decide whether laches is a defense to patent infringement occurring within the six-year recovery period of section 286.

In addressing that issue, Petrella looms large, as the lower courts’ decisions and the parties’ positions focused on that precedent, and the Court will certainly take into account its reasoning and holding in Petrella. That case involved a dispute regarding rights to Martin Scorsese’s 1980 film Raging Bull, owned by Metro-Goldwyn-Mayer (“MGM”). The plaintiff, Petrella, alleged that the film infringed a 1963 screenplay written by her late father. Petrella renewed the copyright to the screenplay in 1991, but did not contact MGM about her infringement contentions until seven years later. Then, over the course of two years, Petrella and MGM exchanged letters about the alleged copyright infringement. MGM subsequently heard nothing further from Petrella until she filed suit in 2009, about nine years after her last contact with MGM. In response, MGM moved for summary judgment on the theory of laches.

The Supreme Court, however, held that laches could not be used as a defense to legal relief for copyright infringement. In reaching its result, the Court relied on section 507 of the Copyright Act, entitled, “Limitations on Actions,” and which provides in part that “No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” That statute of limitations, the Court reasoned, “itself takes account of delay.” In contrast, the Court explained, “laches is a defense developed by courts of equity; its principal application was, and remains, to claims of an equitable case for which the Legislature has provided no fixed time limitation.” Laches “originally served as a guide when no statute of limitations controlled the claim.” Noting separation-of-powers concerns, the Petrella Court emphasized that laches is a “gap-filling, not legislation-overriding” doctrine. “To the extent that an infringement suit seeks relief solely for conduct occurring within the limitations period . . . courts are not at liberty to jettison Congress’ judgment on the timeliness of suit.” The High Court accordingly held, “in the face of a statute of limitations enacted by Congress, laches cannot be invoked to bar legal relief.” The Petrella Court noted that laches can nevertheless impact the equitable relief available to a right-holder, explaining, “the consequences of a delay in commencing suit may be of such sufficient magnitude to warrant . . . curtailment of the relief equitably awarded” during the remedial stage of a case or even at the outset of the litigation, and depending on the circumstances.

The Petrella opinion also touched on the related areas of trademark and patent law. In reaching its conclusion, the Court reasoned that Congress could provide for a laches defense in copyright law, noting that it had done so in the Lanham Act for trademark-infringement actions. Regarding patent suits, the Court expressly took no position on whether its decision would extend to that area of law, stating that “based in part on § 282 and commentary thereon, legislative history, and historical practice, the Federal Circuit has held that laches can bar damages incurred prior to the commencement of suit . . . . We have not had occasion to review the Federal Circuit’s position.” In SCA Hygiene, the Federal Circuit reaffirmed that position, concluding that the different circumstances in the patent context compelled a different result from that in Petrella.

SCA argues that the Federal Circuit erred in doing so. In SCA’s view, section 286 is a statute of limitations, just as in Petrella. Therefore, the Supreme Court’s analysis in Petrella forecloses the use of laches to abridge section 286. SCA also argues that the Federal Circuit’s unique approach to laches in patent law conflicts with the Supreme Court’s “equity jurisprudence,” which mandates a flexible approach to laches, rather than the inflexible scheme SCA contends that the Federal Circuit applies in presuming the reliance and prejudice aspects of the laches defense as to all infringement occurring within the six-year time period when the first act of infringement occurs more than six years before suit.

SCA further argues that, to be consistent with the purpose of section 286, section 282 cannot be interpreted as incorporating a defense of laches that bars legal relief that is otherwise allowed by section 286. Turning to the legislative history, SCA argues that nothing in the statutes preceding the 1952 Patent Act when section 282 was codified suggests that Congress intended laches to bar legal damages arising within the statutory limitations period. Instead, SCA argues, section 286 sets forth Congress’s judgment as to the timeliness of a claim for damages, and laches should not be available to further limit those damages. SCA counsels that the Court should follow the separation-of-powers principles at issue in Petrella and respect Congress’s choice to use section 286 to address the timeliness of patent infringement suit.

Invoking policies of clarity, predictability, notice, and sound dispute resolution, SCA further urges reversal of the Federal Circuit decision. Among other things, SCA argues that laches promotes needless, expensive litigation rather than settlement because clear rules as to timeliness aid patentees in assessing when the benefits of suing will outweigh the costs. SCA explains that an ambiguous limitations standard created by the inherent uncertainty of laches would incentivize patent holders to quickly file lawsuits to avoid losing their rights, thus increasing patent litigation that could otherwise be avoided if patentees are given time to assess possible infringement.

First Quality argues that Congress intended to incorporate laches as a defense to legal damages in section 282. First Quality cites decisions from before the passages of the 1952 Patent Act to argue that federal courts uniformly recognized that laches could bar recovery of legal relief for patent infringement, in both actions brought at law and equity, and that Congress incorporated this common law into 35 U.S.C. § 282. First Quality notes that the Federal Circuit, and other circuit courts before the creation of the Federal Circuit, have continued to apply laches in this fashion and that Congress has not altered that practice, despite repeated opportunities to do so. First Quality agrees that the separation-of-powers concerns expressed in Petrella apply to this case, but essentially argues that those concerns counsel in favor of not ignoring Congress’s codification of laches as a defense to legal relief in section 282.

First Quality further urges that permitting laches as a defense to legal relief is not unique to patent law, citing an example from employment law and a case arising under the Multiemployer Pension Plan Amendments Act. At the same time, patent law does present differences from copyright law that, First Quality argues, justify a different outcome in the patent context. In particular, First Quality argues that section 286 is not a statute of limitations, unlike section 507(b) of the Copyright Act at issue in Petrella. In addition, First Quality notes that the Petrella Court’s reasoning that Congress must have been aware that some copyright infringement actions would be brought after long periods of delay did not apply in patent law, because the term of patent protection is considerably shorter than the term of copyright protection.

First Quality also asserts SCA’s position would unfairly allow a patentee to sit silently on its rights while an innocent infringer expends substantial time and other resources to develop and commercialize a product independently, only to have a patentee thwart its efforts with a tardy claim at the peak of the competitor’s profitability. This is particularly problematic because, First Quality argues, patent law is subject to concerns not found in copyright law, such as “lock-in” issues, whereby a business might explore several possible technologies but ultimately become “locked in” to one, making significant investments, whereby substitution of an alternative, noninfringing technology ex post is no longer feasible.

Commercial and nonprofit amici from a variety of fields filed briefs in the case. For example, nonprofit organizations Electronic Frontier Foundation and Public Knowledge filed a brief in support of affirmance, emphasizing that delay is particularly pernicious in patent law due to the acute susceptibility to loss of invalidity evidence over time. On the other side, a brief filed on behalf of law professors who teach and write in the areas of remedies and patent law, supports SCA, and argues that laches is an equitable doctrine that should not bar claims for legal relief.

SIGNIFICANCE

This case presents the Supreme Court with the “occasion to review the Federal Circuit’s position” regarding laches that the Court noted in Petrella that it had not yet had. It also gives the High Court another opportunity to continue its abatement of patent-law exceptionalism, as the Court must determine if it should depart from its reasoning in Petrella based on the different circumstances in the patent context cited by the Federal Circuit majority. Relatedly, the Court must decide whether the common law codified in section 282 of the Patent Act was specific to the application of laches in patent law, or whether it related to the doctrine of laches, which applies throughout the law, more generally. A steady stream of Supreme Court decisions in patent cases for more than a decade have course-corrected patent law to be more aligned with universally-applicable legal principles.

If the Court departs from that trend and instead determines that laches does apply in a unique way in the patent context, to also bar legal relief, this will limit accused infringers’ exposure to retroactive damages. Patent-infringement defendants will be able to rely on laches as a defense to legal relief when a patentee unreasonably delays in bringing an infringement claim. A contrary ruling will benefit patentees, because laches could only be used to limit patent holders’ equitable relief. Patentees would not be prevented by laches from waiting to bring suit until a strategically advantageous time, such as shortly after a competitor’s most profitable six years of revenues, or at a time more economically feasible for a patentee to invest in expensive litigation. Patent owners often have compelling reasons for waiting to bring suit. For example, a patent may be subjected, at the election of the patentee or by request of a third-party, to a variety of post-issuance proceedings, such as the reexamination procedure that occurred with the ’646 patent here, or the newer inter partes review process being utilized in an increasing number of patent cases following passage of the America Invents Act.

The number of cases that will be affected by the Court’s decision, regardless of the substantive outcome, is not insignificant. The term of patent protection begins at issuance and runs for twenty years from the earliest effective filing date of the patent application. A typical term for a mechanical invention, for example, is about seventeen years. Because patent infringement is an on-going offense, with each copy of an infringing product constituting a new act of infringement, the six-year statutory limit can re-start continually throughout the life of a patent if an infringer continues to practice the patented technology. Patentees will accordingly often seek damages going back six years. Thus, if an infringer has been making a patented product for fifteen years, a patentee will rely on section 286 to reach back to the six years prior to filing the complaint for damages. This six-year damages period in patent law is generous compared to the time limits applicable to many other types of civil lawsuits. These lengthy periods of time also increase the potential for periods of delay on the part of patentees in asserting their rights, and this case will determine whether accused infringers can use those time lapses, when they are unreasonable, to bar a patentee’s collection of back damages that would otherwise be recoverable under section 286.

Reprinted with permission from ABA Preview. All rights reserved.