Today on IPcopy we have a summary courtesy of Wolf, Greenfield & Sacks, P.C. of a significant patent decision in the U.S. Supreme Court (SCA Hygiene Products v. First Quality Baby Products, LLC).
On Tuesday March 21, 2017, the Supreme Court issued a 7-1 decision in SCA Hygiene Products v. First Quality Baby Products, LLC, ruling that laches—the notion that a plaintiff prejudiced a defendant by waiting too long to sue—cannot be invoked as a defense against a claim for patent infringement damages that accrued prior to the date of the suit. Explaining that a laches defense would undermine the Patent Act’s statute of limitations for damages, the Supreme Court relied heavily on its analogous copyright decision from 2014, Petrella v. Metro-Goldwyn-Mayer, Inc., to overrule a 6-5 en banc decision from the Federal Circuit.
SCA is a favorable decision for patent owners, but is unlikely to have a profound impact on patent litigation. Laches defenses were always difficult to prove except in the most extreme situations—situations in which the separate doctrine of equitable estoppel remains available. SCA will likely be most significant in cases where the patent owner never actually communicated with the defendant before the suit but instead silently waited a long time to sue, perhaps until sales of an accused product are greatest, significantly prejudicing the defendant in the process (e.g., as a result of significant investments in the accused products or important evidence becoming unavailable). Even in those cases, the defendant may still cite laches as a reason to deny injunctive relief.
Laches is an equitable defense against a plaintiff who has unreasonably delayed in bringing a claim. It comes from the notion that plaintiffs should not be able to hold off on bringing a claim until the circumstances or available evidence have changed to their advantage.
Statutes of limitations create legal defenses for a similar purpose. Unlike laches, which relies on a number of equitable factors, a statute of limitations provides the maximum time after an event that a plaintiff can bring a claim before that claim is unreasonably delayed and legally barred.
In Petrella, the Supreme Court ruled that laches could not defeat a claim of copyright infringement brought within the three year statute of limitations under the Copyright Act. The Court held that the statute of limitations clearly reflected Congress’s determination of a claim’s timeliness and that using an equitable “gap-filling” doctrine like laches would be judicial overreach. SCA posed the same question in the context of patent law.
In October 2003, SCA warned First Quality that First Quality’s adult incontinence products allegedly infringed SCA’s patent. First Quality responded that its own patent pre-dated and invalidated SCA’s. In July 2004, SCA requested a reexamination. In March 2007, the PTO confirmed SCA’s claims over First Quality’s patent. However, SCA did not file suit until August 2010. First Quality asserted a laches defense even though the claim was within the statutory period of 35 U.S.C. § 286, which bars recovery for infringement that occurred more than six years prior to the filing of the claim.
Before Petrella was decided, the District Court ruled in SCA that the claim was barred by laches and equitable estoppel, and a Federal Circuit panel subsequently upheld the decision with respect to the laches defense. The rulings relied on the Federal Circuit’s 1992 decision, A.C. Aukerman Co. v. R.L. Chaides Constr. Co., which allowed for laches defenses in patent suits where 1) the patentee had unreasonably and inexcusably delayed in bringing suit; and 2) the delay had materially prejudiced the infringer. After Petrella, the Federal Circuit reheard the case en banc and upheld Aukerman, ruling that the Patent Act codified a laches defense in the “unenforceability” provision of 35 U.S.C. § 282(b)(1) that could bar legal remedies like damages even if § 286 did not.
Supreme Court Decision
Justice Alito wrote the majority opinion as the Supreme Court reversed the Federal Circuit and held that laches is not a defense for damages that occur within the six years allowed by § 286. Justice Breyer was the lone dissenter.
To start, First Quality argued that, since § 286 limits damages “backwards” from the date of the claim instead of “forward” from the date of the event, it was not actually a statute of limitations. However, the Court found this unpersuasive in distinguishing SCA, since Petrella included “backwards-looking” descriptions of the statute of limitations in copyright law as well.
The Court also disagreed with the Federal Circuit’s ruling that § 282(b)(1) of the 1952 Patent Act codified the laches defense. According to the majority, the many pre-1952 cases cited by First Quality were insufficient to show that laches served as a defense against damages in the patent context. Some of the cases allowed laches as a defense for just an equitable remedy, others included only dicta that was favorable, and the few cases that favored First Quality were insufficient to show a “settled, uniform practice.”
Having dismissed the §282(b)(1) argument, the Court relied on the logic of Petrella: judges should not create a laches defense to a legal remedy where a statute of limitations is already in effect regardless of their policy preferences.
SCA nominally favors patent owners, because accused infringers can no longer use a laches defense to prevent a patent owner from getting damages for alleged acts of infringement that occurred six years or less before the patent owner sued. However, there are several reasons to believe that the impact of the ruling will be modest.
First, as First Quality correctly argued, laches was already a limited defense against a claim for infringement. Proving that a plaintiff’s delay is “unreasonable” and that the defendant was materially prejudiced because of that delay is difficult. In fact, District Courts have found pre-suit infringement damages barred by laches only a few dozen times in the past decade. Further, even when successful in the past, laches defenses normally only barred the patent owner from collecting pre-suit damages. The owner remained free to pursue damages for alleged infringement that occurred during the litigation (and thereafter).
Second, SCA eliminates the laches defense with respect to legal remedies like damages, but laches is still available for equitable remedies like injunctions to halt sales of the accused products. Even the dissent in the en banc Federal Circuit opinion acknowledged that laches could apply to equitable relief, and the Supreme Court did not address the question. Defendants should still be aware of the possibility of asserting laches against claims for injunctive relief. The longer that a patent owner waits, the easier it may be to convince the court that the plaintiff is not suffering irreparable harm and thus is not entitled to an injunction.
Finally, equitable estoppel is still available as a defense against infringement damages. In many of the cases in which laches was effective, the courts found an equitable estoppel defense as well. Under Aukerman, estoppel requires proof that 1) the patent holder led the defendant to believe that the patent would not be enforced against it; 2) the defendant relied on this; and 3) the defendant suffered material prejudice (economic or evidentiary) as a result. In theory, this is a higher threshold than the law had required for laches. In practice, the standards at least partially overlapped in situations where the patent owner had communications of some sort with the accused infringer. The most significant difference is that the accused infringer could at least theoretically prove laches—but not equitable estoppel—even in situations where the patent owner never made any contact before filing suit. Thus, SCA may be a boon for patent owners who have not yet approached potential targets and instead desire to “lay in wait” (e.g., for a defendant’s sales to grow).
Wolf Greenfield’s Litigation Group 19 April 2017