Federal Circuit Holds That Laches is Defense To Equitable Relief and Pre-Filing Damages In Patent Infringement Actions

In a recent en banc decision, the U.S. Court of Appeals for the Federal Circuit ruled that laches resulting from a delay in filing suit for patent infringement is a statutory defense, and may bar a patentee from obtaining injunctive relief or an award of pre-suit damages. SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, Case No. 2013-1564 (Fed. Cir. Sept. 18, 2015). The court distinguished the Supreme Court’s 2014 Petrella decision, which held that laches is not available as a defense under the Copyright Act. See Petrella v. MetroGoldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014). In addition, the Federal Circuit ruled that although a laches defense may preclude injunctive relief or an award for pre-suit damages, it only will bar a patentee’s right to continuing royalties for post-trial infringement in “extraordinary circumstances.”  A copy of the decision is HERE.

Petrella Calls Into Question Federal Circuit’s Previous Laches Rulings

The Federal Circuit has long recognized laches as a defense when an unexcused delay occurs between the time a patentee/plaintiff knows (or should know) of an infringement and the filing of an infringement action. See A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020 (Fed. Cir. 1992) (en banc). The Aukerman court established that:

Two elements underlie the defense of laches: (a) the patentee’s delay in bringing suit was unreasonable and inexcusable, and (b) the alleged infringer suffered material prejudice attributable to the delay. The district court should consider these factors and all of the evidence and other circumstances to determine whether equity should intercede to bar prefiling damages.

Slip op. at 10-11. In addition, the appeals court ruled that “[a] presumption of laches arises where a patentee delays bringing suit for more than six years after the date the patentee knew or should have known of the alleged infringer’s activity.” Id.

In Petrella, the Supreme Court ruled that laches is not available as an equitable defense to a statutory cause of action for copyright infringement when the federal statute itself provides a statute of limitations. Petrella was a copyright case involving the 1980 film Raging Bull, but the Court noted that its decision might affect the Federal Circuit’s application of laches in patent infringement cases, although it had no “occasion to review the Federal Circuit’s position” in its decision. 134 S. Ct. at 1974 n.15.

Federal Circuit Holds That Laches Is A Statutory Defense Under Patent Act

The Federal Circuit ordered rehearing en banc in SCA Hygiene to consider the impact of Petrella on the laches defense in patent cases. The Federal Circuit distinguished Petrella and held that the laches defense is available under the Patent Act even though 35 U.S.C. § 286 provides a temporal limitation on the availability of damages for patent infringement, concluding that “[i]n the 1952 Patent Act, Congress settled that laches and a time limitation on the recovery of damages can coexist in patent law.” Slip op. at 5.

Chief Judge Sharon Prost wrote the majority opinion, which the entire court joined on the question whether laches is a defense to patent infringement. The court noted that, unlike the Copyright Act, the current Patent Act incorporates laches as a statutory defense. Although 35 USC § 282 does not explicitly refer to laches, it states that defenses to patent infringement claims “include noninfringement, absence of liability for infringement or unenforceability.” 35 U.S.C. § 282(b)(1) The court observed that it long had recognized that laches was codified in this provision. Moreover, the court relied on a detailed commentary on the Patent Act written by Pasquale J. Federico, the USPTO’s unofficial “historian” and principal author of the legislation that became the 1952 Patent Act. P.J. Federico, Commentary on the New Patent Act, reprinted in 75 J. Pat. & Trademark Off. Soc'y 161 (1993). The court noted that it and other courts have cited Federico’s commentary as “an invaluable insight into the intentions of the drafters of the Act.” Symbol Techs., Inc. v. Lemelson Med., 277 F.3d 1361 (Fed. Cir. 2002). According to Federico’s commentary, Congress intended § 282(b)(1) to “include the defenses such as that the patented invention has not been made, used or sold by the defendant; license; and equitable defenses such as laches, estoppel and unclean hands.”

Because the Federal Circuit found that the Patent Act includes laches as a statutory defense, the Supreme Court’s rationale for excluding laches as a defense under the Copyright Act is not applicable to patent infringement actions. In fact, the Petrella Court recognized that Congress could provide a statutory basis for laches, as it did in the Lanham Act. See 134 S. Ct. at 1974 n.15. Furthermore, the Federal Circuit observed that § 286 is a “damages limitation,” not a statute of limitations, stating that, “By its terms, § 286 is a damages limitation. The statute does not preclude bringing a claim—instead, it limits a patentee’s damages recovery to compensation for only the last six years of infringement.” Slip op. at 17. It ruled, however, that the distinction is irrelevant to the question whether the laches defense is available.

Laches Affects Injunctions And Bars Pre-Filing Damages

The Federal Circuit next evaluated the effect of laches on the remedies available in an infringement action. First, the judges unanimously agreed that laches continues to be a factor in a court’s decision to award injunctive relief. The Federal Circuit  noted that the circumstances giving rise to laches are considerations that “[f]all under the balance of the hardships factor” that a court must consider in considering requests for injunctive relief under eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006).

In addition, the majority (six of eleven judges) observed that pre-1952 cases consistently applied laches to bar recovery for monetary damages. See, e.g., Banker v. Ford Motor Co., 69 F.2d 665 (3d Cir. 1934). The court presumed that in enacting the Patent Act, Congress was aware of pre-1952 cases applying laches as a defense to legal claims. Thus by enacting § 282 without commenting on the common law rule, the statute “codified whatever laches doctrine existed” at the time, including the bar to pre-filing damages. Slip op. at 32. Five circuit judges dissented from the court’s ruling that laches is available as a defense for damage claims under the Patent Act. They argued that the question should be governed by the Supreme Court’s general interpretation of laches as a defense, and that the Federal Circuit should not adopt “special rules” for patent cases.

Finally, although the Federal Circuit ruled that Petrella did not require the abrogation of laches as a defense, it did require an adjustment of the defense’s impact on continuing damages. Laches may be a bar to recovering damages arising during a period of unexcused delay, but it is not a forfeiture of rights to the patent itself. This result is one important difference between laches and estoppel. See Menendez v. Holt, 128 U.S. 514 (1888) (“Delay in bringing suit there was, and such delay as to preclude recovery of damages for prior infringement; but there was neither conduct nor negligence which could be held to destroy the right to prevention of further injury.”). As a result, the Federal Circuit held that a “patentee guilty of laches typically does not surrender its right to an ongoing royalty.” Slip op. at 40-41.

This may not be the last word on the issue. The Supreme Court may be asked to review SCA Hygiene and decide whether the Federal Circuit was correct to keep the laches defense as part of patent law.

Is proof of damages required in Spain if patentee opts for equivalent royalty?

Colm Ahern

PatLit is delighted to host the following item from Spain, written by Colm Ahern (of Elzaburu, Madrid). Writes Colm:

Article 13 of the Enforcement Directive 2004/48 rather confusingly seems to equate equivalent royalty with damages, whereas in many continental legal systems it might fit more easily into the category of unjust enrichment i.e. the infringer has obtained something to which he has no legitimate right. The reference to damages, which has been transposed in Article 66 of the Patents Act has caused particular problems in Spain where case law has traditionally held that damages must be “real and effective” and strictly limited to those that are proven. Should the patentee then have to prove damages if he opts for equivalent royalty which, after all, has nothing to do with any actual damage he has suffered? This has led to some rather confusing and contradictory case law and the development of the doctrine of “ex re ipsa” which seeks to somehow fit equivalent royalty into the traditional picture by saying that there is no need to prove the existence of damage if by the nature of the thing under analysis (res), the existence of damage is clear (from the thing itself). However it would have been much better to acknowledge that as equivalent royalty cannot really be equated with the continental law concept of damages, as then the question of proving damages does not even arise.

This is exactly what the Madrid Appeal Court has done in Judgment no. 25/2014 of 24 January 2014 in appeal no. 578/2012. The ruling sets out that the purpose of equivalent royalty is not to compensate a loss suffered by the patentee, but rather the illegitimate invasion of his exclusive right. The Court does not say that it is necessary to show that the existence of a loss is self-evident (ex re ipsa) but rather that there is no need to prove or even consider any such loss. This comes as good news to patentees who up to now ran the risk that a court might find that the loss was not as self evident as they claimed e.g. when the patentee himself is not exploiting the patent in Spain and has made no preparations to do so either directly or through the granting of licenses. Even better, the Court gives clear guidance on what type of equivalent license terms can be sought including an up front payment, a fixed minimum monthly royalty and variable royalty based on sales. This is good news for patent litigators in Spain where judges traditionally tend to be guarded in their damages awards. 

This blogger has long been concerned at the relative lack of consistency in the assessment of damages in IP infringement proceedings, as well as being baffled by the paucity of references to the Court of Justice for preliminary rulings on how the Enforcement Directive should be interpreted.  This decision is therefore of particular interest to him.  Do readers from other countries have any thoughts?

Judge Posner Changes Mind, Orders Injunction Hearing

In his preliminary order dismissing the Apple v. Motorola patent case, Judge Richard A. Posner cautioned that he might change his mind before issuing a final decision.  Now he apparently has, although the change does not necessarily reverse his view that a right to damages or injunctive relief is an essential element of a patentee's infringement claim.  On June 13, Posner issued a one-paragraph order requiring the parties to appear on June 20 for an evidentiary "eBay" hearing where "[e]ach party may argue that it would be entitled to injunctive relief as to its patent or patents were the other party found to have infringed."  Stay tuned for more twists and turns in this case.

Judge Posner Suggests That Damages Required For Viable Infringement Claim

U.S. Circuit Court Judge Richard A. Posner, a very influential jurist who sits on the U.S. Court of Appeals for the Seventh Circuit, is sitting as the trial judge by designation in the contentious patent infringement litigation between Apple Inc. and Motorola Mobility, Inc. (subsequently acquired by Google, Inc.) pending in the Northern District of Illinois (Case No. 1:11 cv08540). In that lawsuit, Apple and Motorola each assert that the other company infringes multiple patents relating to smartphone technology, including operating systems and touchscreen technology. Recently, practically on the eve of trial, Posner issued a two-page preliminary order cancelling the trial and indicating that he intends to dismiss all pending claims with prejudice.

Although he stated that he would explain his rationale more fully in a forthcoming written decision, Posner suggested that dismissal was required because neither side could prove a right to damages or injunctive relief. In light of his prior evidentiary rulings rejecting the proposed expert damages testimony of both sides, including for failure to meet the standard of technical reliability established in Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), Posner concluded that neither side was able to prove infringement damages. Thus, he noted cryptically, that failure of proof meant that each claimant failed to create a genuine issue of fact for trial, and all infringement claims would be dismissed on summary judgment.

In addition, Posner noted that although neither company could prove damages, they both contended that damages were adequate to remedy infringement of their patents, so no injunctive relief was available. See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). Furthermore, he noted that an injunction was not available because “injunctive relief would impose costs disproportionate to the harm to the patentee and the benefit of the alleged infringement to the alleged infringer and would be contrary to the public interest[.]” He also declined to enter declaratory relief.

Thus, it appears that Posner views an entitlement to actual damages, or at least a right to injunctive relief, to be essential for a viable infringement claim, despite the language of 35 U.S.C. § 271(a) (“whoever without authority [practices] any patented invention during the term of the patent therefor, infringes the patent.”). Finally, although Posner noted that a full decision would be issued shortly, he cautioned that in the course of preparing that decision, “I may change my mind.”

US Patent reform: fears to changes

I was planning what to do during last warm long weekend in Madrid when I realised that the America Invents Act passed in Congress with a vote of 304-117.

Much has been said in the last days about the inconvenience of this reform. Most of the comments I have read refer to its negative impact. Some of those describe drastically the effects. How does it look if we put some of them together?

“The anti-innovation patent reform act of 2011” “creates strong financial incentives for usurping patent rights by hacking and industrial espionage”, “could end up making it more difficult for inventors to defend their patents against infringement” and would be “dangerous to U.S. Security”.

Not bad, write?

Changes always cause fear. Modification of the system means that the new regime will have to be studied, bring some uncertainty and most of the times have economic effects (this Act has also been called the “job-killing Patent-Bill”).

I prefer trying to see the benefits and among those, the comment that brings the attention of this Patlit is the “attempt to keep patent battles out of the courts”. How this would happen? Damages regulation may have an important role. According to the Executive summary published in the website of the Republican Majority in Congress (here) “only a person who suffers a competitive injury as a result of false marking may bring a civil action in federal court for compensatory damages”. If this is correct, what would be the future of Patent Trolls?

If you want to read what do politicians say, you may like to read "The America Invents Act - Promoting American Innovation, Creating American Jobs, Growing America's Eeconomy" (here) (pdf alert)

In any case, experience show that changes are very rarely as bad (neither as good) as seemed.

We’ll see who is right.

What do you think?

Microsoft v i4i just decided

The appeal has been decided today by US Supreme Court. The justices confirm that:

“in asserting patent invalidity as a defense to an infringement action, an alleged infringer must contend with §282 of the Patent Act of 1952 (Act), under which “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity . . . shall rest on the party asserting” it. Since 1984, the Federal Circuit has read §282 to require a defendant seeking to overcome the presumption to persuade the factfinder of its invalidity defense by clear and convincing evidence”.

Bearing in mind that “Section 282 requires an invalidity defense to be proved by clearand convincing evidence”, “the Court rejects Microsoft’s contention that a defendant need only persuade the jury of a patent invalidity defense by a preponderance of the evidence”.

The justices also reject “Microsoft’s argument that a preponderance standard must at least apply where the evidence before the factfinder was not before the PTO during the examination process”

Reference is also made to the fact that “during the nearly 30 years that the Federal Circuit has interpreted §282 as the Court does today, Congress has often amended §282 and other patent laws, but apparently has never considered any proposal to lower the standard of proof. Indeed, Congress has left the Federal Circuit’s interpretation in place despite ongoing criticism, both from within the Federal Government and without”.

Microsoft Corp. must therefore pay a $290 million to i4i.

US Supreme Court opinion here

Oracle v. Google: 50% royalty rate?

In Oracle America, Inc. v. Google Inc. (C 10-3561 WHA), the defendant has recently filed a writ requesting leave to file a Daubert or other motion directed at the damages report of Oracle’s expert Iain Cockburn.

Apparently, Oracle’s expert is not only fixing an unprecedented royalty rate, but also (i) fails to tie his royalty rate to the value of the patented technology actually at issue in the case (ii) argues that royalties would be owed even after expiration of Oracle’s patents and, believe it or not, (iii) would be including a portion of Google’s advertisement pie!

May Google be facing a sort of punitive damages in this case?

Arguments used by Google:

"First, Cockburn has no basis for including all of Google’s revenue from Android phones into the base of his royalty calculation. The accused product here is the Android software platform, which Google does not sell (and Google does not receive any payment, fee, royalty, or other remuneration for its contributions to Android). Cockburn seems to be arguing that Google’s advertising revenue from, e.g., mobile searches on Android devices should be included in the royalty base as a convoyed sale, though he never articulates or supports this justification and ignores the applicable principles under Uniloc and other cases. In fact, the value of the Android software and of Google’s ads are entirely separate: the software allows for phones to function, whether or not the user is viewing ads; and Google’s ads are viewable on any software and are not uniquely enabled by Android. Cockburn’s analysis effectively seeks disgorgement of Google’s profits even though “[t]he determination of a reasonable royalty . . . is based not on the infringer’s profit, but on the royalty to which a willing licensor and a willing licensee would have agreed at the time the infringement began.” ...

Second, Cockburn includes Oracle’s “lost profits and opportunities” in his purported royalty base. This is an obvious ploy to avoid the more demanding test for recovery of lost profits that Oracle cannot meet… Most audaciously, Cockburn tries to import into his royalty base the alleged harm Sun and Oracle would have suffered from so-called “fragmentation” of Java into myriad competing standards, opining that Oracle’s damages from the Android software includes theoretical downstream harm to a wholly different Oracle product. This is not a cognizable patent damages theory, and is unsupported by any precedent or analytical reasoning.

Third, after improperly inflating the base of his royalty calculation, Cockburn proceeds to apply an unprecedented fifty percent royalty rate to that base through use of improper short-cuts. In contravention of long-settled precedent, he fails to tie his royalty rate to the value of the patented technology actually at issue in this case. ... He treats the patents and copyrights at issue as a single, indivisible unit, casually dismissing critical differences in the patents (such as the technologies they embody and expiration dates over a decade apart) by deeming them all “essential” to Java, without pointing to any facts that could justify that conclusion. Instead of satisfying the Lucent standard, he adopts a presumption that is contrary to Lucent, stating that there is “no clear economic basis” for apportioning the total value of Android into value attributable to the patents and copyrights in suit and any additional value added by Google. Under the case law, however, damages must be tied to “the claimed invention’s footprint in the market place.” …

Cockburn similarly inflates his royalty rate by calculating Oracle’s loss based on the alleged value of Java as a whole, even though the patented features are only a small part of Java….

Fourth, Cockburn cavalierly asserts that infringement of a Single claim of a single patent would result in the same … award as infringement of all of the asserted claims. The ‘720 patent, for example, it expires nearly eight years after every other patent-in-suit. But according to Cockburn, even if Google does not infringe the ‘720 patent, the damages should still run throughout its life, which extends to 2025…”

European damages "equal legal fees"

A short, newsy item in NewsTimes ("Presstek wins patent cases in federal, German courts", by staff writer Richard Lee) relates the successful enforcement of its printing plate technology by US-based Presstek Inc. against Israel-based Vim Technologies, its German distributor Reinsch Handel and Mr Reinsch himself. Said Presstek spokeswoman Betty LaBlaugh:

"It's huge. We're all for a competitive free market, but we've invested in developing this technology and taken time to patent it. We're going to protect those patents. The court has ordered them to give us (advertising and sales) information so we can seek damages".

James Van Horn, Presstek's general counsel, enthuses in much the same vein:

"This judgment should serve as a warning that the purchase and use of VIM products violate patent rights and come with the risk of significant liability. Our objective is to end the unlawful sale and use of the infringing VIM products and to recover damages from the manufacturers, distributors and, in some cases, the end-users of these products".

Presstek does not however expect any financial windfall as a result of its win in the German court. According to Mark Nowotarski, president of Markets, Patents & Alliances LLC in Stamford:

"In Europe, you do it to send a message. The damages you collect are equal to the legal fees".

Presstek is presumably no stranger to legal fees, having already successfully litigated the same patent against VIM in New Hampshire and with proceedings for patent and trade mark infringement currently progressing before the International Trade Commission.