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.

Cautionary Tale: CAFC Rules That Delay Resulting From Reexamination Can Trigger Litigation Laches

Defendants accused of patent infringement sometimes raise the equitable doctrines of laches and estoppel as affirmative defenses. Although the defenses often appear to be linked, they are actually quite separate. As the Supreme Court explained last term, laches arises from an unreasonable delay in commencing suit that resulted in prejudice to the defendant, while equitable estoppel requires some action by the patentee, combined with reasonable reliance on that action by the defendant. See Petrella v. Metro-Goldwyn-Mayer, Inc., ___ U.S. ___, 134 S. Ct. 1962 (2014)

This week, the U.S. Court of Appeals for the Federal Circuit applied laches to bar a patentee’s infringement suit. SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, No. 2013-1564 (Fed. Cir. Sept. 17, 2014). The patentee, SCA Hygiene Products, owns a patent for adult incontinence products. On October 31, 2003, it notified First Quality Baby Products, LLC that First Quality appeared to be infringing the patent. SCA and First Quality exchanged letters for eight months. Then SCA requested ex parte reexamination of the patent based on a reference identified by First Quality. SCA did not notify First Quality of the reexamination proceedings. The U.S. Patent and Trademark Office issued a reexam certificate confirming the original claims and adding additional claims on March 27, 2007. SCA immediately began preparing to sue, but did not actually file suit until August 2, 2010 – six years and nine months after SCA’s first letter. During the pendency of the reexam, First Quality made substantial investments relating to the accused products, including purchasing a division from another diaper manufacturer and spending $10 million to expand production.

First Quality raised both laches and estoppel as defenses to SCA’s action. The Federal Circuit reviewed the elements of laches, as laid out in A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992) (en banc):

Laches is an equitable defense to patent infringement that may arise only when an accused infringer proves by a preponderance of evidence that a patentee (1) unreasonably and inexcusably delayed filing an infringement suit (2) to the material prejudice of the accused infringer. If these prerequisite elements are present, a court must then balance “all pertinent facts and equities,” including “the length of delay, the seriousness of prejudice, the reasonableness of excuses, and the defendant’s conduct or culpability” before granting relief. . . Delays exceeding six years give rise to a presumption that the delay is unreasonable, inexcusable, and prejudicial. Under this presumption, the burden of evidentiary production shifts from the accused infringer to the patentee. Both of these presumptions disappear if the patentee can identify evidence sufficient for a reasonable jury to conclude either that the delay was excusable or not unreasonable, or that it was not materially prejudicial. If the patentee meets this burden of production, the accused infringer must prove both elements of laches by a preponderance of evidence.

SCA, Slip op. at 5-6 (citations omitted).  

Since SCA’s delay in filing suit was more than six years, the delay was presumed to be unreasonable, inexcusable, and prejudicial. SCA attempted to rebut the presumption by pointing out that three years of the delay was due to the reexam, which was a public proceeding. The Federal Circuit was not impressed. First, it rejected SCA’s argument that the time spent in reexam should not count toward the six year presumption trigger. Second, it ruled that SCA’s overall conduct , including its delay in filing suit after the reexam, could not rebut the presumption:

Under such circumstances, SCA was not required to provide notice of the reexamination to First Quality. But even though SCA’s delay may have been excusable when viewed in isolation, we must examine whether SCA’s delay, viewed as a whole, was excusable. The district court found that “SCA admitted that it has continuously tracked First Quality’s activity since 2003 and has an entire department dedicated solely to competitive intelligence.” SCA then continued to evaluate First Quality’s products during the reexamination period. SCA was also represented by U.S. patent counsel when it sent letters to First Quality in 2003 and 2004 and during the reexamination proceedings between 2004 and 2007. No evidence suggests that SCA was unable to find counsel or reinitiate contact with First Quality shortly after the reexamination ended. Moreover, “personal lack of familiarity with the patent system . . . does not excuse . . . failure to file suit.” Given the circumstances, SCA should have been prepared to reassert its rights against First Quality shortly after the ’646 patent emerged from reexamination. [Cites] But SCA remained silent for more than three years after the patent came out of reexamination. Accordingly, SCA has failed to raise a genuine issue of material fact regarding the reasonability of its delay. Viewing all of the facts in the light most favorable to SCA, no reasonable fact-finder could conclude that SCA’s delay, viewed as a whole, was reasonable. 

Slip op. at 11-12. Since First Quality was able to establish prejudice due to the delay, laches barred SCA’s claim. 

One fascinating aspect of the SCA decision is the Federal Circuit’s treatment of SCA’s argument that the entire laches defense, as well as the Aukerman case on which it rests, was severely undermined by the Supreme Court last term in Petrella, a copyright case. In Petrella, the Supreme Court ruled 9-0 that although laches sometimes is adopted as a “gap filling” doctrine when a federal statute omits any limitations period, it has a limited role when Congress provides a statutory limitation period. “[L]aches is a defense developed by courts of equity; its principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation.” 134 S. Ct. at 1973. The Court noted that laches’s role is “gap-filling, not legislation-overriding,” and the Court has “never applied laches to bar in their entirety claims for discrete wrongs occurring within a federally prescribed limitations period.” Id. at 1774-75. This view of laches is squarely contrary to the Federal Circuit’s reasoning in Aukerman. Since SCA's claim was timely under the Patent Act's limitations provision, 35 U.S.C. § 286, laches would appear to be unavailable as a defense.

Nonetheless, the Federal Circuit in SCA considered itself bound by Aukerman, wounded though it may be:

But Petrella notably left Aukerman intact. See 134 S. Ct. at 1974 n.15 (“We have not had occasion to review the Federal Circuit’s position.”). Because Aukerman may only be overruled by the Supreme Court or an en banc panel of this court, Aukerman remains controlling precedent.

Slip op. at 8. 

The Federal Circuit reversed the district court’s ruling that SCA’s conduct also created an estoppel, since there was no affirmative act, or failure to act, that First Quality could reasonably have relied upon.  The full decision is available HERE.