Full Federal Circuit: Don't Wait to File Patent Case

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By Tony Dutra

Sept. 18 — A patent owner must not wait more than six years after being aware of infringement before bringing a lawsuit if it wants to recover damages for past infringement, the full Federal Circuit held in a 6-5 decision on Sept. 18.

This was the result desired by many in the medical devices and high tech industries.

Device makers argued that substantial amounts of money are spent trying to get regulatory approval during the early years of development, and a patent owner should not be allowed to sit and wait until the manufacturer is finally earning profits to make its claim of infringement.

Similarly, high tech firms have complained of patent trolls buying up old patents on technologies that never gained traction in the market and charging infringement by new, commercially successful technologies.

The court held that a patent holder who waited beyond this six-year period might seek an injunction against future infringement.

However, it made clear that a district court deciding whether injunctive relief was appropriate should give considerable weight to the fact of the patent owner's delay to file.

The court said that the delay would not prevent a request for an ongoing royalty for infringement, absent “egregious circumstances”—presumably, unfair patent owner behavior.

“There will likely be an uptick [in the use of the laches defense] because, even if laches defense itself is not ultimately successful, the majority opinion suggests that the facts underlying the defense can be used to defend against a permanent injunction,” Sasha Mayergoyz of Jones Day, Chicago, said.

“The court was unanimous that laches should also be a defense to injunctive relief, so there is even more reason for a defendant to assert it than before,” Daniel Zaheer of Kobre & Kim, San Francisco, said in agreement. “Patent owners who wait to litigate do so at their peril—laches can be applied even if fewer than six years has passed. Again, the incentive here is to litigate first and talk later.”

Petrella Impact? Not So Much

The court decided that the U.S. Supreme Court's 2014 Petrella v. MGM decision on the same issue as to past infringement in copyright law—known as the doctrine of laches—is not applicable to patent law because of the different statutory schemes. Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 110 U.S.P.Q.2d 1605 (2014).

Under Petrella, a copyright holder can file an infringement complaint at any time so long as the infringement is ongoing, and it is able to recover damages for the three years of infringement prior to the lawsuit being filed.

Past damages recovery was not possible in patent law under a similar though slightly longer delay, and remains so after this decision.

However, the court chose to “harmonize” patent law with Petrella, overturning its standard since 1992, with respect to relief for infringement going forward.

In this case, SCA Hygiene Products' charge of infringement of its patent on adult incontinence products by First Quality Baby Products was over when the district court granted summary judgment on both laches and equitable estoppel.

Equitable estoppel bars a court complaint completely because of the behavior of the complainant.

The Federal Circuit reversed the equitable estoppel finding, and its laches ruling bars SCA from recovering for past infringement. But SCA's complaint included a request for an injunction, and the patent owner may make its case for an ongoing royalty on remand.

The court was unanimous as to how the district court should consider the parties' arguments as to ongoing relief for infringement.

The five dissenting members of the court, however, rejected the majority's view that special circumstances applied in patent law.

Those judges would have allowed SCA to recover damages for First Quality's infringement in the six years leading up to the lawsuit being filed.

“We would expect SCA to seek certiorari at the Supreme Court, and that there is a strong chance that the Court would take the case,” Zaheer said in an e-mail. “The Federal Circuit was closely divided and created a special rule for patent cases that is distinct from other forms of civil litigation.”

Did Petrella Trump Aukerman?

The doctrine of laches is a defense to patent infringement.

In making such a defense, the alleged infringer is arguing that the patent owner unfairly sat on its property rights and let the infringer spend large sums of money without objecting to those actions, and should be foreclosed from objecting to them now.

As stated by several friend-of-the-court briefs filed during the lead-up to this decision, the “traditional rule” in American law is that the laches defense applies only to equitable relief such as an injunction and not to legal relief such as money damages.

However, in A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 22 U.S.P.Q.2d 1321 (en banc) (Fed. Cir. 1992), the Federal Circuit's, sitting en banc, allowed the laches defense to bar a patent owner's damages recovery.

The Supreme Court's Petrella decision last year rejected a laches defense in a copyright case.

The question before the en banc Federal Circuit in SCA v. First Quality was whether Petrella required that the court rethink its reasoning in Aukerman.

One member of the court called the oral argument in June an “elegant philosophical discussion,” with practical considerations getting little discussion. 

Debate Turns on Section 282(b)(1) 

The majority and dissenting opinions published Sept. 18 continued the debate, with each side presenting detailed support for its statutory interpretation.

In short, the argument is as follows:

• Copyright law's three-year damages limitation period is at 17 U.S.C. §507(b); patent law's equivalent—in all but the number of years—is at 35 U.S.C. §286, titled “Time Limitation on Damages” and saying that “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.”

• When there is a statute of limitations on recovery, the alleged infringer can't normally rely on laches at least for the limited period. In other words, Congress intends to bar a laches defense when it specifies a statute of limitations on damages, unless Congress also dictates otherwise.

• The disagreement in this case is whether Congress dictated otherwise in the 1952 Patent Act. That debate turns on how to interpret 35 U.S.C. §282(b)(1).

 

Section 282(b) begins: “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.”

That provision does not explicitly mention laches as a defense, but the majority concluded that, based on the legislative history in passing the 1952 act and, more importantly, a commentary on the act's purposes written by its main author, P.J. Federico, that either “absence of liability” or “unenforceability” was always intended to include laches.

The dissent characterized this line of reasoning as amounting to concluding that the 1952 act had included a laches defense “because an executive-branch official said so.”

But Impact Going Forward

However, all 11 members of the court agreed on Part III of the opinion, entitled “Laches' Application to Ongoing Relief.”

The court concluded that its standard in Aukerman—which focused on pre-suit damages—needed to be revised as to ongoing relief, in light of both Petrella and eBay Inc. v. MercExchange LLC, 547 U.S. 388, 78 U.S.P.Q.2d 1577 (2006).

An injunction against or ongoing royalties for future infringement represents equitable relief, the “traditional” role for laches, the court noted.

The court thus fit what the alleged infringer would argue in a laches defense into the framework provided by eBay.

But the appeals court tipped the scales in noting that “[m]any of the facts relevant to laches, such as the accused infringer's reliance on the patentee's delay, fall under the balance of the hardships factor.”

Further, the court said, since the patent owner had waited so long, it will have a difficult time arguing that “continued infringement will cause it irreparable injury,” another eBay factor. 

As to ongoing royalties, though, the court said, “while the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches.”

The court relied on an 1888 Supreme Court decision, Menendez v. Holt, 128 U.S. 514 (1888), for guidance on this point.

“According to Menendez, delay in exercising a patent right, without more, does not mean that the patentee has abandoned its right to its invention,” the court said. “Rather, the patentee has abandoned its right to collect damages during the delay.”

Therefore, the court allowed that, if injunctive relief is not to be given under the eBay analysis, the patent owner, “absent egregious circumstances” that the court did not elaborate on, is entitled to an ongoing royalty.

Winners and Losers

The case certainly caught the attention of the stakeholders in patent law, with 21 briefs filed in the lead up to the hearing.

The court's opinion specifically called out the high tech community's concerns by quoting an amicus brief filed by Dell Inc., CTIA—The Wireless Association, Hewlett-Packard Co., Google Inc., Intel Corp. and Xerox Corp.

On the other hand, there are losers, according to Kobre & Kim's Zaheer.

“This decision will come as bad news to patent owners like universities and research institutions, who often prefer to preserve their patent rights through licensing or industry partnerships rather than litigation,” he told Bloomberg BNA. “But the laches rule in this case creates a strong incentive for them to litigate sooner than later, even if they would prefer not to or if it wouldn’t make financial sense for them to do so.”

Underlying Case Between SCA and First Quality

In this case, SCA Hygiene Products AB holds a patent (U.S. Patent No. 6,375,646) related to adult incontinence products. First Quality Baby Products LLC was making potentially infringing products at least as early as 2003.

SCA contacted First Quality in 2003, suggesting possible infringement, but the alleged infringer responded with evidence of patent invalidity.

SCA proceeded with a reexamination in light of that evidence. The Patent and Trademark Office confirmed patentability of the original and new claims in 2007, but SCA still didn't file a lawsuit until 2010.

The U.S. District Court for the Western District of Kentucky granted summary judgment as to both laches and equitable estoppel. On appeal, a Federal Circuit panel acknowledged Petrella but said that it left no doubt that “Aukerman remains controlling precedent,” which led to the decision to hear the case en banc.

The panel reversed the equitable estoppel judgment, though, and the en banc court left that decision intact. Had it ruled otherwise, equitable estoppel would have stopped this case entirely.

But that doctrine required a finding that SCA's silence for seven years could be considered intended to mislead First Quality. The court concluded that such a conclusion was not reasonable at the summary judgment stage, given SCA's reexamination effort.

“[E]ven the most rudimentary due diligence by First Quality would have revealed that SCA had filed a reexamination request for the '646 patent,” the court said. “Thus, a reasonable juror could conclude that First Quality's reliance, to the extent it can be established, was not reasonable.”

Thus the case remains alive on remand, but only to the extent of how SCA can stop further infringement by First Quality.

Chief Judge Sharon Prost wrote the en banc court's opinion, which was joined by Judges Pauline Newman, Alan D. Lourie, Timothy B. Dyk, Kathleen M. O'Malley and Jimmie V. Reyna.

Judge Todd M. Hughes wrote the dissent, joined by Judges Kimberly A. Moore, Evan J. Wallach, Richard G. Taranto and Raymond T. Chen. The 12th member of the court, Judge Kara F. Stoll conceivably could have voted but didn't join the court until after the oral argument.

Martin J. Black of Dechert LLP, Philadelphia, argued for SCA. Kenneth P. George of Amster Rothstein & Ebenstein LLP, New York, represented First Quality.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek in Washington at mwilczek@bna.com

Text at http://www.bloomberglaw.com/public/document/SCA_Hygiene_Products_v_First_Quality_Baby_Products_Docket_No_1301/24.