Laches can still be used to bar legal remedies, rules Federal Circuit

On September 18 2015 a sharply divided en banc Federal Circuit issued a decision (six to five) in SCA Hygiene Products v First Quality Baby Products holding that laches can still bar pre-suit damages for patent infringement,⁽¹⁾ notwithstanding the Supreme Court decision in Petrella v Metro-Goldwyn-Mayer, Inc that laches cannot bar pre-suit damages for copyright infringement.⁽²⁾ The Federal Circuit did not read Petrella to require the overruling of prior Federal Circuit precedent recognising laches as a basis to bar pre-suit patent damages. It did, however, modify its bright-line rule that laches cannot bar prospective relief.

Facts

In October 2003 SCA Hygiene Products sent a letter to competitor First Quality Baby Products contending that First Quality had infringed US Patent 6,375,646 (the '646 patent). First Quality responded that the '646 patent was invalid in view of a prior art patent. SCA and First Quality ceased communication and in July 2004 SCA requested and obtained re-examination of the '646 patent in view of that prior art. In March 2007 the US Patent and Trademark Office confirmed the patentability of all of the original claims and issued several additional claims.

In August 2010, more than three years after re-examination had concluded and more than six years after the original correspondence between the parties, SCA filed a complaint alleging that First Quality had infringed the '646 patent. The district court granted First Quality's motions for summary judgment of laches and equitable estoppel, and SCA appealed. In September 2014 the Federal Circuit affirmed the district court's ruling on laches, but reversed its ruling on equitable estoppel.(3) The panel specifically rejected SCA's argument that the Supreme Court's holding in Petrella was contrary to the Federal Circuit's precedent in Aukerman Co v RL Chaides Construction Co(4) that laches can bar recovery of damages for pre-suit patent infringement.

SCA sought rehearing en banc, asking the court to reconsider Aukerman in light of Petrella. The court granted SCA's petition.

Majority opinion

Chief Judge Prost wrote the opinion for the court, joined by Circuit Judges Newman, Lourie, Dyk, O'Malley and Reyna.

On an issue that was hotly disputed by the parties, the court first ruled that it did not matter that Section 286 of the patent statute is a damages limitation rather than a statute of limitations, as was at issue inPetrella. It stated that "because patent infringement is a continuous tort, there is no relevant functional difference between a damages limitation and a statute of limitations."

The court then held that, although the patent statute does not expressly list laches as a defence, Congress had codified laches as a defence in Section 282(b)(1) by referring to defences of non-infringement, absence of liability for infringement and unenforceability. The court rested this conclusion on the "broad" language of the statute, an analysis of the legislative history of the 1952 revision of the patent statute and Federico's Commentary on the New Patent Act, which the court considered to be "a sufficiently reliable source on the meaning of § 282".

The court next analysed the "critical question" of whether laches, as deemed codified in the 1952 Patent Act, bars recovery of legal relief. The court stated that under principles of statutory construction, it "must presume" that Congress intended to codify the common law relating to laches, noting that by 1952 "nearly every circuit had approved of the proposition that laches could bar legal relief for patent infringement, and no court had held to the contrary". Also relying on the Walker patent treatise statement that a plaintiff chargeable with laches "cannot recover the damages he has suffered nor the profits [the] defendant has gained", the court concluded that in Section 282 "Congress codified a laches defense that barred recovery of legal remedies".

Thus, in reference to the Petrella decision, the court distinguished the copyright and patent statutes on the basis that Congress had codified a laches defence in Section 282 of the patent statute, whereas the copyright statute does not address laches. The court stated that Petrella held that there was no room for the judicially created timeliness doctrine of laches because Congress had already spoken on timeliness through a statute of limitations, but that the statutory scheme in patent law is "different" in that, while Congress addressed the timeliness of patent damages claims in Section 286, "it also codified a laches defense in § 282" – and thus a separation of powers concern was not present.

The court additionally noted a "major difference" between copyright and patent law: copyright infringement requires evidence of copying, but innocence is not a defence for patent infringement. The court stated that a potential copyright defendant is thus "typically aware of a risk that it is infringing and can estimate its exposure when making its initial investment decision", as well as accumulate evidence of independent creation. In patent law, however, the "calculus is different" because independent invention is not a defence, "so without laches, innovators have no safe-guard against tardy claims demanding a portion of their commercial success". The court credited the concern of many industry amici that a stale patent claim would cause significant hardship to a defendant "who has lost the meaningful ability to choose between alternative technologies and whose investment in research, development, and further innovation may be jeopardized".

With respect to prospective relief, the court concluded that its prior Aukerman decision that laches cannot bar prospective relief was no longer good law. Rather, the court held that laches should be considered along with all other material facts that, under eBay Inc v MercExchange, LLC,⁽⁵⁾ should inform the court's discretion in deciding whether to award the equitable relief of an injunction. Mindful of the distinction between laches (which focuses on prejudice due to delay) and estoppel (which can bar all potential remedies if a defendant shows detrimental reliance on misleading statements of the patent owner), the court held that "absent egregious circumstances, when injunctive relief is inappropriate [under a full eBay analysis], the patentee remains entitled to an ongoing royalty".

Dissenting opinion

Circuit Judges Hughes, Moore, Wallach, Taranto and Chen concurred with the majority that laches is available to bar equitable relief; but, in a strongly worded opinion, disagreed that if laches were found it could bar a claim for pre-suit damages that would otherwise be actionable as occurring within the six-year limitations period of Section 286.

The dissent faulted the "majority's key logic—that Congress adopted the view of some lower courts that laches could bar legal relief in patent cases", because it "requires us to presume that Congress ignored the Supreme Court. For in 1952, the Supreme Court had already recognized the common-law principle that laches cannot bar a claim for legal damages".

The dissent went on to state that:

"[t]he Supreme Court has repeatedly cautioned this court not to create special rules for patent cases. In light of the Supreme Court's clear, consistent and long-standing position on the unavailability of laches to bar damages claims filed within a statutory limitations period, we should not do so here."

The dissent also stated that "[l]ike the statute of limitations considered in Petrella, the statutory limitations period in § 286 of the Patent Act expresses Congress' judgment on the timeliness of claims for damages", and therefore Petrella "strongly suggests that laches is not available to further regulate the timeliness of damages claims in patent-infringement cases". To overcome that conclusion, the dissent held, would require "compelling evidence that Congress incorporated laches into the Patent Act as an additional time-bar on claims for legal damages", which the dissent found was not justified by legislative history or case law.

The dissent also took issue with the majority's reliance on a presumption that Congress intended to retain a common-law principle, because that presumption applies only if the common-law principle is "well established", stating that "contrary to the majority's narrow analysis of regional-circuit cases, the pre-1952 case law did not clearly establish that a plaintiff's laches may preclude recovery of legal damages". The dissent pointed to Supreme Court cases "holding that laches cannot bar a claim for legal relief filed within a statutory limitations period" and noted that because laches "is a general equitable defense, not a defense specific to patent infringement...the role of laches in other areas of civil litigation is of a piece with the role of laches in patent cases". According to the dissent, the regional-circuit cases relied on by the majority did not show a "well-established rule" that laches can bar legal damages, because those decisions "either apply laches under a misinterpretation [of a predecessor to § 286], mention laches in dicta, or apply laches to bar a claim brought in equity".

Comment

In Petrella the Supreme Court noted that "[w]e have not had occasion to review the Federal Circuit's position…[that] laches can bar damages incurred prior to the commencement of suit." The widely divergent views within the Federal Circuit on this important patent law issue may well provide the occasion.

For further information on this topic please contact Donald J Curry or Jeffrey R Colin at Fitzpatrick, Cella, Harper & Scinto by telephone (+1 212 218 2100) or email ([email protected] or [email protected]). The Fitzpatrick, Cella, Harper & Scinto website can be accessed at www.fitzpatrickcella.com.

Endnotes

(1) SCA Hygiene Products v First Quality Baby Products, 2013-1564 (Fed Cir 2015).

(2) Petrella v Metro-Goldwyn-Mayer, Inc, 134 S Ct 1962 (2014).

(3) SCA Hygiene Products v First Quality Baby Products, LLC, 767 F3d 1339 (Fed Cir 2014).

(4) AC Aukerman Co v RL Chaides Construction Co, 960 F2d 1020 (Fed Cir 1992).

(5) eBay Inc v MercExchange, LLC, 547 US 388 (2006).

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