March 28, 2017
By: Christopher J. Dugger
On March 21, 2017 the Supreme Court issued an opinion that abrogated the equitable defense of laches, for unreasonable and prejudicial delay in filing suit, in patent cases. SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, No. 15-927, 2017 WL 1050978 (U.S. Mar. 21, 2017). In that case, Appellant SCA Hygiene argued that the Supreme Court’s 2014 Petrella decision, which conclusively eliminated laches as a defense in copyright cases, also mandated the elimination of laches as a defense to patent infringement. The Supreme Court agreed, reversing the Federal Circuit’s holding of unenforceability due to laches, and remanding for trial on infringement and Appellee First Quality’s equitable estoppel defense.
The parties make adult incontinence products and diapers. In October 2003, SCA Hygiene sent First Quality a letter notifying First Quality that some of its products infringed SCA Hygiene’s patent. First Quality responded in November 2003 that it believed the patent to be invalid. The parties then ceased communications regarding the patent. However, unbeknownst to First Quality, SCA Hygiene filed an ex parte re-examination request in June 2004. The patent subsequently re-issued in March 2007. Meanwhile, First Quality had begun expanding its product line during SCA Hygiene’s silence. SCA Hygiene filed suit against First Quality for patent infringement in August 2010.
First Quality asserted the defenses of laches and equitable estoppel on summary judgment. The district court granted First Quality summary judgment on those theories. On appeal, the Federal Circuit upheld the district court’s ruling on laches but remanded regarding equitable estoppel, finding that there were genuine questions of material fact not amenable to resolution on summary judgment. SCA Hygiene then petitioned for an en banc review regarding laches, which was decided in September 2015. In that en banc rehearing SCA Hygiene asked if laches was still a viable defense after the Supreme Court’s Petrella decision in 2014.
Petrella had concerned the defense of laches with respect to copyright infringement. Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014). In Petrella the plaintiff inherited the renewal rights to the screenplay to Raging Bull. Seven years after obtaining the rights to the screenplay, the plaintiff informed defendant MGM that its exploitation of the Raging Bull movie infringed her copyright. However, plaintiff did not immediately bring suit. Instead, plaintiff waited, and brought suit nine years after that communication. Id. at 1970-71.
MGM defended the copyright suit on the grounds that plaintiff’s delay was unreasonable and prejudicial, and therefore constituted laches. Plaintiff argued, however, that Congress did not intend laches to be a defense to copyright infringement, as evidenced by the three year limitation on damages in §507(b), and other provisions of the copyright statute. The Supreme Court agreed, finding that the three year limitation on damages, as well as the ability for the infringer to offset expenses against profits, adequately protected infringers and maintained the balance that Congress intended when it created the copyright statute. Id. at 1976, 1981; 37 U.S.C. 504(b). Nevertheless, the Court maintained that explicit actions or intentional misrepresentations could trigger equitable estoppel defenses. Petrella at 1966. Furthermore, laches might be available in extreme circumstances as a defense to purely equitable relief.
Turning back to the en banc rehearing of SCA Hygiene, the Federal Circuit found the Patent Act sufficiently different from the copyright statute to refrain from applying Petrella. The Federal Circuit found that Congress had codified laches as a defense to patent infringement, because Congress only intended to codify the patent law as it existed prior to the Patent Act of 1952. Laches had been a defense to infringement at that time, therefore it still was. SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, 807 F.3d 1311, 1321-23 (Fed. Cir. 2015), cert. granted, 136 S. Ct. 1824 (2016), and vacated in part, No. 15-927, 2017 WL 1050978 (U.S. Mar. 21, 2017). Further, Congress codified laches in 35 U.S.C. § 282(b), when it included “unenforceability,” and other equitable defenses, as a defense to patent infringement. 35 U.S.C. § 282(b) (“Noninfringement, absence of liability for infringement or unenforceability [shall be defenses to patent infringement].”) In further support, 35 U.S.C. § 286 (limiting damages to the past 6 years) had been a feature of the patent statutes since 1897, and laches had been recognized as a defense since that time. Id. at 1318. Thus, the Federal Circuit believed it was powerless to abrogate the defense of laches because Congress had included it as a defense when codifying the patent laws. Id. at 1315.
The Supreme Court disagreed. It found that the six year damages provision of 35 U.S.C. § 282 evidenced a clear judgment that Congress intended any infringements within that period to be actionable. Where Congress has set a time period for suit, courts must not apply laches, lest they take on a “’legislation-overiding’ role that is beyond the Judiciary’s power.” SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, No. 15-927, 2017 WL 1050978, at *5 (U.S. Mar. 21, 2017). Further, laches is a gap filling doctrine, only applicable where the Legislature has not provided a statute of limitations. Id. at *5. Although First Quality argued that laches had been a defense to patent infringement prior to the 1952 codification, the Court found no evidence that laches was ever a defense at law. Instead, the weight of cases reviewed by the Court demonstrated that laches was no defense to money damages when plaintiffs had brought their claims within the statute of limitations. Id. at *9-12. However, the Court noted that equitable estoppel remained a protection against unscrupulous patentees who induce others to infringe. Id. at *12.
As a consequence, patentees now have less incentive to bring suit promptly. Patentees frequently send a warning letter to an accused infringer to trigger willful damages. 35 U.S.C. § 284. Now patentees can send that letter and then delay suit, with little to no risk. Further, delay in filing suit brings potential benefits to patentees. First, patentees can lie in wait to see if an infringer’s product is lucrative enough to risk suit over. See Petrella at 1976 (“[A] copyright owner [can] defer suit until she can estimate whether litigation is worth the candle.”). Second, the risk of loss of evidence due to delay is asymmetric in the patent context. Infringers will lose access to evidence of invalidity during a patentee’s delay, but a patentee will not lose evidence of infringement, because infringement is a strict liability offense. SCA Hygiene at *19 (Breyer, J., dissenting). Third, delay increases the chances that a defendant is “locked in” to the infringing technology, with no realistic way to transition its business to a non-infringing technology within a reasonable time. A patentee could strengthen its settlement position by waiting for an infringer to “lock in” to the infringing technology. Id. at *20 (Breyer, J., dissenting).
However, the court did leave accused infringers a small silver lining. Equitable estoppel remains a defense. Equitable estoppel requires “misleading conduct” on behalf of the patentee – an affirmative action, or silence “where there was an obligation to speak.” Therefore, an accused infringer’s response to a warning letter takes on additional significance after SCA Hygiene, because it constitutes an accused infringer’s opportunity to create “an obligation to speak.” Accused infringers’ responses should require the patentee to identify whether it will sue, and when. A patentee’s failure to respond, or to act in accordance with its response, could trigger an inequitable conduct defense.
 “The patentee, through misleading conduct, leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer. ‘Conduct’ may include specific statements, action, inaction, or silence where there was an obligation to speak.” A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992) abrogated by SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, No. 15-927, 2017 WL 1050978 (U.S. Mar. 21, 2017).