First published in LES Insights
An Indiana court recently barred a patent owner's infringement claim because a prior owner of the patents should have known of the infringing activity since 2003, when the product was openly sold. Because the patent owner and the prior owners of the patents delayed nearly ten years in filing suit, they were unable to seek damages for any infringement prior to filing the lawsuit under the doctrine of laches.
Patent owners may lose the ability to recover damages that accrued before filing suit under the equitable doctrine of laches if they unreasonably and inexcusably delayed filing suit and the delay materially prejudiced the defendant. Material prejudice may occur when evidence to support the defendant's defense is lost, or where the defendant will lose monetary investments or incur damages that could have been prevented or minimized if it had been sued earlier.
Delays exceeding 6 years create a presumption that the delay is unreasonable, inexcusable, and prejudicial. The period of delay begins at the time the patent owner has actual or "constructive" knowledge of the defendant's potentially infringing activity. Constructive knowledge exists where the facts known to the plaintiff would have caused an ordinary person to investigate and discover the defendant's potentially infringing activity. An Indiana court recently found that the laches doctrine limited a patent owner's potential damages where the former owner of the patent should have discovered the defendant's alleging infringing activity 10 years before the lawsuit was filed.
In 2012, Endotach LLC sued Cook Medical Inc.,1 accusing five of Cook's products of infringing two patents directed to intraluminal and endovascular grafts. The patents were granted to Dr. Valentine Rhodes, who entered an exclusive license agreement with Johnson & Johnson Interventional Systems Inc.,(JJIS). The agreement required the parties to inform each other promptly if either discovered allegedly infringing activity. Shortly after signing the license, JJIS abandoned its efforts to enter the stent graft market. Upon Dr. Rhodes's death in 2000, the ownership of the patents passed to a trust that was created by Dr. Rhodes and his wife, Brenda Rhodes. Subsequently in 2009, Mrs. Rhodes, as trustee, entered into an exclusive license agreement with Acacia, which then transferred its rights to its subsidiary, Endotach.
Cook raised a laches defense to Endotach's infringement claims and both moved for summary judgment. Cook argued that JJIS had actual or constructive knowledge of Cook's allegedly infringing activity since, at least, 2003 because JJIS routinely monitored press releases and publications detailing the accused products. Cook also claimed that its open activities in seeking to market the accused products should have put the trust and Mrs. Rhodes on notice of Cook's allegedly infringing activity. Cook concluded that Endotach had knowledge of Cook's allegedly infringing activity through JJIS, the Rhodes Trust, and Mrs. Rhodes, and that Endotech's near 10-year delay in filing suit was therefore inexcusable. Additionally, Cook argued that Endotach's delay caused Cook prejudice because of lost evidence and because it had invested substantial funds in developing the accused products over the previous 10 years.
Endotach countered that it did not become aware of Cook's activity until shortly before it filed suit, and that neither it nor its predecessors-in-interest knew or should have known of Cook's allegedly infringing activity. Endotech relied on Mrs. Rhodes's testimony that she was busy raising her children, had no knowledge of Cook's activity, and relied on JJIS to inform her of any infringement allegations. Endotach also relied on JJIS's testimony that it never entered the stent graft market and had no motivation therefore to monitor the market.
The District Court's Decision
Granting Cook's motion for summary judgment, the district court found that both JJIS and Mrs. Rhodes had a duty in 2003 to investigate "open and obvious" alleged infringers.
The court emphasized that this is not a case in which potential infringement was hidden or difficult to ascertain; rather, it was open, notorious, and obvious, and a reasonable, diligent inquiry would have uncovered the potential infringement at least by late 2003 when Cook's first product was in full production. In particular, the court found that, in 2003, when the first accused product was approved for sale in the United States, there was enough information publicly available for both JJIS and Mrs. Rhodes to determine if there was infringement. In fact, Endotach in its lawsuit relied only on publically available information and pictures to allege infringement, supporting the court's conclusion that both JJIS and Mrs. Rhodes easily could have, and should have, investigated the accused products in 2003.
Turning to the second element of Cook's laches defense, prejudice, the court found that Cook suffered both economic and evidentiary prejudice from Endotach's delay in filing suit. Regarding the former, over the near 10-year delay, Cook invested large sums of money in development, promoting, and marketing its endovascular product line and, if it had been sued earlier it could have altered its business strategy. Regarding the latter, the testimony of Endotach's key witnesses showed that their memories had faded, valuable documentary evidence had been lost, and some witnesses had died—all of which represented evidence that would have been available if Cook had been sued earlier.
Finally, the court rejected Endotach's argument that laches should not bar Endotach's claim for pre-suit damages on two of the newer accused products, which Cook introduced to the market within a few years before Endotach filed suit. The court reasoned that because the allegedly infringing elements of the newer accused products are functionally equivalent to the older accused products, the laches defense applied to all accused products.
Strategy and Conclusions
This decision shows that a patent owner and its exclusive licensees may be deemed to have constructive knowledge of potential infringement where it is open, notorious, and obvious, and a reasonable, diligent inquiry would have uncovered the potential infringement. Thus, any delay in taking action to halt such infringement may result in a loss of rights. Furthermore, a subsequent owner of the patent, like Endotach here, must accept the consequences of his predecessor's delay in such circumstances.