The equitable defense of laches may not be at the forefront of most patent practitioners’ minds, but the recent Federal Circuit decision in SCA Hygiene Products v. First Quality Baby Products illustrates that the defense can have teeth. Patent owners looking to mitigate the risk of an accused infringer successfully employing the defense should consider preventative action in the period before filing a lawsuit. Practitioners may also want to continue monitoring the law in this area, as an en banc rehearing has been requested to consider the possible impact of a recent Supreme Court ruling with regard to laches in the context of copyright infringement.
In SCA Hygiene, SCA Hygiene Products (SCA) accused First Quality Baby Products (First Quality) of infringing certain claims of U.S. Patent No. 6,375,646 (the ’646 patent), which is directed to adult diapers. A brief timeline of events leading to the suit is helpful:
- October 31, 2003: SCA sends First Quality a letter suggesting infringement of the ‘646 patent.
- November 21, 2003: First Quality responds with a letter identifying another U.S. patent as invalidating prior art.
- November 22, 2003 to July 6, 2004: SCA and First Quality exchange a handful of letters concerning different patents and products. None refer to the ‘646 patent.
- July 7, 2004: SCA files an ex parte reexamination request with the U.S. Patent and Trademark Office (USPTO) to review the ‘646 patent in view of, among other references, the patent identified by First Quality.
- March 27, 2007: The USPTO confirms the patentability of the ‘646 patent.
- August 2, 2010: SCA files suit against First Quality for infringement of the ‘646 patent.
As the above timeline shows, SCA waited over six years to file suit against First Quality, and about half that time was taken by the USPTO’s reexamination proceeding. First Quality moved for summary judgment of laches (and equitable estoppel) based on SCA’s delay in filing suit.
The Federal Circuit’s analysis began with a review of laches, which is an equitable defense that arises when an accused infringer proves by a preponderance of evidence that a patent owner (1) unreasonably and inexcusably delayed filing an infringement suit, (2) to the material prejudice of the accused infringer. In the case of a six or more year delay in filing suit, a presumption that the delay is unreasonable, inexcusable, and prejudicial applies. If these elements are present, a court balances the equities to determine if laches is appropriate. When found, laches bars retrospective relief for damages occurring prior to the suit. Prospective damages remain available, however.
In analyzing the SCA Hygiene facts, the Federal Circuit applied the presumption of unreasonable delay because SCA waited over six years from learning of First Quality’s potentially infringing products to filing suit for infringement. The fact that three of the six years involved the reexamination proceeding at the USPTO was deemed to be relevant to rebutting the presumption. Nonetheless, the Federal Circuit found that, even though the delay during the reexamination may have been excusable, the subsequent three years were not. Based on the overall delay, the Federal Circuit concluded that SCA did not meet its burden of rebutting the presumption of unreasonable delay. Indeed, the Federal Circuit stated that SCA should have reinitiated contact with First Quality and reasserted its rights under the ‘646 patent shortly after the reexamination ended.
The Federal Circuit then addressed the second prong of the laches inquiry, material prejudice to the accused infringer. A presumption that the delay was prejudicial applied, and it was determined that economic prejudice (one of two forms of prejudice available in laches) was present because First Quality stood to suffer losses which likely would have been prevented by an earlier lawsuit. In particular, First Quality had made capital investment in the product space during the period of delay, including the acquisition of a competitor that produced allegedly infringing products. According to the court, SCA did not provide sufficient evidence to rebut the presumption of prejudice.
Having concluded that both elements of the laches test were satisfied, the Federal Circuit affirmed the district court’s grant of summary judgment on laches.1
The SCA Hygiene decision illustrates how laches can have a real effect on a patent owner’s ability to recover damages for infringement. Moreover, it highlights how patent owners can be unpleasantly surprised by the application of laches, despite possibly thinking that they were within their rights to pursue damages up to six years in the past based on 35 U.S.C. § 286.
In order to avoid succumbing to the laches defense, patent owners can consider taking a variety of actions in the time between obtaining a patent and filing a lawsuit. In general, patent owners should attempt to eliminate or minimize any time gaps between learning of potential infringement and enforcing their patent. For instance, cease-and-desist letters should be sent as quickly as possible after learning of potential infringement. Any required post-grant procedures (e.g., the request for ex parte reexamination that occurred in SCA Hygiene) should proceed as quickly as possible and, importantly, potential infringers should be (re)engaged as soon as the patent is ready to be enforced again. Finally, infringement lawsuits should be filed as quickly as possible. The provisions of 35 U.S.C. § 286 may allow for recovery of damages up to six years in the past, but patent owners cannot necessarily wait six years to file suit for those damages.
Patent owners and other practitioners should also be aware that this area of the law may undergo further changes in the near future. The Federal Circuit’s decision in SCA Hygiene was based heavily on their 1992 en bancopinion in A.C. Aukerman Co. v. R.L. Chaides Constr. Co., which held that laches is a valid equitable defense to patent infringement. The validity of this holding has been called into question by some commentators, however, in view of the recent Supreme Court decision in Petrella v. Metro-Goldwyn-Mayer, Inc., which involved laches in the context of copyright infringement. In Petrella, the Supreme Court held that laches could not be used to limit a copyright holder’s efforts to seek damages extending back as far as 17 U.S.C. § 507(b) allows, even if there was delay in filing an enforcement suit. Those who question the validity of Aukerman draw parallels between 17 U.S.C. § 507(b) and 35 U.S.C. § 286, while others point to distinctions between the statutes and differences in the respective time periods to support the Aukerman holding. As might be expected, SCA recently filed a petition for an en banc rehearing of their case on the basis of the Petrella decision.
While we anticipate this issue will continue to develop, patent owners may want to consider protecting against a possible laches defense sooner rather than later. After all, the steps listed above are not overly burdensome and can help maximize recoverable damages in multiple ways (e.g., by both avoiding the laches defense and providing early actual notice of infringement to an accused infringer).