SCA Hygiene Prods. AB v. First Quality Baby Prods., LLC

This case relates to adult incontinence products. The district court, based on a delay of more than six-years in filing the lawsuit, held that the patent owner’s suit was barred by both laches and equitable estoppel. The U.S. Court of Appeals for the Federal Circuit agreed that dismissal for laches was appropriate but, given the limited interactions between the parties reversed the district court’s summary judgment as to equitable estoppel.  SCA Hygiene Prods. AB v. First Quality Baby Prods., LLC, Case No. 13-1564 (Fed. Cir., Sept. 12, 2014) (Hughes, J.).

In October 2003, SCA sent a letter to First Quality putting First Quality on notice as to its possible infringement of SCA’s patent.  First Quality responded that the patent was invalid and not infringed.  In July 2004, SCA sought reexamination of the patent, and in March 2007 the U.S. Patent and Trademark Office (PTO) confirmed the patentability of the claims.  SCA ultimately brought suit against First Quality in August 2010, three years after the reexamination, and more than six years after its 2003 infringement notice.  According to SCA, it took three years after the reexamination to implement new management structures, evaluate outside counsel, and investigate potentially infringing products on the market.

After, the district court granted summary judgment to defendant based on laches and equitable estoppel, SCA appealed.

The Federal Circuit agreed with the district court as to its latches ruling, but faulted the district court estoppel analysis, noting that while laches leaves the “door open” for prospective relief, estoppel is “complete bar to a patentee’s infringement claim.”

Laches:  As the Federal Circuit instructed, laches is an equitable defense to patent infringement that arises only when an accused infringer proves that a patentee unreasonably and inexcusably delayed filing an infringement suit to the material prejudice of the accused infringer.  Delays exceeding six years are presumed to be unreasonable, inexcusable and prejudicial.  The patentee can rebut these presumptions by producing contrary evidence.  If so, the accused infringer must prove both elements of laches by a preponderance of evidence.

In the present case, the Federal Circuit concluded that the intervening ex parte reexamination did not toll the laches period and was not a reasonable excuse for the over six-year delay.  The three-year delay after the reexamination was also not reasonable.  Because First Quality had notice of SCA’s original claim and reexaminations are public proceedings, the Federal Circuit rejected First Quality’s argument that SCA was required to give notice of the reexamination.  Nevertheless, SCA failed to rebut the presumption of unreasonable delay because it monitored First Quality since 2003, had a substantial corporate intelligence team, was represented by U.S. counsel and did not act promptly when the reexamination was concluded.  The delay resulted in prejudice to First Quality, which had not only expanded its business but would have taken less risk if SCA had diligently pursued its claim.  On these facts, the Court concluded that the district court did not abuse its discretion in finding an inexcusable delay that caused harm.

Equitable Estoppel:  Equitable estoppel is a discretionary remedy that differs from laches.  To establish an estoppel defense, a defendant must prove by a preponderance of the evidence, that the patent owner, through misleading conduct, led the alleged infringer to reasonably infer that the patent owner did not intend to enforce the patent against the alleged infringer; the alleged infringer relied on this conduct; and due to the reliance, the alleged infringer will be materially prejudiced if the patent owner is allowed to proceed on its claim.  The passage of time alone does not create an estoppel.

The district court found that SCA’s 2003 notice to First Quality, followed by silence, was a misleading communication.  The Federal Circuit disagreed, finding there was no clear duty for SCA to speak.  The Federal Circuit reasoned silence and delay must be coupled with other factors, such that the conduct as a whole amounts to misleading inaction.  Because SCA and First Quality had minimal interaction, the Federal Circuit reasoned that SCA’s silence did not constitute an admission that its patent was invalid, particularly when SCA sought reexamination.  Thus, the Federal Circuit found there were genuine issues of fact whether SCA’s conduct was actually misleading and whether First Quality actually relied on such conduct that caused it harm.  The case was remanded for reconsideration of First Quality’s estoppel defense.