First published in LES Insights
A Minnesota court recently applied the doctrine of laches to prevent a patent owner from recovering damages for infringement prior to the filing of its lawsuit based, in part, on the delay by the prior patent owner in bringing suit. Even though the current patent owner filed suit within three years after acquiring the patents, which was short of the six years delay required for a presumption of laches, the court imputed the predecessor’s delay in enforcing the patent to the current patent owner, resulting in a cumulative delay of over six years. This entitled the defendant to a presumption of laches, which the patent owner failed to rebut.
Under an equitable doctrine known as laches, patent owners can lose their ability to collect damages from infringers if they wait too long to assert their rights and prejudice the infringers by their delay. If a patent owner delays filing suit for more than six years from the time the patent owner knew or reasonably should have known of the alleged infringing activities, a presumption of laches arises. In a recent case, Everspin Techs. Inc., v. NVE Corp.,1 (D. Minn. Mar. 13, 2014), the U.S. District Court for the District of Minnesota prevented a patent holder from recovering damages accrued during the time that it and its predecessors failed to enforce the patents. In doing so, the court imputed the prior patent holder's delay to the current patent owner and found that the combined failure of the patent holder and its predecessors to enforce the patents against the defendant for a total cumulative period of twelve years before suit raised a presumption of laches, which the patent holder failed to rebut.
Everspin sued NVE in February 2012, accusing NVE's signal isolators of infringing U.S. Patent Nos. 5,861,328 and 5,831,920, and accusing NVE's magnetic sensors of infringing the '920 patent. NVE moved for summary judgment, arguing that Everspin unreasonably delayed in bringing suit, causing it economic prejudice. The '328 patent discloses a method of manufacturing magnetic memory cells in semiconductors using giant magneto-resistive (GMR) materials as the memory element. Motorola, Inc. filed the '328 patent in 1996 and assigned it to Freescale Semiconductor, Inc. in 2004. In 2009, Everspin became the owner by assignment. Because delay for laches is measured from the time the patent owner or its predecessors knew or reasonably should have known of the alleged infringing activities, facts concerning Motorola's, Freescale's, and Everspin's knowledge of NVE's accused activities and products became relevant.
Eugene Chen, a former Motorola employee, was previously employed at NVE, where he worked on GMR technology and became aware of the fabrication process and design of NVE's magnetic sensors and memory devices. Upon leaving NVE in 1995, Chen continued to work on GMR technology at Motorola, where he became a named inventor on the '328 patent.
Also in 1995, Motorola became one of NVE's largest shareholders; placed one its executives, Herbert Goronkin, on the NVE Corporation Board; and obtained an option to license some of NVE's Magnetoresistive Random Access Memory ("MRAM") technology. Motorola later expressed interest in NVE's GMR isolator technology development. In 2000, as part of a litigation settlement, Motorola and NVE agreed that if Motorola asserted any patent listed in the agreement, which included the '328 patent, NVE was not precluded from raising noninfringement, invalidity, or unenforceability defenses.
NVE first released the accused isolator products in 2000. From 2001 to 2008, it provided samples of, and sold, its accused sensor and isolator products to Motorola and Freescale.
The Everspin Decision
Everspin advanced three primary arguments to oppose NVE's motion for summary judgment on laches: (1) NVE's motion was premature; (2) the presumption of laches did not apply; and (3) even if it did apply, rebuttal evidence overcame the application of laches.
Contending that NVE's motion was premature, Everspin argued that it required further discovery to develop its opposition. Rejecting this argument, the court explained that Everspin failed to show what specific facts it hoped to learn that would be essential to rebut NVE's case for laches. The court particularly noted that Everspin did not deny Chen's and Goronkin's prior knowledge of NVE's potentially infringing activity.
Everspin next argued that a presumption of laches was improper because NVE altered the nature of its infringing activity over time, requiring a laches analysis for each product. Everspin noted that two of the isolator products and three of the sensor products were released following 2006, and thus any delay in filing suit was necessarily less than six years for those products. Unconvinced by this argument, the court observed that NVE's sensor and isolator products were first released in the early 1990s and in 2000, respectively. Further, every grouping of accused products contained at least one product series predating 2006.
The court also disagreed with Everspin that the burden was on NVE to prove that its pre-2006 products were materially the same as its post-2006 products. According to the court, a reasonable patentee stays informed on the activities of competitors and others in the same fields. Patentees, as the court observed, are in the best position to know the scope of their claims.
The court also emphasized that Motorola, Freescale, and Everspin knew or reasonably should have known about NVE's potentially infringing activity because of numerous factors: (1) Chen's prior involvement in developing GMR technology for sensors and magnetic memories at NVE and Motorola before 2006; (2) Motorola's interest as a major NVE shareholder and Goronkin's seat on NVE's board of directors, which was routinely informed of product developments; (3) Motorola's and Freescale's receipt of accused product samples and purchase of at least some accused products; and (4) Motorola's purchase of an option to license MRAM technology. Because of these facts and Everspin's failure to show that the pre- and post-2006 products substantially differed, the court applied the presumption of laches.
To rebut the presumption, Everspin argued that any delay in suing NVE was reasonable because it had no interest in being a patent aggressor and only brought suit in response to NVE's initial infringement action. But according to the court, Everspin's "defensive action" did not justify the delay. The court noted that under laches, Everspin can still maintain suit but cannot recover damages during the time that it and its predecessors neglected to enforce their patent rights.
The court also dismissed Everspin's argument that the value of NVE's pre-2006 sales did not justify a patent lawsuit because of the undisputed fact that Everspin's predecessors made no effort over a time period well over six years to notify NVE of any potential infringement relating to the patents.
Everspin also argued that because NVE provided no evidence of actual prejudice caused by the delay, the presumption of laches is overcome. Disagreeing, the court cited evidence that after 2006, NVE released a number of new isolator and sensor products, spent time and resources to promote these products, and saw a significant increase in net annual income. As the court observed, had Everspin or its predecessors filed suit more than six years earlier, NVE could have designed around Everspin's patents or waited before investing time and resources into potentially infringing products. Everspin was unable to rebut this evidence of NVE's changed economic position during the period of delay.
Strategy and Conclusion
This decision shows (1) how the defense of laches can wipe out years of potential damages when patent holders sleep on their rights, (2) the potential value of monitoring the activities of competitors for potential infringement with the understanding that an unreasonable delay in enforcing patent rights may later preclude recovery of substantial damages, (3) how the laches defense may eliminate the possibility of recovering damages for infringement that occurs not only during the current patent holder's delay, but also from recovering damages for infringement that occurs during the delay of the patent owner's predecessors, and (4) how the imputed period of delay from a prior patent owner may give rise to a presumption of laches for a subsequent owner of the patent even if the presumption may not otherwise apply to the subsequent owner.
This principle of imputing the laches defense and the period of delay from predecessors to subsequent owners of patents may affect the strategic and financial value of patents currently held and those sought to be acquired. Therefore it may be useful for those acquiring patents to investigate the patents' history, including communications and relationships between previous owners and potential infringers.