First published in LES Insights
A Connecticut court recently applied the doctrine of laches to prevent a patent owner from recovering patent-infringement damages despite delaying only five months before filing its patent infringement lawsuit. The patent owner became aware of potentially infringing products in May 2010 but did not commence an investigation until October 2010 and ultimately filed suit on November 22, 2010, four days before Black Friday, the highest volume day for retail sales in the United States. The court found that the patent owner had successfully obtained settlements from retailers twice before by threatening litigation on the eve of holiday shopping seasons and in that in this case, the patent owner strategically delayed filing suit until the eve of the busy holiday shopping season to gain additional leverage over retailers in settlement negotiations, an unreasonable and prejudicial delay giving rise to laches and barring the damages accruing during the period of delay.
An equitable defense to patent infringement, laches can prevent patent owners from recovering damages from infringers if they wait too long to assert their patent rights and prejudice the infringers by their delay. A presumption of laches arises when a patent owner fails to file suit within six years from when the patent owner knew or reasonably should have known of the alleged infringement. But there is no fixed minimum time period that must elapse before laches can arise. In a recent case, Romag Fasteners, Inc. v. Fossil, Inc.,1 (D. Conn. June 27, 2014), the U.S. District Court for the District of Connecticut prevented plaintiff Romag Fasteners, Inc. from collecting damages that accrued five months before filing suit. The court concluded that Romag intentionally delayed bringing suit to gain a tactical advantage over defendants Fossil, Inc. and Macy's Co. in settlement negotiations. Finding Romag's delay both unreasonable and prejudicial to Fossil and Macy's, the court reduced Romag's damages by an amount corresponding to the delay.
Romag owns U.S. Patent No. 5,722,126 ("the '126 patent"), directed to magnetic snap fasteners, as well as the federally registered trademark "ROMAG, "which covers corresponding commercial fasteners. Through a license agreement, Romag authorized a Chinese company, Wing Yip Metal Manufactory Accessories Limited, to manufacture and sell Romag's patented fasteners under the ROMAG trademark. In 2008, several employees left Wing Yip and started their own company, Hechuang Metal Manufactory, which began manufacturing counterfeit ROMAG fasteners.
On May 12 and 20, 2010, Mr. Reiter, Romag's president, received emails from an ex-Wing Yip employee informing him that Hechuang was manufacturing Romag fasteners without authorization and selling them to Superior Leather Limited, a manufacturer of handbags. Mr. Reiter testified that he did not realize at the time of those emails that Superior was a supplier for Fossil, Inc., a Romag customer, though the court pointed out that Mr. Reiter possessed an email identifying Superior as a Fossil supplier. That same week, Mr. Reiter contacted his intellectual-property attorney four times. The next week, Mr. Reiter's sister-in-law informed Romag's general counsel that she had purchased several Fossil handbags at Macy's Co. that she believed contained counterfeit ROMAG fasteners. But Mr. Reiter did not commence an investigation of the alleged counterfeit fasteners at that time.
About five months later, at the end of October 2010, Mr. Reiter decided to investigate the alleged counterfeit fasteners sold to Superior by Hechuang in connection with the Fossil bags. He later testified that he did not know what prompted him to investigate the Fossil bags at that time. Within about three weeks of investigating, Mr. Reiter confirmed his suspicions. On November 17, 2010, Romag sent a cease-and-desist letter to Fossil regarding the suspected handbags. And on November 22, 2010—only four days before Black Friday, the highest volume shopping day of the year in the United States—Romag filed suit against Fossil and Macy's Co, moving for a temporary restraining order the following day, which was granted a week later. After a seven-day trial, a jury found Fossil liable for trademark infringement and false designation of origin and both Fossil and Macy's liable for infringing the '126 patent. Arguing for reduced damages, Fossil and Macy's asserted equitable defenses, including laches based on Romag's delay in filing suit until the eve of Black Friday.
The District Court's Laches Ruling
Romag argued that the equitable doctrine of laches should not apply because any alleged delay was far less than the six-year statute of limitations that gives rise to a presumption of laches. The court rejected this argument, observing an earlier Federal Circuit holding that laches may arise after shorter delays and that "[t]he length of time which may be deemed unreasonable has no fixed boundaries but rather depends on the circumstances."
Although Romag argued that it did not become aware of the counterfeit snaps on Fossil's handbags until October 2010, the court found that Romag knew or reasonably should have known of the counterfeit snaps at least by June 2010. The court reached this conclusion because of several facts: (1) the email Mr. Reiter received on May 19, 2010 from the ex-Wing Yip employee informing him that Hechuang was selling counterfeit fasteners to Superior; (2) Mr. Reiter's possession of an email disclosing Superior as a Fossil supplier; (3) the Fossil handbags containing counterfeit snaps purchased from Macy's by Mr. Reiter's sister-in-law and sent to Romag in May 2010; and (4) the fact that it only took a few weeks for Mr. Reiter to confirm his suspicion that the fasteners were counterfeits after commencing an investigation in October 2010. Also, as a result of Mr. Reiter's contact with his attorney, the court noted, Romag had access to intellectual-property counsel to help thoroughly investigate and develop its claims.
While acknowledging that a delay of several months might not typically sound unreasonable, under the circumstances, the court deemed Romag's delay unreasonable and strategic:
The inescapable conclusion is that Plaintiff carefully timed this suit to take advantage of the imminent holiday shopping season to be able to exercise the most leverage over Defendants in an attempt to extract a quick and profitable settlement, as it had done twice before in the past three years.
The court then found that the defendants had suffered material economic prejudice as a result of the delay. Specifically, during the delay, Fossil's infringing inventory had approximately doubled between June and November 2010 in preparation for the holiday season. In addition, Fossil's representative testified that Fossil could have replaced its holiday inventory with noninfringing products if Romag had notified it of the counterfeit snaps before September 2010.
Finally, the court found, Romag had no valid excuse for its delay in filing suit, and Fossil and Macy's had not engaged in any behavior that would counsel against application of the laches doctrine. The court therefore ruled that laches barred Romag from recovering a reasonable royalty on sales of handbags with counterfeit snaps between June 2010 and November 2010, reducing the reasonable royalty award by eighteen percent.
Strategy and Conclusion
This decision serves as a reminder that, while a presumption of laches attaches after a six-year delay in filing a suit for patent infringement, the laches doctrine can limit recovery if plaintiffs sit on their rights for even a much shorter time. This is especially true if evidence suggests that a plaintiff delayed filing or tactical reasons, such as attempting to gain additional leverage over alleged infringers in settlement negotiations. As well, this decision points to the value in diligently investigating potential infringing activity and exercising caution regarding the laches implications of strategic delays, particularly when those delays may prejudice alleged infringers.