In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 580 U.S. ___ (2017), the Supreme Court decided to remove laches, the equitable doctrine that can limit the recovery of damages after an unreasonable delay, from patent law. The Supreme Court’s decision to eliminate the equitable defense of laches is viewed as pro-patent holder and may have several ramifications for defendants in patent cases.
BACKGROUND OF THE CASE
In 2003, SCA notified First Quality that its adult incontinence products infringed SCA’s patent. SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 807 F.3d 1311, 1315 (Fed. Cir. 2015). First Quality responded that SCA’s patent was invalid based on First Quality’s own prior patent. Id. SCA then requested ex parte re-exam, and in 2007, the PTO confirmed the validity of SCA’s patent. Id. at 1316. From 2006-2009, First Quality invested significant resources in expanding its product line and acquiring a competitor. Id. SCA filed suit in 2010, which was the first communication in nearly seven years between SCA and First Quality regarding the patent at issue. Id. After the district court granted summary judgment based on laches and a panel of the Federal Circuit affirmed, in 2015, the Federal Circuit reaffirmed en banc 6-5 and held that the equitable defense of laches remained viable in patent law. Id. at 1333.
SUPREME COURT DECISION
On March 21, 2017, the Supreme Court reversed 7-1 and held that laches cannot be invoked as a defense against a claim for patent infringement damages brought within the 6-year limitations period prescribed by § 286. The decision came just three years after the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. ___ (2014), where the high court held that laches no longer applied in a copyright context.
The Court relied heavily on Petrella and determined that the Court’s reasoning from that case easily fit § 286 of the Patent Act. SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, No. 15-927, 580 U.S. ___, slip op. at 5 (2017). Similar to Petrella where the Court was unwilling to undermine the Copyright Act’s three year limitation, the Court held that § 286 “represents a judgment by Congress that a patentee may recover damages for any infringement committed within six years of the filing of the claim.” Id. at 6. Recalling from Petrella that laches was meant to be “gap-filling” and not “legislation-overriding,” the Court restated that “courts are not at liberty to jettison Congress’ judgment on the timeliness of suit.” Id. at 4-5 (quoting Petrella, 572 U.S. at ___ (slip op., at 1).
First Quality’s argument that laches was codified in § 282 of the 1952 Patent Act based on an “unenforceability” defense was rejected as the Court reasoned “it would be exceedingly unusual, if not unprecedented” for Congress to include both a statute of limitations and a laches provision applicable to a damages claim. Id. at 9. The Court pointed out that neither the Federal Circuit, nor any party, had identified another federal statute that provided such “dual protection” against untimely claims. Id. In its 2015 en banc decision, the Federal Circuit determined that Congress intended to codify the defense in § 282 based on the application of laches to damages claims in pre-1952 case law. Id. However, the Supreme Court held that a “broad and unambiguous consensus” of common law was required for such a patent-law-specific rule, and none was to be found. Id. at 10.
The Court found that many of the cases cited to by First Quality were cases decided by pre-1938 equity courts (before the merger of equity and law), and thus, “the most that can possibly be gathered from a pre-1938 equity case is that laches could defeat a damages claim in an equity court, not that the defense could entirely prevent a patentee from recovering damages.” Id. at 12. The Court further noted that First Quality could only point to three pre-1938 courts of law where laches was applied and two post-merger Courts of Appeals that stated in dicta that laches could bar legal damages claims. Id. at 13-15. Thus, the Court held that the pre-1952 case law “does not constitute a settled, uniform practice of applying laches to damages claims” and was insufficient to support codification of the defense into § 282 of the 1952 Patent Act. Id. at 15.
IMPACTS OF THE DECISION
While the Supreme Court’s decision is viewed by many as detrimental to patent case defendants, the extent to which it may disadvantage defendants is up for debate. One of the main concerns cited by the several amici briefs filed in this case was the already present problem of non-practicing entities “lying in wait”—that is, holding their patents while soon-to-be defendants expend significant resources into developing and monetizing their products. Now that laches is no longer a defense, non-practicing entities can wait throughout the entire term of the patent—while being fully aware of alleged infringement—and delay suit until the product becomes most profitable. In the tech industry, there is an added concern of standard-setting organizations adopting industry standards based on patents and creating a “lock-in” effect for companies. Justice Breyer shared in this concern in his dissent, stating that “a patentee has considerable incentive to delay suit until the costs of switching—and accordingly the settlement value of a claim—are high.” Id. at 11 (Breyer, J., dissenting).
As the Court first noted in Petrella, the Supreme Court reiterated that the related doctrine of equitable estoppel provides similar protections to laches for defendants in patent infringement cases. However, it is important to note that whereas laches required a showing of unreasonable delay and material prejudice, equitable estoppel requires a different showing of misleading conduct. A.C. Aukermann Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1042 (Fed. Cir. 1992). While some would consider equitable estoppel to be more difficult in that aspect to assert successfully, regardless, the Court’s decision vitiates another tool at the disposal of patent defendants and further arms patent holders who lie in wait. Although infrequently a prevailing defense, laches may have been useful in providing negotiating leverage to defendants in settlement discussions.
Whether or not this decision by itself will significantly impact the patent landscape, the decision may be indicative of the Supreme Court’s eagerness to be rid of “special rules” for patent law. Justice Breyer was notably alone in his dissent in which he suggested deference was more appropriate and the Court should be “cautious before adopting changes that disrupt the settled expectations of the inventing community.” Id. at 11 (Breyer, J., dissenting) (quoting Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 739 (2002)). With potential for a landmark decision before the Supreme Court in TC Heartland v. Kraft Foods Group Brands, there may be more changes to come.