Guest Post: SCA v. First Quality

With TC Heartland still on deck a the Supreme Court, a look back at the Court's most recent patent decision SCA v. First Quality by guest poster, Gary Cohen. Some of my thoughts, are posted on IPwatchdog (here). Back to PTAB news/notes next week. SCA v. First Quality: Limiting the Application of Laches

By Gary Cohen[1]

On March 21, 2017, the U.S. Supreme Court (“SCOTUS”), in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, No. 15-927 (2017), reversed an en banc opinion from the Federal Circuit holding that laches could be asserted against a claim for damages incurred within the Patent Act’s 6-year limitations period of 35 USC §286. The SCOTUS asserted that the en banc opinion impermissibly invoked laches to bar legal relief, with such invocation being unwarranted in view of both the SCOTUS’ holding in Petrella v Metro-Goldwyn-Mayer, Inc., 572 U.S. _____ (2014) and the caselaw preceding the Patent Act of 1952.

The facts of the case are fairly straightforward: On October 31, 2003, SCA asserted that a First Quality product infringed U.S. Patent No. 6,375,646 (“’646 Patent”), and, on November 21, 2003, First Quality responded, indicating that the ‘646 Patent was invalid in view of U.S. Patent No. 5,415,649. Subsequently, First Quality ceased communication regarding the ‘646 Patent, while SCA requested reexamination of the ‘646 Patent on July 7, 2004.

The original claims of the ‘646 Patent were confirmed on March 27, 2007 and, on August 2, 2010, SCA filed a complaint, alleging infringement by First Quality of the ‘646 Patent. After some discovery and the issuance of a claim construction order, First Quality moved for Summary Judgement on the basis of noninfringement as well laches and equitable estoppel. The SJ motion, as to laches and equitable estoppel, was granted and the motion for noninfringement dismissed as moot.

First Quality sought to distinguish the copyright statute of limitations §507 from 35 USC §286 by contending that “a true statute of limitations runs forward from the date a cause of action accrues, whereas §286’s limitations period runs backward from the filing of the complaint.” However, this distinction was neither persuasive with the SCOTUS nor the Federal Circuit, with the latter indicating:

[B]ecause patent infringement is a continuous tort, there is no relevant functional difference between a damages limitation and a statute of limitations. We therefore see no substantive distinction material to the Petrella analysis between § 286 and the copyright statute of limitations considered in Petrella2.

Probably the most significant distinction between the en banc and SCOTUS holdings is found in their differing views of the significance of the caselaw preceding the 1952 Patent Act. Both the majority of the en banc Federal Circuit decision and First Quality argued that the lower court cases decided prior to the 1952 Patent Act strongly supported an unambiguous consensus that the rule of Petrella, precluding the invocation of laches to bar a claim for damages incurred within a limitations period, should not be followed in patent cases – the SCOTUS disagreed.

More particularly, the majority of the en banc opinion determined that Congress, by way of the 1952 Patent Act, codified a laches defense in §282(b)(1)3, and that application of that defense would be controlled by the common law established prior to the enactment of the 1952 Patent Act4. The SCOTUS, however, rejected the position that enough pre-1938 caselaw (preceding the merger of equity and law) or post-1938 caselaw (where, at least conceivably, laches could, as a result of the merger of equity and law, be applied to damages claims) existed to “. . . constitute a settled, uniform practice of applying laches to damages claims5.”

Moreover, the SCOTUS rejected First Quality’s argument that Congress implicitly ratified post-1952 Court of Appeals decisions holding that laches can be invoked as a defense against a damages claim since Congress amended §282 without altering the “unenforceability” language. It is this language which is said to incorporate the laches defense6.

While the SCOTUS has clearly rejected the interposition of laches as a defense against damages where infringement occurred within the period prescribed by §286, it does not appear to preclude application of equitable estoppel to limit damages, when the circumstances are appropriate:

We note, however, as we did in Petrella, that the doctrine of equitable estoppel provides protection against some of the problems that First Quality highlights, namely, unscrupulous patentees inducing potential targets of infringement suits to invest in the production of arguably infringing products.572 U. S., at ___ (slip op., at 19)7.

In conclusion, while the SCOTUS has clearly eliminated laches as one tool for limiting damages in copyright or patent infringement matters, it appears, for the time-being, to have left equitable estoppel, as a damages limiting tool, intact.