First published in LES Insights
In a recent decision, the United States Court of Appeals for the Federal Circuit reversed the district court's summary judgment ruling that a patent owner's claims were barred by equitable estoppel but affirmed a summary judgment based on laches. According to the court, the patent owner's more than six-year silence after an initial letter alleging infringement was not sufficient to induce a belief that the patent owner had abandoned the claim. But because the patent owner delayed more than six years before filing suit, the court applied laches to bar retrospective relief, even though the patent-in-suit entered into and emerged from reexamination during the delay. In reaching this conclusion, the Federal Circuit held that the Supreme Court's recent decision in Petrella v. Metro-Goldwyn Mayer, Inc. addressing the application of laches to a claim of copyright infringement did not disturb Federal Circuit precedent relating to laches and claims of patent infringement.
Two equitable defenses to patent infringement that may arise from a patent owner's delay in taking action are laches and equitable estoppel. Although both can arise from the same facts, they are distinct. To prove laches, an accused infringer must show (1) that a patent owner unreasonably and inexcusably delayed filing an infringement suit, and (2) that it was materially prejudiced from the delay. Delays exceeding six years give rise to a presumption that a delay is unreasonable, inexcusable, and prejudicial. When found, laches bars retrospective relief for damages accrued before filing suit but does not bar prospective relief. Equitable estoppel, on the other hand, when found, acts as a complete bar to a patent owner's infringement claim. This defense arises when a patent owner misleads an alleged infringer by conduct or inaction on which the alleged infringer relies to its detriment.
Recently, in Petrella v. Metro-Goldwyn Mayer, Inc., the Supreme Court held that the defense of laches could not be used to bar a claim for copyright infringement brought within the time allowed by the statute of limitations. This decision led some to question whether laches was still a viable defense to a claim of patent infringement given the statutory six-year limitation on damages for claims of infringement. In a recent decision, SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC1 (Fed. Cir. 2014), the Federal Circuit addressed the continued viability of the laches defense as well as the differences in application of the defenses of laches and equitable estoppel.
SCA and First Quality are competitors for adult-incontinence products. On October 31, 2003, SCA sent a letter to First Quality, asserting that certain First Quality products infringed its U.S. Patent No. 6,375,646 (the '646 patent). About a month later, First Quality responded that the '646 patent was invalid in view of certain prior art. And while the parties exchanged four additional brief letters over the next eight months, only the first two mentioned the '646 patent.
One day after sending its final communication to First Quality, SCA filed an ex parte reexamination request for the '646 patent, asking the United States Patent and Trademark Office (PTO) to review the patentability of the patent in light of the prior art raised by First Quality in its letter. About three years later, in 2007, the PTO confirmed the patentability of all 28 original claims and issued several new claims added during reexamination. SCA never notified First Quality of the reexamination proceedings. First Quality began expanding its line of adult-incontinence products while the '646 patent was in reexamination and continued its expansion after the reexamination's conclusion. The expansion cost more than $10 million.
SCA waited until August 2010—about six years and nine months after SCA first contacted First Quality about the '646 patent—to file suit. In view of this delay and SCA's silence after First Quality's invalidity assertion, the district court granted First Quality's motion for summary judgment based on laches and equitable estoppel
The Federal Circuit's Decision
On appeal, the Federal Circuit affirmed the district court's conclusion that SCA's delay in filing suit barred recovery of retrospective relief under the doctrine of laches. First, the Federal Circuit addressed whether the Supreme Court's decision in Petrella overruled its jurisprudence regarding the doctrine of laches. Noting that in Petrella the Supreme Court explicitly indicated that it "ha[d] not had occasion to review the Federal Circuit's position" on laches, the Federal Circuit found that Petrella left its prior decisions on laches as controlling precedent. Thus, Petrella acted as no bar to the assertion of a laches defense.
With respect to the substance of the defense, observing that SCA delayed filing suit for more than six years from when it first learned of First Quality's infringing activities, the court presumed that SCA's delay was unreasonable, inexcusable, and prejudicial. The burden therefore shifted to SCA to rebut the presumption, which, the court concluded, SCA could not do.
In particular, although SCA's delay during reexamination may have been excusable, the court found SCA's silence for more than three years after the patent emerged from reexamination was not. SCA, the court reasoned, should have been prepared to assert the patent against First Quality shortly after conclusion of the reexamination, particularly since SCA continued to evaluate First Quality's products during the reexamination period. Turning to the harm to First Quality, because the record suggested that it would have restructured its activities to minimize infringement liability had SCA brought suit earlier, the court found that SCA also failed to rebut the presumption that First Quality suffered economic harm. Accordingly, the Federal Circuit agreed with the district court that laches barred SCA's recovery of damages accrued before suit.
Turning to equitable estoppel, the court emphasized that when the defense is based on a patent owner's inaction, the inaction must be combined with other facts respecting the relationship or contacts between the parties to justify an alleged infringer's inference that the patent owner abandoned its claim. Further, the court observed, to justify summary judgment of equitable estoppel, any such inference that a patent owner made a misleading communication by omission or acquiescence must be the only possible inference from the evidence. According to the court, that was not the case here. A reasonable juror, the court found, might reason that SCA's silence did not mislead First Quality, given that the interaction between SCA and First Quality in the record was meager and that First Quality never solicited further comment from SCA after First Quality's assertion of invalidity. Moreover, that SCA immediately filed a request for ex parte reexamination of the '646 patent to address the validity issues raised by First Quality could reasonably be viewed as inconsistent with SCA's alleged acquiescence.
Additionally, the court emphasized, equitable estoppel requires that material prejudice to the accused infringer be caused by its reliance on the patent owner's alleged misleading inaction. The court pointed out a difference between prejudice that results from a patent owner's alleged misrepresentation and prejudice caused by reliance upon it —the former is sufficient to show a nexus for laches, the latter is required to establish equitable estoppel. Given this distinction, summary judgment of equitable estoppel was inappropriate because a reasonable juror, the court reasoned, could conclude that First Quality relied on its own opinion that the '646 patent was invalid rather than relying on SCA's silence.
Moreover, noting that even the most rudimentary due diligence by First Quality would have revealed that SCA had filed a reexamination request for the '646 patent, the court determined that a reasonable juror could conclude that First Quality's reliance on SCA's silence, to the extent it could be established, was not reasonable.
Strategy and Conclusions
This decision highlights the continued viability of the laches defense to a claim of patent infringement. It also highlights the evidentiary differences required to establish laches versus equitable estoppel in the context of patent litigation. For example, as here, while a patent owner's inaction can support a finding of laches, silence without additional supporting facts might not justify an accused infringer's inference that the patent owner abandoned its infringement claim. Further, as here, while prejudice may have resulted from a patent owner's delay, the prejudice might not have been caused by reliance on the delay.
The case also highlights that a patent holder should carefully consider the substance and quantity of communication with potential infringers to avoid making any potentially misleading statements or omissions. Additionally, the case shows that while delay during the time of a postgrant proceeding may itself be excusable, laches might still apply if the patent owner fails to promptly assert its rights at the conclusion of the proceeding.