En Banc Federal Circuit Preserves The Patent Laches Defense Over Dissent

22 September 2015 PharmaPatents Blog

In a divided en banc decision in SCA Hygiene Products v. First Quality Baby Products, the Federal Circuit preserved the defense of laches for patent cases even though the Supreme Court eliminated that defense in copyright cases. This means that an accused infringer may be able to raise a patent laches defense in a suit brought within the 6 year period of 35 USC § 286. The court also held that laches can prevent an injunction, but made clear that in such a case the infringer could be required to pay an ongoing royalty.

The Delay At Issue

The patent at issue was SCA’s U.S. Patent No. 6,375,646, directed to an absorbent pants-type diaper. In 2003, SCA sent First Quality a letter asserting that First Quality’s Prevail® All Nites™ product infringed the ’646 patent. Less than a month later, First Quality responded to the letter and advised SCA of its opinion that the ‘646 patent is invalid in view of U.S. Patent No. 5,415,649. SCA did not respond to that letter, but sought ex parte reexamination of the ‘646 patent in view of the ‘649 patent. A reexamination certification was issued in March of 2007, confirming patentability of the original claims and granting new claims. In August of 2010, SCA asserted the patent against First Quality in the U.S. District Court for the Western District of Kentucky.

As summarized in the Federal Circuit opinion, between 2003 and 2010, First Quality had “invested heavily in its protective underwear business,” including expanding its line of products, and spending $10 million to purchase three more lines of products. According to the Federal Circuit opinion, “SCA was aware of First Quality’s activities, but never mentioned the ’646 patent to First Quality during this time.”

The district court granted First Quality’s motion for summary judgment of laches and equitable estoppel. On appeal, a panel of the Federal Circuit affirmed as to laches, but reversed as to equitable estoppel. SCA petitioned for rehearing en banc in view of the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014).

The En Banc Questions

In Petrella, the Supreme Court held that laches is not available as a defense to a copyright infringement suit brought within the Copyright Act’s statutory limitations period, and does not bar claims to legal relief brought within the statutory period. The Federal Circuit granted SCA’s petition for rehearing en banc in view of Petrella to address these questions:

(a) In light of the Supreme Court’s decision in Petrella … (and considering any relevant differences between copyright and patent law), should this court’s en banc decision in A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992), be overruled so that the defense of laches is not applicable to bar a claim for damages based on patent infringement occurring within the six-year damages limitations period established by 35 U.S.C. § 286?

(b) In light of the fact that there is no statute of limitations for claims of patent infringement and in view of Supreme Court precedent, should the defense of laches be available under some circumstances to bar an entire infringement suit for either damages or injunctive relief? See, e.g., Lane & Bodley Co. v. Locke, 150 U.S. 193 (1893).

The Federal Circuit Decision

Chief Judge Prost authored the opinion for the court, which was joined by Judges Newman, Lourie, Dyk, O’Malley and Reyna.

If you are a new law student,  just took the bar exam, or are a legal scholar, you may enjoy the discussion of courts of law vs. courts of equity, legal remedies vs. equitable remedies, common law traditions, and the ambiguity over whether in pre-1946 cases the term “accounting” referenced legal or equitable relief, but I am going to jump over all that to the bottom line.

Addressing the first question, the majority read the Supreme Court decision in Petrella as being driven by “separation of powers concerns”:

Historically, “laches is a defense developed by courts of equity; its principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation.” …. Laches is thus “gap-filling, not legislation-overriding.” …. Petrella consequently held that “in face of a statute of limitations enacted by Congress, laches cannot be invoked to bar legal relief.” …. Therefore, under Petrella, “[t]o the extent that an infringement suit seeks relief solely for conduct occurring within the limitations period . . . courts are not at liberty to jettison Congress’ judgment on the timeliness of suit.”

(citations to Petrella omitted.)

The majority found that such “separation of powers” concerns are not at issue in patent cases, and so laches can live on as a defense to patent infringement even after Petrella:

The statutory scheme in patent law, however, is different. While Congress has spoken on the timeliness of patent damages claims, Congress also codified a laches defense in § 282. Thus, because § 286 provides for a time limitation on the recovery of legal remedies, and § 282 provides for laches as a defense to legal relief, the separation of powers concern is not present. Laches therefore remains a viable defense to legal relief in patent law.

Don’t bother trying to find the word laches in § 282. As pointed out in Judge Hughes’ dissent, the majority relies primarily on its reliance in Aukerman on P.J. Federico’s Commentary on the New Patent Act to the effect “that the second paragraph of § 282 includes ‘equitable defenses such as laches, estoppel and unclean hands.’”

Turning to the second question, the majority broke it into two parts:

  • “whether laches can bar permanent injunctive relief” and
  • “whether [laches] can bar an ongoing royalty for continuing infringing acts”

As to the first part, the majority found that “laches fits naturally into [the four-part] framework for awarding injunctive relief, such that laches is available to bar equitable relief. For example, the majority noted, “[m]any of the facts relevant to laches, such as the accused infringer’s reliance on the patentee’s delay, fall under the balance of the hardships factor,” and “[u]nreasonable delay in bringing suit may … be relevant to a patentee’s claim that continued infringement will cause it irreparable injury.” Thus, according to the majority, “district courts should consider all material facts, including those giving rise to laches, in exercising its discretion under eBay to grant or deny an injunction. Accordingly, the court “rejected” Aukerman to the extent it held that laches only can bar pre-suit damages.

Judge Hughes (and presumably the other dissenting judges) concurred in this portion of the majority decision.

On the second part of the second question the court said:

With respect to ongoing royalties, while the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches.

The majority summarized its rulings as follows:

For the foregoing reasons, laches remains a defense to legal relief in a patent infringement suit after Petrella. Laches bars legal relief, and courts must weigh the facts underlying laches in the eBay framework when considering an injunction. However, absent extraordinary circumstances, laches does not preclude an ongoing royalty.

The Dissenting Opinion

Judge Hughes wrote an opinion concurring-in-part and dissenting-in-part that was joined by Judges Moore, Wallach, Taranto, and Chen.

As reflected in the opening paragraphs, the dissenters disagreed with the majority on the following points, for the following reasons:

The majority reasons that Petrella is not controlling here because Congress specifically incorporated laches as a defense to legal damages into the Patent Act of 1952. But the majority has no sound basis for finding that Congress intended to displace the uniform limitations period in § 286 with the case-specific doctrine of laches. The majority’s key logic—that Congress adopted the view of some lower courts that laches could bar legal relief in patent cases—requires us to presume that Congress ignored the Supreme Court. For in 1952, the Supreme Court had already recognized the common-law principle that laches cannot bar a claim for legal damages. I know of no precedent for inferring a congressional departure from a common-law principle recognized by the highest court based solely on aberrational lower-court decisions.

The Supreme Court has repeatedly cautioned this court not to create special rules for patent cases. In light of the Supreme Court’s clear, consistent, and longstanding position on the unavailability of laches to bar damages claims filed within a statutory limitations period, we should not do so here. I respectfully dissent-in-part.

When Laches Attaches

Under § 286, a patentee cannot be awarded damages for infringement that occurred more than 6 years before the suit was brought, but this case permits an accused infringer to raise the defense of laches against pre-suit damages accrued within the 6 year period by establishing the defense of laches, e.g., that the patentee unreasonably and inexcusably delayed bringing suit, and the accused infringer “suffered material prejudice attributable to the delay.” Further, the accused infringer can raise laches-type arguments to oppose any injunction sought by the patentee. However, if no injunction is awarded, the accused infringer may be required to pay a reasonable royalty on an ongoing basis.

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