Today the Supreme Court ruled that the laches defense could not be used to limit 35 U.S.C. § 284 patent damages given the 35 U.S.C. § 286 statute of limitations that permits recovery of patent damages up to six years prior to filing an infringement suit. Specifically, the Court ruled that “Laches cannot be interposed as a defense against damages where the infringement occurred within the period prescribed by §286.” The result of the ruling is that the laches defense may limit equitable relief, such as an injunction, but will no longer preclude past damages in patent cases.
From a practical standpoint, the ruling may not be as significant as it otherwise might appear. Laches is a frequently raised, but seldom successful, equitable defense in patent litigation. Laches basically arises from a patent owner unreasonably delaying its assertion of a patent right during a period of time when the accused infringer made investments and the infringer would be prejudiced by the delayed assertion of the patent. If successful, the defense traditionally would bar all past damages, limit injunctive relief and preclude future royalties on products purchased during the laches period. The Federal Circuit’s en banc decision below in the instant case limited the defense so that it would no longer preclude any future royalties (see our Sep. 18, 2015 post explaining the en banc decision). In sum, prior to today’s decision, the laches defense could limit damages prior to the filing of the lawsuit and limit injunctive relief. This might have little impact in most patent cases where the period of past infringement may be relatively short and the patent has many years of life remaining for which future royalties would be paid even if an injunction were not granted.
Laches was a more promising defense when a litigation patent assertion entity purchased and asserted a near-end-of-life dormant patent (i.e., a never asserted patent) against defendants who have long-used the alleged infringing technology (see our Oct. 7, 2016 post on the FTC’s PAE Study and distinction between non-problematic “portfolio PAEs” and some problematic “litigation PAEs”). In such circumstances, a laches defense could have a substantial impact because it would bar the bulk of the damages period (six years prior to the lawsuit) and would bar injunctive relief. This would leave a remedy of only a future royalty for the short period of time remaining in the patent’s life. For example, consider a patent with only a year remaining before it terminates. The litigation PAE could seek seven years of damages: six years of damages prior to the lawsuit and one year of royalties before the patent terminates. A successful laches defense would limit the damages exposure by over 85% — i.e., remove all six years of pre-suit damages, leaving only one year of future royalties before the patent expires.
The Supreme Court’s decision today will now permit six years of pre-suit damages notwithstanding a successful laches defense. The related doctrine of equitable estoppel still remains as a defense. Equitable estoppel is a somewhat harder defense to establish, because it requires proof that the infringer relied on some action by the patent owner indicating it would not assert the patent. But equitable estoppel is a more effective defense, because it is a complete defense — i.e., it precludes all past and future damages and injunctive relief.
Below is a short summary of the case and the Supreme Court’s decision.
Background
Patent owner SCA Hygiene Products (SCA) and accused infringer First Quality make and sell adult diapers. In October 2003, SCA sent a letter to First Quality asserting that First Quality’s products infringe SCA’s patent (the ‘646 Patent). First Quality responded that its own patent (the ‘649 Patent) was prior art and invalidated SCA’s patent.
The next year, in July 2004, SCA sought reexamination of its ‘646 Patent in view of First Quality’s ‘649 Patent. Three years later, in March 2007, the Patent & Trademark Office (PTO) confirmed the validity of SCA’s ‘646 Patent.
Three years later, in August 2010, SCA sued First Quality for infringing SCA’s ‘646 Patent. This was the first time First Quality had heard from SCA since their 2003-2004 exchange about seven years earlier.
The district court granted First Quality’s motion for summary judgment that laches and equitable estoppel barred all monetary and injunctive relief. SCA appealed to the Federal Circuit. While that appeal was pending, the Supreme Court issued its decision in Petrolla v. Metro-Goldwyn-Mayer, Inc., 572 U.S. ___ (2014), which held that the laches defense could not preclude damages during the three-year statute of limitations period prior to the lawsuit. A Federal Circuit three-judge panel, nonetheless, ruled that laches barred SCA’s claims, but factual issues remained as to the equitable estoppel defense. The entire Federal Circuit then heard the case en banc and ruled that laches remained a defense to past damages (see our Sep. 18, 2015 post reviewing the en banc decision).
Supreme Court Decision
The Majority decision, written by Justice Alito, focused on the distinction between equitable relief and legal relief — i.e., statutory compensatory damages. Laches was a defense developed in equity and applied in courts of equity prior to law and equity being merged in a single court in 1938. This equitable origin was one reason for the Supreme Court’s Petrella decision that the equitable doctrine of laches could not preclude statutory damages (i.e., damages at law). The Petrella decision also was premised on separation-of-powers principles where court’s should not preclude damages during a period of time that Congress expressly would allow damages –i.e., during the statute of limitations period where, in the case of copyright, damages could be sought up to three years prior to the filing of the lawsuit. Rather, laches applies as a “gap-filling doctrine” where Congress has not provided a fixed time to assert a statutory right:
Applying laches within the limitations period would also clash with the purpose for which the defense developed in the equity courts. As Petrella recounted, the “principal application” of laches “was, and remains, to claims of an equitable case for which the Legislature has provided no fixed time limitation. Laches is a gap-filling doctrine, and where there is a statute of limitations, there is no gap to fill.
In a footnote, the Supreme Court rejected the view that a gap exists based on situations where a patent owner waits a long time for a product to become successful before suing:
The dissent argues that there is a “gap” in the statutory scheme because the Patent Act’s statute of limitations might permit a patentee to wait until an infringing product has become successful before suing for infringement. We rejected a version of this argument in Petrella, 572 U.S., at ___–___ (slip op., at 16-17), and we do so here. The dissent’s argument implies that, insofar as the lack of a laches defense could produce policy outcomes judges deem undesirable, there is a “gap” for laches to fill, notwithstanding the presence of a statute of limitations. That is precisely the kind of “legislation-overriding” judicial role that Petrella rightly disclaimed. Id., at __ (slip op., at 14).
The statute of limitations at issue in patent cases comes from 35 U.S.C. § 286, which states:
Except as otherwise provided by law, no recover shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.
As in the Petralla copyright statute of limitations (that precludes a copyright action “unless it is commenced within three years after the claim accrued” 17 U.S.C. § 507(b)), the Court ruled that “this provision represents a judgment by Congress that a patentee may recover damages for any infringement committed within six years of the filing of the claim.”
First Quality argued that the patent statute provision was not a “true statute of limitations” that “runs forward from the date a cause of action accrues,” but instead “runs backward from the time of suit.” The Court rejected that argument because the Petrella copyright statute of limitations also was considered “a three-year look-back limitations period.”
The Court also rejected the argument that laches could preclude past damages because laches was codified in §282(b)(1) as an “unenforceability” defense. The Court indicated that having a laches defense “of some dimension” does not mean that laches could counter the statutory six-year damages period:
Even if we assume for the sake of argument that §282(b)(1) incorporates a laches defense of some dimension, it does not necessarily follow that this defense may be invoked to bar a claim for damages incurred within the period set out in §286. Indeed, it would be exceedingly unusual, if not unprecedented, if Congress chose to include in the Patent Act both a statute of limitations for damages and a laches provision applicable to a damages claim. [emphasis in original]
The Court also considered the argument that there had been a nationally established practice of applying laches to bar pre-suit damages prior to 1952 when Congress enacted the § 282 unenforceability defense. The Court disagreed, and ruled that “[t]he most prominent feature of the relevant legal landscape at the time of enactment of the [1952] Patent Act was the well-established general rule … that laches cannot be invoked to bar a claim for damages incurred within a limitations period specified by Congress.” Given that general rule, “nothing less than a broad and unambiguous consensus of lower court decisions could support the inference that §282(b)(1) codifies a very different patent-law-specific rule” and “No such consensus is to be found.”
The Court went into a detailed discussion of the pre-1952 cases, separating them into three categories based on pre-1938 separate courts of equity and law and post-1938 combined courts of equity and law:
- Pre-1938 equity cases
- Pre-1938 law cases
- Post-1938 merged equity and law cases
We leave to your casual reading the several page discussion of those cases, which ultimately led the Court to find there was no sufficient national consensus that equitable laches precluded past statutory damages.
The Court considered an argument that Congress must have accepted post-1952 decisions applying laches to past statutory damages because Congress had since amended the patent statute without eliminating the laches defense. The Court rejected that argument, stating that “Nothing that Congress has done since 1952 has altered the meaning of §282.”
Finally, the Court rejected policy arguments that laches should preclude pre-suit damages to preclude certain abuses premised on delayed patent enforcement, indicating that the doctrine of equitable estoppel still remains to address those issues:
First Quality and its supporting amici also make various policy arguments, but we cannot overrule Congress’s judgment based on our own policy views. 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). Indeed, the Federal Circuit held that there are genuine disputes of material fact as to whether equitable estoppel bars First Quality’s claims in this very case.
The Majority, therefore, concluded that “Laches cannot be interposed as a defense against damages where the infringement occurred within the period prescribed by §286”–i.e., six years prior to filing of the patent lawsuit.
Justice Breyer dissented from the decision, which he summarized as follows:
In my view … the majority has ignored the fact that, despite the 1952 Act’s statute of limitations, there remains a “gap” to fill. Laches fills this gap. And for more than a century courts with virtual unanimity have applied laches in patent damages cases. Congress, when it wrote the 1952 statute, was aware of and intended to codify that judicial practice. I fear that the majority, in ignoring this legal history, opens a new “gap” in the patent law, threatening harmful and unfair legal consequences.