Laches not available to defeat patent infringement damages claim: SCA Hygiene Products v First Quality Baby Products

In a 7-1 decision on March 21, 2017, in the case of SCA Hygiene Products AB v. First Quality Baby Products LLC, the United States Supreme Court reversed an en banc decision of the Court of Appeals for the Federal Circuit and held that the equitable defense of laches was not available to defeat a claim for damages for patent infringement when the claim was brought within six years of the acts complained of.

Law in the United States recognizes three main ways in which a defendant may be protected against claims brought by a plaintiff who has delayed too long before asserting its rights: 1) statutes of limitations; 2) the equitable doctrine of laches; and 3) the doctrine of equitable estoppel.

In SCA Hygiene v First Quality, the Supreme Court addressed the relationship of the first two of these in the context of the patent law’s statute of limitations as set out in 35 USC 286, the first paragraph of which reads as follows:

• Except as otherwise provided by law, no recovery 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 explained by the Supreme Court, the doctrine of laches is a defense developed by courts of equity to protect defendants against unreasonable, prejudicial delay in commencing suit.

The question before the Court was whether this doctrine could preclude a claim for recovery of damages for patent infringement in a case where the action was commenced within six years of acts complained of. In its decision, authored by Justice Alito, the Court held that it could not.

In reaching this conclusion, the Court relied on its 2014 decision in Petrella v. Metro-Goldwyn-Mayer, Inc., where the Court had held that the statute of limitations provisions of the Copyright Law (17 USC 507(b)) had precluded the use of a laches defense to an allegation of copyright infringement.

The Federal Circuit Court of Appeals had distinguished Petrella on the ground that, unlike the copyright statute, 35 USC 286 expressly stated that the patent statute of limitations did not apply when “otherwise provided by law” and that at the time of enactment of the current Patents Act in 1952, the doctrine of laches had been held in many decisions to be applicable in patent cases even though a statute of limitations on recovery of damages for patent infringement had been enacted in 1897. The Federal Circuit determined that since the legislative history indicated that, when enacting the present language in 1952, Congress had intended to codify the then existing law, it could not be concluded that any change in the applicability of the laches defense had been intended. The majority of the Supreme Court dismissed this argument stating that the cases referred to by the Federal Circuit were few in number and that by 1952, the overwhelming view in cases outside patent law was that once Congress had enacted a statute of limitations for any particular violation of the law, this precluded the use of an equitable defense. Laches was a defense that could be used only to “fill in the gaps’ here Congress had made no specific provision.

The Supreme Court also looked at the difference in language between the statutes of limitations in copyright law and patent law, the former barring any civil action more than three years after the act of copyright infringement complained of, but the latter simply precluding recovery for any damages incurred more than six years prior to the start of the suit.  After considering the “ways in which statutes of limitations generally work”, the court concluded that “Petrella cannot reasonably be distinguished on this ground”.

Justice Breyer dissented seeing copyright law and patent law as being sufficiently different that Petrella should not be seen as a controlling precedent and raising concerns about the policy impact of denying defendants a laches defense in patent cases, noting:

• the passage of time may well harm patent defendants who wish to show a patent invalid by raising defenses of anticipation, obviousness, or insufficiency. These kinds of defenses can depend upon contemporaneous evidence that may be lost over time, and they arise far more frequently in patent cases than any of their counterparts do in copyright cases, and
• there is a “lock-in” problem that is likely to be more serious where patents are at issue. Once a business chooses to rely on a particular technology, it can become expensive to switch, even if it would have been cheap to do so earlier…As a result, a patentee has considerable incentive to delay suit until the costs of switching—and accordingly the settlement value of a claim—are high. The practical consequences of such delay can be significant

Justice Alito noted that there might be some force in such policy arguments but took the view that to consider them would be to substitute the court’s policy judgment for that of Congress and this was contrary to a basic understanding of the separation of powers in the United States. He did, however, point out that:

• the   doctrine   of   equitable estoppel provides protection against some of the problems…namely, unscrupulous patentees inducing potential targets of infringement suits to invest in the production of arguably infringing products, and
• that issues of equitable estoppel had yet to be decided in the present case since that aspect of the case had been remanded to the district court for further findings of fact.

As an aside, on the question of equitable estoppel as applied to patent cases, the Federal circuit has previously held in its 1992 decision in A.C. Aukerman Co. v. R. L. Chides Construction Co. that three elements are necessary, each to be proved by a preponderance of the evidence : (1) a “communication” from the patentee to the alleged infringer whereby the alleged infringer reasonably infers that the patentee does not intend to enforce its patent, (2) a reliance by the alleged infringer on that “communication”, and (3) resultant harm.

It therefore seems likely that we will see increasing attempts to use the doctrine of equitable estoppel as a defense in patent infringement cases. However, this will not deal with all of the possible concerns raised by Justice Breyer and amici in the SCA Hygiene case and the risks to the patentee in sending letters before action and so potentially opening themselves to an equitable estoppel defense may accelerate a trend that is already noticeable of starting a law suit with no prior communication to the defendant in order to reduce the risk that the putative defendant will commence an inter partes review of the patent in question prior to the law suit being initiated.