United States: Reexamination Proceedings Do Not Toll The Six-Year Delay For A Presumption Of Laches

In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, No. 13-1564 (Fed. Cir. Sept. 17, 2014), the Federal Circuit affirmed the district court's grant of SJ of laches, reversed the district court's grant of SJ of equitable estoppel, and remanded.

SCA Hygiene Products Aktiebolag ("SCA") competes in the market for adult incontinence products with First Quality Baby Products, LLC ("First Quality"). In 2003, SCA sent a letter to First Quality, suggesting that certain First Quality products might infringe SCA's U.S. Patent No. 6,375,646 ("the '646 patent"). First Quality responded, contending that the '646 patent was anticipated by an earlier-filed patent. The parties exchanged four more brief letters, none of which mentioned the '646 patent, after which SCA filed an ex parte reexamination request for the '646 patent. Three years later, in 2007, the PTO confirmed the patentability of the '646 patent and issued several new claims. SCA never notified First Quality about the reexamination proceedings. Finally, in 2010, about six years and nine months after SCA's initial letter to First Quality, SCA filed suit, alleging infringement of the '646 patent. The district court granted First Quality's motion for SJ of both laches and equitable estoppel, and dismissed the case. SCA appealed.

"Whether SCA's delay was excusable relates to the question of whether it can rebut the presumption of unreasonable and inexcusable delay, not whether the presumption applies in the first place." Slip op. at 9.

On appeal, the Federal Circuit first considered the issue of laches. As a preliminary matter, the Court first held that A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020 (Fed. Cir. 1992) (en banc), was still intact after Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014). Specifically, the Court rejected SCA's argument that Petrella precluded the application of laches to bar a claim for damages brought within the time allowed by the federal statute of limitations.

The Federal Circuit then held that the reexamination period did not preclude application of the six-year laches presumption. The Court reasoned that "[w]hether SCA's delay was excusable relates to the question of whether it can rebut the presumption of unreasonable and inexcusable delay, not whether the presumption applies in the first place." Slip op. at 9. Turning next to SCA's argument that the '646 patent reexamination provided a reasonable excuse for its delay, the Court disagreed that SCA was required to provide explicit notice of the reexamination, but nevertheless concluded that SCA failed to rebut the presumption of unreasonable delay as a matter of law. The Court explained that "even though SCA's delay during reexamination may have been excusable when viewed in isolation, [the Court] must examine whether SCA's delay, viewed as a whole, was excusable." Id. at 11. And, under the circumstances, the Court concluded that "SCA should have been prepared to reassert its rights against First Quality shortly after the '646 patent emerged from reexamination." Id.

The Court next held that SCA failed to rebut the presumption that First Quality suffered economic harm due to SCA's delay in filing suit. The Court pointed to the capital expenditures First Quality made to expand its relevant product lines as well as record evidence suggesting that First Quality would have restructured its activities to minimize infringement liability if SCA had brought suit earlier. Moreover, the Court concluded that SCA's suggestion that, because First Quality considered its underwear business to be important and highly successful, First Quality would have continued its allegedly infringing activities regardless of when SCA filed suit, was based on "pure speculation" and thus failed to raise a genuine issue of material fact. Id. at 14.

The Federal Circuit then considered SCA's argument that the district court's refusal to consider the equities fully was an abuse of discretion. While agreeing that "courts should grant relief for laches only after balancing 'all pertinent facts and equities,'" the Court nevertheless held that the district court's "failure to explicitly balance the equities in its decision was . . . harmless error" because none of the factors presented by SCA suggested an abuse of discretion. Id. at 15 (quoting Aukerman, 960 F.2d at 1034). Finally, the Court refused to entertain SCA's arguments that the district court erred in applying laches to new claims issued during reexamination and to SCA's allegations against products introduced after 2008 because SCA raised the arguments for the first time on appeal.

The Federal Circuit then turned to the issue of equitable estoppel. The Court first held that genuine issues of material fact remained as to whether SCA made a misleading communication to First Quality. The Court noted the "meager" interaction between SCA and First Quality, and reasoned that compared to Scholle Corp. v. Blackhawk Molding Co., 133 F.3d 1469 (Fed. Cir. 1998), and Aspex Eyewear Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305 (Fed. Cir. 2010), "a reasonable juror may be less likely to infer that SCA's subsequent silence misled First Quality." Slip op. at 18. The Court rejected First Quality's assertion that SCA's silence equaled acquiescence to the '646 patent's invalidity. Instead, the Court reasoned that SCA's immediate request for ex parte reexamination of the '646 patent could "reasonably be viewed as inconsistent with SCA's alleged acquiescence." Id. at 19.

The Court also held that genuine issues of material fact remained as to whether First Quality detrimentally relied on SCA's silence. Distinguishing "between prejudice that results from a patentee's alleged misrepresentation and prejudice caused by reliance upon it," the Court held that First Quality's evidence was insufficient to establish reliance. Id. at 19-20. The Court explained that First Quality's evidence that it would not have made certain capital investments had it been involved in a lawsuit, while sufficient to establish nexus for the purpose of laches, did not necessarily establish reliance for the purpose of equitable estoppel.

Accordingly, the Court affirmed the district court's grant of SJ of laches, reversed the district court's grant of SJ of equitable estoppel, and remanded for further proceedings.

Judges: Reyna, Wallach, Hughes (author)

[Appealed from W.D. Ky., Chief Judge McKinley, Jr.]

This article previously appeared in Last Month at the Federal Circuit, October 2014

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