United States: Federal Circuit Confirms The Laches Doctrine As A Viable Defense In Patent Infringement Actions

In an earlier article, we discussed whether the Supreme Court's recent decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S.Ct. 1962 (2014) left intact the doctrine of laches in patent infringement actions.1 The Federal Circuit recently reaffirmed its longstanding application of laches as a defense to patent infringement claims.

On September 18, 2015, in SCA Hygiene Products. v. First Quality Baby Products, the Federal Circuit held in a closely divided 6-5 decision that laches (an unreasonable delay in pursuing a claim to the prejudice of the other party) will remain a defense in patent infringement actions to bar pre-suit damages. Sitting en banc, the Court addressed whether the recent Supreme Court decision in Petrella—that laches cannot bar relief in copyright infringement suits when the claim is brought within the statute of limitations—overruled the Federal Circuit's prior conclusion in A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020 (Fed. Cir. 1992) (en banc) that the laches doctrine applies in patent law.

This split decision highlighted the tension between the Section 286 damages limitation and the Section 282 laches defense. The majority first concluded that, under Petrella, the six-year damages limitation is functionally equivalent to a statute of limitations. The majority, however, distinguished patent law from copyright law. In light of Congress's silence when codifying the Patent Act in 1952, the majority reasoned that Congress intended to codify the common law that recognized the laches doctrine as part of Section 282. While the majority characterized its opinion as "neither novel, nor a direct response to Petrella," it declined to address this tension and instead reasoned that it lacked the authority to change the scope and applicability of these statutes as established by Congress.

Whereas the entire panel concluded that laches may bar equitable remedies such as injunctive relief, five of the eleven judges dissented from the majority's holding that Congress codified a laches defense in the Patent Act. The dissent criticized the majority's interpretation of Congress's silence, stating instead that the case law does not clearly establish a common law doctrine to support laches' applicability in patent law.

In light of the sharp dissent, it is likely that a petition for Supreme Court review will be filed in the next few months. The continued viability of the laches doctrine, however, currently benefits accused infringers who have invested significantly into the development and commercialization of the accused technology, particularly as a defense against abusive patent litigation by non-practicing entities. In various industries such as high-technology, the laches doctrine serves to deter patent holders who are aware of the potentially infringing product from waiting until substantial innovation has occurred and significant damages have accrued to file suit.

The Majority Opinion

Similarly to its earlier panel opinion in this case, the majority—consisting of Chief Judge Prost and Judges Newman, Lourie, Dyk, O'Malley, and Reyna—first examined 35 U.S.C. § 286, which bars recovery for "any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action." Whereas the parties disputed whether this statute functions as a damages limitations or a statute of limitations, the majority clearly concluded that this is a damages limitation. Under Petrella's analysis of whether Congress has set forth a time period for recovery of damages, the majority concluded that Section 286's six-year limit for damages was functionally equivalent to a statute of limitations.

To differentiate patent law from copyright law, however, the majority then examined Section 282(b), which governs available defenses to claims of patent infringement. Specifically, it highlighted the "catch-all" provision of Section 282(b)(4), which allows defendants to assert "any other fact or act made a defense by this title." Relying upon the statutory language, legislative history, and expert commentary from P.J. Federico, the Court concluded that Congress had intended Section 282 to apply broadly and include laches as a defense.

Turning to the key issue of whether Section 282's laches defense bars legal and equitable remedies or precludes only equitable relief, the majority concluded that laches bars recovery of both. Section 282's statutory language, its legislative history, and contemporary commentary are all silent on this topic. Therefore, the majority's analysis focused upon the scope of common law regarding laches before Congress codified the Patent Act of 1952 and whether Section 282 had preserved this common law. The majority highlighted that the appellate courts had consistently recognized the laches defense against legal relief before 1952. Moreover, when two appellate courts had considered arguments similar to those in the present case—that laches bars only equitable relief, both had held that laches may preclude legal relief as well.2 Concluding that the pre-1952 case law provided strong support, the majority then reasoned that Section 282's laches defense adopted its common law scope and meaning when Congress remained silent on its substance.

To support its conclusion that Petrella did not overrule Aukerman's holding, the majority emphasized a significant difference between copyright and patent law with regard to intent. Whereas copyright law considers whether the defendant had access to the work and allows independent creation as a defense to copyright infringement, patent law does not similarly consider an infringer's "innocence." The majority thereby echoed concern from various amici that the absence of independent invention as a defense to patent infringement creates a unique risk for innovation. Without the laches defense, those companies who devote significant resources to develop and commercialize products lack a safeguard against patent holders who delay assertion of infringement claims until significant potential damages accrue.

The majority found consensus with the dissenting judges in its reexamination of Aukerman's holding that laches cannot bar prospective equitable relief. Rejecting Aukerman's bright-line rule that laches may bar only pre-suit relief, the Court concluded that a patentee's delay in asserting its rights may be considered as a factor for awarding a permanent injunction.3 Here, it distinguished the patentee's right to its invention from its right to collect damages accrued during its delay. With regard to royalties, the Court used this opportunity to emphasize the difference between laches and estoppel. As it explained, estoppel may bar all relief, and its application depends on the presence of "misleading and consequent loss." In contrast, laches focuses on the claims' timeliness. Accordingly, absent extraordinary circumstances, district courts may award on-going royalties even when it finds that the patentee has delayed in asserting its rights.

The Dissent

In an opinion joined by Judges Moore, Wallach, Taranto, and Chen, Judge Hughes dissented-in-part from the majority and concluded that laches is not a defense to legal remedy in patent law, particularly in view of Petrella's reiteration of the Supreme Court's longstanding principle that the statute of limitations makes unavailable the laches doctrine.

The dissent argued that the majority had ignored Petrella and placed insufficient emphasis on the statute of limitations of Section 286. Agreeing with the majority that Section 286 substantively functions as a statute of limitations, Judge Hughes reasoned that Congress had thereby enacted a statute of limitations that—under Petrella—makes the laches defense unavailable. The dissent took issue with the majority's analysis that Section 282 codified pre-1952 case law that laches may preclude damages recovery. Instead, it reasoned that Congress's silence on the issue—particularly its lack of any mention to case law or specific equitable defenses in the statute or its legislative history—could only invoke the presumption that it sought to codify a common law principle when that principle was "sufficiently well established." Here, the dissent concluded that the case law did not clearly hold that the laches doctrine could bar legal relief. Specifically, it highlighted several Supreme Court cases decided prior to 1952, which held that laches cannot bar legal relief within a statute of limitations period. In contrast to the majority's reliance upon pre-1952 appellate court decisions in patent cases that made available the laches doctrine, Judge Hughes noted those courts' discretionary ability as courts of equity to dismiss patent infringement claims, particularly because the patentee still could seek damages in a court of law. Therefore, it concluded that—if Congress's silence codified the laches doctrine in patent law—its scope extended to bar equitable relief only, and not legal relief. Emphasizing again its broad interpretation of Petrella to hold that laches cannot bar legal relief when a statute of limitations exists, the dissent cautioned against reliance upon patent-specific policy concerns and case law.

Footnotes

1. Robert E. Colletti and Janice Ye, Laches Remains a Viable Defense to Patent Infringement Actions, available at http://www.flhlaw.com/insights/Detail.aspx?news=9d878146-3479-4a74-beb5-e4ba8d591733&.

2. Both appellate cases were decided before the 1938 merger of law and equity in the federal courts. In Ford v. Huff, 296 F. 652 (5th Cir. 1924), the Fifth Circuit reasoned that, if a defendant could assert laches and equitable estoppel defenses to enjoin infringement claims in a bill in equity, he similarly should be able to plead those defenses in a legal suit. Later, in Banker v. Ford Motor Co., 69 F.2d 665 (3d Cir. 1934), the Third Circuit held that laches may apply to bar both legal and equitable relief. The Third Circuit applied similar reasoning to Ford when the defendant had asserted only laches but not equitable estoppel.

3. The majority concluded that the court has discretion under the framework of eBay Inc. v. MercExchange, L.L.C. to award an injunction when it finds infringement. Id. at 37-38. It reasoned that laches fits within the "balance of the hardships" factor and therefore may foreclose that injunctive relief.

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