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IP Alert UPDATE: En Banc Federal Circuit Reaffirms Laches Defense

September 22, 2015

UPDATE: The United States Supreme Court has reversed this decision.

On September 18, 2015, the U.S. Court of Appeals for the Federal Circuit clarified a prior panel decision in SCA Hygiene Products Aktiebolag et al. v. First Quality Baby Products LLC et al. The panel decision had considered the continued viability of the laches defense in patent infringement actions in light of the Supreme Court’s “Raging Bull” decision (Petrella v. Metro-Goldwyn-Mayer, Inc.), discussed in our earlier alert here. Sitting en banc, the Federal Circuit reasoned last week that the court’s prior en banc opinion in AC Aukerman Co. v. R.L. Chaides Construction Co. still controlled and that Petrella left the Aukerman rule intact.

SCA Hygiene Products, the plaintiff, charged First Quality with infringement of U.S. Patent No. 6,375,646, which covers adult incontinence products. Prior to filing suit, the parties engaged in correspondence pertaining to the alleged infringement in 2003. This led to SCA requesting reexamination of the ’646 patent. Upon reexamination, the U.S. Patent and Trademark Office confirmed that all claims of the original ’646 patent were patentable over the art cited and issued additional claims. In the meantime, after communication between the parties ceased, First Quality purchased the product line from Tyco Healthcare Retail Group LP, and then spent $10 million to purchase additional related product lines. SCA was aware of First Quality’s activities but did not further communicate until suit was filed on August 2, 2010, over three years after reexamination concluded.

The district court granted First Quality’s motion as to laches and equitable estoppel and dismissed the noninfringement motion as moot. On the initial appeal, the panel decision reasoned that “SCA remained silent for more than three years after the patent came out of reexamination” and “SCA should have been prepared to reassert its rights against First Quality shortly after the ’646 patent emerged from reexamination.” However, the panel reversed the district court’s grant of summary judgment of equitable estoppel. SCA subsequently sought an en banc review, asking the court to reconsider Aukerman in light of Petrella, and the court granted SCA’s petition.

SCA contended in its en banc argument that the effect of Petrella, a copyright case, eliminated laches as a defense to infringement within the six-year recovery period. The majority opinion reasoned, “For over two decades, Aukerman governed the operation of laches in patent cases. However, last year in Petrella the Supreme Court held that laches was not a defense to legal relief in copyright law. Petrella calls portions of Aukerman’s reasoning into question, necessitating our present en banc reconsideration of laches.” The court went on to say, “Still, Petrella clearly casts doubt on several aspects of Aukerman.”

A majority of the court concluded that the laches holding in Aukerman was still valid. They observed that “by 1952, courts consistently applied laches to preclude recovery of legal damages.” Additionally, the court relied upon the legislative history that § 282 codified the laches defense, reasoning that “the Federico Commentary explicitly states that § 282 includes laches. The dissent does not point to anything that contradicts our understanding of § 282. Accordingly, we conclude that Congress codified a laches defense in § 282.” In the absence of Congressional commentary on the laches defense, the majority concluded that “[s]ection 282 therefore retains the substance of the common law as it existed at the time Congress enacted the Patent Act.”

The court further clarified two other aspects of the laches doctrine. First, the court held that undue delay in bringing a suit did not absolutely deprive the patent owner of the ability to seek an injunction. Rather, such delay was but one factor to be considered in a court of equity. Second, the court held that “absent extraordinary circumstances” the patent owner should be entitled to an ongoing royalty, notwithstanding laches. The majority’s summary reasoning stated:

In sum, the case law strongly supports the availability of laches to bar legal relief. Section 282 codified whatever laches doctrine existed when Congress enacted the Patent Act in 1952. Although the development occurred over time, by 1952 nearly every circuit had approved of the proposition that laches could bar legal relief for patent infringement, and no court had held to the contrary. The Walker treatise –in 1937 and then more authoritatively in 1951—agreed that laches precludes recovery of legal damages. The laches doctrine codified in § 282 must have meaning, and, absent any direction from Congress, it takes on its common law meaning. Following a review of the relevant common law, that meaning is clear: in 1952, laches operated as a defense to legal relief. Therefore, in § 282, Congress codified a laches defense that barred recovery of legal remedies.

Finally, the court agreed with the panel’s decision on equitable estoppel, without comment on the merits of the defense.

The minority opinion reached a different conclusion: “Here, contrary to the majority’s narrow analysis of regional-circuit cases, the pre-1952 case law does not clearly establish that a plaintiff’s laches may preclude recovery of legal damages.”

Perhaps the Supreme Court will decide which analysis of the pre-1952 law is entitled to weight. In the meantime, the SCA case is now a seminal case on the doctrine of laches in patent infringement actions.

For more information regarding this ruling, please contact Fitch Even partner Donald E. Stout, author of this alert.

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