Laches Live On In Patent Context Despite High Court Ruling

(Originally published in Los Angeles Daily Journal 9/28/2015)  On Sept. 18, in SCA Hygiene Products Aktiebolag SCA Personal Care Inc. v. First Quality Baby Products LLC, the U. S. Court of Appeals for the Federal Circuit issued an en banc decision, holding that the equitable defense of laches remains a permitted defense to a damage claim in patent infringement cases. That was a surprise to many court watchers because the U.S. Supreme Court held last year that laches is not a valid defense to a damage claim in copyright cases. The different result in SCA Hygiene highlights how the Federal Circuit often reaches different results in the patent context – an area of the law that, until recently, the patent court was allowed to largely develop on its own, based on its special expertise.

Laches has long been a powerful defense to patent infringement claims. It arises when the patent owner unreasonably delays bringing a lawsuit, and that delay causes prejudice to the defendant, either because it made investments in the accused technology during the period of delay, or because important evidence was lost during that delay. The defense was raised inSCA Hygiene because the patent owner, SCA, sent the defendant, First Quality, a letter claiming that the company sold diapers that infringed its patent. First Quality responded to the letter, stating that the patent was invalid. It did not hear back from SCA and thought the matter had been resolved. Seven years later, however, SCA sued First Quality for infringement. By then, First Quality had spent $10 million to broaden the product lines it offered using the accused technology. The district court granted First Quality’s summary judgment motion based on laches, and the Federal Circuit affirmed.

The validity of that laches ruling was called into question last year when the Supreme Court struck down laches as a defense to copyright infringement claims. In Petrella v. Metro-Goldwyn-Mayer Inc., 134 S. Ct. 1962 (2014), the Supreme Court decided that courts cannot use laches to bar copyright claims within the three-year statute of limitations period that Congress enacted in 17 U.S.C. Section 507(b). The lawsuit was brought against MGM by the daughter of the screenwriter of “Raging Bull” some 18 years after MGM began violating the copyright. The Supreme Court held that by enacting the statute, Congress determined that copyright owners can obtain damages for infringing actions that take place within three years of their filing suit. That congressional prescription on the timeliness of copyright claims would have been undermined, the court held, if individual judges were allowed to determine whether a plaintiff waited too long to bring a lawsuit within the three-year period.

Following the Supreme Court’s decision in Petrella, many observers expected the Federal Circuit to similarly find that laches is no longer available as a defense in patent cases, and for the same reasons. In passing 35 U.S.C. Section 286, Congress prescribed a six-year statute of limitations on damage claims in patent cases, similar to the three-year statute of limitations in copyright cases. So, it would have been consistent with Petrella for the Federal Circuit to strike down laches in patent cases.

A sharply divided en banc panel, however, held that the analysis in Petrella does not apply to the laches defense raised in the patent context. The majority decision, written by Chief Judge Sharon Prost, argued that the statutory scheme in patent law is different: Whereas Congress eliminated laches as a defense in copyright cases by enacting a three-year period, itcodified laches as a defense in patent cases when it enacted the 1952 Patent Act. So the separation-of-powers concern that eliminated the judge-made laches rule in in Petrella was absent in the patent context.

On the surface, this is a straightforward ruling. If Congress codified laches as a defense, then the Federal Circuit obviously could not reject it. The problem with the ruling, argued the five dissenting judges, is that the Patent Act does not even mention the word “laches.” The majority used statutory interpretation to determine that Congress must have wanted to preserve the common law laches defense when it revised the Patent Act in 1952. Section 282 of the act provides that the defenses to patent infringement include “[n]oninfringement, absence of liability for infringement, and unenforceability. ” This vague statement, the majority reasoned, was meant to preserve laches because patents could not be enforced by those who were guilty of laches before 1952.

In reaching this conclusion, the majority relied heavily on an unusual type of legislative history, the recollections of one of the Patent Act’s co-authors two years after the statute was enacted. The author, P.J. Federico, was the longtime head of the Patent Office, and Congress called on his expertise to help overhaul the patent laws in 1952. The Federal Circuit has often relied on Federico’s commentary to interpret the act before. The dissenting members of the panel, however, are all relatively recent appointees, and they rejected this idiosyncratic reliance on the recollections of Federico – noting that he was not even a member of Congress. They reminded their colleagues that the Supreme Court has repeatedly cautioned the Federal Circuit “not to create special rules for patent cases.” But, they argued, that is just what the majority did in light of Petrella and other Supreme Court cases holding that laches cannot bar damages filed within a statutory limitations period.

The 6-to-5 split at the Federal Circuit makes it likely that the Supreme Court will ultimately agree to resolve this dispute. That would be consistent with the Supreme Court’s recent interest in patent law. In its last term, the Supreme Court granted certiorari and reversed the Federal Circuit in five of six cases it reviewed. Even the Wall Street Journal called this a judicial “smack down,” and the Federal Circuit has been eager to avoid similar criticism this year. But unlike the dissenting judges, the majority recognized that patent law really is different from copyright law, and that it requires a different rule.

A company accused of copyright infringement typically has reason to know that it is infringing. That’s because to infringe it must have had access to the copyrighted work. And those accused of copyright infringement can guard against accusations of infringement by collecting evidence that they independently created and did not copy the work. With patents, however, independent creation is not a defense. A company that developed the infringing technology without knowledge of the patent is still liable for infringement. If the laches defense were eliminated from patent cases, patent-assertion entities or so-called “patent trolls” could send cease and desist letters to their targets, wait for years for the accused technologies to be developed, and then pounce with lawsuits years later to seek millions in damages. That is a result that nearly all industry participants, and certainly those facing frequent threats of patent infringement, want to avoid. Whether they will be able to do so may depend on how reliable the Supreme Court thinks Federico was in recounting his contributions to the 1952 Patent Act.