C.A.G. Insights

Delay Might Put Patent Ongoing Royalties and Injunctive Relief at Increased Risk

Plaintiffs in patent cases are entitled to damages stretching back six years from the date of filing the suit for patent infringement under the Patent Statute, 35 USC § 286 — unless these were barred by laches.  This has been the law for over 20 years, since at least Aukerman,[1] which held that the defense of laches is applicable to bar past patent damages, even within the six-year statutory damages limitation period.  Laches arises when it is established that there was (1) an unreasonable delay in bringing the suit, and (2) the defendant suffered material prejudice attributable to the delay.  Aukerman did not allow a court to take into account laches when deciding prospective relief, such as an ongoing royalty or an injunction.  Now, the facts that support laches can be taken into account when a court weighs factors to decide on appropriate prospective relief.

This change is premised in large part on reconsideration based on the Supreme Court’s recent Petrella[2] opinion, which held that a copyright plaintiff was not barred by laches, despite a long delay in filing suit, and that laches could affect prospective relief.  This holding motivated plaintiff SCA Hygiene, whose patent damages had been barred by laches, to seek en banc review of the appropriateness of this ruling in light of Petrella.

The SCA Hygiene[3] Court was presented with two questions to consider.  These questions may be simplified as follows (with answers of the en banc panel majority):

1.       In light of Petrella, should laches be barred as a defense to a claim for damages that is brought within the 6 year damages limitation period of 35 USC 286?  (SCA Hygiene answered: No, it is an available defense in this period.)

2.       In light of there being no statute of limitations in patent cases, and in view of Supreme Court precedent, should the defense of laches be available, under some circumstances, to bar an entire suit for either damages or injunctive relief?  (SCA Hygiene answered: Absent “egregious circumstances,” when injunctive relief is appropriate, so are ongoing royalties.)

Because the petition for en banc rehearing was motivated by Petrella, a brief review of Petrella, as it is explained in the SCA Hygiene opinion, is helpful to understand the rationale of SCA Hygiene. 

Paula Petrella, the daughter of the author of the screen play Raging Bull,” filed suit for copyright infringement about nine years after her last communications with MGM on the issue.  MGM moved for summary judgment based on laches, due to the long delay.  The trial court and the Ninth Circuit Court agreed with MGM, but the Supreme Court reversed.  Relying on the statute of limitations in the Copyright Statute, 17 USC 507 (b),[4] the Court said that the equitable defense of laches could not bar the suit as Congress had set the time limit.  Nonetheless, the Court indicated that if Paula Petrella prevailed on the merits, the court could take into account the delay in assessing the amount of damages and any injunctive relief.  The Court took no position on the applicability of its opinion on patent law, but did note that “the Federal Circuit has held that laches can bar damages incurred prior to the commencement of the suit, but not injunctive relief.  We have not had occasion to review the Federal Circuit’s position.” (emphasis added)  This set the stage for SCA Products to seek en banc review of a summary judgment in the patent suit that applied laches to deny it recovery of damages, to determine whether the Petrella ruling might apply to patents as well.

At the outset, the SCA Hygiene majority points out that the Patent Statute, 35 USC § 286, is a limitation of time within which to recover damages, and is not a statute of limitations which sets the time limit for filing the suit.  Perhaps recognizing that the case was likely to proceed to the S. Court next, the SCA Hygiene majority engaged in an extensive analysis of the defenses to infringement in 35 USC § 282, legislative history, prior case law precedent, treatises, the distinction between equity and law and the 1938 merger, and the distinction between laches and equitable estoppel.  Based on this analysis, the SCA Hygiene majority concludes that laches, albeit an equitable defense, is applicable against legal relief, such as monetary damages, in a patent suit.

In its final “major” distinction between patent and copyright law, the SCA Hygiene majority noted that a copyright infringer must “copy” which means that it is not an “innocent” party, whereas patent law allows no defense of “innocence” of copying.  The majority reasoned that a copyright infringer is “typically aware of a risk that it is infringing and can estimate its exposure when making its initial investment decision.”  However, the majority opines that the patent infringer has a different risk calculus.  Using a medical device example where a company invests millions in development and marketing, only to have a patentee emerge years later to claim damages based on the 6 most profitable years.  Thus, the majority concludes that patent law, where independent invention is no defense, should retain laches as a defense to tardily filed law suits.

The SCA Hygiene majority then proceeded to consider prospective relief, and to re-examine its earlier Aukerman opinion in light of Petrella and the Supreme Court’s eBay[5] opinion (as it relates to injunctive relief).  SCA Hygiene first noted that in Aukerman it had relied in part on the Supreme Court’s Menendez[6] opinion (relating to laches in a trademark context).  In so doing, Aukerman, to preserve a “bright line distinction” between laches and estoppel, held that laches only relates to tardiness and cannot bar prospective relief.  Aukerman therefore allowed that the defense of estoppel, which does not necessarily involve delay, might be available prospectively.[7]  It is this Aukerman “bright line” separation between laches and estoppel in the context of prospective relief that the SCA Hygiene panel now revisits.

Conceding that Menendez allows for the possibility that laches could foreclose injunctive relief, the SCA Hygiene majority rejects Aukerman’s “bright line distinction” between laches and estoppel.  The SCA Hygiene majority, instead, adopts the approach that, insofar as the act of infringement is ongoing, the eBay factors that are used to determine whether or not injunctive relief is appropriate must weigh the facts underlying laches as well.  The former bright line separating laches and estoppel in the injunctive relief context is no more.  The majority said:

[I]n sum, we must recognize the difference between . . . estoppel and laches . . .  Whereas estoppel bars the entire suit, laches does not.  . . . laches in combination with the eBay factors may in some circumstances counsel against an injunction.  However, a patentee guilty of laches typically does not surrender its right to an ongoing royalty.

The SCA Hygiene majority recognized that the test for estoppel is “more exacting” than the test for laches.  Consequently, it could be argued that defendants gain an “edge” now that facts that relate to laches (time delay) must be weighed in deciding injunctive relief in patent cases.  But, the majority also expressed the view that “absent egregious circumstances,” when injunctive relief is appropriate, the patentee remains entitled to ongoing royalties.  An appeal to the Supreme Court is expected.

[1] Ac Aukerman Company v. RI Chaides Construction Co., en banc, 960 F.2d 1020 (Fed. Cir. 1992).

[2] Petrella v. Metro Goldwyn-Meyer, Inc. 134 S. Ct. 1962 (2014); 2014 U.S. Lexis 3311.

[3] SCA Hygiene Products LLC, et al. v. First Quality Baby Products et al., en banc, (slip op. September 18, 2015) ___U. S.____( 2015)

[4] 17 USC 507 (b) No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.

[5] eBay Inc. v. MercExchange LLC., 547 U.S. 388 (2006); 126 S. Ct. 1837; 2006 U.S. LEXIS 3872.

[6] Menendez v. Holt, 128 US 514 (1888).

[7] For estoppel, it must be established that statements or conduct of the plaintiff were misleading so as to give the defendant the impression that plaintiff would not disturb the defendant, and the defendant relied upon this such that it would be materially prejudiced, if the claim proceeded.