Le-Nhung McLeland | October 16, 2014
SCA Hygiene Products Aktiebolag v. First Quality Products, LLC
SCA owns U.S. Patent No. 6,375,646 (the ‘646 patent) for adult incontinence products.
October 31, 2003: SCA sent a warning letter to First Quality, stating that SCA believes First Quality’s pants-type diapers infringe the ‘646 patent, and asking First Quality to either explain why the products do not infringe, or give assurance that First Quality will stop making and selling the products if First Quality believes the products to infringe the patent.
November 21, 2003: First Quality responded by letter, stating that prior art U.S. Patent No. 5,415,649 (the ‘649 prior art patent) invalidates the ‘646 patent.
July 7, 2004: SCA filed a request for ex parte reexamination of the ‘646 patent over the ‘649 prior art patent, but did not notify First Quality about the reexamination.
March 27, 2007: The PTO confirmed the patentability of all the original claims of the ‘646 patent and also granted new claims added during the reexamination.
August 2, 2010: SCA filed suit against First Quality for infringement of the ‘646 patent (six years and nine month after sending the warning letter, and more than three years after the conclusion of the reexamination.) First Quality counterclaimed for declaratory judgment of non-infringement and invalidity. After the district court’s claim construction order, First Quality moved for partial summary judgment of non-infringement, and summary judgment for laches and equitable estoppel. The district court granted summary judgment for laches and equitable estoppel, and dismissed the remaining motion as moot. SCA appealed.
The conclusion about laches or equitable estoppel is “committed to the sound discretion of the trial judge.” Therefore, the standard of review of those conclusions by the CAFC is “abuse of discretion” by the trial judge. Since the underlying elements of laches and equitable estoppel are questions of fact, the CAFC reviews those findings of fact for “clear error.” However, when summary judgment has been granted, the CAFC reviews the factual elements de novo to determine whether any “genuine issues of material fact remain.”
The CAFC opinion reads almost like a textbook explanation of the defenses of laches and equitable estoppel in patent infringement actions, and cites as its main authority the CAFC en banc decision in Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Circ. 1992)(en banc). SCA argued that Aukerman is no longer good law in view of the 2014 Supreme Court decision in Petrella v. Metro-Goldwyn-Mayer, 134 S.Ct. 1962 (2014) which held that laches cannot be invoked to preclude adjudication of a claim for damages brought within the three-year statute of limitation specified in the copyright statutes. SCA in effect argued for an extension of that holding to patent law. The argument is brushed aside in the CAFC opinion which points out that the Supreme Court limited its holding in Petrella to copyright law, stating “[we] have not had occasion to review the Federal Circuit’s position” on laches in patent cases.
Note: The Copyright Act provides that “[n]o civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.” 17 U.S.C. §507(b). Patent law does not have a similar statute of limitation on bringing suit, but imposes a time limitation on damages which cannot be recovered for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement. 35 U.S.C. 286.
Laches is an equitable defense to patent infringement that requires the accused infringer to prove by a preponderance of the evidence that the patentee (1) unreasonably and inexcusably delayed filing an infringement suit (2) to the material prejudice of the accused infringer. When found, laches bars retrospective relief for damages accrued prior to filing suit, but does not bar prospective relief. Under CAFC case law, delays exceeding six years give rise to a presumption that the delay is unreasonable, inexcusable, and prejudicial, and the patentee has the burden of proof to rebut the presumption.
Since SCA filed its suit more than six years after sending the warning letter to First Quality, the presumption applies. Summary judgment “was appropriate only if no reasonable jury could have concluded that SCA’s delay was reasonable, excusable, or materially prejudicial.” (Emphasis added.) SCA argued that the reexamination proceedings provided a reasonable excuse for the delay in filing suit. The CAFC stated that even though the delay during reexamination may have been excusable when viewed in isolation, the question must be asked whether the delay was excusable when viewed as a whole. The opinion bluntly states that “SCA should have been prepared to reassert its rights against First Quality shortly after the ‘646 patent emerged from reexamination” instead of remaining silent for more than three years from that date. As to the question of prejudice to First Quality, the CAFC agreed with the district court that SCA failed to rebut the presumption that First Quality suffered economic harm when it made capital expenditures to expand production of the accused products. SCA had not pointed to any evidence that raises a genuine issue of material fact about the reasonableness of its delay and about the presumed economic prejudice to First Quality.
SCA also argued that, even if it failed to rebut the laches presumption, “it was an abuse of discretion for the District Court to refuse to consider the equities fully”, in particular (1) the evidence of SCA’s good faith in seeking reexamination of the patent, (2) the fact that the PTO published a notice of the reexamination, and (3) the fact that the PTO granted new claims at the conclusion of the reexamination. The CAFC found, however, that “the district court’s failure to explicitly balance the equities in its decision was … harmless error.”
“The first element of equitable estoppel requires SCA to have made a misleading communication, either affirmatively or by omission, to First Quality.” The second requirement is “that material prejudice to the accused infringer be caused by his reliance on the patentee’s misleading communication.” Equitable estoppel, if established, acts as a complete bar to a patentee’s infringement claim.
The district court had ruled that “SCA unquestionably misled First Quality” by its inaction after sending the warning letter. However, the CAFC found that genuine issues of material fact remain as to whether SCA made a misleading communication to First Quality, noting that the inference of a misleading communication is not “the only possible inference from the evidence” in this case. The district court had found that no genuine issue of material fact remained on the question of whether First Quality’s reliance on the misleading communication caused it material prejudice. The CAFC found that issues of material fact remain because it has not been established whether First Quality relied on SCA’s silence, or whether “it relied on its own opinion that the ‘646 patent was invalid (or simply ignored the ‘646 patent.”)
The grant of summary judgment as to laches is affirmed. The grant of summary judgment as to equitable estoppel is reversed, and the case is remanded for further proceedings consistent with the opinion.
- Patentees, beware of laches, which remains a viable defense for accused infringers. Follow-up should be docketed for filing suit within six years after a warning (or cease-and-desist) letter is sent.
- The prospect that the Aukerman precedent may be overruled by the Supreme Court or by an en banc panel of the CAFC casts a shadow of uncertainty on the availability of laches as a defense in patent infringement actions in the future.