Equitable Estoppel After the Loss of Laches from SCA v. First Quality

The Supreme Court ruled this Spring that the laches defense is not available for patent infringement damages in SCA Hygiene Products Aktiebolag et al. v. First Quality Baby Products, LLC, et al.  While the defendant cried foul and presented a “parade of horribles” at the loss of this defense, the Court offered the doctrine of equitable estoppel to quell their concerns.  But when is equitable estoppel an effective substitute for those instances where the laches defense was previously invoked to prevent a patentee from abusing their grant against a competitor?

First, as a brief refresher, we should discern the key differences between laches and equitable estoppel.  Laches requires a showing of (1) unreasonable delay in filing suit; and (2) that the delay has a material prejudice to the defendant.  Equitable estoppel requires a showing of (1) misleading statements or conduct; (2) action in reliance; and (3) resulting prejudice.  In view of the required elements, laches focuses on the timing of filing the infringement suit, while equitable estoppel focuses on the conduct of the parties.  This is perhaps why, in the Court’s opinion, equitable estoppel is an appropriate defense while laches is not.

The Court noted in SCA v. First Quality that laches was created by equity courts where no statute of limitations existed as a “gap filling” defense.  The Court also interpreted 35 U.S. Code § 286 to act as a six-year time limitation during which a patentee may recover infringement damages.  Therefore, while laches generally provides a shield against untimely claims, a statute of limitations serves a similar function and speaks directly to the issue of timeliness, making laches redundant.  The Court noted that it was unprecedented for Congress to provide the dual protection of a statute of limitations and a laches defense.

Both the defendant and Justice Breyer’s dissent in SCA v. First Quality argue that once a business chooses to rely on a particular technology, it can become expensive to switch to other technologies, even if it would have been relatively inexpensive to do so at an earlier time.  This may provide a patentee with considerable incentive to delay suit until the costs of switching (and thus the settlement value of the claim) are high.  The practical consequences of such delay can be significant, and the § 286 six-year limitation on damages does not necessarily encourage a patentee to be timely.  The statute does limit past damages to six years from the filing of an infringement action, but unlike traditional statutes of limitations, allows the patentee to bring suit any time after infringement.  With the loss of the laches defense, defendants have lost the opportunity to argue that a delay in filing of an infringement action is unreasonable.  As previously noted, a delayed filing may result in a higher settlement amount, and a dormant patentee is neither prevented nor discouraged from enacting this strategy by § 286, at least for a period up to six years.  It is instances like these where a laches defense could previously have been asserted to keep dormant patentees from sitting on their rights.

Equitable estoppel may be appropriate for the defendant in SCA v. First Quality since the plaintiff was silent for years after the defendant asserted invalidity (possibly fulfilling the misleading conduct through inaction and reliance on that conduct).  But can equitable estoppel be relied upon as a defense against a dormant plaintiff in the example illustrated above?  Below, we consider the two elements of equitable estoppel that replace the unreasonable delay element of laches: misleading conduct and reliance.

A fair test for the ability of equitable estoppel to fill the shoes of laches would be in an instance where the patentee had minimal conduct toward the defendant associated with the suit.  This is because the first element of laches merely requires unreasonable delay in filing rather than an investigation of the patentee’s conduct.  Equitable estoppel may falter as a laches substitute when solely facing a patentee’s delay in filing because although misleading silence can constitute the misleading conduct prong of the defense, mere silence alone does not.  For instance, a threat of aggressive or immediate enforcement of a patent, followed by silence or inaction, may represent one example of misleading silence.  Equitable estoppel may thus potentially replace laches in instances where patentees send cease and desist letters but take no further action for some time before filing of an infringement action.  Also, silence alone, even without contacting the alleged infringer, may be enough to satisfy the misleading conduct prong of the defense if the patentee had knowledge of the alleged infringing activity, creating an obligation for them to speak out.  However, even if there is a finding of the patentee’s misleading conduct, the analysis does not end there as the conduct must also be paired with the infringer’s action in reliance on that conduct.

For a successful equitable estoppel defense, an accused infringer must show that they relied on the misleading conduct in connection with taking some action.  In this regard, an infringer manufacturing a product who is unaware of a patent could presumably not show reliance on any misleading conduct by the patentee, losing the option of asserting equitable estoppel.  To show reliance, the infringer must have had a relationship or communication with the plaintiff that lulls the infringer into a sense of security.  Unlike laches, equitable estoppel requires a showing of particular conduct by the infringer.

While both defenses must be shown by a preponderance of the evidence standard, the increased difficulty in proving the elements of equitable estoppel may be an appropriately higher bar.  This is because equitable estoppel provides complete relief against a claim rather than just past damages as is the case with laches.  This increased difficulty, however, limits the reach of equitable estoppel as a substitute for laches.  Rather than constituting a mere timeliness inquiry, equitable estoppel requires particular conduct by both parties.  Accordingly, equitable estoppel may often not recover the ground lost by the laches defense for infringement damages and therefore may open the door for patentee abuse.  One should be weary of dormant patentees whom prior to SCA could have lost their assertion rights because of their delay, but now may safely assert their lingering claim.