Time Bomb: CAFC Says Threat + Waiting 3 Years = Estoppel

Many years ago (seven to be exact), I wrote about why patentees should worry if they procrastinate in filing a patent infringement suit after threatening a potential infringer. See Guttag, “Laches and Estoppel: The Patentee Who Procrastinates in Filing Suit May Be Lost,” AIPLA Quarterly Journal, Vol. 31, No. 1 (Winter 2003). The patentee in Aspex Eyewear Inc. v Clariti Eyewear, Inc. might have done well to heed my warning. After first “threatening,” then being “silent” for over three years, the patentee in Aspex Eyewear was barred by the defense of equitable estoppel from getting any relief for patent infringement. What’s even worse, after the initial “threat” of infringement the patentee in Aspex Eyewear created this ticking estoppel time bomb by failing to mention (in follow up exchanges) the two patents for which suit was filed, while mentioning three other patents which were not involved in the suit that was filed.

Most patent attorneys know about the defense of laches which bars recovery by the patentee of any damages prior to the filing of the patent infringement suit. But its “evil cousin,” equitable estoppel (sometimes and hereafter referred to simply as “estoppel”), has even more severe consequences. If the defense of equitable estoppel is successfully asserted, it is a complete bar to any recovery by the patentee, including the denial of an injunction against further infringement.

The seminal Federal Circuit case on laches and estoppel defenses is the 1992 en banc decision in A.C. Aukerman Co. v. R.L. Chaides Constr. Co. As set forth in Aukerman, laches has essentially two elements: (1) an unreasonable and unexcused “delay” in bringing suit against the accused infringer; and (2) that “delay” resulted in “material prejudice or injury” to the accused infringer. Estoppel has, instead, three elements, the last of which (material prejudice or injury) is similar to the last element of laches. But the first two elements of estoppel, especially the first element, are different from the first element of laches: (1) the patentee, through misleading conduct, led the accused infringer to reasonably infer that the patentee did not intend to enforce its patent against the accused infringer (“misleading conduct”); and (2) the accused infringer relied on this “misleading conduct” (“detrimental reliance”). In fact, as noted in my 2003 article, the first element (“misleading conduct”) usually makes (or breaks) this estoppel defense.

The successful estoppel defense in Aspex Eyewear was based on the following facts: On March 7, 2003, counsel for the patentee (Aspex) initially sent the accused infringer (Clariti) a letter identifying 4 patents, including U.S. Reissue Pat. No. 37,545 (the ‘545 patent) relating to magnetic eyewear. This letter said the following: (1) some of Clariti’s products “may be covered by the claims of the above mentioned patents”; (2) requested Clariti “to immediately confirm for [Aspex] that you have stopped selling any frames, frame attachments or parts in violation of [Aspex] rights under the patent[s]; (3) asked Clariti “to supply [Aspex] with the identity of the source of these goods and information concerning the number of pieces sold to date”; (4) “[w]e will then be in a position to reach a prompt and reasonable resolution of this situation; (5) “it has been [Aspex’s] policy . . . to fully and vigorously enforce [Aspex’s] rights under the exclusive license to these magnetic frame attachments”; and (6) “[w]e [Aspex] look forward to your immediate reply to this very urgent and serious matter.” Three days later (March 10, 2003), Aspex sent “an almost identical letter” for U.S. Pat. No. 6,109,747 (the ‘747 patent).

On March 18, 2003, Clariti responded, stating: (a) its [Clariti’s] policy was not to infringe any valid, enforceable patent, and requested certain information to assist Clariti in analyzing these Aspex patents, including file histories, assignment documents, and other documents likely to be readily available to Aspex. Clariti also observed that the patents identified by Aspex had a large number of claims and asked Aspex to specify “which claims you believe may cover Clariti’s products by model number.” Aspex responded on May 12, 2003 (almost two month later), providing copies of the file histories for three of the patents (which didn’t include those for the ‘545 or ‘747 patents) and listing those claims covering the frames sold by Clariti (but not listing the claims of the ‘545 or ‘747 patents which covered these frames). Aspex also essentially repeated item 2 (i.e., confirm that Clariti had “stopped selling any frames, frame attachments or parts in violation of” Aspex’s rights under these patents) from its March 7 letter, as well as item 6 verbatim (“We will then be in a position to reach a prompt and reasonable resolution of this situation”), and then closed with “[w]e look forward to hearing from you soon.” But no mention was made of the ‘545 or ‘747 patents.

About a month later (June 26, 2003), Clariti responded by saying, after reviewing Aspex’s May 12 letter, Clariti believed that “the products of Clariti Eyewear do not infringe any valid claims of the ’811 or ’054 patents.” Not until over three years later (August 23, 2006) did Aspex contact Clariti again, this time about a Clariti product called AirMag® which Aspex asserted was covered by at least claims 10 and 12 of the ‘747 patent. After exchanging further letters concerning the ‘747 patent, Clariti refused to cease sales of the AirMag® products, and then Aspex filed suit for patent infringement on March 22, 2007 of the ‘747 patent, as well as the ‘545 patent (later dismissed from the suit by stipulation).

Clariti moved for summary judgment to bar Aspex’s suit for infringement of the ‘747 patent based on equitable estoppel due to Aspex’s “three years of silence” after the initial 2003 letter exchanges. The district granted Clariti’s summary judgment motion, holding that Aspex “mislead” (the first element of estoppel) by “threatening” Clariti with infringement in 2003, and, after Clariti responded, followed that initial “threat” with three years of “silence” before filing suit for infringement of the ‘747 patent.

In affirming the district court’s grant of summary judgment based on estoppel, Judge Newman’s majority opinion in Aspex Eyewear (Judge Rader dissenting) quickly pointed out another “chilling” fact of estoppel defenses for patentees: the appellate review of such grants is governed by the “about nigh impossible” to show “abuse of discretion” standard. Also disconcerting for the patentee, the facts in Aspex Eyewear appear to be similar to those of the 1998 Federal Circuit case of Scholle Corp. v. Blackhawk Molding Co., Inc. which upheld a district court’s grant of summary judgment based on estoppel involving three and a half years of silence and inaction in bringing suit after the patentee’s initial accusation of infringement.

Aspex argued that “misleading silence” couldn’t be found “unless an express charge of infringement was levied against a particular product,” citing the 1992 Federal Circuit case of Meyers v. Asic Corp. But Newman’s opinion disagreed, stating that Meyers didn’t hold that “failure to identify specific products is a critical condition, when the accused infringer is sufficiently apprised of the products of the patentee’s concern.”

Aspex’s efforts to distinguish Scholle, as well as the 1993 case of Wafer Shave, Inc. v. Gillette Co. (a district court decision affirmed without opinion by the Federal Circuit) were also unavailing. In Wafer Shave, the accused infringer (Gillette) was charged with infringement as to a particular Gillette product, with a cease and desist deadline included in the letter from the patentee (Wafer Shave). When Gillette refused to cease and desist, Wafer Shave didn’t reassert infringement in later correspondence with Gillette. When Wafer Shave filed suit three years and five months after its last charge of infringement and two years and nine months after the last communication with Gillette, the district court found equitable estoppel had occurred.

Newman’s opinion also ruled that Aspex March 7 and 10 letters “can fairly be understood as threats of suit for infringement.” In my opinion, that is a very fair characterization of these letters, especially since these letters said that “some of the products sold by [Clariti] may be covered by the claims” of the mentioned patents, as well as Aspex’s “strong intention to fully and vigorously enforce our rights” in this “very urgent and serious matter.” Judge Rader’s contrary assertion in his dissent that these letters are not a threat of “immediate and vigorous enforcement of its patent rights” (citing the 1987 Federal Circuit case of Hottel Corp. v. Seaman Corp.) is simply not persuasive. These letters do more than “merely [inform] Clariti of the patents, [point] to Aspex’s patent enforcement policy, and [request] additional information from Clariti to permit Aspex to evaluate its position” as asserted by Judge Rader. When you read Aspex’s letters in the context in which they were presented to Clariti, including Aspex’s request to “confirm” that Clariti had “stopped selling” frames and/or parts “in violation of” Aspex’s patent rights, that’s enough of a “threat” for estoppel purposes. In my opinion, Aspex’s silence in this context was at least sufficient to satisfy the first element of estoppel (“misleading conduct”).

Where Rader’s dissent has more traction is whether the second element (“detrimental reliance” on the “misleading conduct”) was satisfied with specific reference to the ‘747 patent. As noted above, Aspex’s May 13 letter never refers to the ‘747 patent. But Rader’s suggestion that “[t]his court does not justify its conclusion that Aspex explicitly abandoned its infringement claim with respect to the ‘747 patent” goes too far. In fact, the district court reasoned that, because the ‘747 patent wasn’t mentioned in Aspex’s May 13 letter, that meant “Clariti had no reason to think that Aspex still believed it infringed the ’747 patent.” Newman’s opinion picks up on that point by the district court in saying:

Whether this sequence is fairly viewed as a tacit withdrawal of the ’747 patent, or as misleading silence with respect to the ’747 patent, the result is the same, for it was reasonable for Clariti to infer that Aspex was not continuing the accusation of infringement as to the ’747 patent.

Whether that “inference” would enough to support summary judgment for estoppel may be debatable. But it is certainly consistent with the ruling by the district court that Aspex had “abandoned the charge of infringement of the ‘747 patent” after the initial “threatening” March 10 letter.

While Aspex, as well as Judge Rader, may have an arguable point regarding this “inference” such that there was no “detrimental reliance” by Clariti relative to the ‘747 patent to constitute an estoppel bar (at least for the purposes of summary judgment), Aspex is not blameless in creating the impression of such “detrimental reliance” through its letters sent to Clariti and the resulting “silence” for three years afterward. Instead, Aspex should have heeded at least my First and Second Rules of Thumb from my 2003 article: (1) be careful how potential infringers are informed about their infringement of the patent; and (2) make sure the potential infringer understands they are not off the hook until the infringement issue is resolved satisfactorily to the patentee. That Aspex avoided a preemptive declaratory judgment action by Clariti (given the minimal requirements of MedImmune) may have simply been good fortune. But in making the initial “threatening” letters relative to all five patents, Aspex unknowingly started the ticking time bomb for estoppel (as well as laches), which then “blew up” on the ‘747 patent because of the failure to specifically follow up after the March 10 letter with regard to this ‘patent. For that Aspex must share much of the blame.

© 2010 Eric W. Guttag