The Supreme Court’s recent decision in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (Mar. 21, 2017) eliminated the equitable defense of laches in patent cases. While time will reveal the impact of the SCA decision, elimination of laches, an equitable defense against “unreasonable, prejudicial delay in commencing suit,” Id. at 3 (citing Petrella v. Metro-Goldwyn-Mayer, Inc.(2014), provides greater security to patent owners who assert claims several years after discovering potential infringement. Conversely, the decision removes one shield—albeit a relatively modest shield—from the accused infringer’s armament of potential defenses. Without laches, accused infringers might more frequently invoke declaratory judgment to clear their products and services upfront rather than tolerate a looming threat of suit for years.
Prior to SCA, accused infringers could invoke laches to limit damages for patent infringement during the statutory six-year period for damages prior to commencing an action. SCA Hygiene, at 1, 16. The SCA Court held, however, that laches does not apply to patent cases because Congress expressly allowed claims for patent damages for the six-year period set forth in Section 286. Id. at 4-6, 16. Section 286 is titled “Time limitation on [patent] damages,” and states that “no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.” 35 U.S.C. § 286. The Court found that laches is a doctrine meant to fill gaps where Congress failed to articulate a clear time limit for a plaintiff to bring suit. SCA Hygiene, at 5. The Court reasoned that because Congress left no gap for an equitable defense in the patent code, laches cannot apply to patent damages. Id. at 5-6, 16.
SCA’s Facts and the Supreme Court’s Holding
The patent in SCA was directed to diapers. Id. at 1-2. In October 2003, SCA first provided notice to First Quality of SCA’s assertion that First Quality was making and selling competing diapers that infringed SCA’s patent. Id. at 1. First Quality responded that SCA’s patent was in fact invalid in light of an earlier filed patent owned by First Quality. Id. at 2. In August 2010, nearly seven years after this first volley of infringement and invalidity allegations, SCA sued First Quality for infringement. Id. at 2. Given SCA’s delay in bringing suit, the trial court barred any recovery by SCA under the doctrine of laches. The Federal Circuit affirmed the district court on appeal, reheard and affirmed the case en banc, Id. at 2-3, and the Supreme Court granted certiorari.
The Supreme Court, relying heavily on its 2014 decision Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. slip op. (2014), vacated the Federal Circuit’s en banc decision. In Petrella, the Court determined that laches cannot preclude a claim for damages incurred within the Copyright Act’s three-year limitations period. SCA Hygiene, at 4 (citing Petrella, slip op. at 11-14). While the Copyright Act and Patent Act are worded differently, the Court viewed their respective statutes of limitation to be analogous and worthy of identical treatment. Id. at 5-6.
The Court stated that its Petrella holding “spoke in broad terms,” citing language that “[l]aches cannot be invoked to bar legal relief in the face of a statute of limitations enacted by Congress.” Id. at 4. The Court explained that “when Congress enacts a statute of limitations, it speaks directly to the issue of timeliness and provides a rule for determining whether a claim is timely enough to permit relief.” Id. This, in the Court’s view, “reflects a congressional decision that the timeliness of covered claims is better judged on the basis of a generally hard and fast rule rather than the sort of case-specific judicial determination that occurs when a laches defense is asserted.” Id. Nevertheless, if Congress leaves a “gap” in the timeliness of claims, the equitable defense of laches can fill that gap.
The Court referenced other equitable defenses that could fill-in for laches. Specifically, the Court noted “that the doctrine of equitable estoppel provides some protection against some of the problems that First Quality highlights, namely, unscrupulous patentees inducing potential targets of infringement suits to invest in the production of arguably infringing products.” Id. Equitable estoppel prevents a party from misleading a defendant that it would not bring suit, then nevertheless bringing suit. See id. at 5. Indeed, the doctrine of equitable estoppel remains a defense to patent infringement and can be used to mitigate damages if the accused infringer can show that equities dictate that the patent owner’s statements or actions misled the accused infringer to infringe the asserted patent(s) with the expectation that it would not be sued for patent infringement. A finding of equitable estoppel would, similar to the defense of laches, deprive the patent owner of damages and could avoid imposition of an injunction.
Business and Litigation Ramifications
There are several potential implications of the SCA decision:
- The end of laches in patent cases removes a potential limitation on damages for patent holders.
- To the extent there was ever concern that damages within the six-year window established by Section 286 might not be fully compensable because of laches, that concern and risk calculation is now gone. Thus, bringing a patent suit is at least marginally more predictable for a patent owner.
- The SCA decision may embolden patent owners to bring suits that they might not have otherwise brought.
The Court’s bright-line exclusion of laches, however, might create uncertainties for some businesses—namely accused infringers that previously had good reason to believe that a patent owner would not bring suit or would be barred under laches. Previously, laches could help reduce the impact of cease-and-desist letters over time. Now an accused infringer’s uncertainty persists unabated for six years without any equitable aid provided by laches. This dynamic may increase the likelihood that a business will respond to a cease-and-desist letter through filing of a declaratory judgment action. Indeed, businesses can further no longer rely on laches to serve as a shield to protect their financial interests from seemingly empty threats of patent infringement brought years later, and business concerns will ultimately dictate how a recipient responds to a cease-and-desist letter. However, this should not be overstated, as laches was not a particularly potent or often-used defense.
Given these uncertainties, rather than wait out the remainder of a patent’s term, a threatened business might consider a declaratory action to avoid launching a product while a patent owner simply waits to determine the cost-benefit ratio for bringing suit. Such actions serve to settle the matter sooner rather than later. This approach would, however, require significant resources, but would likely obtain finality prior to the six-year limitations period.
In light of SCA, patent owners can take comfort that they no longer have to rush to court once they have delivered a cease-and-desist letter, and accused infringers can better predict what damages might be at stake if they are found to infringe. As a result, SCA might encourage accused infringers to use declaratory judgment actions to obtain clarity before commercial launch of a valuable product to avoid accruing multiple years of sales under the threat of patent litigation.