SCA Hygiene Products v. First Quality Baby Products

Issues 

Can an accused patent infringer stop a patent-holder from bringing a claim if the patent-holder waits too long to file the suit for patent infringement, even if the claim is brought within the statutory-provided six-year limitations period?

Oral argument: 
November 1, 2016

This case presents the Supreme Court with the opportunity to review whether the defense of laches will remain available to bar a patent infringement claim within the statutory limitations period of six years. The 1952 Patent Act allowed laches as a defense for patents and was later re-codified by Congress. The United States Court of Appeals for the Federal Circuit reaffirmed this defense in A.C. Auckerman Co. v. R. L. Chaides Construction Co. in 1992. The Copyright Act did not codify a laches defense, however, and in 2014, the Supreme Court ruled against the use of laches in Petrella v. Metro-Goldwyn-Mayer, Inc. SCA Hygiene Products Aktiebolag and SCA Personal Care, Inc. argue that the Petrella decision is applicable to a patent infringement case and that laches should not be used to bar a patent-holder from enforcing its property rights through a legal damage claim. First Quality Baby Products, LLC et al. seeks to distinguish the text, history, and purpose of the Patent Act from the Copyright Act, and argues that laches should remain a viable defense. The Supreme Court’s holding may alter the relationship between patent and copyright law and change the pleading styles in a patent infringement case.

Questions as Framed for the Court by the Parties 

Whether and to what extent the defense of laches may bar a claim for patent infringement brought within the Patent Act’s six-year statutory limitations period, 35 U.S.C. § 286.

Facts 

The doctrine of laches is an affirmative defense that bars claims by those who unreasonably delay bringing a claim to court, because allowing the claim would unjustly harm the defendant. The Patent Act sets a six-year time limit for the recovery of damages following infringement. Congress first established the doctrine of laches for patents in the 1952 Patent Act, where it was settled that laches and a time limitation for damage recovery could co-exist in patent law, 35 U.S.C. § 282. The Federal Circuit’s A. C. Aukerman Co. v. R. L. Chaides Construction Co. decision in 1992 affirmed this. While not directly overruling Aukerman, the Supreme Court, in Petrella v. Metro-Goldwyn-Mayer, Inc., stated that the laches defense, barring exceptional circumstances, could not be invoked in copyright law if the plaintiff had brought the claim within the 3-year time limitation established by the Copyright Act.

On October 31, 2003, Petitioners SCA Hygiene Products Aktiebolag and SCA Personal Care, Inc. (“SCA”) sent a letter to Respondent First Quality Baby Products, LLC et al. (“First Quality”) explaining that First Quality was engaged in the business of selling adult incontinence products that allegedly infringed SCA’s patent (“the ’646 patent”). On November 21, 2003, First Quality wrote back explaining that they believed the ’646 patent was invalidated because another patent, U.S. Patent No. 5,415,649 (“the ’649 patent”), which had the same diaper construction as the ’646 patent and had been filed before the ’646 patent.

SCA did not respond to the First Quality’s explanation. Instead, almost four years later, in March 2007, SCA had the ’646 patent re-examined and validated by the U.S. Patent and Trademark Office. First Quality had no knowledge or suspicion of SCA’s activity and thus invested heavily in the underwear business, expanding product lines and acquiring competitors.

On August 2, 2010, SCA filed a complaint based on the verified ’646 patent. First Quality moved for partial summary judgment for non-infringement and for summary judgment of laches and equitable estoppel. The district court granted First Quality’s motion for summary judgment for laches and equitable estoppel. SCA appealed, and the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s laches decision but reversed the equitable estoppel decision. The Federal Circuit’s reasoning was twofold: first, a previous Federal Circuit case had established laches in patent law, and the 2014 Supreme Court decision in Petrella, which disallowed copyrights laches, failed to extend to patent laches; second, SCA had no valid reason for remaining silent for years before bringing this lawsuit, and to allow the lawsuit would prejudice First Quality, who likely would have restructured its activities to minimize damage had SCA brought the suit earlier. SCA filed for a rehearing en banc, arguing that first, Petrella might overrule Aukerman, so that the defense of laches would not apply to a case that was brought within the six-year damages limitation established by relevant patent law; and second, questioning whether the laches defense should be made available to bar a patent infringement suit under certain circumstances. The Federal Circuit, 6-5 en banc, reaffirmed its decision from Auckerman—that laches may bar a patent infringement case that accrues within the six-year damages limitations period.

Analysis 

THE USE OF LACHES IN RELATION TO THE STATUTE OF LIMITATIONS: READING § 286

SCA Hygiene Products Aktiebolag and SCA Personal Care, Inc. ( “SCA”) argues that § 286 does not permit the doctrine of laches to curtail one’s legal right to bring suit within the statute of limitations. SCA claims that § 286 of the Patent Act is a bright-line rule that clearly grants a patent holder six years to bring a damages claim to redress any act of infringement. SCA explains that only Congress has the authority to alter the meaning of § 286. Absent any Congressional changes to § 286, SCA argues that the words should be interpreted as taking their ordinary and contemporary meaning. SCA argues that Congress knows how to authorize courts to resort to equitable doctrines when it intends to do so. SCA points to Congress’s specifically directing the use of “the principles of equity” in § 283 to illustrate how Congress could have provided similar provisions in § 286 if it so intended. Further, SCA argues that the six-year period promotes more efficient dispute resolution, providing parties time to approach the Patent and Trademark Office, arbitrate, settle, or mediate before perusing judicial remedies. SCA argues that allowing for loopholes in the statutory period may promote increased patent lawsuits by influencing patent holders to rapidly pursue lawsuits before undertaking more efficient legal remedies—which is not what Congress intended under § 283.

First Quality Baby Products, LLC et al. (“First Quality”) argues that § 286 does not establish any statutory limitations. First Quality contends that a statute of limitations requires a plaintiff to bring suit within a fixed amount of time after her cause of action accrues, while § 286 is not dependent on when the plaintiff should have known the defendant’s allegedly infringing activities. First Quality points to the text and history of the Patent Act in concluding that Congress left sufficient room for laches to operate alongside the six-year limitation period. First Quality negates SCA’s argument that the text and plain meaning of § 286 prevent the laches defense and instead argues that § 286 says nothing at all about laches or unenforceability defenses within the statutory limitation period, thus allowing for these defenses. In addition, First Quality maintains that SCA’s reliance on the purpose of § 286 is misplaced; First Quality argues that the Congressional purpose for enacting the six-year limitations period, to provide uniformity, is maintained by the laches defense under § 282.

THE ACCRUAL RULE OF § 286

Additionally, SCA argues that combining separate instances of infringement together in an effort to impact the limitations period is in conflict with the statutory text, the separate-accrual rule, and the reasoning in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014). SCA maintains that under the separate-accrual rule embodied by § 286, multiple infringements can give rise to multiple claims for relief. Citing Petrella, SCA claims that if a defendant commits multiple, successive violations, the limitations period commonly runs apart from the date of each violation regardless of the violations’ connections to one another.

First Quality counters SCA’s accrual rule argument by contending that the separate-accrual rule is not offended by employing laches to bar damages claims within § 286’s limitations period. First Quality asserts that in multiple cases, the Court has applied laches to bar the enforcement of a patent without examining infringing acts individually, thus applying laches as a single defense where acts are of a similar nature. In contrast to SCA, First Quality compares this construction of the separate-accrual rule to the torts rule of claim preclusion, where continuing torts are treated as single claims in various contexts.

COMPETING READINGS OF PETRELLA: THE USE OF LACHES

In analyzing the use of laches in relation to statutory limitations, SCA claims that the lower courts did not adequately apply judicial precedent from Petrella. SCA posits that because the Court’s Petrella decision precluded the laches defense from being invoked within the Copyright Act’s three-year limitations period, the same logic should apply in the patent context. SCA alleges that Petrella solidifies its argument that although the equitable defense of laches may be available to supplement legal rights at times, and furthermore, limit equitable remedies, it may not be used to truncate statutory provided legal rights, such as the statutory of limitations, without Congressional approval. SCA explains that superimposing the discretionary standard of laches upon the statutory limitations rule would confuse the exact certainty and clarity that these rules were designed to stimulate. SCA goes further to argue that even if laches could somehow apply at law and diminish the statute of limitations period, the Court may not presume this. SCA maintains that the Court should follow the Petrella precedent and reject this presumption, because presuming laches based on prior infringement undercuts Congress’s choice to make each infringement separately actionable.

First Quality argues that SCA misreads the Petrella holding when applying it to a patent infringement case. First Quality contends that Congress did not intend to preserve laches as a defense to the Copyright Act, and thus the lower courts adequately applied the judicial precedent from Petrella in the case at hand. First Quality analyzes the statutory text and legislative history leading up to Petrella to argue that that the Copyright Act forecloses the defense of laches in infringement actions, while the Patent Act does not. First Quality explains that given the long copyright term (from creation to seventy years after the author’s death), and inheritance of renewal rights, Congress must have impliedly foreclosed any laches defense within the three-year period. Additionally, First Quality argues that Petrella’s mention of these factors peculiar to Copyright Law would have been superfluous if the rule of Petrella was to deny laches where Congress enacts a statute of limitations provisions.

PURPOSE OF § 282

SCA argues that lower courts’ misinterpretation of § 282 wrongfully granted judicial power to curtail § 286’s six-year statutory limitation period. SCA claims that factors such as (1) § 282’s failure to mention laches, (2) § 282’s failure to provide the abridgment of § 286, and (3) § 282’s lack of historical backing, deem the section insufficient as an exception to § 286. SCA turns to the lack of legislative history supporting this expansive use of laches as an additional reason why the lower courts wrongfully interpreted § 282. Citing House and Senate Reports, SCA explains that there was very little discussion on granting § 282 such a broad scope of application.

First Quality claims that, over time, patent jurisprudence has developed within the equity framework and that Congress’s codification of the laches defense prevails today. First Quality states that § 282 codifies the laches defense by making the “unenforceability” defense available. First Quality argues that Congress enacted § 282 to preserve existing unenforceability defenses, such as laches, and to make them available for barring the recovery of damages. First Quality points to the history of the 1952 Act to assert Congress’s intent in preserving unenforceability defenses. First Quality contends that before 1952, every court to consider the laches held in favor of it upon showings of unreasonable, prejudicial delay. First Quality asserts that SCA does not adequately grapple with the tradition of applying laches as a defense to damages claims, and instead, its focus on pre-merger cases is flawed.

Discussion 

APPLICATION OF PETRELLA: PATENT VERSUS COPYRIGHT

Both the American Bar Association (“ABA”) and the Alliance of Inventor Groups (“AIG”) contend that Petrella is relevant and that the laches defense should not apply to patent infringement cases because it would encourage rushed filings: by allowing the laches defense to bar claims for damages even within the six-year limitations period, patent-holders may be compelled to file a claim before it is fully researched and strategized out of fear that laches may apply. The ABA claims that, between losing the right to recover entirely or bringing a weak case, patent-holders will be tempted to bring a weak case and even face the possibility of sanctions. The ABA also contends that laches may encourage litigation over negotiation (thereby discouraging settlements) because patent-holders would be anxious to mount lawsuits out of fear that they may otherwise be barred from bringing a claim.

Dell et al. counter that the Petrella reasoning for disallowing laches does not apply to patent infringement cases because patent- and copyright-infringement are very different. . Dell argues that the laches defense should be available to accused patent infringers because to allow unreasonable delay would harm the accused infringers and help patent-holders. On the other hand, in copyright infringement cases, unreasonable delay is “at least as likely” to hinder plaintiffs as it is to disadvantage defendants and thus the laches defense would be similarly desirable to both parties.

PROTECTION OF ACCUSED PATENT INFRINGERS: LOSING EVIDENCE?

The ABA also maintains that Petrella still allows for the protection of patent infringers in case of egregious delay and thus did not strip infringers of all defenses. In fact, the ABA notes that, Petrella did not bar laches entirely; the case allowed for exceptions under certain circumstances (e.g., if a patent-owner’s delay in filing suit is egregious, the patent-owner would not be entitled to relief). Additionally, the ABA asserts that barring laches will not affect the defense of patent validity: in the digital age, the validity of a patent can be easily verified on the internet; therefore, there is very little risk that evidence to prove an invalidity defense will be lost.

On the other hand, both Dell et al. (“Dell”) and the Electronic Frontier Foundation et al. (“EFF”) argue that laches is a necessary remedy to prevent unreasonable delay in patent cases. This unreasonable delay may cause two types of prejudice: evidentiary and economic. In patent infringement cases, the accused infringer must produce clear and convincing evidence that a patent is invalid in order to use invalidity as a defense. EFF supports this and asserts that evidence may be needed to prove that a publication (of the patented material) was widely available. Dell claims that without a laches defense, evidence may get lost and detrimentally weaken an accused infringer’s defense against the validity of a patent. EFF contends that the internet era is making it more difficult to verify work product; because software and relevant code are updated so frequently, the updates are rarely documented and thus it is difficult to prove, or disprove, patent infringement on the internet. In terms of economic prejudice, Dell argues that laches prevents a patent-holder from waiting until an innovator invests time and other resources into building up a particular product or design and bringing suit when it would be difficult for the innovator to use a different product design. The laches defense would be useful where the innovator could have otherwise easily made a more inexpensive decision before it invested heavily in a particular product.

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