Quantitative, Not Qualitative – The Supreme Court Overrules the Federal Circuit Again This Dog No Longer Hunts in Marshall: The Supreme Court Limits Patent Venue

Take Your Time to Sue:  The Supreme Court Says Laches Is the Same for Patents as for Copyrights

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In SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC,[1] a patent infringement case, the US Supreme Court ruled that laches cannot be invoked to bar legal relief in the face of a statute of limitations enacted by Congress.[2]  The Court held that the defense of laches in patent infringement cases is not available within the six-year damages period set forth in 35 U.S.C. § 286.  Consequently, no matter when a patent owner files a lawsuit during the life of a patent, there is the potential to look back six years before the filing of the complaint to seek damages, without the patent owner having to worry about having waited too long to sue.

Background

SCA Hygiene sued First Quality for patent infringement, more than six years (six years and nine months, to be precise) after sending a letter accusing First Quality of infringement.  First Quality responded to the letter with an allegation that the asserted patent was invalid, and then heard nothing further from SCA Hygiene until the lawsuit was filed.

The Court of Appeals for the Federal Circuit held that, under its precedent, suing someone after waiting longer than six years after a first infringement accusation gave rise to a presumption of laches.[3]  The Federal Circuit adhered to that precedent in this case finding that laches had occurred.[4]

Right before the initial Federal Circuit decision, the Supreme Court decided Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. ____, 134 S. Ct. 1962, 188 L. Ed. 2d 979 (2014), a copyright case.  In Petrella, the Supreme Court held that laches did not apply to legal relief (damages) sought within the three-year statute of limitations period in the Copyright Act.

The Federal Circuit, en banc, reconsidered its precedent in patent cases in light of Petrella, but found that Petrella’s copyright holding was distinguishable, and adhered to the original finding of laches.[5]

35 U.S.C. § 286, the patent provision at issue in SCA Hygiene, states in relevant part:

Except as otherwise provided by law, 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.

17 U.S.C. § 507(b), the copyright provision in Petrella, states:

No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.

In Petrella, the Supreme Court found 17 U.S.C. § 507(b) to be a statute of limitations provision noting the following:

The enactment of a statute of limitations necessarily 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. Therefore, applying laches within a limitations period specified by Congress would give judges a “legislation-overriding” role that is beyond the Judiciary’s power.[6]

This reasoning formed the basis for the Supreme Court’s holding in Petrella.

SCA Hygiene and First Quality at The Supreme Court

Before the Supreme Court, First Quality argued that patent cases were different from copyright cases when it came to laches.  First Quality said that the Copyright Act contains a true statute of limitations provision which requires that a suit for copyright infringement be filed within three years after an infringement claim accrued.  First Quality then argued that the Patent Act did not have the same forward-looking provision, but instead had a provision (§ 286) that was backwards-looking, thereby making Petrella inapplicable.[7]

The Supreme Court found First Quality’s distinction unpersuasive, and held that § 286 in the Patent Act in fact was a statute of limitations.  The Court then stated:

The most prominent feature of the relevant legal landscape at the time of enactment of the Patent Act [in 1952] was the well-established general rule, often repeated by this Court, that laches cannot be invoked to bar a claim for damages incurred within a limitations period specified by Congress.[8]

There was extensive discussion of other Patent Act provisions, and of cases decided before 1938 (when law and equity merged).  But the Supreme Court held that the just-stated general rule applied in the present situation, so that laches would be unavailable.

Key Takeaways

The Supreme Court holding, once again reversing the Federal Circuit in a patent case, is favorable to patent owners.  One aspect of this that operating companies will not like is that non-practicing entitles (NPEs), who do not make any products, now can wait to file a patent infringement suit until an accused infringer’s sales within the six-year statute of limitations are at their maximum.  The NPE can watch the market and strike at what, for the NPE, would be an optimal time, rather than having to rush to court.

Of course, an NPE could leave itself open to an equitable estoppel defense if the NPE rattles its saber at an accused infringer and then stays silent for too long.  Equitable estoppel can apply if a patent owner accuses a party of infringement; remains silent thereafter; and the party invests in its activity in reliance on the patent owner’s silence.

As a practical matter, however, in order for an accused infringer to rely on the NPE’s silence for equitable estoppel purposes, the NPE must have actually put the accused infringer in fear of being sued.  NPEs may write warning letters, but tend to avoid making enough of an accusation of infringement to trigger the ability of the accused infringer to file a declaratory judgment action, and get a leg up on venue.  Without sufficient notice, it would be very hard for the accused infringer to prove equitable estoppel.  (Query whether the venue issue will continue to be as important to NPEs in this situation, depending on how the Supreme Court decides the recently-argued venue case, TC Heartland LLC v. Kraft Food Brands Grp. LLC.)

In any event, because of the SCA Hygiene decision, patent damages may well go up, and patent valuations with them.

[1]           2017 U.S. LEXIS 2023 (March 21, 2017).

[2]           Id. at *7 (citing Petrella v. Metro-Goldwin-Mayer, Inc., 572 U.S. ____, 134 S. Ct. 1962, 188 L. Ed. 2d 979 (2014)).

[3]           Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992).

[4]           SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 767 F.3d 1339 (Fed. Cir. 2014).

[5]           SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 807 F.3d 1311 (Fed. Cir. 2015).

[6]           2017 U.S. LEXIS 2023 at *10 (citing Petrella).

[7]           Id. at *12.

[8]           Id. at *17.

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