SCA Hygiene Products v. First Quality Baby Products, Case No. 15-927 (March 21, 2017)
Last month the U.S. Supreme Court abolished laches as a defense against damage claims in patent cases. This decision vacated a divided (6-5) en banc Federal Circuit holding[i] and abrogated decades of precedent, including the commonly-cited A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F. 2d 1020 (Fed. Cir. 1992). Any company in receipt of a cease and desist letter for patent infringement will have to rethink its strategy to the extent that laches – delay in patent enforcement – is an expected defense.
In SCA, the Court extended to patent law the reasoning that the Court applied in the 2014 copyright case Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014): namely, that the laches doctrine may not be used to bar claims of infringement that are otherwise timely under a statute of limitations. Despite substantive differences between the copyright and patent statutes, the Court held that the Petrella Court’s reasoning “easily fits” with the patent code.[i]
First Quality was sued by SCA for making adult incontinence products that SCA accused as infringing U.S. Patent No. 6,375,646. SCA had sent First Quality a cease and desist letter nearly seven years before filing suit, accusing First Quality of infringement. First Quality moved for summary judgment based on laches and equitable estoppel, which the District Court granted. A three-judge panel, and then an en banc Federal Circuit, affirmed. [ii]
SCA argued that the application of the doctrine of laches was improper, pointing to 35 U.S.C. § 286. Section 286 provides: “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.” Writing for the Court, Justice Alito explained: “By the logic of Petrella, we infer that this provision represents a judgment by Congress that a patentee may recover damages for any infringement committed within six years of filing of the claim.” Thus, the laches defense could not cut off recovery of the six years of pre-suit damages alleged by SCA – those were all within the time period blessed by Congress.
The majority’s opinion addressed two primary arguments. First, is the six-year damages window in Section 286 a true statute of limitations and analogous to the copyright code provision at issue in Petrella? Second, did Congress intend to allow for a laches defense when it enacted the Patent Act in 1952?
A Statute of Limitations by Any Other Name
To understand the Court’s ruling in SCA, one must look first to the 2014 Petrella case, which many viewed as upending copyright law and as a foreboding message for patent law. In Petrella, the Supreme Court addressed a claim that the movie Raging Bull infringed the copyright of a screenwriter based on a 1963 original. The screenwriter claimed monetary and injunctive relief, but only for the three years prior to suit. Section 507(b) of the Copyright Act provides: “No civil action shall be maintained . . . unless it is commenced within three years after the claim accrued.” MGM argued that the claims were barred by laches; the district court and Ninth Circuit agreed. The Supreme Court reversed, holding that laches is a limited defense that cannot bar legal claims for damages that fell within the three-year statute of limitations provided by Congress.[iii] Justice Breyer dissented.
First Quality tried to distinguish Petrella by arguing that its holding barred a defense of laches only when there was a “true” statute of limitations – which First Quality argued runs forward from the date a cause of action accrues. According to First Quality, Section 507(b) of the Copyright Act runs forward from the date an action accures, whereas the Patent Act’s Section 286 runs backwards from the filing of the complaint. Therefore, First Quality argued, Section 286 was not a statute of limitations as was the case in Petrella, and laches is an available defense.[iv]
The Supreme Court rejected this contention handily by pointing to its own characterizations in Petrella of the relevant provision in the Copyright Act. “We said that this [copyright] provision ‘allows plaintiffs . . . to gain retrospective relief running only three years back from the date the complaint was filed’ . . . [a]nd we described the Copyright Act’s statute of limitations as ‘a three-year look-back limitations period.’”[v] (citations omitted, emphasis in SCA). Whether or not a provision is a “true” statute of limitations, “nothing depends on this debatable taxonomy.”[vi]
Congressional Intent: Sounds of Silence
First Quality next argued that the Patent Act, while silent on the laches defense, was enacted by Congress with an intent to include the laches doctrine that had been established in pre-Patent Act judicial precedent. Here, First Quality pointed to Section 282 of the Patent Act which provides: “The following shall be defenses in any action involving the validity or infringement of a patent . . . . Noninfringement, absence of liability for infringement or unenforceability.”[vii] First Quality argued that by referencing “unenforceability” Congress intended to include laches as an available defense. First Quality had the benefit of decades of Federal Circuit precedent so holding.
The Supreme Court disagreed here too. Surveying pre-1952 law, the majority held that the Patent Act’s silence should not be construed as permitting the laches defense but rather as prohibiting it. The Court roundly rejected the Federal Circuit’s settled jurisprudence on this subject, stating that it was “not convinced that Congress, in enacting § 282 of the Patent Act, departed from the general rule regarding the application of laches to damages suffered within the time for filing suit set out in a statute of limitations.[viii]
Justice Breyer’s Dissent Redux
The lone dissent in the SCA case came from Justice Breyer, who had also dissented in Petrella. Justice Breyer noted that silence in the Patent Act (like the Copyright Act) as to the laches defense evidenced Congressional approval rather than disapproval of the defense, because the Patent Act was intended to codify existing judicially created patent law. Justice Breyer also pointed to the distinctions in language between the two acts, and he reiterated his earlier disagreement in Petrella concluding that “trite but true: two wrongs don’t make a right.”
The sea change created by SCA will have a vast impact on pending and future patent infringement claims. While there remains a crack of light for the defense of equitable estoppel – requiring some sort of misleading conduct – plaintiffs asserting damages claims will no longer have to explain delays in enforcement proceedings that traditionally served to ground the laches defense. Recipients of cease and desist letters should take note: to the extent that your response is premised on delays by the patent-holder, other defenses will be required should the matter proceed to litigation.
[ii] SCA Hygiene Prods. v. First Quality Baby Prods., LLC et al., 767 F.3d 1339 (Fed. Cir. 2014), aff’d as 807 F.3d 1311 (Fed. Cir. 2015).
[iii] Petrella, 134 S. Ct. at 1964.
[iv] Id. at *6.
[v] Id. at *6-7.
[vi] Id. at *7.
[vii] Id. at *8.
[viii] Id. at *12.
[i] SCA Hygiene Prods. v. First Quality Baby Products, LLC et al., 807 F.3d 1311 (Fed. Cir. 2015)