Copyright law: laches limitations

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So far, 2017 has proven to be quite a litigious year for patent law.  The Supreme Court of the United States has decided, and will soon hear, several cases implicating various patent issues ranging from venue to rules concerning patent exhaustion.  One of the most recently decided cases, SCA Hygiene Products Aktiebolag v. First Baby Quality Products, turned on the question of whether the defense of laches could bar a patent infringement claim filed within the statute of limitations.

The case began in 2003 when SCA, a manufacturer of adult incontinence products, notified First Quality that it was infringing on one of SCA’s patented adult diaper designs.  In response, First Quality argued that it held a patent predating SCA’s patent, thereby rendering it invalid, and squashing any infringement claim.  However, in 2007, the U.S. Patent and Trademark Office declared SCA’s patent to be valid after reexamination at SCA’s request.  Three years later in 2010, SCA reinitiated its infringement suit against First Quality, which had not communicated with SCA since their 2003 correspondence and was unaware of the reexamination proceeding, even though it is on public record.

Is that statute really one of limitation? 

During the period between 2007 and 2010, First Quality made substantial investments in its adult incontinence product line.  Because SCA had knowledge of these developments, First Quality moved for summary judgment based on SCA’s unreasonable delay in litigation—an equitable doctrine known as laches, which the district court granted.  SCA’s argument on appeal was that the defense of laches is precluded from patent infringement claims due to the Supreme Court’s recent decision holding so in a copyright infringement case, Petrella v. Metro-Goldwyn-Mayer, Inc..  The U.S. Court of Appeals for the Federal Circuit rejected this argument and held that Petrella did not affect its precedent regarding patent infringement cases, which allows for the defense of laches when the claim is brought within the statute of limitations period as prescribed by 35 U.S.C. 286.

But is that statute really one of limitation?  Unlike the copyright version, which states that a civil action must be brought “within three years after the claim accrued,” 35 U.S.C. 286 provides a six-year recovery of damages period.  In other words, a plaintiff may bring their infringement claim at any time after is accrues, but can only recover damages arising within the past six years.  Hence, SCA was incentivized to delay commencement of their claim in order to increase their damages because First Quality was steadily developing their product and receiving a greater return.

This was the argument asserted by counsel on behalf of First Quality during the oral arguments presented before the Supreme Court.   As opposed to copyright law, the petitioners contended, Congress had codified laches as a defense under § 282 of title 35 in order to account for the possibility of unreasonable delay.  Subsection (b) of that statute delineates four types of defenses that may be pleaded in an action for infringement of a patent.  Seth Waxman of WilmerHale, the arguing attorney for First Quality, maintained that the first listed defense, which reads, “Noninfringement, absence of liability for infringement or unenforceability,” includes the defense of laches.  Similarly to the doctrine of estoppel, Waxman argued, the courts have long recognized that laches is an unenforceability defense.  Justice Ginsburg, who authored the Court’s copyright decision on laches in Petrella, was not convinced.

In response to Waxman’s assertions, Justice Ginsburg questioned whether laches really had an unenforceability effect, pointing out that while laches bars claims against a particular defendant, it doesn’t prevent the owner from ever enforcing the patent, as is the case with other defenses like inequitable conduct.  Waxman also relied on Congressional intent by suggesting that at the time the law was enacted, there was a “literal mountain of cases” holding that laches was a defense in patent cases and therefore Congress adopted it into the law.  However, Chief Justice Roberts rejected that argument, noting that the vast majority of those cases were brought in courts of equity that could not issue relief in the form of damages, unlike a court of law.  With only four of those cases actually heard in a court of law, “your mountain becomes a molehill,” Chief Justice Roberts concluded.

According to Justice Breyer, this is really not a statute of limitations at all.

Justice Breyer was the only one to agree with First Quality’s argument that the unique, backward-looking statute of limitations for patent infringement claims provides a “gap” that the laches doctrine can fill.  According to Justice Breyer, this is really not a statute of limitations at all because it is possible that a patent owner would simply wait to bring an action until infringement is widespread, which could be more than six-years after the initial infringement began.  In his dissent, Justice Breyer wrote that “for more than a century courts with virtual unanimity have applied laches in patent damages cases” in order to fill this important gap in the statutory regime.  He fears that the majority’s decision will lead to “harmful and unfair legal consequences” for defendants in this area of the law.

Nonetheless, the other seven justices found SCA’s argument, articulated by Martin J. Black of Dechert LLP, the more favorable one.  He argued that Congress established this statute of limitations to limit the amount of time for which plaintiffs can collect damages, thereby stripping the power to utilize laches from judges.  By enacting the statute of limitations, Black contended, Congress intended for damages to be available within that six-year window and did not intend for some other defense to limit them.

This theory went over well for Justice Alito, who wrote in his opinion for the majority, “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.”  Laches is a “gap-filling” doctrine to be used where legislators have not provided a time limit, he went on, but “where there is a statute of limitations, there is no gap to fill.”

Although the Court essentially discounted the potential risks mentioned by Justice Breyer and First Quality, knowing the special characteristics of patent law that make it unique from copyright law provide some justification for the majority’s decision.  Whereas a copyright can last for 70 years, patents are limited to only 20 year from the date of filing their application, which really means they have a 17-year life.  While arguing on behalf of SCA, Black explained that most of the time patents are not as valuable in the first couple years because technology usually takes time to make its way into the marketplace.  Therefore, a statute of limitations that accrues at the time the infringement occurs, like the one provided under the Copyright Act, may work against patent owners having to decide if the expense of litigation is worth it.  A minor infringer may not pose as a threat, but if later on it turns into an existential threat, then the patent owner may want to sue.  The six-year, retrospective statute of limitations under the Patent Act protects the patent owner by allowing him or her to sue while still encouraging timely litigation.  Patent owners have a relatively short amount of time before the rolling window will eventually collapse into the patent term end.

Laches was a rare defense in patent infringement cases and even when it was asserted, it seldom prevailed.

Taking into consideration all of this information, it becomes clearer that the effect of this decision will not be as detrimental to defendants as some may have originally thought.  According to an article published by Forbes Magazine, laches was a rare defense in patent infringement cases and even when it was asserted, it seldom prevailed.  Due to this infrequency, it is unlikely that this case will have significant implications on others, including the patent venue case recently argued before Supreme Court.  In deciding that case, the Court will have to determine whether a plaintiff claiming patent infringement can sue a defendant anywhere the defendant has sold the allegedly infringing product, which in today’s world of online shopping and ecommerce means plaintiffs can forum shop.  Under this policy, plaintiffs seeking to extract settlements have been flocking to the U.S. District Court for the Eastern District of Texas—a venue notoriously challenging for defendants.  It is expected that the decision will be issued in the next couple of months.