US High Court Puts Unreasonable Delay On Trial

On its face, the case is a humdrum, procedural dispute about a patentee’s delay in filing an infringement suit. But if the Supreme Court rules the way most experts expect, the decision will significantly enhance the power of patent trolls and others alleging patent infringement, and it will harm many companies doing business in the US – especially companies in the tech sector. Much hangs in the balance on 1 November, when the Supreme Court hears oral arguments in SCA Hygiene Products AG v. First Quality Baby Products, LLC.

The question before the high court concerns laches. Under this longstanding doctrine, an injured party’s ability to obtain relief against an alleged wrongdoer can be limited (or even completely foreclosed) if the injured party was unreasonably slow in asserting its rights against the wrongdoer and this delay harmed the supposed wrongdoer.

Unreasonable delay can create two types of harm. It can result in evidentiary harm – making it much harder for an alleged wrongdoer to dig up evidence needed for its defense. Unreasonable delay also can create economic harm to an alleged wrongdoer.

For instance, in the case now before the Supreme Court, the Federal Circuit found that SCA’s unreasonable delay in filing a patent infringement suit against First Quality economically harmed the alleged infringer because, during the delay, First Quality made significant new investments to manufacture the allegedly infringing adult diapers and boosted its sales of those infringing products when it could have designed-around SCA’s patent. Had SCA sued in a timely fashion, First Quality’s costs would have been lower, as would its damages for infringement. The court concluded [pdf] that laches barred SCA from obtaining damages for any infringements committed by First Quality prior to SCA’s filing its patent infringement suit.

This decision was contentious. The en banc Federal Circuit split 6-5 over whether laches can limit a patentee’s right to damages for infringement. That question is now before the Supreme Court.

Statute Says….

The issue is one of statutory interpretation. Section 286 of the Patent Act 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 … for infringement….”

Under this statute, a patentee can seek damages for up to six years of prior infringements, but not one day longer. SCA argues, however, that this statute goes further; it overrides the court-created doctrine of laches and establishes the sole time limit on damages.

SCA supports this argument by pointing to the US Supreme Court’s 2014 decision in Petrella v. MetroGoldwyn-Mayer, Inc. [pdf]. That case held that a copyright statute, similar to Patent Act’s Section 286, prevents laches from being used to defend against damages for copyright infringement.

A slim majority of the Federal Circuit rejected SCA’s argument. This appellate court (often called America’s “patent court”) applied the Petrella analysis and found “no substantive distinction … between [Patent Act] Section 286 and the copyright statute of limitations considered in Petrella.” This suggests Section 286 did away with laches as a defense to damages for patent infringement. However, the court ruled that Section 286 was not the only relevant part of the statute.

Section 282 of the Patent Act states that defenses to patent infringement include “[n]oninfringement, absence of liability for infringement or unenforceability.” This provision is to be read broadly, according to Congressional reports concerning the statute’s creation. It includes “equitable defenses such as laches,” according to contemporary commentary by P. J. Federico, a principal draftsman of the 1952 Patent Act (containing Section 282). So the Federal Circuit concluded “that Congress codified a laches defense in Section 282.”

The Federal Circuit majority recognized that, under its statutory interpretation, there was some tension between Sections 282 and 286, but found the two provisions were not irreconcilable. Section 282 allowed the defense of laches in patent suits, while Section 286 set a six-year limit on patent damages, in cases when there was no laches. To the extent there was conflict between the two statutory provisions, the Federal Circuit majority asserted it was unable to correct this conflict. The court had to follow the statute as written, and if Congress believed Sections 282 and 286 were in conflict, it was up to Congress to change the law.

Supreme Court Says….

The Federal Circuit’s decision in SCA is likely to be overturned by the Supreme Court, according to many legal experts. They anticipate that, as in Petrella, the high court will find the relevant statute (in this case Section 286) prevents laches from being a defense to damages. “There is not a good basis for distinguishing Petrella,” said Prof. Samuel L. Bray of UCLA School of Law.

Reversing the Federal Circuit’s decision would accord with a pattern of recent Supreme Court rulings, which have found that patent law should follow the same rules as copyright law. “Supreme Court patent decisions in the past have often followed decisions on related issues in copyright cases. This has happened in several areas of patent law,” said Yar R. Chaikovsky, a partner in the Paul Hastings law firm.

A reversal in this case also would fit with a second trend in recent Supreme Court jurisprudence: The high court has repeatedly struck down Federal Circuit decisions creating special rules for patent law. “There has been a series of cases where the Supreme Court has rapped the knuckles of the Federal Circuit for holding that patent law is exceptional,” said Bray. “And here, the question is: does patent law follow the traditional rule that laches does not apply [to limit damages], or is patent law exceptional?”

If the Supreme Court rules that laches cannot limit damages for patent infringement, that will enable patent trolls and other patent owners to game the system. “Patentees may be incentivized to delay filing infringement suits, in order to increase their pool of potential damages,” said Christopher K. Larus, a partner in the law firm of Robins Kaplan.

That would raise the risks facing accused infringers and make it more expensive for them to settle accusations of infringement.

“If laches is not available as a defense to damages, there is great concern among defendants that they will suffer economic harm as a result of deliberate delay by patent owners,” said Larus. This could hurt companies in a wide range of industries, he added, although the effects “could be particularly acute in the tech sector, where companies are forced to defend patent suits involving product lines that have very large sales.”

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