Federal Circuit Defies Supreme Court in Laches Holding

by Dennis Crouch

SCA Hygiene v. First Quality (Fed. Cir. 2014)

Rather than focusing on a single event, allegations of patent infringement generally involve a series of actions that each constitute an infringement.  Courts identify each act (making, using, selling, …) as a separate and actionable infringement of the patent.  This notion of repeated acts of infringement (the “separate-accrual rule”) is only occasionally important, but comes up most often in the context of the impact of delays in pursuing court action with the effect of making delays look less egregious.

The Patent Act includes a six-year limitation on collecting back-damages. 35 U.S.C. 286. The old equitable doctrine of laches has also traditionally been available to cut-off damages when the patentee unreasonably and inexcusably delayed in bringing suit.  Under the Federal Circuit’s 1992 en banc Aukerman decision, courts generally apply the same six-year timeline for laches – finding that a six-year delay in filing suit creates a presumption of unreasonable delay that, when coupled with detrimental reliance leads to a laches finding.  Although it only creates a presumption of unreasonableness, in my experience, this six-year delay makes laches much much more likely to be found. Laches then has the ordinary result of cutting-off all pre-suit damages. However, based on the aformentioned theory of individualized acts of infringement, a remedy remains available for infringement that occurs after the lawsuit is filed as well as the potential for further equitable relief to stop future infringement.

Laches is based on a tradition of equity and has no direct tie-in to the patent statute itself. Likewise, Laches is not found in the list of defenses under Section 282 nor identified as an aspect of the statutory limitation on damages. Of course, that is the tradition of equity — existing for times when the law fails.

Putting this entire area somewhat astir is the Supreme Court’s 2014 copyright laches decision in Petrella v. Metro-Goldwyn-Mayer, 134 S.Ct. 1962 (2014).  In similar manner to patent law, the copyright statute has a three-year statute of limitations on filing suit.  In the case, the (alleged) copyright holder had delayed for 18-years in filing suit.  The statute-of-limitations cut-off all but the last three years of recovery and the lower court found that laches blocked recovery for those remaining three years.  However, in Petrella the Supreme Court revived the copyright claim and held instead that laches should not apply because Congress has taken fully spoken on the issue with its statute.

Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. . . .  [L]aches is a defense developed by courts of equity; its principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation. See 1 D. Dobbs, Law of Remedies 104 (1993) (“laches . . . may have originated in equity because no statute of limitations applied, . . . suggest[ing] that laches should be limited to cases in which no statute of limitations applies”). Both before and after the merger of law and equity in 1938, this Court has cautioned against invoking laches to bar legal relief. See Holmberg v. Armbrecht, 327 U. S. 392 (1946) (in actions at law, “[i]f Congress explicitly puts a limit upon the time for enforcing a right which it created, there is an end of the matter,” but “[t]raditionally . . . , statutes of limitation are not controlling measures of equitable relief “); Merck & Co. v.Reynolds, 559 U. S. 633 (2010) (quoting, for its current relevance, statement in United States v. Mack, 295 U. S. 480 (1935), that “[l]aches within the term of the statute of limitations is no defense [to an action] at law”); County of Oneida v. Oneida Indian Nation of N. Y., 470 U. S. 226, n. 16 (1985) (“[A]pplication of the equitable defense of laches in an action at law would be novel indeed.”).

An important element of the holding is the ongoing separation of legal and equitable remedies — with the notion that laches may still be obtained to block equitable remedies, but not to bar a traditional legal remedy such as past-damages.

In Petrella, the Supreme Court limited its particularly holding to copyright law and noted that “[w]e have not had occasion to review the Federal Circuit’s position” on laches in patent cases. Of course, the parallels between copyright and patent are strong in this situation and so we would expect the Federal Circuit to seriously consider whether Petrella should be applied to overrule Aukerman.

SCA v. First Quality: In 2003, SCA sent a C&D letter to First Quality in 2003 regarding patented adult diapers. However, in 2004, SCA filed for ex parte reexamination that was completed in 2007 with a confirmation of patentability. Finally, in 2010, SCA filed the lawsuit against First Quality.  By that time (beginning in 2006) First Quality had greatly expanded its use of the underlying concepts of the invention (it doesn’t leak).  Rather than deciding the lawsuit, the district court dismissed the case based upon the delay finding both laches and equitable estoppel.

On appeal, the Federal Circuit has affirmed – most notably holding that the Petrella decision has no impact on the adjudication of laches in patent cases.  However, rather than addressing the clear and obvious tension, the court simply wrote:

Petrella notably left Aukerman intact. See id. at
1974 n.15 (“We have not had occasion to review the Federal Circuit’s position.”). Because Aukerman may only be overruled by the Supreme Court or an en banc panel of this court, Aukerman remains controlling precedent.

While clinging to the Aukerman approach, affirmance was easy because the six-year delay creates a strong presumption of unreasonable delay.  However, the court did reverse the summary judgment of equitable estoppel because there was no evidence of the required affirmative act such as a misleading communication leading to detrimental reliance on the notion that the defendant’s infringement would be permissible.

The decision here is notable for its glaring reticence. The panel of Judges Reyna, Wallach, and Hughes are all relatively new and perhaps expect en banc review of this issue.  Many (perhaps most) other judges on the court would have made their mark rather than simply passing.

Although I believe, on balance, that Petrella controls here, the case is not open-and-shut because there are important distinctions as you move from copyright to patent. Notably, the copyright statute of limitations is a more direct and total limit on filing suit while in patent law the statute only limits the collection of too-far-back damages. Thus, in this situation, Congress seems to have spoken more fully in the copyright realm. Additionally, the three versus six year limit appears important because, in the time-scale of lawsuits and three years is a relatively short time while six-years begins to allow for much more unreasonableness and detrimental reliance.  That time differential is further compounded by the fact that three years is quite a small bit of the copyright term (5%) while six-years is often more than 1/3 of the patent term — suggesting that a patentee’s should move more quickly.

If anything, this issue will be interesting to watch.

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

20 thoughts on “Federal Circuit Defies Supreme Court in Laches Holding

  1. Dennis,
    I’m not sure I understand your comment: “Additionally, the three versus six year limit appears important because, in the time-scale of lawsuits and three years is a relatively short time while six-years begins to allow for much more unreasonableness and detrimental reliance.”
    If anything, the long copyright term allows for far more unreasonableness and detrimental reliance. In fact, SCOTUS’ decision in Petrella allows for copyright suits to be brought decades after a claim first accrued. Just look at the recent lawsuit against Led Zeppelin over Stairway to Heaven. It was brought over 40 years after the song was first released! Sure the copyright owner is only entitled to damages from the 3 years prior to filing suit onward, but how can such a recovery be less unreasonable than any patent case in which the patent owner waited more than 6 years to file?

  2. Dennis:

    Your conclusions are somewhat more muted than your title, particular your allegation of “defiance” between courts. I usually take your titles to be a literal, objective statement re. your position/assessment rather than a puffed up “headline” to grab attention.

    Some people may like the title to be a little weaker (“reticence”) to reflect the substance of your written assessment, others might want you to come out and allege “defiance” (rather than reticence) more directly in the text. I merely point out the subtle “difference”.

    I must admit whatever the motivation it is a bold move to publically allege defiance (in a title… if not in the post itself) by a lower court of a Supreme court decision.

    1. Respectfully, I think the difference is not so subtle, and that such a mismatch is unacceptable with respect to standards of professional journalism. More significantly, when the allegation is that a federal court has “defied” a higher court and that allegation cannot be fully substantiated, the allegation unfairly impugns judicial integrity. The headline ought to be made less salacious.

    2. For the record, I don’t think the headline is a problem at all.

      The Federal Circuit can handle it.

      If they can’t, they know who to call.

  3. I respectfully disagree with “In similar manner to patent law, the copyright statute has a three-year statute of limitations on filing suit” and the title. Patent law does not have any statute of limitations, or statute of repose. 35 U.S.C. 286 does not limit in any way when a patent suit may be brought. Absent laches, suit can even be brought up to six years after the patent has expired, which could be more than 26 years after the application was filed. That 35 U.S.C. 286 staute merely limits the number of years prior to whenever suit is filed to no more than six years of back-damages recoveries [absent a “non-marking” defense].

    1. In contrast, copyright law has a true classic statute of limitations:
      Under Title 17 Section 507:

      (a) Criminal Proceedings.—Except as expressly provided otherwise in this title, no criminal proceeding shall be maintained under the provisions of this title unless it is commenced within 5 years after the cause of action arose.

      (b) Civil Actions.—No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.

    2. Thanks Paul. I see the two limits as similar, although – as your indicate – they are technically different. In truth, I don’t know of any practical difference that makes the distinction worthwhile.

      1. Denis, there seems to me to be a stark practical difference between a SoL and Section 286, and it comes out in your very interesting post.

        As the en banc FedCir said in Aukerman, latches begins with discovery of infringement and counts 6 years forward to get the date beyond which the suit cannot be filed. Section 286 begins with the date the suit was filed and counts 6 years backwards to get the date beyond which damages cannot be claimed. A SoL begins with the date a claim accrues and counts forward some number of years to get the date beyond which the lawsuit – and ALL damages – gets vaporized without consideration of the merits. Judicial application of latches, in effect, turns Section 286 into a true SoL, which is what happened in SCA.

        Congress was sharp enough (in this instance) to see that traditional SoL principles should not be applied to patent cases because the patent is on-going and infringement can be on-going. The inventor should not be cut off from damages due to yesterday’s infringing activity on the grounds that the infringement complained of started 6 years ago.

        Given Congress’ clear position on the matter, the evocation of latches in patent cases to limit damages not limited by statute is insufferable judicial activism. The Aukerman en banc found latches to be “cognizable in” Section 282, and, specifically, in the statute’s inventory of defenses to infringement; i.e., noninfringement, absence of liability for infringement, or unenforceability. That’s the secret phrase – “cognizable in.” When it’s used in the same sentence with the name or number of a statute, you know the court is up to no good. If you can find latches in Section 282, you have a far more active imagination than I.

        I have not read Petrella, but it is inconceivable to me that the USDC would have used latches to cut off damages due to CR infringement that could not be reached by the CR statute. At any rate, the USSCt was absolutely right not to hand down patent law on CR facts and the CR SoL statute.

        As for the panel in SCA – good job. Good, conservative, stare decisis ruling, even though I don’t agree with the outcome. Their opinion was an invitation for SCA to file a petition for an en banc re-hearing to consider Aukerman in view of Petrella. Exactly what they should have done, IMO. It’s not every day that a petition for an en banc hearing has three “yes” votes before it’s even filed.

        1. Babbel, Aukerman was about a small infringer, a small construction company, and the $200-$300/year did not justify a suit. But this construction company became large, a major competitor to a licensee who complained.

          By not allowing suit against this infringer, not only was the patentee harmed, but all its licensees were as well because of the “unfair competition” by the now major competitor.

          The Supreme Court observed in Petrella that the smallness of the infringer was an important consideration because a hard and fast rule that lawsuits had to be filed within a short period of time will force the premature filing of suits simply to avoid the possibility of that a small infringer could turn into a large problem.

          The Aukerman case was clearly wrongly decided is clearly adverse to Petrella. Panels have the authority to not follow controlling case law if it is inconsistent with subsequent Supreme Court. That was a new rule that the Federal Circuit adopted just recently in the Samson case. Troy v. Samson Mfg. Corp., 758 F.3d 1322, 1326, 111 USPQ2d 1722 (Fed. Cir. 2014)

          The refusal to abide by the Supreme Court case is not merely an invitation to take the case en banc, it was an act of defiance of the Supreme Court because there is no guarantee that the case will be taken en banc. Besides, if the court wanted to take the case en banc, it could do so on its own. That’s what happened in Seagate.

    3. Paul, I agree that there really is no “statute of limitations to bring a case” in patent law — that effectively would be a statute of repose. That is why the Supreme Court may have punted in referencing Aukerman, because its precedent seems to recognize that when there is no statute of of repose, that laches may still apply, although its dicta that latches are not applicable ever with respect to legal causes of action is rather broad. Moreover, the discussion of small infringements that may grow large is also a good reason not to force the patent owner to file suit prematurely.

      Just as with the discussion of copyright cases, I think the six-year patent statute that bars recovery of damages more than six years prior to the filing of suit reflects an attempt by Congress to limit damages, but Congress provided no statute of repose. This seems to reflect a judgment by Congress that a suit might be brought at any time for damages within the six years.

      Therefore, I think the Federal Circuit needs to take this case en banc and reverse Aukerman because it is inconsistent with Petrella.

      The following discussion for Patrella is equally pertinent to patent cases:

      “It is hardly incumbent on copyright owners, however, to challenge each and every actionable infringement. And there is nothing untoward about waiting to see whether an infringer’s exploitation undercuts the value of the copyrighted work, has no effect on the original work, or even complements it. Fan sites prompted by a book or film, for example, may benefit the copyright owner. See Wu, Tolerated Use, 31 Colum. J. L. & Arts 617, 619-620 (2008). Even if an infringement is harmful, the harm may be too small to justify the cost of litigation.

      If the rule were, as MGM urges, “sue soon, or forever hold your peace,” copyright owners would have to mount a federal case fast to stop seemingly innocuous infringements, lest those infringements eventually grow in magnitude. Section 507(b)’s three-year limitations period, however, coupled to the separate-accrual rule, see supra, at 3-6, avoids such litigation profusion. It allows a copyright owner to defer suit until she can estimate whether litigation is worth the candle. She will miss out on damages for periods prior to the three-year look-back, but her right to prospective injunctive relief should, in most cases, remain unaltered.”

  4. Many good points have been made as to whether the panel improperly “punted” on the question of the applicability of Peterella or properly stuck to prior precedent. But I do note that prior panels of the Federal Circuit have not felt constrained to rigidly follow past Federal Circuit precedent where an intervening Supreme Court opinion comes down containing reasoning that calls into question the validity of the prior Federal Circuit precedent. This law is clearly described in
    Troy v. Samson Mfg. Corp., 758 F.3d 1322, 1326, 111 USPQ2d 1722 (Fed. Cir. 2014) (refusing to follow prior Federal Circuit precedent in view of a contrary intervening Supreme Court opinion – “We conclude that to the extent that our prior precedent, see, e.g., Conservolite v. Widmayer, 21 F.3d 1098, 1102 (Fed.Cir.1994), held that new evidence on an issue not presented to the Board was generally to be excluded in district court proceedings, it is no longer viable following the Supreme Court’s Hyatt decision. It is established that a later panel can recognize that the court’s earlier decision has been implicitly overruled as inconsistent with intervening Supreme Court authority. See, e.g., Miller v. Gammie, 335 F.3d 889, 899 (9th Cir.2003) (en banc) (‘[C]ircuit precedent, authoritative at the time that it has issued, can be effectively overruled by subsequent Supreme Court decisions that are closely on point, even though those decisions do not expressly overrule the prior circuit precedent.’) (internal quotation marks omitted); see also United States v. Fisher, 502 F.3d 293, 296, 306-07 (3d Cir.2007); Dawson v. Scott, 50 F.3d 884, 892 n.20 (11th Cir.1995) (‘In view of these intervening Supreme Court precedents, [the prior panel decision] does not control and appears to be overruled.’). We have adopted and applied this principle. See, e.g., Doe v. United States, 372 F.3d 1347, 1354-57 (Fed.Cir.2004) (concluding that prior precedent has been undermined by intervening Supreme Court decisions, and was therefore ‘no longer good law’); see also Conforto v. Merit Sys. Prot. Bd., 713 F.3d 1111, 1116-17, 1123-25 (Fed.Cir.2013) (majority and dissent disagreeing over whether an intervening Supreme Court decision has sub silentio overruled our prior precedent). ‘[T]he issues decided by the higher court need not be identical to be controlling. Rather, the relevant court of last resort must have undercut the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable.’ Miller, 335 F.3d at 900. Indeed, lower courts are ‘bound not only by the holdings of higher courts’ decisions but also by their ‘mode of analysis.’’; see also United States v. Lindsey, 634 F.3d 541, 550 (9th Cir.2011) (‘W]e are an intermediate court within the federal system, and as such, we must take our cue from the Supreme Court. …. Setting [a prior panel’s] holding aside for a moment, in our estimation the case’s reasoning has been fatally undercut by the Supreme Court.’)” – vacating and remanding a priority decision because the district court failed to consider certain new evidence proffered by the losing party)

    In view of Troy, I was disappointed that the panel did not provide further explanation on the question of the applicability of Peterella to patent law or why in this circumstance the decision must await en banc review. Of course, it is possible that by refusing to address the issue the panel was merely teeing this up for en banc review.

    1. Thanks for the informative write-up. This is an interesting case.

      Regarding the apparent shoving aside of Petrella by this three-member panel, I tend to agree with you and Bob Matthews (comment 2). Clearly the Supreme Court’s decision in Petrella, even if distiguishable from the facts here, is highly relevant to the Federal Circuit’s decision. The Supreme Court plainly recognized that relationship, which is surely the reason for their note about Aukerman in their Petrella decision.

      As Bob points out, lower panels are not bound by en banc decision of the Federal Circuit when intervening Supreme Court decisions have (arguably) undermined the reasoning and/or legal underpinnings of that en banc decision. Could the absence of a more detailed analysis be explained by the timing of the Petrella decision, i.e., is it the case that the parties did not brief the Federal Circuit panel on the issues raised by Petrella because they did not have Petrella before them?

  5. How do you propose that the judges on this panel would “have made their mark rather than simply passing”? I don’t think they passed at all. They said it plainly and simply: as a panel of the CAFC, they are bound by any applicable en banc decision of the CAFC (in this case Aukerman), unless that decision has been overruled by the Supreme Court. Here, the Supreme Court in Petrella explicitly did not rule on this question, ergo the panel was bound by Aukerman. End of discussion. Would you have preferred for the panel to go against the en banc Aukerman decision, on the assumption that this would eventually give the Supreme Court the opportunity to weigh in on the question? Predictability is one of the goals of the legal system; having panels do their own thing rather than follow en banc ruling makes it kind of hard to predict the law in any individual case. Moreover, it seems to me that sticking to precedent will also allow the case to be teed-up for SCOTUS review: there will be the usual request for rehearing and rehearing en banc, and then the denial of en banc rehearing, or the en banc decision if there is one, will be subject to a petition for certiorari. That approach also has the advantage giving some predictability to CAFC decisions.

    1. Thanks Dan.

      In this case, the Supreme Court has presented new law on how the doctrine of laches operates and applied it in a doctrine and situation in close parallel to patent law but in a way that is quite different from current patent doctrine. In my mind, that calls the prior Federal Circuit cases into question and suggests (perhaps compels) a change in patent doctrine. I such a change is compelled, I would argue that a merits panel has the power to make that change. I should say though that I have not fully researched the law on what level of doctrinal undercutting by the Supreme Court is sufficient to empower a three-member panel to reject its prior circuit court precedent. In the 9th Circuit, such a Supreme Court decision gives authority to a lower panel to change the law if the “reasoning or theory” of the intervening Supreme Court case cannot be reconciled with the prior lower court precedent. Miller v. Gammie (9th Cir. 2003).

      Now, the Supreme Court did cite Aukerman in its decision and stated in a footnote that “We have not had occasion to review the Federal Circuit’s position.” In my view, that statement should not be seen as rejecting a sub-silento undermining of Aukerman’s reasoning and basis.

      1. Dennis, if the Supreme Court had said nothing about Aukerman, then I’d be more inclined to agree that the CAFC panel here could have latched onto Petrella as sub silento repudiating Aukerman (although I’m not convinced of that either). But when the Supreme Court – a court that has not been shy in recent years about overruling the CAFC – explicitly says, “We’re aware of Aukerman and we’re not ruling on it”, I don’t see room for the panel to deviate from en banc precedent. SCOTUS explicitly left this en banc ruling untouched. SCOTUS may well adopt the rule from Petrella in patent cases, if and when that question comes before it, but for now Aukerman remains the rule, and it’s not for a CAFC panel to go against still-good CAFC en banc precedent to force the issue.

        1. Dennis,

          I agree with Dan. As even you pointed out, there are at least some distinctions between the copyright statute of limitations and the patent one. This Federal Circuit panel took the prudent (and principled) course to either allow Aukerman to be reconsidered en banc, or to let this issue go to the Royal Nine.

        2. I think the interpretation can go either way when the Supreme Court says, “we don’t address this issue.” In the Limelight decision, the fact that the Court said it about three times signals that the Federal Circuit should revisit the question of whether a person must complete every step of a method to be an infringer.

          Other times, it is the Court being careful to constrain itself to the case and not create too much law without fully addressing the questions.

          1. You are absolutely correct. In Limelight, I think SCOTUS was telling the CAFC you really should take another look at Muniauction–suggesting that it may have been wrongly decided. In Petrella, it was more of the norm: SCOTUS only decides the issue presented in the case at hand. Heck, anything more would be dicta.

            And like many others have said, I have a very hard time figuring out how the reasoning in Petrella does no apply to the Patent Act. Sure, the 6-year limitation on damages is structured differently than the 3-year absolute bar in the Copyright Act. But in reality, there is not much difference (other than 3 vs. 6 years). Although the Copyright Act provides an absolute bar to suit, every act of infringement restarts the 3-year clock. Also, the fact that 6 years is a larger % of the total patent term than the % of the copyright term represented by 3 years, is really irrelevant to the question of whether laches applies to patents.

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