SCA Hygeine Products v. First Quality Baby Products

SCA Hygiene Products v. First Quality Baby Products
807 F.3d 1311 (Fed. Cir. 2015)
Authored by Bailey Gallagher

Statement of Facts: SCA Hygiene Products (“SCA”) and First Quality Baby Products (“First Quality”) both manufacture adult incontinence products. SCA holds U.S. Patent No. 6,375,646 (“ ‘646 patent”) for its product. In an October 2003 letter to First Quality, SCA claimed that First Quality’s Prevail All NitesTM adult incontinence product infringed the ‘646 patent. In the letter, SCA requested that First Quality review the patent and either assure that it would cease manufacturing and selling Prevail All NitesTM, or explain why the product did not infringe the patent. First Quality responded to SCA’s letter in November 2003 asserting that U.S. Patent No. 5,415,649 (“ ‘649 patent”) invalidated the ‘646 patent because the two patents claimed the same diaper product and the ‘649 patent was filed earlier. First Quality argued that it could not be liable for infringing an invalid patent.

SCA did not respond to First Quality’s letter. Instead, SCA requested reexamination of the ‘646 patent in 2004 to ensure that it did not infringe on the ‘649 patent. It did not notify First Quality about the reexamination. In 2007, the U.S. Patent and Trademark Office (“USPTO”) confirmed the ‘646 patent’s validity on all original claims and issued several more claims that SCA added upon reexamination. Between 2006 and 2009, First Quality invested millions of dollars in its adult incontinence products. Although SCA was aware of First Quality’s activities, SCA did not notify First Quality of the reexamination or its results.

 Procedural History: SCA filed suit in the United States District Court for the Western District of Kentucky on August 2, 2010, three years after the reexamination of the ‘646 patent. First Quality asserted noninfringement, equitable estoppel, and laches defenses. With respect to laches, First Quality claimed that SCA’s delay in bringing the suit was inexcusable and that such a suit exposed the corporation to unreasonable harm. First Quality moved for partial summary judgment on its noninfringement defense and summary judgment on its laches and equitable estoppel defenses. The district court granted summary judgment of laches and equitable estoppel and dismissed the noninfringement motion as moot.

SCA appealed the district court’s decision to a panel of the Federal Circuit. In response to First Quality’s laches defense, SCA argued that in light of the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), laches was no longer a viable defense to patent infringement within the six-year damages recover period prescribed by 35 U.S.C. § 286. SCA asserted that Petrella, which held that laches is not a defense to a suit for copyright infringement brought within the Copyright Act’s statute of limitations, effectively overturns A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020 (Fed. Cir. 1992), which upheld the availability of laches as a defense to a claim for patent infringement. On September 17, 2014, the panel affirmed the district court’s ruling on laches, but reversed the lower court’s opinion on equitable estoppel. The panel rejected SCA’s contention that the Supreme Court’s decision in Petrella eradicated laches as a defense to patent law claims. The Federal Circuit determined instead that its opinion in Aukerman controlled.

SCA filed a petition for rehearing en banc. SCA asked the court to reconsider Aukerman under Petrella’s precedent. The Federal Circuit granted SCA’s petition for rehearing on December 30, 2014.

Questions Presented:

(1) Taking into consideration the Supreme Court’s opinion in Petrella v. Metro-Goldwyn-Mayer, and the differences between copyright and patent law, should the Federal Circuit overturn its ruling in A.C. Aukerman Co. v. R.L. Chaides Construction Co., abolishing the defense of laches for claims based on patent infringement occurring within the six-year damages limitation under 35 U.S.C. § 286?

(2) Considering that there is no statute of limitations for patent infringement claims, should the defense of laches be available to bar an infringement suit for damages or injunctive relief?

Holdings:

(1) No. The Federal Court did not overturn its ruling in Aukerman. Laches remains a defense to bar legal relief on a patent law claim.

(2) Laches may be available to bar an infringement suit for both damages and injunctive relief. However, laches generally cannot bar an ongoing royalty unless the circumstances are extraordinary.

Reasoning: In answering the first question, the Federal Circuit looked to 35 U.S.C. § 286. The court determined § 286 to be a damages limitation rather than a statute of limitations. While the provision precludes recovery for an infringement committed more than six years before the plaintiff filed a complaint, it does not preclude bringing a claim. However, the court concluded that patent law is a continuous tort. Thus, there is little difference between a damages limitation and a statute of limitations. Therefore, the Supreme Court’s analysis of the copyright statute of limitations in Petrella applied to an analysis of § 286.

The court looked to Congress’s intent with respect to 35 U.S.C. § 282(b)(1), concluding that the statute codified a laches defense. Specifically, the court reasoned that Congress intended 1952 Patent Act to have a broad reach, codifying defenses that had been historically available, including equitable defenses such as laches.

Upon determining that § 282 codified a laches defense, the court explored whether laches as codified in the Patent Act barred recovery of legal relief, or if it is only a defense against equitable relief. The court concluded that when Congress incorporated laches in § 282, it intended to adopt patent common law as it existed at that time, including laches under common law. The court looked to pre-1952 case law to determine whether patent common law before the 1952 Patent Act applied laches to bar legal relief, or whether the case law suggested that laches was only available to bar equitable relief. After an examination of relevant case law, the Federal Circuit ruled that laches was available to bar legal relief, in addition to equitable relief, before the 1952 Patent Act.

The court distinguished Petrella from the facts in the present case. While Petrella eliminated laches to bar relief on a copyright claim because Congress had codified a statute of limitations for copyright actions, thereby “[speaking] on the timeliness of copyright infringement claims,” Congress had enacted no such statute of limitations applicable to patent law complaints. SCA Hygiene Prods. v. First Quality Baby Prods., 807 F.3d 1311, 1329 (Fed. Cir. 2015). The court explained that laches, as a common law defense, is “gap-filling, not legislation-overriding.” Id. Under this reasoning, and in light of the § 286 damages limitation and the § 282 laches defense, the court upheld laches as a defense to legal relief in patent law.

The court answered the second question in two parts, exploring “whether laches [could] bar permanent injunctive relief and whether it [could] bar an ongoing royalty for continuing infringing acts.” Id. at 1331. The court looked to eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), to answer the first inquiry. eBay’s four factor test guides courts’ equitable discretion, providing them with standards for granting injunctions on patent infringements. The test requires that a plaintiff demonstrate: “(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” First Quality, 807 F.3d at 1331. The Federal Circuit held that laches fit within eBay’s framework, conforming to the Supreme Court’s four factor test.

The court rejected Auckerman’s bright-line rule, holding that laches could in some circumstances bar permanent injunctive relief. It recognized that injunctive relief is inappropriate in some cases. If a patentee cannot prove that the “equities favor an injunction,” ongoing royalties may be the appropriate type of relief. Id. at 1332–33. The court ruled that “a patentee guilty of laches typically does not surrender its right to an ongoing royalty,” concluding that although laches could bar permanent injunctive relief, the defense generally could not bar royalties. Id. at 1333. In sum, the court reasoned that the defense of laches was available to First Quality and that although the defense could bar damages and injunctive relief, laches could probably not bar ongoing royalties paid to SCA for patent infringement.

Opinion Concurring-In-Part and Dissenting-In-Part: Judge Hughes, joined by Judges Moore, Wallach, Taranto, and Chen, dissented with the majority’s ruling on the first issue. The dissent disagreed with the majority’s analysis of pre-1952 case law. It argued that a look at Supreme Court common-law principles prior to 1952 disproved the majority’s conclusion that Congress explicitly recognized laches a defense to legal damages in the Patent Act of 1952. According to the dissent, “in 1952, the Supreme Court had already recognized the common-law principle that laches cannot bar a claim for legal damages,” reasoning that there was “no precedent for inferring a congressional departure from a common-law principle recognized by the highest court based solely on aberrational lower-court decisions.” Id. at 1333.

The dissent reasoned that under Petrella, § 286 of the Patent Act eliminated laches as a defense to patent infringement. It regarded § 286 to be a statutory limitations period similar to the statute of limitations in the Copyright Act. Just as the Petrella Court determined that the “statutory limitations period itself takes account of delay,” so too does § 286. Id. at 1334. Under Petrella, courts can therefore not enforce the doctrine of laches to “further regulate the timeliness of a claim.” Id. Under the dissent’s reasoning, laches was not available to First Quality as a defense against SCA’s infringement claim. SCA should be free to bring suit against First Quality because SCA filed its complaint within § 286’s statutory limitations period. The dissent concurred with the majority’s reasoning on the second issue regarding whether laches can bar an ongoing royalty, but did not explicitly weigh-in on its analysis of this question.

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