09/19/14

SCA Hygene Prod. v. First Quality Baby Prods.: Laches Presumptions Apply After Filing for Reexam, Monitoring the Infringer, and Waiting more than 6 years for a Decision


Category: Civil Procedure
 
 
 By: Jesus Hernandez, Blog Editor/Contributor 
 
 
TitleSCA Hygene Prod. Aktiebolag v. First Quality Baby Prods., LLC, No. 2013-1564 (Fed. Cir. Sept. 17, 2014).
Issues
[1: Laches] SCA argues that the reexamination proceedings preclude application of the laches presumptions in this case because the reexamination period should be excluded from the total delay. The district court rejected that theory. In its view, because SCA filed suit more than six years after first learning of First Quality’s allegedly infringing activities, the laches presumptions applied.
SCA Hygene Prod. Aktiebolag at *9.
[2: Equitable Estoppel] The district court ruled that “SCA unquestionably misled First Quality though [sic] its 2003 letter and subsequent inaction.” [...] The court focused on SCA’s failure to respond to First Quality’s letter addressing the ’646 patent and on SCA’s decision to write First Quality regarding different products and a different patent.
Id. at *16 (internal citations omitted).
Holdings
[1: Laches] Because more than six years elapsed between the time SCA first learned of First Quality’s allegedly infringing activities and the time SCA filed infringement claims directed to those activities[, during which SCA monitored the infringing activities of First Quality], the district court properly found that the laches presumptions applied.
Id. at *9 (text added).
[2: Equitable Estoppel] SCA almost immediately filed a request for ex parte reexamination of the ’646 patent to address the issues raised by First Quality—an action that could reasonably be viewed as inconsistent with SCA’s alleged acquiescence. Thus, record evidence supports a version of events that differs from First Quality’s. A reasonable juror could conclude that First Quality raised an issue SCA had overlooked and that SCA, rather than acquiescing, took immediate action.
Id. at *19.


Procedural HistorySCA owns U.S. Patent No. 6,375,646 (the ’646 patent), which relates to certain adult incontinence products. After SCA sued a competitor, First Quality, for infringement of the ’646 patent, the district court dismissed the case, finding that SCA’s claims were barred by both laches and equitable estoppel.
SCA Hygene Prod. Aktiebolag at *2.
 
 
 
Legal Reasoning (Reyna, Wallach, Hughes)
Background
Pertinent Facts
On October 31, 2003, SCA sent a letter to First Quality, suggesting that certain First Quality products might infringe the ’646 patent. […] First Quality responded on November 21, 2003, and stated: As you suggested, we studied [the ’646 pa- tent] . . . . In addition, we made a cursory review of prior patents and located U.S. Patent No. 5,415,649, (“the ‘649 Patent”), which was filed in the United States on October 29, 1991 and is therefore prior to your client’s ‘646 Patent. […] the prior ‘649 Patent invalidates your client’s ‘646 Patent.
SCA Hygene Prod. Aktiebolag at *2-3.
On July 7, 2004—one day after SCA sent its final communication to First Quality—SCA filed an ex parte reexamination request for the ’646 patent. SCA asked the United States Patent and Trademark Office (PTO) to review the patentability of the ’646 patent in light of the ’649 patent and European Patent Application No. 0187727 A2. About three years later, on March 27, 2007, the PTO confirmed the patentability of all 28 original claims and issued several new claims added during reexamination.
SCA never notified First Quality about the reexamination proceedings. According to SCA, it believed it was under no obligation to do so because the PTO provides public notice of all reexaminations.
Id. at *3-4.
[1] Laches
Legal Standard: Laches
Laches is an equitable defense to patent infringement that may arise only when an accused infringer proves by a preponderance of evidence that a patentee (1) unreasonably and inexcusably delayed filing an infringement suit (2) to the material prejudice of the accused infringer. […] If these prerequisite elements are present, a court must then balance “all pertinent facts and equities,” including “the length of delay, the seriousness of prejudice, the reasonableness of excuses, and the defendant’s conduct or culpability” before granting relief. […] When found, laches bars retrospective relief for damages accrued prior to filing suit but does not bar prospective relief. […]
SCA Hygene Prod. Aktiebolag at *5 (internal citations omitted).
Laches is an equitable defense to patent infringement that may arise only when an accused infringer proves by a preponderance of evidence that a patentee (1) unreasonably and inexcusably delayed filing an infringement suit (2) to the material prejudice of the accused infringer. […] If these prerequisite elements are present, a court must then balance “all pertinent facts and equities,” including “the length of delay, the seriousness of prejudice, the reasonableness of excuses, and the defendant’s conduct or culpability” before granting relief. […] When found, laches bars retrospective relief for damages accrued prior to filing suit but does not bar prospective relief. […]
Id. at *5 (internal citations omitted).
SCA's Actions
[E]ven though SCA’s delay during reexamination may have been excusable when viewed in isolation, we must examine whether SCA’s delay, viewed as a whole, was excusable. The district court found that “SCA admitted that it has continuously tracked First Quality’s activity since 2003 and has an entire department dedicated solely to competitive intelligence.” […] SCA then continued to evaluate First Quality’s products during the reexamination period. SCA was also represented by U.S. patent counsel when it sent letters to First Quality in 2003 and 2004 and during the reexamination proceedings between 2004 and 2007. […] No evidence suggests that SCA was unable to find counsel or reinitiate contact with First Quality shortly after the reexamination ended. Moreover, “personal lack of familiarity with the patent system . . . does not ex- cuse . . . failure to file suit.” […].
Id. at *11 (internal citations omitted).
Given the circumstances, SCA should have been prepared to reassert its rights against First Quality shortly after the ’646 patent emerged from reexamination. […] But SCA remained silent for more than three years after the patent came out of reexamination.
Id. at *11-12.
No Prejudice
There are two categories of prejudice in laches— evidentiary and economic. […] Evidentiary prejudice results when the patentee’s delay hinders an accused infringer from defending against the patent suit. This may include, for example, the death of a critical witness, the dimming of memories, or the loss of documents. […] “Economic prejudice may arise where a defendant and possibly others will suffer the loss of monetary investments or incur damages which likely would have been prevented by earlier suit.” […] Economic prejudice cannot be attributed to losses merely associated with a finding of liability for infringement. Id. Rather, “[t]he courts must look for a change in the economic position of the alleged infringer during the period of delay.” […]
Id. at *12.
[T]he district court concluded that SCA failed to rebut the presumption that First Quality suffered economic harm, and we agree. First Quality made a number of capital expenditures to expand its relevant product lines and to increase its production capacity. The record evidence suggests that First Quality would have restructured its activities to minimize infringement liability if SCA had brought suit earlier.
Id. at *13.
[2] Equitable Estoppel
Legal Standard: Equitable Estoppel
Equitable estoppel may only arise when an accused infringer shows by a preponderance of evidence that (1) a patentee, acting on the basis of accurate facts, communicated something in a misleading way, by words, conduct, or omission, to an alleged infringer, (2) on which the accused infringer relied, (3) such that he would be materially prejudiced if the patentee is allowed to assert a claim that is inconsistent with his earlier communication. […] But “even where the three elements of equitable estoppel are established, [a court must] take into consideration any other evidence and facts respecting the equities of the parities in exercising its discretion and deciding whether to allow the defense.” […] When found, equitable estoppel acts as a complete bar to a patentee’s infringement claim. […].
SCA Hygene Prod. Aktiebolag at *6 (internal citations omitted).
Although an equitable estoppel defense may appear similar to a laches defense when a patentee has delayed filing suit, the two defenses are distinct. For example, unlike laches, equitable estoppel requires that a “plaintiff’s inaction . . . be combined with other facts respecting the relationship or contacts between the parties to give rise to the necessary inference that the claim against the defendant is abandoned.” […] Moreover, equitable estoppel requires that the defendant rely, to its detriment, on the patentee’s abandonment. […] And a court may not presume that the underlying elements of equitable estoppel are present, regardless of how much time has passed. […]
Id. at *6 (internal citations omitted).
Silence does not Create Estoppel“[S]ilence alone will not create an estoppel unless there was a clear duty to speak or somehow the patentee’s continued silence reenforces the defendant’s inference from the plaintiff’s known acquiescence that the defend- ant will be unmolested.” […] Although the most common example of equitable estoppel is a patentee who objects to allegedly infringing activities and then remains silent for a number of years, that silence must be “coupled with other factors, [such that the] patentee’s ‘misleading conduct’ is essentially misleading inaction.” […]
Id. at *16-17 (internal citations omitted).
Ambiguity on Resons for Silence creates Material Issue of FactFirst Quality maintains that SCA’s silence was tantamount to an admission that the ’646 patent was invalid. But “a mere verbal charge of infringement, if made, followed by silence [i]s not sufficient affirmative conduct to induce a belief that [the patentee] ha[s] abandoned an infringement claim.” […] Here, SCA almost immediately filed a request for ex parte reexamination of the ’646 patent to address the issues raised by First Quality—an action that could reasonably be viewed as inconsistent with SCA’s alleged acquiescence. Thus, record evidence supports a version of events that differs from First Quality’s. A reasonable juror could conclude that First Quality raised an issue SCA had overlooked and that SCA, rather than acquiescing, took immediate action.
Id. at *19.
No Material PrejudiceIn this case, Mr. Damaghi testified that “after sending [the November 21, 2003] letter this matter was never thought of again.” […] Although this testimony demonstrates that First Quality disregarded SCA’s allegations involving the ’646 patent, it does not necessarily establish that First Quality made capital investments and expanded its business in connection with SCA’s subsequent silence. Mr. Damaghi’s testimony acknowledges the possibility that some issues regarding the ’646 patent may not have been fully resolved. […] And even the most rudimentary due diligence by First Quality would have revealed that SCA had filed a reexamination request for the ’646 patent. Thus, a reasonable juror could conclude that First Quality’s reliance, to the extent it can be established, was not reasonable.
Id. at *20.
Conclusion
Accordingly, we affirm the district court’s grant of summary judgment as to laches, reverse its grant of summary judgment as to equitable estoppel, and remand for further proceedings consistent with this opinion.
SCA Hygene Prod. Aktiebolag at *21.
 
 
 
 
 
© 2000-2019, Journal of the Patent & Trademark Office Society
Disclaimer & Privacy Policy