U.S. Supreme Court Holds That Delay in Filing Suit Is Not a Defense to a Claim for Patent Damages

This morning the U.S. Supreme Court handed down its opinion in SCA Hygiene Products Aktieblog v. First Quality Baby Products.  The Court holds that, under § 286 of the Patent Act (“Except as otherwise provided bylaw, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action”), the equitable defense of laches (defined as "unreasonable, prejudicial delay in filing suit") cannot bar a claim for patent damages suffered within the six years prior to the filing of complaint.  The opinion, authored by Justice Alito and joined by seven other justices, therefore aligns patent law with the rule the Court announced for copyright cases in its 2014 decision Petrella v. Metro-Goldwyn-Mayer, Inc. (see discussion here), and overrules Federal Circuit precedent holding that (Petrella notwithstanding) the laches defense could bar a claim for patent damages brought within the six-year statutory window (see discussion here).  According to the majority, "[l]aches is a gap-filling doctrine, and where there is a statute of limitations, there is no gap to fill" (p.5).  The Court rejects the argument that § 282 of the Patent Act, which states among other things that "unenforceability" is a defense in patent infringement actions, codifies a laches defense that would "bar a claim for damages incurred within the period set out in § 286," concluding that there was no such well-established practice prior to the enactment of the 1952 Patent Act.  

Justice Breyer, who also dissented in Petrella, is the sole dissenter here.  He argues that the pre-1952 case law does establish that courts viewed laches as a viable defense even as against claims brought within the statute of limitation, and expresses concern that absent a laches defense some patent owners will be motivated to delay suit until after the defendant has incurred substantial costs.  (He also is less sanguine than the majority that the doctrine defense of "equitable estoppel" will pick up the slack.  This doctrine, which the Supreme Court in Petrella  characterized as involving "intentionally misleading representations concerning [one's] abstention from suit" whereby "the alleged infringer detrimentally relies on the . . . owner’s deception," survives § 286, since delay "is not an element of the defense.")  Basically, Justice Breyer's concern about delay and "lock-in" is a variation on the "patent holdup" theme, which is often brought to bear as an argument against mandatory injunctive relief against a defendant who has incurred substantial sunk costs and who may face disproportionately high ex post design-around costs.  I'm sympathetic to this concern as it relates to injunctions, and it may be that the concern is equally valid here, though I would note that (1) the damages that would be due for harms accruing to the utility patent owner over the six years preceding the filing of the complaint would take the form of lost profits or a reasonable royalty which (in theory) should not reflect any holdup costs, and (2) post-eBay it's hardly a foregone conclusion that the prevailing plaintiff will obtain an injunction against future infringement--though if not, and the court awards an ongoing royalty, there is a risk under U.S. practice that the ongoing royalty will reflect some degree of holdup value (see, e.g., discussion here).   

In this regard, and since this is a blog about damages law, I would call attention to Justice Breyer's discussion of a possible distinction between damages awards in patent and copyright cases at pp. 9-10 of his dissent:

For another thing, the Copyright Act, unlike the Patent Act, has express provisions that mitigate the unfairness of a copyright holder waiting for decades to bring his lawsuit. A copyright holder who tries to lie in wait to see if a defendant’s investment will prove successful will discover that the Copyright Act allows that defendant to “prove and offset against . . . profits ‘deductible expenses’ incurred in generating those profits.” Id., at ___ (slip op., at 12) (quoting 17 U. S. C. §504(b)). Thus, if the defendant invests say $50 million in a film, a copyright holder who waits until year 15 (when the film begins to earn a profit) to bring a lawsuit may be limited to recovering the defendant’s profits less an apportioned amount of the defendant’s initial $50 million investment. But the Patent Act has no such deduction provision.

With all due respect, this doesn't seem to make much sense.   For one thing, awards of infringer's profits are available in patent cases only for design patent infringement; and in those cases  the defendant presumably is allowed to deduct its costs, as it would in copyright.  Of course, as we know from Samsung v. Apple it may have to disgorge profits that go beyond the profits attributable to the infringed design, so this might have been a valid distinction to draw (albeit one of limited applicability), but it doesn't appear to be the point Justice Breyer was trying to make.  Justice Breyer also ignores the availability in copyright but not patent cases of statutory damages, which might seem to cut against his point that copyright has more damages-limiting doctrines than does patent.

One other thing I would note, relevant more to damages law than to laches as such, is the majority's characterization of the remedy of an accounting of profits (that is, disgorgement), which the majority mentions in its discussion of the pre-1952 case law.  The majority specifically refers to this remedy as "equitable"  and "not the same as damages" (p.11).  I repeat, then, a query I've made before with regard to design patent litigation, where the disgorgement remedy persists:  are we sure there's a right to a trial by jury on the amount of the disgorgement in such cases--and if not, why hasn't anybody (yet, to my knowledge) raised this point in their discussions of Samsung v. Apple and of Nordock?

Update:  One further thought:  does the Court's alignment of the copyright and patent law rules in this case herald a similar treatment of the issue of exhaustion, which was argued this morning in Impression Products, Inc. v. Lexmark International, Inc.?  Here's a link to the transcript, which I hope to read this afternoon.  For what it's worth, my own views of the exhaustion matter are in line with those expressed in an op-ed in this morning's Wall Street Journal by Professors Daniel Hemel and Lisa Larrimore Ouellette, here.