Federal Circuit Orders New Trial on Damages in Roland v. InMusic

The nonprecedential opinion, released last Thursday, is Roland Corp. v. InMusic Brands, Inc., authored by Judge Chen and joined by Judges Lourie and Reyna.  The case involved five patents relating to electronic drums and drumheads, and three relating to cymbals.  Plaintiff Roland first accused InMusic of infringing certain cymbal patents in 2011, but “after some back-and-forth between the parties,” Roland stated that “it did ‘not intend to pursue this matter’ if InMusic discounted the cymbals as represented and ‘does not engage in other infringing activities.’”  Then in 2015, “Roland wrote to inMusic, again accusing it of infringement and expressing Roland’s “surprise[]” to find certain inMusic products on display at a trade show. . . . InMusic responded on February 12, 2015, stating that the identified cymbal product line was 'radically redesigned after 2011' and that inMusic believed it had ‘Roland’s implied consent’ to sell these cymbals.”  Roland filed suit in 2016 (pp. 7-8).  The district court granted summary judgment of noninfringement as to three of the drum patents and one of the cymbal patents.  The jury found that the two drum and two cymbal patents in suit were infringed, and awarded Roland $2.7 million in lost profits and $1.9 million in reasonable royalties.   The district court denied prejudgment interest, however.  I will limit my discussion to the damages issues.

The lost profits award included profits lost not only by Roland itself but also by its U.S. subsidiary, Roland’s expert having “calculated a single, consolidated lost profits figure for the two entities in the first instance, and . . . an ‘alternative calculation’ in the event Roland is not entitled to the lost profits of Roland U.S.” (p.24).  The panel concludes that this was error:

The general rule is that “a patentee may not claim, as its own damages, the lost profits of a related company.” Warsaw, 778 F.3d at 1375. Roland attempts to claim as its own the lost profits of Roland U.S. under an exception known as “inexorable flow.” Under that theory, which has been previously argued to this court, the subsidiary’s profits flow inexorably or inherently to the plaintiff parent company. See Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1367 (Fed. Cir. 2008), mandate recalled and amended on other grounds, 557 F.3d 1377 (Fed. Cir. 2009). In Mars, we affirmed a grant of summary judgment to the defendant on the plaintiff’s claim of lost profits because the record could not support a finding that the wholly owned subsidiary’s profits flowed inexorably to the plaintiff. Id. at 1364, 1367. Because we concluded that the subsidiary’s profits did not in fact flow inexorably to the plaintiff, we expressly declined to “decide whether a parent company can recover on a lost profits theory when profits of a subsidiary actually do flow inexorably up to the parent.” Id. at 1367. This court has not since addressed whether inexorable flow is a legally cognizable theory of lost profits. Nor must we do so now, for like the Mars court, we conclude that Roland did not offer sufficient evidence to support a factual finding of inexorable flow of profits.

 

Roland argues that it established inexorable flow based on a single sentence of testimony from Roland’s Senior Executive Office and Roland U.S.’s Executive Vice President, Naoyuki Tamura . . . :

 

Q. What happens to the profits of Roland U.S. on those sales of mesh drums?

 

[A.] Because Roland U.S. is a 100 percent owned subsidiary of Roland Japan, the profit it made will be returned to Roland Japan in the form of dividends.

 

Mr. Tamura’s conclusory testimony provided no basis for the jury to find that Roland U.S.’s profits inherently flowed to Roland during the relevant period . . . .   

 

Roland argues that even if it is not entitled to the lost profits of Roland U.S., it is still entitled to that portion of the award comprising its own lost profits. However, the jury rendered a single lost profits award that did not separate Roland’s profits from Roland U.S.’s. . . . And we cannot say that the jury necessarily accepted or would have accepted [Roland’s expert] Ms. Heinemann’s alternative calculation accounting for only Roland’s own lost profits. . . (pp. 25-27).

As I note in my forthcoming book on IP Remedies, the formalism embodied in the U.S. rule that “a patentee may not claim, as its own damages, the lost profits of a related company” is somewhat different from the standards applied in some other countries, including the U.K., Spain, and Japan.

As for reasonable royalties, Roland’s expert relied on three licenses to support a $20 per drumhead royalty for the two drum patents asserted at trial (’458 and ’535).  Two of these, however, licensed ’458 and a patent not asserted at trial, and the third licensed ’535 and three other patents not asserted at trial. Moreover, each covered “only single-layer mesh drumheads, in contrast to the double-layer mesh technology at issue in the parties’ hypothetical negotiation.” In the court’s view, the expert’s testimony did not sufficiently account for these differences.  Moreover, one of the licenses was in settlement in litigation, and while this is not disqualifying in and of itself, there needed to be testimony addressing this contextual difference as well (pp. 28-32).  The expert also testified to a $2 per cymbal royalty for the cymbal patents, but the expert included in her calculation “pre-design cymbal sales that were not found by the jury to infringe” (pp.32-33).  The court also notes, however, that the district court allocated very little time for the testimony on damages, because of pre-existing travels plans on the part of the expert and a juror, and so it concludes that “the fairer option is to afford Roland a new trial on both lost profits and reasonable royalties” (p.34).

The court rejects the defendant’s argument that Roland was equitably estopped from enforcing its patents, because there was conflicting testimony concerning whether Roland indicated in 2011 that it wasn’t going to enforce the cymbal patents (pp. 35-36).  It agrees with the plaintiff, however, that there were insufficient grounds to deny prejudgment interest:

We have previously explained that an “award of prejudgment interest is ‘the rule, not the exception.’” Energy Transp. Grp., Inc. v. William Demant Holding A/S, 697 F.3d 1342, 1358 (Fed. Cir. 2012) (citation omitted); see also Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 655–57 (1983); 35 U.S.C. § 284. Still, “it may be appropriate to limit prejudgment interest, or perhaps even deny it altogether, where the patent owner has been responsible for undue delay in prosecuting the lawsuit.” Gen. Motors, 461 U.S. at 657. In order to “show that delay was undue, a defendant must, at least generally, show that it was prejudiced.” Kaufman, 34 F.4th at 1375.

 

            The district court denied prejudgment interest after finding that “Roland knew of inMusic’s accused cymbals as early as 2011, yet Roland waited until 2015 to raise complaints about inMusic’s cymbals’ configuration, and waited until August 2016 to sue.” . . . The court concluded that Roland’s delay was undue and “economically prejudiced inMusic because inMusic expanded its cymbals by incorporating them into newly launched kits while under the understanding that Roland had approved the redesigned cymbals during a call with Mr. Gill in 2011.” Id. The court reasoned that “had Roland not sat on its hands during this years-long delay, inMusic could have taken remedial steps and could have dedicated resources to other non-infringing designs.” Id. For two separate reasons, however, the district court abused its discretion in denying prejudgment interest . . . .

 

First, the finding of undue delay based on the alleged call with Mr. Gill cannot be squared with the district court’s findings and analysis of the evidence in its order denying inMusic’s equitable estoppel defense. . . . Though the district court might permissibly rely on other evidence to find that Roland independently learned of the redesign prior to prosecuting its suit against inMusic (and hence, there could be undue delay to justify denying prejudgment interest, but no misleading conduct for purposes of equitable estoppel), the court cited no such evidence (or any evidence) in denying prejudgment interest. On remand, the court may not again limit or deny prejudgment interest to Roland absent analysis of how other evidence in the trial record supports a finding of undue delay.

 

Second, even if Roland knew of the redesign, the district court relied on an incorrect standard for prejudice. The court reasoned that inMusic was prejudiced because it expanded its cymbal line before Roland brought suit, whereas inMusic “could have” instead explored noninfringing cymbal designs . . . . But speculation about what inMusic “could have [done] to not infringe” the Cymbal Patents, without “evidence that it would have” done so, is insufficient to demonstrate prejudice. Kaufman, 34 F.4th at 1375. . . . We remand for the district court to resolve this factual dispute—specifically, what inMusic would have done absent any delay by Roland—and to determine whether inMusic demonstrated prejudice sufficient to limit or deny prejudgment interest to Roland.²²

 

²²  The district court’s denial of prejudgment interest was also based solely on Roland’s purported knowledge of the accused cymbals and delay in prosecuting its suit with respect to infringement of the Cymbal Patents. On remand, to the extent that Roland seeks, and the jury awards, separate damages for infringement of the Drum Patents, the district court should not limit or deny prejudgment interest with respect to that category of damages (pp. 37-39).

U.S. Supreme Court Upholds a Limited Version of Assignor Estoppel

The case is Minerva Surgical, Inc. v. Hologic, Inc., majority opinion by Justice Kagan, with a dissent by Justice Alito and another by Justice Barrett (joined by Justices Thomas and Gorusch).    From the majority opinion:

In Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., 266 U. S. 342, 349 (1924), this Court approved the “well settled” patent-law doctrine of “assignor estoppel.” That doctrine, rooted in an idea of fair dealing, limits an inventor’s ability to assign a patent to another for value and later contend in litigation that the patent is invalid. The question presented here is whether to discard this century-old form of estoppel. Continuing to see value in the doctrine, we decline to do so. But in upholding assignor estoppel, we clarify that it reaches only so far as the equitable principle long understood to lie at its core. The doctrine applies when, but only when, the assignor’s claim of invalidity contradicts explicit or implicit representations he made in assigning the patent  (p.1).

As for the dissents Justice Alito would dismiss the writ of certiorari as having been improvidently granted, because in his view the Court cannot "decide the question that the petition in this case presents unless we decide whether Westinghouseshould be overruled," and neither the majority nor the principal dissent address that issue (Alito dissent p.5).  As for the principal dissent,  it argues that the 1952 Act abrogated assignor estoppel because the Act doesn't mention the doctrine, and the doctrine was not "part of the well-settled common-law backdrop against which Congress legislated in 1952" (Barrett dissent, p.1).  To be honest, I didn't follow this case as closely as many of my colleagues as it was making its way up to the Court; but for what it's worth, the majority opinion seems sensible to me, and both dissents a bit silly in their adherence to a hyper-textualist approach to patent law that has little if any relationship to the Court's traditional practice, reaching back to the nineteenth century, of resolving questions of patent law.

From Around the Blogs Part 1: Damages in Canada, Spain, Taiwan, and the U.S.

1.  On the Sufficient Description blog, Norman Siebrasse has posted a four-part series (here, here, here, and here) on a recent decision of Canada's Court of Appeal, Apotex Inc. v. Eli Lilly & Co.  The decision holds, among other things, that (1) in assessing patent damages a court must consider whether an alleged noninfringing alternative (the existence of which would reduce the amount of damages) was objectively economically viable (thus rendering irrelevant Apotex's assertion that, but-for the infringement, it would have turned to an alternative that was unprofitable); (2) where, as here, use of the asserted noninfringing alternative would have infringed another of the plaintiff's patents, it would not have been an available alternative; and (3) compound interest is available as a "head of damages," but that there is no presumption in favor of its use.  Professor Siebrasse has some insightful observations about the first two of these holdings in particular.

2.  On the Kluwer Patent Blog, Miguel Montañá published a post titled Damages may be considered proven when the facts speak for themselves.  The post discusses a July 2018 decision of the Barcelona Court of Appeal holding that in some instances the "facts speak for themselves," that is, "the existence of damages if intrinsic to the nature of the infringement and does not require special proof."  If I understand correctly, however, the patent owner would still bear the burden of coming forward with evidence as to the amount of its injury, even if the fact of injury is presumed.  Apparently the facts of this particular case showed that the plaintiff was in negotiations with a customer when the defendant supplied that customer with an infringing product.

On a personal note, I will be speaking at one or two forums in Barcelona in late March 2019.  I'm looking forward to returning to one of my favorite cities.

3.  On the IAM Blog, Yulan Kuo published a post titled Taiwan Supreme Court Issues Decision on Unfair Enrichment in Patent Infringement Case.  According to the author, in Koninklijke Philips NV v. Gigastorage Corp. the court reversed the Taiwan IP Court's award of NT$1 billion for unjust enrichment and remanded for further consideration in light of various factors.  If I understand correctly, the court also wants the lower court to consider whether delay in enforcing one's rights might reduce the award, even if the statute of limitations has expired (compare with the U.S. Supreme Court's view in SCA Hygiene).  On a personal note here, I may be visiting Taiwan in the fall of 2019, so perhaps I will have an opportunity to discuss this case then. 

4.  On IP Watchdog, Mark Pedigo published a post titled Use of the Book of Wisdom in Reasonable Royalties, recapping the relevant Federal Circuit and lower court decisions permitting (or not) the use of information post-dating the date of the first infringement, for purposes of calculating reasonable royalties.  Mr. Pedigo concludes that "[u]se and acceptance of the book of wisdom can be relevant and useful, but it is not always allowed by the courts."

For some papers I have coauthored arguing that courts should be more open to the admissibility of such evidence, see here and here.

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.

U.S. Supreme Court to Consider Whether Laches Remains a Defense to Patent Damages Claims

The U.S. Supreme Court today granted cert in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, Case No. 15-927.  Here is the question presented in the petition for certiorari:

Whether and to what extent the defense of laches may bar a claim for patent infringement brought within the Patent Act’s six-year statutory limitations period, 35 U.S.C. § 286.

Back in September I blogged about the Federal Circuit decision that led to the cert petition, in which the majority held that "Congress codified a laches defense in 35 U.S.C. § 282(b)(1) that may bar legal remedies," notwithstanding the Supreme Court's decision in Petrella v. Metro-Goldwyn-Mayer that "the equitable defense of laches (unreasonable, prejudicial delay in commencing suit)" does not bar a claim for damages occurring within copyright's three-year limitations period.  The Federal Circuit just recently reaffirmed the holding in SCA Hygiene in its March decision in Romag Fasteners, Inc. v. Fossil, Inc., which I blogged about here. 

Here is the docket page for SCA Hygiene as maintained by Scotus Blog.  The Court also granted cert today in a copyright case Star Athletica, LLC v. Varsity Brands, Inc., to address the question "What is the appropriate test to determine when a feature of a useful article is protectable under § 101 of the Copyright Act?"

Federal Circuit Approves Reduction of Damages Due to Laches in Romag v. Fossil

In other news today, the Federal Circuit in Romag Fasteners, Inc. v. Fossil, Inc.  affirmed a judgment of patent and trademark infringement against Fossil and other defendants, as well as the district court's judgment reducing the amount of the patent award due to laches and refusing to allow the disgorgement of the defendants' profits as a remedy for non-willful trademark infringement.  According to the opinion (authored by Judge Dyk, joined by Judges Wallach and Hughes), the patent in suit is "U.S. Patent No. 5,777,126 (“the ’126 patent”) on magnetic snap fasteners, which Romag sells under its registered trademark, ROMAG."  Following a finding of liability, the jury awarded "a reasonable royalty of $51,052.14" for the patent infringement, and for the trademark infringement "an advisory award of $90,759.36 of Fossil’s profits under an unjust enrichment theory, and $6,704,046.00 of Fossil’s profits under a deterrence theory," even though it also found that the infringement was not willful (pp. 3-4).  The district court thereafter concluded that "Romag’s delay in bringing suit until just before 'Black Friday' constituted laches, and reduced the jury’s reasonable royalty award for patent infringement by 18% to exclude sales made during the period of delay. . . . The district court also held as a matter of law that, because Fossil’s trademark infringement was not willful, Romag was not entitled to an award of Fossil’s profits" (p.4).

On appeal, the court first rejects Romag's argument that damages cannot be reduced under the equitable doctrine of laches, citing its recent en banc decision in SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC to that effect (p.5).  (For previous discussion of SCA Hygiene Products on this blog, see here.)  Second, the court holds that willfulness remains a prerequisite for awards of infringer's profits under the Second Circuit's interpretation of the Lanham Act (the federal trademark and unfair competition statute), though it notes that there is a circuit split on this issue (pp. 5-17).  I'm inclined to think this is right as a matter of policy, and would note only that this is an important issue of federal trademark law; and that at some point it might be useful either for Congress to clarify the law in this regard or for the Supreme Court to resolve the circuit split.  For further discussion, see, e.g., Barton Beebe, Thomas F. Cotter, Mark A. Lemley, Peter S. Menell & Robert P. Merges, Trademarks, Unfair Competition, and Business Torts 295-99, 511 (Aspen Publishers 2011) (second edition coming soon!)   Of course, when it comes to U.S. patent law, disgorgement of profits is off limits except in design patent cases, and the Supreme Court will be addressing the matter as it relates to design patents later this year in Apple v. Samsung (see here).

From Around the Blogs: Patent Remedies in Canada, the U.K., and Denmark

1.  Norman Siebrasse has published a couple of damages-related posts on Sufficient Description.  The first, from January 27, is titled Inequitable Conduct by Patentee:  Defence v Reduction of Damages, and discusses a recent Canadian federal court decision in which the court concluded that some forms of inequitable conduct on the part of the patentee do not bar recovery entirely but rather may reduce the patentee's damages.  I'm inclined to think that is a sensible result, as I discussed here at pp. 750-51; one problem with the U.S. version of the doctrine, by contrast, is that is an all-or-nothing proposition.  A gradation of possible sanctions might be proportionate to the offense.  The second post, from February 5 and titled $2.9 Million Award is 30% of Actual Legal Fees, discusses a recent case in which the judge exercised his discretion and made an upward departure from the standard attorneys' fee that would have been awardable in the type of case at issue (which would have amounted to only 11% of actual fees incurred) and awarded an amount equal to 30%, which at least is closer to full compensation.

2.  The IPKat Blog on January 27 published a post titled Storm in a C Cup:  Mr Justice Carr Refuses Injunction and Account of Profits in Stretchline v. H&M Spat.  The parties had previously settled patent infringement litigation, but the plaintiff later sued the defendant for breaching that agreement by selling allegedly infringing fabric.  The court agreed that there was a breach but denied an injunction on the ground that the defendant had stopped infringing and the infringement was unlikely to recur, and also denied a request for an accounting of profits.  More recently, on February 2 the blog published a post (authored by Brian Whitehead of Kempner & Partners, which represented the plaintiff) titled Inquiry as to Damages:  No Longer a Rara Avis?, discussing a case in which the IP Enterprise Court (which handles relatively small-stakes patent disputes in England & Wales) awarded £0.5 million in lost profits just a few weeks after a December 2015 hearing.  The author concludes that "[t]his represents another means by which the IPEC improves access to justice for litigants, particularly for small and medium enterprises."  Another post on this case, authored by Emma Muncey and Rachel Mumby of Bristows LLP and titled AP Racing v. Alcon Compone, was published on EPLaw Blog on February 10, and also links to the decision itself.  

3.  Anders Valentin recently published a post on the Kluwer Patent Blog titled A Matter of Urgency--PI Application Turned Down for Lack of Urgency.  The post discusses a Danish case in which the court denied the patent owner, Minkpapir, a preliminary injunction which it applied for in 2015 despite its presumed knowledge that the defendant had been marketing an allegedly infringing product since 2011.  As I have mentioned several times before (more recently here), urgency is an important consideration for obtaining a preliminary injunction in Germany too.

Federal Circuit Retains Laches Defense to Claims for Patent Damages

Last year in a copyright case, Petrella v. Metro-Goldwyn-Mayer, the U.S. Supreme Court held that "the equitable defense of laches (unreasonable, prejudicial delay in commencing suit)" does not bar a claim for damages occurring within three years of filing suit, though "[a]s to equitable relief, in extraordinary circumstances, laches may bar at the very threshold the particular relief requested by the plaintiff. And a plaintiff’s delay can always be brought to bear at the remedial stage, in determining appropriate injunctive relief, and in assessing the “profits of the infringer . . . attributable to the infringement.” (For my blog post on the case, see here).  The Court left open the possibility, however, that (as the Federal Circuit had earlier held in the Aukerman case) laches might bar a patent infringement claim brought within patent law's six-year statute of limitations.  Late last year, the Federal Circuit decided to hear en banc SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, to determine whether laches remains a viable defense to a patent claim after Petrella.  This past Friday, in an opinion by Chief Judge Prost, a majority of the court held that the answer is yes (link to opinion here):

We conclude that Congress codified a laches defense in 35 U.S.C. § 282(b)(1) that may bar legal remedies. Accordingly, we have no judicial authority to question the law’s propriety. Whether Congress considered the quandary in Petrella is irrelevant—in the 1952 Patent Act, Congress settled that laches and a time limitation on the recovery of damages can coexist in patent law. We must respect that statutory law.

Nevertheless, we must adjust the laches defense in one respect to harmonize it with Petrella and other Supreme Court precedent. We emphasize that equitable principles apply whenever an accused infringer seeks to use laches to bar ongoing relief. Specifically, as to injunctions, considerations of laches fit naturally within the eBay framework. In contrast, Menendez v. Holt, 128 U.S. 514 (1888), and Petrella counsel that laches will only foreclose an ongoing royalty in extraordinary circumstances.

So unreasonable, prejudicial delay in filing suit can preclude the recovery of damages for past infringement, even if the plaintiff seeks damages only for losses caused within the six years prior to the filing of the complaint.  In reaching this conclusion, the majority mostly relies on legislative history and similar materials to distinguish the patent context from the copyright context at issue in Petrella; but it also notes that copyright infringement requires proof of copying, whereas patent law does not, thus arguably creating a greater risk that a patent infringement defendant could suffer undue harm from the plaintiff's unreasonable delay in filing suit.  As for injunctive relief and ongoing royalties, however, the majority has this to say (pp. 38-41):

Many of the facts relevant to laches, such as the accused infringer’s reliance on the patentee’s delay, fall under the balance of the hardships factor. Id. Unreasonable delay in bringing suit may also be relevant to a patentee’s claim that continued infringement will cause it irreparable injury. More than anything, district courts should consider all material facts, including those giving rise to laches, in exercising its discretion under eBay to grant or deny an injunction. See eBay, 547 U.S. at 394. . . .

With respect to ongoing royalties, while the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches. Menendez, an influential case contrasting laches and equitable estoppel in the trademark context, guides us here. According to Menendez, delay in exercising a patent right, without more, does not mean that the patentee has abandoned its right to its invention. Rather, the patentee has abandoned its right to collect damages during the delay. Equitable estoppel, on the other hand, is different—the patentee has granted a license to use the invention that extends throughout the life of the patent . . . .

In sum, we must recognize “the distinction between . . . estoppel and laches . . . .” Id. (first alteration in original). Whereas estoppel bars the entire suit, laches does not. As outlined above, laches in combination with the eBay factors may in some circumstances counsel against an injunction. However, a patentee guilty of laches typically does not surrender its right to an ongoing royalty.

Judges Hughes, Moore, Wallach, Taranto, and Chen dissented from the principal holding that laches remains a defense to a claim for past patent damages, stating that "The Supreme Court has repeatedly cautioned this court not to create special rules for patent cases."  They agree, however, that in an appropriate case laches can bar equitable relief.

To be honest, I don't have a strong inclination one way or the other on this issue, but I would note that a group of law professors, including Professor Samuel Bray (whose work I've mentioned here in the past), filed an amicus brief arguing that the court should not recognize laches as a defense to a claim for past damages.  For coverage on Patently-O, see here.

Delay in Filing Suit and the Statute of Limitations: The U.S. Supreme Court Decision in Petrella

This morning the U.S. Supreme Court issued its opinion in Petrella v. Metro-Goldwyn-Mayer, Inc. (available here).  Justice Ginsburg wrote the 6-3 majority opinion; Justice Breyer, joined by the Chief Justice and Justice Kennedy, dissented.  It's a copyright case, but as I discussed here and here it may have some implications for patent practice as well.  Although the underlying facts of the case (involving a claim of copyright infringement in a screenplay on which the movie Raging Bull allegedly is in part based) is complicated, the first two paragraphs of Justice Ginsburg's opinion concisely state the holding of the case:

The Copyright Act provides that “[n]o civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.” 17 U.S.C. §507(b). This case presents the question whether the equitable defense of laches (unreasonable, prejudicial delay in commencing suit) may bar relief on a copyright infringement claim brought within § 507(b)’s three-year limitations period. Section 507(b), it is undisputed, bars relief of any kind for conduct occurring prior to the three year limitations period. To the extent that an infringement suit seeks relief solely for conduct occurring within the limitations period, however, courts are not at liberty to jettison Congress’ judgment on the timeliness of suit. Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. As to equitable relief, in extraordinary circumstances, laches may bar at the very threshold the particular relief requested by the plaintiff. And a plaintiff ’s delay can always be brought to bear at the remedial stage, in determining appropriate injunctive relief, and in assessing the “profits of the infringer . . . attributable to the infringement.” §504(b).

Petitioner Paula Petrella, in her suit for copyright infringement, sought no relief for conduct occurring outside § 507(b)’s three-year limitations period. Nevertheless, the courts below held that laches barred her suit in its entirety, without regard to the currency of the conduct of which Petrella complains. That position, we hold, is contrary to § 507(b) and this Court’s precedent on the province of laches.

The Court left open the possibility, however, that under appropriate circumstances the doctrine of estoppel could bar a claim from proceeding, stating (at p.19):

. . . when a copyright owner engages in intentionally misleading representations concerning his abstention from suit, and the alleged infringer detrimentally relies on the copyright owner’s deception, the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies. See 6 Patry § 20:58, at 20– 110 to 20–112.21. The test for estoppel is more exacting than the test for laches, and the two defenses are differently oriented. The gravamen of estoppel, a defense long recognized as available in actions at law, see Wehrman v. Conklin, 155 U. S. 314, 327 (1894), is misleading and consequent loss, see 6 Patry § 20:58, at 20–110 to 20–112. Delay may be involved, but is not an element of the defense. For laches, timeliness is the essential element. In contrast to laches, urged by MGM entirely to override the statute of limitations Congress prescribed, estoppel does not undermine Congress’ prescription, for it rests on misleading, whether engaged in early on, or later in time.

The Court also noted that, "[s]hould Petrella ultimately prevail on the merits, the District Court, in determining appropriate injunctive relief and assessing profits, may take account of her delay in commencing suit" (p.22).

As for the implications of Petrella to patent practice, as I stated in my September 25, 2013 post (which also discusses some related matters arising under German and Japanese law):

In the U.S., the Patent Act states that “[e]xcept 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 or counterclaim for infringement in the action.”  35 U.S.C. § 286.  In addition, the equitable doctrine of laches may bar a claim for pre-filing damages incurred within the past six years, and the doctrine of equitable estoppel may bar even a claim for an injunction, if the patentee delays too long in filing suit and the infringer is prejudiced as a result.  See A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992) (en banc).  (I would think as well that undue delay would make it more difficult for the patentee to prove the irreparable harm that is a necessary part of the eBay framework for obtaining a permanent injunction.)

The Supreme Court was careful, however, not to prejudge the applicability of Petrella to patent cases.  In this regard, footnote 15 of Justice Ginsburg's opinion states:

The Patent Act states: “[N]o recovery shall be had for any infringement committed more than six years prior to the filing of the complaint.” 35 U. S. C. § 286. The Act also provides that “[n]oninfringement, absence of liability for infringement or unenforceability” may be raised “in any action involving the validity or infringement of a patent.” § 282(b) (2012 ed.). Based in part on § 282 and commentary thereon, legislative history, and historical practice, the Federal Circuit has held that laches can bar damages incurred prior to the commencement of suit, but not injunctive relief. A. C. Aukerman Co. v. R. L. Chaides Constr. Co., 960 F. 2d 1020, 1029–1031, 1039–1041 (1992) (en banc). We have not had occasion to review the Federal Circuit’s position.

For reference, here's what the Federal Circuit said about the interplay of laches and the statute of limitations in Aukerman (foonotes and citations omitted):

Extended to suits at law as well, laches became “part of the general body of rules governing relief in the federal court system.” Id. at 478. As a defense to a claim of patent infringement, laches was well established at the time of recodification of the patent laws in 1952 [footnote omitted]. The commentary of one of the drafters of the revised patent statute confirms the intention to retain the defense of laches, specifically by 35 U.S.C. § 282:

The defenses which may be raised in an action involving the validity or infringement of a patent are[:] .... ‘Noninfringement, absence of liability for infringement, or unenforceability’ [35 U.S.C. § 282][;] ... this would include ... equitable defenses such as laches, estoppel and unclean hands.

P.J. Federico, Commentary on the New Patent Law, 35 U.S.C.A. 1, 55 (West 1954). . . .

Aukerman argues, nevertheless, that the defense of laches is inapplicable, as a matter of law, against a claim for damages in patent infringement suits. For this proposition, Aukerman first argues that recognition of laches as a defense conflicts with 35 U.S.C. § 286 (1988), which provides:

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 or counterclaim for infringement in the action.

Per Aukerman, this provision is comparable to a statute of limitations which effectively preempts the laches defense.

Aukerman's argument is . . . flawed.

. . . with respect to section 286 specifically, a six-year limitation on damages, virtually identical to section 286, has been in the patent statute since 1897. . . .

We are unpersuaded that section 286 should be interpreted to preclude the defense of laches and provide, in effect, a guarantee of six years damages regardless of equitable considerations arising from delay in assertion of one's rights. Without exception, all circuits recognized laches as a defense to a charge of patent infringement despite the reenactment of the damages limitation in the 1952 statute. . . . 

Perhaps significantly, copyright has had a specific statute of limitations for a much shorter period of time, only since 1957.  See Petrella, p.3.  In any event, regardless of whether Aukerman  remains good law or not, estoppel could continue to bar even equitable relief under appropriate circumstances; and (as I noted in my earlier post) under eBay undue delay in filing suit probably would weigh against a finding of irreparable harm (and might also tilt the balance of conveniences in favor of the defendant).