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Justices May Take Away Weapon Favored By NPE Defendants


The U.S. Supreme Court will hear arguments Tuesday in a case to determine whether laches should remain a defense in patent infringement cases after it was largely eliminated in copyright cases, putting a tool that attorneys say is useful against nonpracticing entities in limbo.

Laches bars legal remedies when a plaintiff unreasonably delays bringing a suit, and the basic question in the case is whether a 2014 high court decision involving the film “Raging Bull” that took away laches as a defense in copyright cases applies equally to patent law.

The Federal Circuit ruled last year that it does not in an en banc decision in a dispute over adult diapers. It held that laches is codified as a defense in the Patent Act, but the sharp 6-5 split in the appeals court prompted the justices to take the case and resolve the issue.

Taking away the laches defense in patent cases would be particularly felt by defendants in nonpracticing entity cases, attorneys say. In competitor cases, patent owners are motivated to sue quickly to keep competing products off the market, but companies in the business of asserting patents can have an incentive to delay filing suit in order to maximize damages.

“In NPE cases where the patent passed through several hands and the owner waited a long time for a business to develop before starting to sue people, that’s where it comes up more often,” said Michael Sacksteder of Fenwick & West LLP.

Without a defense that shuts down suits filed after a long delay, “there would be less risk for patent owners to lie in the weeds and wait until the optimal moment to sue,” he added.

Ha Kung Wong of Fitzpatrick Cella Harper & Scinto said that the case is "incredibly important" because doing away with laches would have a significant impact on patent law and U.S. businesses.

"The elimination of this long-standing defense could potentially expose the innovative industry to increased abusive litigation tactics resulting in undue damages or forced settlements based on weak or frivolous patent claims against well-established and highly-valuable products," which in turn could stifle innovation, he said.

For patent owners with limited budgets and staff, such as universities, eliminating laches "would give them more flexibility with respect to patent assertion" and allow them to delay filing suit when it suits their business needs, said Paul Ragusa of Baker Botts LLP.

"For other entities like patent trolls, it could lead to abuse. It’s a double-edged sword," he said.

Perhaps because laches is now a defense, few patent cases are filed after a long delay, said Eugene Paige of Keker & Van Nest LLP, but there could be more if laches were taken away, particularly suits involving soon-to-expire patents that could not be used to win damages going forward.

“You can imagine that there might be value in asserting patents that are a little long in the tooth,” Paige said.

Resolving the question of whether laches should be a defense in patent cases will require the Supreme Court to parse the Copyright Act and the Patent Act to determine the intent of Congress in drafting both. If the justices find the two to be similar, laches in patent cases may be discarded.

"In many ways, the central question the court is going to be grappling with is the comparison to copyright law, and whether the differences are greater than the similarities," said John O'Quinn of Kirkland & Ellis LLP.

The viability of laches in patent cases has been an open question since the Supreme Court’s decision two years ago in a case known as Petrella v. Metro-Goldwyn-Mayer Inc. that eliminated the defense in copyright cases. The justices included a footnote saying that "we have not had occasion to review" whether laches should be available in patent cases.

The Copyright Act sets a three-year statute of limitations during which claims must be brought. The justices held in Petrella that since Congress established that window, laches cannot be used to bar claims filed within that period.

The Patent Act has a similar, but not identical, provision that states that patent owners cannot recover damages for infringement that occurred more than six years before the complaint was filed.

To consider whether Petrella applies to patent cases, the full Federal Circuit agreed to hear a case in which SCA Hygiene Products AB sued rival First Quality Baby Products LLC more than six years after it learned of the alleged infringement of its diaper patents.

The majority held that laches is a defense in patent cases despite Petrella because Congress codified it in the Patent Act of 1952. While the law does not specifically mention laches, it says that "unenforceability" of a patent can be a defense to infringement, and the majority held that Congress intended that to include laches. It concluded that the defense barred SCA’s suit.

The dissenting judges strongly disagreed, writing that the majority "brushes aside the teachings of Petrella" and relied on "vague legislative history and muddled case law” to reach its conclusion.

In its Supreme Court brief, SCA argued that the text of the Patent Act "is exceptionally clear: it specifies a six-year limitations period for infringement damages claims and does not authorize shortening that period based on laches."

"Accordingly, the lower courts erred in using laches to cut off SCA's legal rights, as illustrated by the court's recent decision in Petrella," it said.

First Quality countered in its response brief that that courts have been applying laches to bar damages in patent cases for more than century. The 1952 law simply codified that long-standing practice, and Congress has never expressed any disagreement with the idea that laches is a defense in the decades since, it added.

"Congress had good reason to retain laches as a defense to damages in the Patent Act but not the Copyright Act given the substantial differences between the two — including the danger that patentees will unreasonably delay suit until infringers with no knowledge of the patent are locked into using the patented technology," it said.

It will now be up to the Supreme Court to decide whether to apply its copyright holding to patent law. The case may hinge on the distinctions between the two statutes, which could lead the court to conclude that Petrella may not be applicable in patent cases.

For instance, there is an argument that the six-year window for recovering damages in patent law, which is found in Section 286 of the Patent Act, is not the same thing as the statute of limitations in the Copyright Act, since it does not outright bar recovery.

"If the court concludes that 286 is not a statute of limitations, it very quickly undercuts the argument that this case is just like Petrella," O'Quinn said.

The arguments will also likely put a spotlight on the Federal Circuit's conclusion that laches was codified in the Patent Act, and "it's going to come down to whether the Supreme Court buys that or not," Sacksteder said.

The lineup of the justices could also come into play in the case. The Petrella decision was 6-3, with late Justice Antonin Scalia in the majority. That means that if only one justice switched sides from his or her holding in Petrella, the court would be evenly divided, leaving the Federal Circuit's ruling retaining laches in place.

"The Federal Circuit was split, and the Supreme Court has not been split often on patent issues, but it’s mathematically possible for there to be a 4-4 tie," Sacksteder said.

The patent-in-suit is U.S. Patent Number 6,375,646.

SCA is represented by Martin J. Black, G. Eric Brunstad Jr., Kevin M Flannery, Teri-Lynn A. Evans and Sharon K. Gagliardi of Dechert LLP and Stephanos Bibas.

First Quality is represented by Seth Waxman, Thomas Saunders, Matthew Guarnieri, Mark Fleming, Jason Hirsch and Hanna Baek of WilmerHale, and Kenneth P. George, Charles R. Macedo and Mark Berkowitz of Amster Rothstein & Ebenstein LLP.

The case is SCA Hygiene Products AB et al. v. First Quality Baby Products LLC et al., case number 15-927, in the Supreme Court of the United States.