Patent laches is dead, long live equitable estoppel

August 2017 | EXPERT BRIEFING | INTELLECTUAL PROPERTY

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Earlier this year, the US Supreme Court reversed years of Federal Circuit precedent holding that, outside of the damages window, there was no laches in patent litigation. Laches precludes a claim where the alleged infringer was materially harmed by the patentee’s unreasonable, inexcusable and knowing delay in asserting its patent claims. The Federal Circuit had held that laches could preclude a patent claim even where the period of delay was less than the six-year statutory patent damages period. The Supreme Court, relying upon its Petrella v. Metro-Goldwyn-Mayer Inc. copyright decision, held that the statutory six-year damages period prevented a laches defence: “The statutory damages period reflects a congressional decision that the timeliness of covered claims is better judged on the basis of a generally hard and fast rule rather than some sort of case-specific judicial determination that occurs when a laches defence is asserted”.

The loss of the laches defence is significant to a company accused of patent infringement. Without a laches defence, a patent holder could accuse its competitors, or in the case of non-practicing entities, entire industries, and then do nothing for years. The patent holder may simply wait for damages to accrue and pick its preferred six-year damages period. For example, your competitor sends you a demand letter explaining that you have infringed the competitor’s patent and that you must stop sales of a key product, as well as pay past damages. Before SCA Hygiene, you could investigate the allegations and write back explaining your well-reasoned belief that the patent was invalid or not infringed. Once you did that, the threat was not gone, but the longer the patent holder remained silent, the better your laches case grew. That is no longer the case. It is not difficult to see how that could be a significant risk in many cases and a paralysing one in other cases. Fortunately, the Supreme Court left open another avenue – equitable estoppel.

While the Supreme Court closed the door on laches, barring congressional action, it left open an equitable estoppel defence, noting that equitable estoppel was still available to accused infringers. The critical differences between laches and estoppel are that: (i) equitable estoppel does not require delay, although there often is delay as part of an equitable estoppel defence; and (ii) the focus of equitable estoppel is that the patent holder misled the accused infringer and that the accused infringer suffered a material loss because of its reliance upon the patent holder’s misleading actions.

Equitable estoppel is also more focused upon the harmed party. So, while laches was a potential defence even if the eventually accused infringer was unaware of the patent holder’s delay, for equitable estoppel to apply, the accused infringer must have been misled either directly or indirectly by the patent holder. That makes equitable estoppel a narrower defence, but it is still effective.

Proving reliance requires in most cases, if not all, that the accused infringer establish a dialogue between it and the patent holder. In other words, it is likely not enough that an accused infringer received a demand letter, did not respond and then was not sued for a period of years. Instead, the accused infringer would preferably respond to the demand letter explaining some or all of its defences, followed by an extended period of silence by the patent holder. For example, the Federal Circuit equitably estopped a patent holder’s claim where the patent holder waited in silence for three years after the alleged infringer responded to the patent holder’s demand letter.

Finally, showing material prejudice requires some action on behalf of the accused infringer. For example, courts have held that an accused infringer was materially prejudiced when it spent money and resources on an advertising campaign for the accused product after responding to the patent holder’s demand letter. So, the reliance and material prejudice prongs of equitable estoppel both increase the import and value of providing a patent holder a substantive response to demand letters.

R. David Donoghue and Steven E. Jedlinski are partners and Anthony J. Fuga is an associate at Holland & Knight. Mr Donoghue can be contacted on +1 (312) 578 6553 or by email: david.donoghue@hklaw.com. Mr Jedlinski can be contacted on +1 (312) 715 5818 or by email: steven.jedlinski@hklaw.com. Mr Fuga can be contacted on +1 (312) 715 5771 or by email: anthony.fuga@hklaw.com.

R. David Donoghue, Steven E. Jedlinski and Anthony J. Fuga

Holland & Knight