Pitfalls in Policing Your Patent Rights

Pitfalls in Policing Your Patent Rights

Patent holders are not obligated to police infringement or pursue infringers in order to keep their patents in force.  However, failing to address known acts of infringement can, in some cases, provide infringers with a defense called “laches” that can limit the amount of recoverable damages in an infringement lawsuit.  In addition, patent holders need to be careful when they communicate and interact with infringers to avoid triggering “equitable estoppel”, which can provide infringers with a complete defense to a patent infringement lawsuit.

The Federal Circuit addressed the application of laches and equitable estoppel recently in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (Case No. 2013-1564, September 17, 2014).   For a copy of the opinion, click here

The patent holder, SCA, wrote a letter to First Quality in October 2003 in which SCA suggested that certain First Quality products might infringe a particular SCA patent.  First Quality responded in November 2003 by asserting that the subject patent was invalid over certain pieces of prior art.  Although the parties had subsequent communications, these two letters were the only ones that dealt with the patent that was the subject of the lawsuit.  After receiving First Quality’s November 2003 letter, SCA requested that the USPTO reexamine the subject patent and submitted the prior art identified by First Quality.  However, SCA did not inform First Quality about the reexamination or inform First Quality as to whether it would enforce its patent rights after the reexamination.  While the patent was being reexamined, First Quality began expanding its production of the accused products.  SCA eventually filed its patent infringement lawsuit in August 2010, about six years and nine months after SCA sent its letter to First Quality about the patent-in-suit.

The district court granted summary judgment in favor of First Quality on the “equitable defenses” of laches and equitable estoppel.  The Federal Circuit affirmed the summary judgment of laches but reversed and remanded on the equitable estoppel defense.

Laches

The defense of laches may arise if (1) the patent holder unreasonably and inexcusably delays filing an infringement suit, and (2) the accused infringer is materially prejudiced by the delay.  If these requirements are met, a district court may exercise its discretion to apply laches.  It is not required to do so. The types of “prejudice” that may occur include economic prejudice (e.g., the accused infringer invested in the accused product) and evidentiary prejudice (e.g., witnesses or documents are no longer available to defend the case).

Laches bars claims for damages arising before a suit is filed.  It does not bar prospective relief for on-going acts of infringement occurring after the suit is filed. In addition, in SCA the Federal Circuit confirmed prior case law, holding that delays exceeding six years give rise to a presumption that the delay is unreasonable, inexcusable, and prejudicial.  This was important in SCA because the presumption was triggered, and the burden shifted to SCA to show that the delay was not unreasonable, inexcusable, or prejudicial.  The Federal Circuit held that SCA was unable to produce sufficient evidence to rebut the presumption, and therefore, that summary judgment of laches was proper.

What kinds of explanations are typically considered “reasonable” in delaying to file an infringement suit?  The Federal Circuit mentioned filing suit against another infringer or participating in post grant PTO proceedings as two reasonable explanations. However, despite the fact that SCA used a post grant PTO proceeding (reexamination), it failed to take any steps to enforce its patent rights for more than three years after the proceeding ended.  The Federal Circuit held that SCA should have been prepared to assert its patent rights at the conclusion of the reexamination.

Equitable Estoppel

The defense of equitable estoppel may arise if (1) a patentee, acting on 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 the infringer would be materially prejudiced if the patentee were allowed to assert a claim for patent infringement which is inconsistent with the earlier communication.  If these requirements are met, a district court may apply equitable estoppel, which acts as a complete defense to an infringement claim (i.e., it bars claims for retroactive and prospective infringement).

In contrast to laches, courts do not apply a presumption that equitable estoppel is triggered based on the patent holder’s delay in filing suit.  In addition, mere “inaction” on the patent holder’s part is insufficient to prevail on equitable estoppel.  The inaction must be combined with other facts that give rise to the inference that the patent holder has abandoned its patent rights against the accused infringer.  Moreover, equitable estoppel will not apply merely because a patent holder accused a party of infringement and then remained silent for a number of years. The silence must be coupled with other factors.

The SCA opinion identifies some situations in which a patent holder’s conduct constitutes “misleading inaction” that can give rise to equitable estoppel, such as:

A party sends accused product samples to a patent holder and informs the patent holder that it would assume the products were deemed to be non-infringing unless told otherwise, where the parties have several meetings at which the subject patent is discussed in which the patent holder never suggests the products were infringing; and

A patent holder threatens to sue an accused infringer on four patents and, following a request for specific infringement contentions, provides them for only two of the patents, in which case equitable estoppel applies to the two patents for which contentions were not provided.

With respect to SCA’s conduct, the Federal Circuit held that a reasonable jury could have concluded that SCA’s reexamination of the subject patent was inconsistent with its alleged “acquiescence” due to its lack of communications with First Quality about the patent after First Quality asserted it was invalid.  As a result, the Court remanded the case to the district court for trial on the equitable estoppel defense.

Tips for Policing Patent Rights

To avoid laches and equitable estoppel, patent holders should avoid making accusations of patent infringement (explicit or implicit) and then failing to follow up. Especially when policing large portfolios or dealing with a number of accused infringers, it may be helpful to log and track communications with different parties.  Once an accusation is made, the clock will start running on the six year laches presumption period.

Letters to accused infringers should be carefully drafted to avoid suggesting that any patent rights are being abandoned or that any subsequent silence or inaction should be construed as abandonment.  In addition, if an accused infringer requests information or clarification of an infringement allegation, it is important to respond while at the same time not overcommitting to infringement positions based on uncertain facts that may have to be confirmed in discovery.  If you say nothing, you may trigger laches or equitable estoppel. However, if you overcommit based on incomplete information, you could compromise your position in subsequent infringement litigation.  Toward that end, and depending on your goals, it may be a good idea to add language to your communications with accused infringers stating that they are made in furtherance of settlement and covered by the protections of Federal Rule of Evidence 408, which limits the use of such communications to provide disputed issues at trial, while allowing them to be used to negate a contention of undue delay in enforcing patent rights.

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