1. AIPLA Mid-Winter Institute IP Practice in Japan Committee Seminar January 26, 2016 La Quinta, CA Raymond E. Farrell Carter, DeLuca, Farrell & Schmidt, LLP Laches as a Defense to Patent Infringement © AIPLA 2016

2. Laches Background SCA Hygiene v. First Quality  Petrella v. MGM What’s Next? Overview 2 © AIPLA 2016

3. Common law defense – developed by courts of equity “Equity aids the vigilant, not those who slumber on their rights.” Raised in cases where plaintiff has delayed bringing suit without good reason, often causing detriment to the defendant Laches Background 3 © AIPLA 2016

4. Historically a defense only in a “court of equity” (vs. “court of law”) Acted as a complete bar to suit Federal Courts remained split between law and equity until 1938 adoption of the Federal Rules of Civil Procedure Laches Background 4 © AIPLA 2016

5. Aukerman v. Chaides (CAFC1992)  Confirmed laches as defense that bars damages incurred prior to filing suit  Requires two part showing: o Unreasonable and inexcusable delay in asserting claim o Material prejudice to defendant resulting from delay  Presumption arises where patentee delays bringing suit >6 years from date patentee knew/should have known of alleged infringer’s activity  Shifts burden of going forward with evidence, not burden of persuasion (i.e., patentee must show evidence to raise a genuine issue of fact; ultimate burden remains with defendant) Laches Background 5 © AIPLA 2016

6. SCA Hygiene v. First Quality - Timeline 6 October 31, 2003 SCA sends letter to First Quality alleging infringement November 21, 2003 First Quality responds claiming patent invalid in view of ‘649 patent July 7, 2004 SCA requests reexamination in view of the ‘649 patent March 27, 2007 USPTO Confirms patentability of all claims 2006 First Quality expands potentially infringing product line 2008 First Quality acquires Tyco Healthcare Retail Group – adding further product lines 2009 First Quality acquires three additional related product lines for $10 million August 2, 2010 SCA files suit alleging infringement At least this portion of delay deemed unreasonable and inexcusable © AIPLA 2016 SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC

7. Dist. Ct.:  Granted SJ motion of laches and equitable estoppel  Dismissed non-infringement SJ motion as moot CAFC panel:  affirmed SJ of laches  followed Aukerman o Delay - “SCA was not required to provide notice of the reexamination to First Quality,” but “SCA remained silent for more than three years after the patent came out of reexamination.” o Prejudice - Affirmed district court’s finding of prejudice against First Quality SCA Hygiene - History 7 © AIPLA 2016

8. Questions considered by en banc CAFC In light of Sup. Ct. decision in Petrella … (and considering any relevant differences between copyright and patent law), should … Aukerman … be overruled so that … laches is not applicable to bar a claim for damages based on patent infringement occurring within the six- year damages limitation period established by … §286? In light of the fact that there is no statute of limitations for claims of patent infringement and in view of Sup. Ct. precedent, should … laches be available under some circumstances to bar an entire infringement suit for either damages or injunctive relief? SCA Hygiene – Federal Circuit en banc Rehearing 8 © AIPLA 2016

9. Laches – codified as a defense in §282 Rejected that laches conflicts with §286 o §286: limits recovery to damages (not statute of limitations in sense of barring infringement suits) o Laches: not inherently incompatible with a SOL anyway:  “[i]n other areas of our jurisdiction, laches is routinely applied within the prescribed statute of limitations period for bringing the claim.” o §286 imposes an arbitrary limitation on period of recovery, whereas laches invokes discretionary power of Dist. Ct. SCA Hygiene – CAFC Analysis of Aukerman 9 © AIPLA 2016

10. Despite history as an equitable defense, applicability is not limited to monetary awards resulting from an equitable accounting but may apply to legal relief of damages (merger of law and equity) Prohibits recovery of pre-filing damages only, not the entire suit SCA Hygiene – CAFC Analysis of Aukerman (cont.) 10 © AIPLA 2016

11. Potential conflict: Petrella and Aukerman  Petrella: laches no defense to copyright infringement brought within the statutory limitations period (17 U.S.C. § 507(b))  Aukerman: laches may bar a claim for damages based on patent infringement occurring within the six-year damages limitation (35 U.S.C. § 286) Petrella - no position on whether decision extends to patent context – noting § 286 as important to that context SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) 11 © AIPLA 2016

12. Copyright Statute vs. Patent Statute 12 Copyright 17 U.S.C. § 507 - Limitations on actions (b)C IVIL A CTIONS.— No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued. Patent 35 U.S.C. § 286 - Time limitation on damages 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. © AIPLA 2016

13. Petrella:  1998 Plaintiff alleges copyright infringement  1998- 2000 Plaintiff and Defendant exchange emails debating infringement claim  2009 Copyright infringement suit demanding damages for acts occurring between 2006 and 2009 Copyright Act: "[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). Sup. Ct.: in light of the statute of limitations (§507(b)), laches does not apply in copyright cases  Plaintiff may recover for the previous 3 years Petrella v. MGM 13 © AIPLA 2016

14. § 507(b) already takes into account plaintiff delay  Allows the defendant to offset "deductible expenses" against profits made in that period – Defendant is not materially prejudiced Laches cannot be invoked to bar relief at law in the face of a statute of limitations enacted by Congress  Laches is a defense developed by courts of equity  Equitable claims may apply where the Legislature has provided no fixed time limitation  “[T]he dissent has come up with no case in which this Court has approved the application of laches to bar a claim for damages brought within the time allowed by a federal statute of limitations.” Petrella v. MGM 14 © AIPLA 2016

15. Although § 286 is a damages limitation, not a statute of limitations, that distinction is irrelevant because both § 286 and § 507 relate to the timeliness of infringement damages claims I.e., no relevant difference between copyright statute of limitations and patent damages limitation to determine whether and how laches may be applicable in patent cases SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) 15 CAFC on 35 U.S.C. § 286 and 17 U.S.C. §507 © AIPLA 2016

16. §282 broadly sets out categories of defenses rather than enumerate specific defenses House and Senate Reports on §282 confirm it was meant to be broad 35 U.S. Code §282 - Presumption of validity; defenses * * *  (b)D EFENSES.— The following shall be defenses in any action involving the validity or infringement of a patent and shall be pleaded: * * * (4) Any other fact or act made a defense by this title. SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) 16 CAFC – Laches codified in 35 U.S.C. § 282 © AIPLA 2016

17.  When statute covers an issue previously governed by common law, presume Congress intended to retain common law unless there was an express or implied intention to change  House report: decided not to include most of the proposed changes in bill; deferred them for later consideration to limit the bill to the main purpose: codification of Title 35  No changes to laches doctrine were mentioned in law or legislative history Does laches as codified in the 1952 Patent Act bar recovery of legal relief? 17 SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) © AIPLA 2016

18.  Case law o 1870: Congress gave courts of equity power to award legal damages (previously only injunction and accounting of profits allowed) o 1915: in all actions at law equitable defenses may be raised o By 1952, courts consistently applied laches to preclude recovery of legal damages  Conclusion: case law strongly supports availability of laches to bar legal relief Does laches as codified in the 1952 Patent Act bar recovery of legal relief? (cont’d) 18 SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) © AIPLA 2016

19.  In copyright (Petrella), Congress had already spoken on the timeliness, so no room for a judicially-created timeliness doctrine  In patent, Congress codified a laches defense in § 282. o “[W]e have no authority to substitute our views for those expressed by Congress in a duly enacted statute.” CAFC: Petrella fundamentally concerns separation of powers 19 SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) © AIPLA 2016

20.  Copyright : o Infringement requires evidence of copying o Potential copyright infringement defendant:  typically aware of a risk that it is infringing  estimates exposure when making initial investment decision  can accumulate evidence of independent creation to protect investment  Patent : o Innocence no defense to infringement o Company may independently develop and still infringe o Enormous sums may be invested in developing product and market o Without laches, no safeguard against tardy claims demanding a portion of commercial success Major difference between copyright and patent law: 20 SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) © AIPLA 2016

21. When a court orders ongoing relief, it acts within its equitable discretion Injunctive Relief  Laches can bar permanent injunctive relief  Courts must weigh facts underlying laches in the eBay framework o 1. Competition Between the Parties o 2. Nature of the Market o 3. Licensing History o 4. Defendant Considerations o 5. Plaintiff Considerations o 6. Public Interest Ongoing Royalty  Laches can only bar ongoing royalty for continuing infringing acts in extraordinary circumstances LACHES APPLICATION TO ONGOING RELIEF 21 SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) © AIPLA 2016

22.  Laches remains a defense to legal relief in patent infringement suits o Court weighs facts underlying laches in eBay considerations En banc CAFC 22 SCA Hygiene – Federal Circuit en banc Rehearing (cont’d) © AIPLA 2016

23. Petition for writ of certiorari filed with U.S. Supreme Court - January 19, 2016 Response due February 22, 2016 Stay tuned… © AIPLA 2016 23 What Next?

24. Potential Patent Infringers  Laches remains possible defense and should be raised if facts reasonably support the assertion Patentees  Be Vigilant! o Laches can bar damages where patentee knew or should have known of the infringement  Be Active! o Letters to infringing parties should be followed up promptly and continually  Be Cautious! o File suit as early as reasonably possible. Negotiations and reexamination proceedings may continue during litigation 24 Takeaways © AIPLA 2016

25. SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, No. 13-1564 (Fed. Cir. Sept. 18, 2015) Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014) A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992) eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), mod. and aff’d, 446 F.2d 295 (2d Cir. 1971), cert. denied, 404 U.S. 870 (1971) 35 U.S.C. § 282 35 U.S.C. § 286 17 U.S.C. § 507 Black’s Law Dictionary 126 (9th ed. 2009) Myron G. Hill, et. al. Smith Review Series: Remedies p.10 (1984) Feldstein, Mark, Permanent Injunctions and Running Royalties in a Post eBay World, 16 Intellectual Property Today 34–46 (2009) 25 References © AIPLA 2016

26. Questions? 26 Raymond E. Farrell www.cdfslaw.com +1 (631) 501-5700 rfarrell@cdfslaw.com @RayFarrell_CDFS © AIPLA 2016