SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (2017)

By Kevin E. Noonan --

The U.S. Supreme Court overturned another Federal Circuit decision today (this one having been decided en banc by the appellate court), in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC.  The outcome was not a surprise, at least because 1) the decision was consistent with the Court's decision in Petrella v. Metro-Goldwyn-Mayer, Inc., decided three years ago; 2) the Justices' questioning at oral argument presaged how they were thinking; and 3) it was, after all, a Federal Circuit decision.  The decision was not unanimous, however; Justice Breyer dissented, in an opinion consistent with his general suspicion regarding bad behavior by patentees and his penchant for having the Court make policy judgments that his brethren (at least in this instance) believe are within the province of Congress.

The case arose over infringement of SCA's patent (U.S. Patent No. 6,375,646) on adult incontinence products, which First Quality contended was invalid over its own prior art patent (U.S. Patent No. 5,415,649).  Following ex parte reexamination of SCA's patent and a finding by the USPTO that the claims were patentable over First Quality's patent, SCA brought suit (about 7 years after SCA first notified First Quality regarding its allegations of infringement).  The District Court ruled by summary judgment that SCA's suit was barred by laches (an equitable doctrine that prevents a patentee from "sleeping on her rights" by undue delay in filing a patent infringement suit).  A sharply divided Federal Circuit (6-5) affirmed en banc, based on its reasoning that although Congress enacted a six-year time limitation on money damages in the statute (35 U.S.C. § 286), the provisions of 35 U.S.C. § 282, which states that "[n]oninfringement, absence of liability for infringement or unenforceability" are available as defenses, and "unenforceability" includes within its scope the equitable doctrine of laches.  One source of the division on the appellate court was the Supreme Court's intervening Petrella decision, barring laches as a defense in copyright infringement actions based on a three-year statute of limitations enacted by Congress; the majority relied on its own earlier decision in A. C. Aukerman Co. v. R. L. Chaides Constr. Co. to the contrary.

The Supreme Court's decision (authored by Justice Alito and joined by all but Justice Breyer) vacating the Federal Circuit's affirmance was based in part on its Petrella decision, but also on the Court's analysis of the practice at law and in equity stemming from the time when these two actions were maintained separately and when they were merged in 1938.  The Court "spoke broadly" in Petrella according to the majority, so that laches was barred as a defense whenever Congress enacted an express statute of limitations (in that case, in 17 U.S.C. § 507(b)).  The reasons for the Court's Petrella decision included "separation-of-powers principles" (wherein the judiciary does not have the power to override Congressional decisions in its statutes; see, e.g., National Federation of Independent Business v. Sebelius), according to the opinion.  Specifically Justice Alito wrote:

When Congress enacts a statute of limi­tations, it speaks directly to the issue of timeliness and provides a rule for determining whether a claim is timely enough to permit relief.  []  The enactment of a statute of limitations necessarily 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 the sort of case-specific judicial determination that occurs when a laches defense is asserted.  Therefore, applying laches within a limitations period specified by Congress would give judges a "legislation­ overriding" role that is beyond the Judiciary's power.

In addition, the Court in Petrella (and here) considered the "traditional role of laches in equity" and its interaction with legal principles like statutes of limitations.  And here, as in Petrella, the Court determined that there was no basis for the Federal Circuit's decision that laches could contradict the statute of limitations provisions of § 286.

With regard to the traditional role of laches in equity suits, the Court opined that this doctrine was developed for situations where Congress had not specified a fixed time for bringing suit, and thus was a "gap-filling" doctrine to cure in equity what the law did not expressly provide.  When, as here, Congress has provided an express statute of limitations "there is no gap to fill" and thus no purpose for laches according to Justice Alito’s opinion.

The Court first rejected First Quality's contention that § 286 was not a "true" statute of limitations because it "ran backwards" from the time suit is filed to limit the temporal extent of damage rather than "run[ning] forward from the time a cause of action accrues."  Then the opinion turned to the Federal Circuit's rationale regarding the relationship between § 286 and § 282, and specifically whether § 282 satisfies the qualifying phrase from § 286 that the section governs "[e]xcept as otherwise provided by law."  The Court deigned not to parse out whether § 282 provided some measure of laches as a defense; rather, Justice Alito refused to countenance interpretation of the statute to include laches as a defense that would defeat the express statute of limitations found in § 286.  This determination was supported by a survey of cases (from both before and after enactment of the Patent Act in 1952).  In rejecting the Federal Circuit's conclusion, the opinion states that "[t]he most prominent feature of the relevant legal landscape at the time of enactment of the Patent Act was the well-established general rule, often repeated by this Court, that laches cannot be invoked to bar a claim for damages incurred within a limitations period specified by Congress," citing Holmberg v. Armbrecht; United States v. Mack; and Wehrman v. Conklin; and Cross v. Allen.  None of these were patent cases, but the opinion rejects the significance of this distinction on the grounds that "[p]atent law is governed by the same common-law principles, methods of statutory interpretation, and procedural rules as other areas of civil litigation" according to the dissent in the Federal Circuit.  Justice Alito states that "nothing less than a broad and unambiguous consensus of lower court decisions could support the inference that §282(b)(1) codi­fies a very different patent-law-specific rule," and, as is the Court's wont he finds no evidence of such a patent-law-specific rule in the cases cited by either the Federal Circuit or First Quality.  These cases included those:  "decided by equity courts before 1938" ("unpersuasive for several, often overlapping reasons"; "too few to establish a settled, national consensus"); "decided by law courts before 1938" ("even if all of these cases squarely held that laches could be applied to a damages claim at law within the limitations period, they would still constitute only a handful of decisions out of the corpus of pre­1952 patent cases, and that would not be enough to over­come the presumption that Congress legislates against the background of general common-law principles"); and "decided after the merger of equity and law in 1938" ("First Quality's evidence is scant").

Finally, the majority rejected First Quality's invitation to make its decision based on policy considerations ("we cannot overrule Congress's judgment based on our own policy views") and suggests that other doctrines (such as equitable estoppel) may provide relief.

Justice Breyer dissented, based on many of the policy arguments made by Respondent and amici.  Unlike the majority, the Justice sees a "gap to fill," specifically when a patentee can delay to permit an infringer to develop a product in a way that maximizes infringement damages (which would constitute "harmful and unfair legal consequences").  For example, under the provisions of § 286 "a patentee, after learning of a possible in­fringement in year 1, might wait until year 10 or year 15 or year 20 to bring a lawsuit.  And if he wins, he can col­lect damages for the preceding six years of infringement."  This "gap" could permit an infringer (including an unknowing infringer according to the dissent) to "in­vest[] heavily in the development of the infringing product (of which the patentee's invention could be only a small component), while evidence that the infringer might use to, say, show the patent is invalid disappears with time."  This is particularly pernicious in circumstances where the infringer is "locked in," i.e., when "business-related circumstances make it difficult or impos­sible for the infringer to abandon its use of the patented invention."

Besides these policy concerns, Justice Breyer believes that the 1952 Patent Act was intended merely to codify existing law, and part of that existing law includes laches.  This law included a number of cases that the Justice sets forth expressly in the dissenting opinion, including:

Lukens Steel Co. v. American Locomotive Co. [] (CA2 1952); Chicago Pneumatic Tool Co. v. Hughes Tool Co. [] (CA10 1951); Brennan v. Hawley Prods. Co. [] (CA7 1950); Shaffer v. Rector Well Equip. Co. [] (CA5 1946); Rome Grader & Mach. Corp. v. J. D. Adams Mfg. Co. [] (CA7 1943); France Mfg. Co. v. Jefferson Elec. Co. [] (CA6 1939); Universal Coin Lock Co. v. American Sanitary Lock Co. [] (CA7 1939); Union Shipbuild­ing Co. v. Boston Iron & Metal Co. [] (CA4 1938); Gillons v. Shell Oil Co. of Cal. [] (CA9 1936); Holman v. Oil Well Supply Co. [] (CA2 1936) (per curiam); Dock & Term. Eng. Co. v. Pennsylvania R. Co. [] (CA3 1936); Banker v. Ford Motor Co. [] (CA3 1934); Westco-Chippewa Pump Co. v. Delaware Elec. & Supply Co. [] (CA3 1933); Window Glass Mach. Co. v. Pittsburgh Plate Glass Co. [] (CA3 1933); Dwight & Lloyd Sintering Co. v. Greenawalt [] (CA2 1928); George J. Meyer Mfg. Co. v. Miller Mfg. Co. [] (CA7 1928); Wolf Mineral Process Corp. v. Minerals Separation N. Am. Corp. [] (CA4 1927); Cummings v. Wilson & Willard Mfg. Co. [] (CA9 1925); Ford v. Huff [] (CA5 1924); Wolf, Sayer & Heller, Inc. v. United States Slicing Mach. Co. [] (CA7 1919); A. R. Mosler & Co. v. Lurie [] (CA2 1913); Safety Car Heating & Lighting Co. v. Consolidated Car Heating Co. [] (CA2 1909) (per curiam); Richardson v. D. M. Osborne & Co. [] (CA2 1899); and Woodmanse & Hewitt Mfg. Co. v. Williams [] (CA6 1895).

To the majority's rejoinder that these cases "prove[] nothing" because they are decisions from courts of equity, the Justice says "Good reply But no cigar" because:  in 1897, Congress enacted a limited statute of limitations in patent cases that could be used against claims brought in equity courts; in 1870, Congress gave equity courts the power to award damages in patent cases; Congress recognized that patent cases were brought (at that time) in courts of equity; and finally that in the (admittedly) few cases pre-merger that considered whether laches could bar suits at law, those courts held that they could.  And those cases relied upon by the majority to the contrary were not patent cases, Justice Breyer notes, and thus "do not prevent Congress from enacting a statute that, recognizing patent litigation's history, combines a statute of limitations with a laches defense," which in the Justice's opinion is what Congress did.

The dissent illustrates the significance of where the burden is placed on convincing the Court with earlier cases:  here, the dissent contends that the majority was "unable to identify a single case—not one—from any court of ap­peals sitting in law or in equity before the merger, or sitting after the merger but before 1952 holding that laches could not bar a patent claim for damages."  Of course the majority considered the converse, that Respondents and amici did not show sufficient cases that laches could provide such a bar.  And the Justice notes that every Court of Appeals case considering the question since enactment of the 1952 Patent Act had found that laches can bar damages claims, contrary to the majority's decision.

The dissent also distinguished Petrella, relying on legal as well as practical differences between patent and copyright.  And the dissent ends with an aphorism ironic in view of the pen that has written it:

[T]he majority remains "determined to stay the course and continue on, travelling even further away," Mathis v. United States, 579 U. S. ___, ___ (2016) (ALITO J., dissenting) (slip op., at 9), from Congress' efforts, in the Patent Act, to promote the "Progress of Science and useful Arts," U. S. Const., Art. I, §8, cl. 8.  Trite but true: Two wrongs don't make a right.

SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC (2017)
Opinion of the Court by Justice Alito, joined by Chief Justice Roberts and Justices Kennedy, Thomas, Ginsburg, Sotomayor, and Kagan;
Dissenting opinion by Justice Breyer

Comments

[EG]

With respect to SCOTUS’ decision in SCA Hygiene Products, consider that oral argument in Impression Products v. Lexmark occurred yesterday relating to patent exhaustion/first sale doctrine. No mention was made by the advocates or the Justices of SCA Hygiene Products during the oral argument. That’s very odd, given that there is also a parallel copyright case (Kirtsaeng) on copyright exhaustion/first sale doctrine, although in the copyright, the first sale doctrine is statutory whereas there is no corresponding patent statute. It’ll be interesting as to whether SCOTUS also sees this parallel between SCA Hygiene Products and Impression Products.

As far a Breyer's dissent goes, he remains consistent-he's yet to see a patent he likes. Breyer is the most virulently anti-patent of the SCOTUS Justices, on par with William O. Douglas. Breyer’s Mayo v. Prometheus opinion remains an outrage for not only screwing up the law on patent-eligibility, but for also factually misstating that a “law of nature” was involved, given that the drug whose metabolites were being monitored didn’t exist in “nature.” Go figure.