The Supreme Court once again reversed the Federal Circuit (the federal appellate court having jurisdiction in all patent cases) and in doing so also abolished a defense of ancient standing in patent cases: laches, or the equitable notion that a patentee should not be able to “sleep on her rights” before filing a patent infringement suit.
The case is SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC., decided on March 21, involved infringement of SCA’s patent on adult incontinence products (U.S. Patent No. 6,375,646). SCA’s patent had been subject to a reexamination proceeding prompted by First Quality’s assertion of its own patent (U.S. Patent No. 5,415,649) as invalidating prior art. Consequently, SCA brought suit against First Quality seven years after first notifying the accused infringer of the patentee’s contention that it infringed.
The District Court ruled that SCA’s suit was barred by laches, and a sharply divided Federal Circuit (6-to-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.
The Supreme Court’s decision (authored by Justice Alito and joined by all but Justice Breyer) vacated the Federal Circuit’s affirmance, based on its own recent precedent in copyright (Petrella v. Metro-Goldwyn-Mayer, Inc., 2014), where the Supreme Court held laches was barred as a defense whenever Congress enacted an express statute of limitations (albeit in the context of a different statutory regime). In this case, the court determined that there was no basis for the Federal Circuit’s decision that laches could contradict the statute of limitations provisions of the patent statute (codified at 35 U.S.C.§ 286). The majority decision was based on the court’s extensive legal analysis of the interplay between legal remedies and equitable defenses, which have a long history in U.S. (and antecedent British) law. And the Court appeared to believe, as it has in several cases in recent years, that patentees unhappy with their jurisprudence have the option of petitioning Congress to change the law (here, by including laches as a defense expressly recited in the statute), regardless of whether this outcome is unlikely or impractical in the present political climate. The consequence of the Court’s decision is that an infringement suit can be brought at any time during the term of a patent, and damage will be limited to the six years prior to the date suit is brought.
Justice Breyer dissented, raising important policy considerations made by SCA as well as several amicus curiae. Justice Breyer recognized that there is a risk that a patentee may delay strategically, to permit an infringer to develop a product in a way that maximizes infringement damages. For example, under the interpretation adopted by the court majority “a patentee, after learning of a possible infringement in year one, 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) 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.” This risk is even greater in heavily regulated industries, such as the pharmaceutical industry, where development and approval costs increase the strength of “locking in” that concerned Justice Breyer.
As a practical matter, the decision raises the level of diligence drug companies (and their counsel) must maintain to best avoid facing patent infringement suits at times when a drug has reached maximum profitability. This need may be greatest for biologic drugs, where concerns regarding exclusivity and the need for exclusivity to provide sufficient likelihood of a positive return on investment are greatest (due in part to the vastly higher development and regulatory costs for such drugs). Part of the political calculus for enacting a 12-year market exclusivity for biologic drugs was that patents could provide protection for exclusivity during the approximately five additional years economic analysis suggested are necessary to provide the needed investment incentives.
The implications of the Supreme Court’s recent decision is that such returns could be lost if an innovative biologic drug maker is faced not only with enforcing its own patents after regulatory exclusivity is lost but may also be faced with infringement allegations from third parties with regard to, inter alia, manufacturing methods, excipients, formulations or methods of administering the drug. These possible consequences should be duly considered by anyone facing the prospect of motivating a reluctant Congress to restore laches to the armamentarium of defenses against patent infringement allegations.
Kevin Noonan is a partner with the law firm McDonnell Boehnen Hulbert & Berghoff LLP and represents biotechnology and pharmaceutical companies on a myriad of issues. A former molecular biologist, he is also the founding author of the Patent Docs weblog, http://patentdocs.typepad.com/.