Supreme Court's Imminent SCA Hygiene Decision Could Increase Patent Value for NPEs

December 17, 2016

(as published in IPFrontline)

Over the course of the last decade, the U.S. Supreme Court has issued a series of decisions making it more difficult for so-called non-practicing entities (NPEs)—companies that own and enforce patents but do not offer products or services covered by them—to extract value from their patents. The Court may now be ready to take a step in the other direction by removing the equitable defense of laches against patentees’ past damages claims—up to six years of damages in many cases. Oral arguments were heard in the landmark case of SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC on November 1, 2016, and a decision is expected later this term.

Recent Supreme Court Decisions

In 2006, the Supreme Court decided that injunctive relief should not be automatic in patent infringement cases. The decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), reduced the value of many patents owned by NPEs because it reduced the threat of an injunction that would stop a defendant in an NPE case from continuing to sell the product accused of infringement. Since then, it has been considerably more difficult for NPEs in particular to obtain injunctive relief, and thus enjoy the “right to exclude” that § 154 of the Patent Act prescribes.

In 2007, the Supreme Court decided KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398 (2007), which made it easier for challengers to prove patents invalid as obvious. KSR has been an important part of many challenges to patents held by NPEs.

And more recently, between 2010 and 2014, the Court handed down a series of decisions finding patent claims invalid because they were too abstract or focused on naturally-occurring phenomena. Two such cases, Bilski v. Kappos, 561 U.S. 593 (2010), and Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), have had a profound impact on the value and viability of many software-based patents, particularly software-based business method patents owned by many NPEs.

The Laches Defense Today

The Patent Statue long ago codified a six-year “lookback window” for damages. That is, a lawsuit brought on a certain date could seek to recover past damages only for infringement that occurred within the six years prior to that date. Damages for any earlier period could not be recovered. Historically, however, if a patentee waited more than six years to bring suit after learning of a defendant’s infringing conduct, the equitable defense of laches could preclude the patentee from recovering any past damages against that defendant. The laches defense can be particularly powerful against NPEs, who often purchase and assert patents near the end of their terms. The allegedly infringing conduct by defendants in such suits often predates the six-year damages lookback window authorized by statute, and thus opens up the possibility of a laches defense that bars all past damages.

The SCA Hygiene Case – What Could Change?

Similar to the Patent Statute, the Copyright Statute contains a three-year lookback window for past damages and limits the enforceable term of copyrights. In Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), the Supreme Court found the equitable defense of laches could not be invoked to bar past damages for copyright infringement because allowing that defense would be inconsistent with the damages window Congress unambiguously specified in the statute. The Petrella majority reasoned that laches can be invoked only as a “gap filling” measure if Congress has not otherwise spoken on the subject of a damages period. Petrella, 134 S. Ct. at 1974. Many commentators have predicted the Court will apply the same reasoning to the damages lookback window of the Patent Statute and find the laches defense incompatible with that provision.

Removal of the laches defense as a potential bar to past damages would, at least in some cases, serve to increase the value of patents for NPEs, as such entities could recover up to an additional six years of past damages against those infringing their patents even in situations where laches would have been at issue. NPEs would also no longer feel compelled to bring a suit within the first six years of known infringement, for fear they might lose the ability to recover any past damages, and could instead wait until such time as they are confident that the potential recovery against a given defendant justifies the expense of enforcement proceedings.