Posted by: pgoold | 7th Jun, 2017

The Supreme Court on Laches, Patent Exhaustion, and Lord Coke — John Golden

Post by John Golden

Intersections between statutory law and traditional private law principles loom large in two recent patent law decisions of the United States Supreme Court.  For this, we can partly thank the United States Court of Appeals for the Federal Circuit.  As discussed in my first NPL blog post, the Federal Circuit preceded the Supreme Court in taking the cases for en banc review.  The en banc circuit obligingly produced holdings that the Court could not resist overruling.

In the first case, SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 137 S. Ct. 954 (2017), the Supreme Court held that laches cannot block a claim for damages from patent infringement when that infringement has occurred within the statutorily allowed period of six years before the filing of the claim.  Seven of the eight Justices involved in deciding SCA Hygiene agreed that this outcome followed straightforwardly from the Court’s 2014 decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), which addressed similar questions regarding laches, damages, and the Copyright Act’s three-year statute of limitations.  Writing for the Court with what appeared to be restrained exasperation, Justice Alito began his opinion by stating, “We return to a subject that we addressed in Petrella ….”  Alito’s opinion proceeded to emphasize that laches arose from equity and that the case before the Court involved “application of the defense to a claim for damages, a quintessential legal remedy.”  In the Court’s view, a statute of limitations such as the Patent Act’s six-year limitation on backward-looking damages “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.”  Application of a laches defense in the face of this congressional judgment “is beyond the Judiciary’s power.”

Alone in dissent, Justice Breyer pointed to “a virtually unbroken chain [of decisions by lower courts] from the late 19th century through the Patent Act’s enactment in 1952.”  In Breyer’s view, the 1952 Act effectively codified a prior understanding, established by this chain of decisions, that laches is available as a defense in all suits for patent infringement.  The majority found this chain of decisions unconvincing.  Justice Alito’s opinion for the Court cited lack of clarity over whether damages were at issue in individual cases; common issuance of the decisions by courts sitting in equity, rather than law; and frequent confinement of pertinent statements on laches to dicta.  In the majority’s view, such weaknesses in Breyer’s cited chain rendered it insufficient to overcome the fact 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.”

In the second case, Impression Products, Inc. v. Lexmark International, Inc., the Supreme Court held that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”  More specifically, the Court held that “[t]he single-use/no-resale restrictions in [patentee] Lexmark’s contracts with [toner-cartridge] customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.”  Moreover, as presaged by the Court’s 2013 decision on the international scope of copyright law’s parallel doctrine of “first sale,” Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013), the doctrine of patent exhaustion applies without hitch to “[a]n authorized sale outside the United States, just as one within the United States.” 

Details about the facts and issues in Impression Products appear in an earlier post by Patrick Goold in the wake of the Court’s grant of certiorari.  As presaged by Patrick’s post, the Court’s ultimate decision relied heavily on “the common law principle against restraints on alienation” of chattels.  Chief Justice Roberts’ opinion for the Court pointed to Kirtsaeng’s explanation of exhaustion’s “ ‘impeccable historic pedigree.’ ”  In support of antipathy to restraints on alienation, the opinion quoted Lord Coke’s 1628 Institutes of the Laws of England for the notion that, because of downstream effects, restraints on alienation, however much the product of bargaining themselves, are ultimately “ ‘against Trade and Traffique, and bargaining and contracting betweene man and man.’ ”  Roberts returned to Kirtsaeng for the additional point that the common law principle against restraints on alienation “ ‘makes no geographical distinctions.’ ”  In the Court’s view, the international scope of patent exhaustion follows straightforwardly because “nothing in the text or history of the Patent Act shows that Congress intended to confine that borderless common law principle to domestic sales.”  Justice Ginsburg dissented on the issue of international exhaustion, however, stressing the territorial nature of patent law and also noting that the Patent Act, unlike the Copyright Act, lacks any explicit statutory provision for exhaustion.

Given the Supreme Court’s earlier copyright decisions, the Court’s holdings in SCA Hygiene Products and Impression Products were not great surprises.  But in light of the general merger of law and equity, is the Court’s distinction between law and equity for purposes of applying laches well conceived?  Is the Court’s rather blunt invocation of antipathy to restraints on alienation well advised?  Although the Court dismissed policy concerns as outside its bailiwick in SCA Hygiene, Justice Breyer could be right to suggest that lack of a laches defense for damages could encourage strategically delayed suits for patent infringement.  Likewise, although the Court did not seem to give much credit to contrary policy concerns in Impression Products, a broad scope for patent exhaustion might limit the likelihood of forms of price discrimination, such as lower pricing of pharmaceuticals in developing countries, that some might think desirable.  Can private law principles provide a more complete response to such concerns, or must these be left to Congress?

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