Fodder for Private Law Mavens: The Federal Circuit, Laches, and Exhaustion — John Golden

Post by John Golden

Private law mavens might have interest in two patent cases that the U.S. Court of Appeals for the Federal Circuit has taken en banc. In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, No. 2013-1564 (Fed. Cir. Dec. 30, 2014) (en banc), the Federal Circuit will review precedent indicating that the defense of laches is available “to bar a claim for damages based on patent infringement occurring within [a] six-year damages limitation period” set by the U.S. Patent Act. In Lexmark International, Inc. v. Impression Products, Inc., Nos. 2014-1617, 2014-1619 (Fed. Cir. Apr. 14, 2015) (en banc), the Federal Circuit will review additional precedent involving the doctrine of patent exhaustion, a doctrine under which, in the Supreme Court’s words, “the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008).

The Federal Circuit’s revisitation of these questions reflects a trio of Supreme Court opinions that have called into question—but not on their face definitively rejected—prior understandings of Federal Circuit precedent. In Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 1967 (2014), the Supreme Court held that the defense of laches could not bar a claim for damages brought within the U.S. Copyright Act’s three-year limitations period. In a footnote, however, the Court reserved the possibility that various circumstances might justify a different result with respect to the U.S. Patent Act’s six-year limitations period. Id. at 1974 n.15. In Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 1355-56 (2013), the Court held that, under copyright’s analog to the doctrine of patent exhaustion, the “first sale” doctrine, even a sale made abroad can trigger exhaustion of U.S. copyright. The Federal Circuit is now set to reconsider the extent to which foreign sales can trigger exhaustion of U.S. patent rights.

At least one question to be taken up by the Federal Circuit does not concern how aspects of copyright law might translate to patent law. For this question, the Federal Circuit will consider whether the Supreme Court’s opinion in a patent case, Quanta, requires rejection of the previously prevailing notion that explicit contract terms can trump the doctrine of patent exhaustion. In Quanta, the Supreme Court described the doctrine with language that could be read to indicate that, without exception, any “authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law [as opposed to contract law] to control postsale use of the article.” 553 U.S. at 625. But the Court did not face a situation in which the authorized sale was explicitly conditional on a postsale restriction, such as a requirement that a medical device be used no more than once.

How will the Federal Circuit rule? Your guess might be as good as mine. The Circuit has recently experienced massive turnover. The majority of the Circuit’s fully active members (6 of 11, one seat currently being open) joined the court within the last five years. Further, as of May 31, 2014, the Circuit has a new Chief Judge, Sharon Prost. In any event, given the tight relations to Supreme Court case law, the Circuit’s review might be no more than a prelude to a grant of certiorari.

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