Authored by Scott A. Allen, D. Brian Kacedon, and John C. Paul
An equitable defense, laches bars the recovery of damages for patent infringement occurring before the date of the complaint or counterclaim. The defense is based on the principle that courts should not assist patentees who have "slept" on their rights by delaying the filing of a lawsuit and, in doing so, prejudiced the accused infringer. Under the Federal Circuit's en banc decision in A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020 (Fed. Cir. 1992), an infringer can establish laches by proving (1) that a patentee unreasonably delayed in bringing suit and (2) that the infringer suffered economic or evidentiary prejudice as a result. If, however, the period of delay from when the patentee knew or should have known about potential infringement to the date of filing exceeds six years, the requirements for proving laches are presumed (i.e., courts assume a six-year delay is unreasonable and results in some prejudice), thereby placing on the patentee the burden of disproving laches. Because laches is equitable in nature, courts deciding whether to apply it must consider not only unreasonable delay and prejudice, but also all the relevant facts and circumstances. In a recent decision, a district court found the two prongs satisfied, but determined that, based on the equities, laches should not apply to limit the damages award.
Carnegie Mellon University (CMU) owns two patents covering a method of detecting and addressing media-noise problems in magnetic recordings. The method was codeveloped at CMU by a professor of electrical engineering, Dr. Jose Moura, and a then-doctoral candidate, Aleksandar Kavcic. They disclosed the invention to CMU in March 1997 and filed a provisional patent application in May 1997. In the early 2000s, semiconductor chip manufacturer Marvell Semiconductor (Marvell) started developing its own media-noise detector, which Marvell engineers described as based on the "Kavcic model." Marvell integrated this technology into its new semiconductor chips, which it began shipping in August 2002. In August 2003, CMU sent a letter to Marvell, asking it to take a license on the Kavcic patents; Marvell never responded. On March 6, 2009, almost six years after sending the letter, CMU filed suit against Marvell.
After a four-week jury trial in December 2012, the jury rendered a verdict against Marvell on infringement, validity, and willfulness, and awarded CMU over $1 billion in damages. While the Court declined Marvell's request to allow the jury to consider Marvell's laches defense during trial, it ordered post-trial briefing on the issue.
In a lengthy decision, the Court ruled that, even though Marvell proved an unreasonable delay and material prejudice by a preponderance of the evidence, the equities demanded that laches not apply.
The laches analysis began with a determination on the presumption of laches. According to Marvell, CMU waited more than six years from the time it learned about Marvell's potential infringement, and laches should therefore be presumed. Marvell did not argue that CMU had actual knowledge of infringement before March 6, 2003, but that it had constructive knowledge based on emails and notes showing that CMU knew that Marvell was developing its own method of detecting media noise. Because that evidence did not indicate an awareness of infringement and was, in fact, created before Marvell began shipping any infringing products, the Court found that the presumption did not apply. Thus, Marvell had to prove that CMU's delay was both unreasonable and prejudicial.
By April 5, 2003, Kavcic had enough information to send Moura an email stating that he had "two more independent confirmations" that Marvell and other chip manufacturers were using the patented method. At that point, because CMU "should have known" of infringement, regardless of its failure to inquire further at that time, CMU had a duty to investigate that triggered the laches "clock." Despite receiving additional information about Marvell's infringement over the next five years and eleven months, CMU did not conduct an infringement analysis until just before filing suit. The Court found that CMU was aware of the core facts establishing its willful-infringement allegation before July 2004. And, notwithstanding the extreme complexity of Marvell's chips and the difficulty of detecting infringement, the Court found CMU's delay unreasonable and not excused.
The analysis then turned to whether Marvell had proved that it suffered material evidentiary or economic prejudice. Here, Marvell pointed to specific evidence that was lost as a result of the delay; lab notebooks were missing, emails from previous, inactive accounts were discarded over time, and witnesses' memories had faded. Notably, the Court held it against CMU, a not-for-profit institution, that it failed to take any steps to preserve evidence from between 1996 and 2000, when the technology was being developed. The Court concluded that litigation was reasonably foreseeable and that CMU had a responsibility to preserve invention-related documents that may have pertained to Marvell's invalidity defenses. Thus, the Court held that Marvel proved evidentiary prejudice.
Also according to Marvell, it would not have invested so heavily in its noise-detector technology had it been sued earlier. The Court, however, determined that Marvell failed to establish a nexus between its capital expenditures in noise detection and CMU's delay. Marvell did not prove that its investments resulted from the delay, as required under Federal Circuit precedent. Instead, Marvell made its investments despite knowledge of the patents and despite an internal report stating that its detector "turn[ed] out to be the structure that Kavcic proposed in his paper [and ensuing patents]." This evidence contradicted affidavits asserting that Marvell would not have invested in the technology had it been sued earlier. Indeed, Marvell continued to sell the infringing products and decided not to implement a design-around, even after CMU filed suit. While lacking the nexus necessary to show economic prejudice, Marvell still established laches based on CMU's unreasonable delay and the evidentiary prejudice. Had the Court's analysis ended here, CMU would likely have lost a significant portion of its jury award.
But, having completed its analysis of the laches requirements and finding them satisfied, the Court then took the final step of weighing the equities to determine whether it should strip CMU of its damages award based on laches. In a relatively short discussion, the Court found that "the equities clearly favor CMU." Marvell's conscious copying of the "Kavcic method," as well as the evidence that its detector "turn[ed] out to be the structure that Kavcic proposed in his paper," influenced the Court to find that Marvell had "unclean hands" and engaged in "egregious misconduct." Describing CMU as "timid" and "gun shy," it found that CMU did not lie in wait or sit on its rights. Rather, it found that, as the bad actor, "Marvell should bear the risk of loss for egregious and illegal behavior."
The CMU decision illustrates important lessons about the policing of patent rights. Because the laches clock starts running from when an objective, reasonable patent owner knew or should have known of the infringement, a patent owner should not turn a blind eye to potential infringement. A patent owner should further recognize that once it makes an assertion against a potential infringer, it may forfeit its rights if it takes no further action for an extended period of time. Finally, given the equitable nature of the doctrine, a patent owner facing a potential laches defense should consider seeking evidence of conscious copying, which, if established, may tip the balance in the laches analysis.
1 The CMU decision may be found at http://docs.justia.com/cases/federal/district-courts/pennsylvania/pawdce/2:2009cv00290/90950/920/0.pdf?1391259283.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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