A.C. Aukerman Company v. R.L. Chaides Construction Co.

This court reheard Appeal No. 90-1137 in banc to reconsider the principles of laches and equitable estoppel applicable in a patent infringement suit.1 A.C. Aukerman Co. sued R.L. Chaides Construction Co. in the United States District Court for the Northern District of California for infringement of Aukerman's patents, U.S. Patent Nos. 3,793,133 ('133) and 4,014,633 ('633). A.C. Aukerman Co. v. R.L. Chaides Constr. Co., No. C-88-2074-SW (N.D.Cal. Sept. 1, 1989). The district court held on summary judgment that Aukerman was barred under principles of laches and equitable estoppel from maintaining the suit and Aukerman appeals. We conclude that the correct standards, which we have clarified herein, were not applied in the district court's grant of summary judgment. Moreover, upon application of the correct law, genuine issues of material fact arise with respect to the issues of laches and equitable estoppel. Accordingly, we reverse the court's ruling on the motion for summary judgment and remand for proceedings consistent with this opinion.

The following facts are not disputed. Aukerman is the assignee of the '133 and '633 patents, relating to, respectively, a method and device for forming concrete highway barriers capable of separating highway surfaces of different elevations. The device allows a contractor to slip-form an asymmetrical barrier as the mold is moved down the highway, i.e., to pour the barriers directly onto the highway without having to construct a mold. In settlement of litigation with Gomaco Corporation, a manufacturer of slip-forms which may be used to form regular or variable height barriers, Aukerman entered into an agreement in 1977 which made Gomaco a licensee under the patents and required Gomaco to notify Aukerman of all those who purchased Gomaco's adjustable slip-forms.

Upon notification that Chaides had purchased a slip-form from Gomaco, counsel for Aukerman advised Chaides by letter dated February 13, 1979, that use of the device raised "a question of infringement with respect to one or more of [Aukerman's patents-in-suit2," and offered Chaides a license. Follow-on letters were sent by Aukerman's counsel to Chaides on March 16 and April 12, 1979. Chaides replied by telephone on April 17, 1979 but was unable to speak with counsel for Aukerman. By letter of April 24, 1979, Aukerman's counsel advised Chaides that Aukerman was seeking to enforce its patents against all infringers and that, even though Chaides might be among the smaller contractors, it had the same need for a license as larger firms. He advised further that Aukerman would waive liability for past infringement and infringement under existing contracts if Chaides took a license by June 1, 1979. Chaides responded in late April with a note handwritten on Aukerman's last letter stating that he felt any responsibility was Gomaco's and that, if Aukerman wished to sue Chaides "for $200-$300 a year," Aukerman should do so. There was no further correspondence or contact between the parties for more than eight years. In the interim, Chaides increased its business of forming asymmetrical highway barrier walls.3 Sometime in the mid-80's, Chaides made a second adjustable mold for pouring step wall which Aukerman alleges is an infringement.

Apparently in 1987, one of Aukerman's licensees, Baumgartner, Inc., advised Aukerman that Chaides was a substantial competitor for pouring asymmetrical wall in California.4 This advice prompted Aukerman's new counsel to send a letter to Chaides on October 22, 1987, referencing the earlier correspondence, advising that litigation against another company had been resolved, and threatening litigation unless Chaides executed the licenses previously sent within two weeks. Another period of silence followed. On August 2, 1988, Aukerman's counsel again wrote Chaides explaining more fully Aukerman's licensing proposal. When no reply was received, on October 26, 1988, Aukerman filed suit charging Chaides with infringing its '133 and '633 patents.

The district court granted summary judgment in favor of Chaides, holding that the doctrines of laches and estoppel barred Aukerman's claims for relief. The court, citing Jamesbury Corp. v. Litton Indus. Prods., 839 F.2d 1544, 5 USPQ2d 1779 (Fed.Cir.), cert. denied, 488 U.S. 828, 109 S.Ct. 80, 102 L.Ed.2d 57 (1988), ruled that Aukerman's delay of more than six years in suing Chaides shifted the burden to Aukerman to prove that its delay was reasonable and was not prejudicial to Chaides. The court rejected Aukerman's proffered excuse that it was engaged in other litigation because such litigation did not cover the period from February 22, 1979, to July 31, 1980, after it first contacted Chaides, and in any event, Aukerman gave no notice to Chaides of any litigation during the period of delay up to October 1987. The court rejected Aukerman's further argument that the delay in suit was attributable to Chaides' representation of de minimis infringement. The court held that the evidence showed prejudice to Chaides in that (1) Chaides would have to pay a license fee on projects it had bid on without having allowed for this normal cost and (2) Chaides might have gone into bankruptcy had it known of its liability for past infringement. The court also held that Chaides' ability to defend itself would be prejudiced because necessary witnesses for Chaides' defense, including the inventor named in the subject patents, were unavailable and that memories of other witnesses, such as Mr. Aukerman's, had faded.

Respecting equitable estoppel, the court placed the burden on Chaides to establish this defense. The court then held that Aukerman's silence for nearly ten years after making an initial protest was sufficiently misleading to constitute bad faith and that Aukerman should have notified Chaides of the effect of the otherwise ambiguous June 1, 1979 deadline. The court went on to determine that Chaides had detrimentally relied on Aukerman's silence in deciding to forego bankruptcy and to bid low on highway contracts.

The court also found the defenses of laches and equitable estoppel were not defeated by reason of Chaides' "unclean hands." In particular, Aukerman had pointed to Chaides having made a copy of the Gomaco slip-form. The court stated Aukerman presented no evidence on "how the copy infringed the patent." Finally, it held that by the mid-80s, when this device was in use, Aukerman had already affirmatively misled Chaides.

For these reasons, the district court entered judgment for Chaides.II.

The court has taken this case in banc to clarify and apply principles of laches and equitable estoppel which have been raised as defenses in this patent infringement suit.5 In summary, for reasons to be more fully discussed, we hold with respect to laches:

1. Laches is cognizable under 35 U.S.C. § 282 (1988) as an equitable defense to a claim for patent infringement.

2. Where the defense of laches is established, the patentee's claim for damages prior to suit may be barred.

3. Two elements underlie the defense of laches: (a) the patentee's delay in bringing suit was unreasonable and inexcusable, and (b) the alleged infringer suffered material prejudice attributable to the delay. The district court should consider these factors and all of the evidence and other circumstances to determine whether equity should intercede to bar pre-filing damages.

4. A presumption of laches arises where a patentee delays bringing suit for more than six years after the date the patentee knew or should have known of the alleged infringer's activity.

5. A presumption has the effect of shifting the burden of going forward with evidence, not the burden of persuasion.

With respect to equitable estoppel against a patent infringement claim, we hold that:

1. Equitable estoppel is cognizable under 35 U.S.C. § 282 as an equitable defense to a claim for patent infringement.

2. Where an alleged infringer establishes the defense of equitable estoppel, the patentee's claim may be entirely barred.

3. Three elements must be established to bar a patentee's suit by reason of equitable estoppel:

a. The patentee, through misleading conduct, leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer. "Conduct" may include specific statements, action, inaction, or silence where there was an obligation to speak.

b. The alleged infringer relies on that conduct.

c. Due to its reliance, the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.

4. No presumption is applicable to the defense of equitable estoppel.

As equitable defenses, laches and equitable estoppel are matters committed to the sound discretion of the trial judge and the trial judge's decision is reviewed by this court under the abuse of discretion standard. We appreciate that the district court, in deciding the instant case, did not have the benefit of these statements of legal principles which differ in some respects from our precedent. We have no alternative, however, but to rule that, when these principles are applied to the record before us, the district court erred in granting summary judgment in favor of Chaides.

The Supreme Court has long recognized the defense of laches to a patent infringement action brought in equity. See Lane & Bodley Co. v. Locke, 150 U.S. 193, 14 S.Ct. 78, 37 L.Ed. 1049 (1893); Wollensak v. Reiher, 115 U.S. 96, 5 S.Ct. 1137, 29 L.Ed. 350 (1885); Mahn v. Harwood, 112 U.S. 354, 5 S.Ct. 174, 28 L.Ed. 665 (1884). Laches may be defined generally as "slackness or carelessness toward duty or opportunity." Webster's Third New International Dictionary (1969). In a legal context, laches may be defined as the neglect or delay in bringing suit to remedy an alleged wrong, which taken together with lapse of time and other circumstances, causes prejudice to the adverse party and operates as an equitable bar. See W.M. Tabb, Reconsidering the Application of Laches in Environmental Litigation, 14 Harv.Envtl.L.Rev. 377 n. 1 (1990). "[Laches] exacts of the plaintiff no more than fair dealing with his adversary." 5 J.N. Pomeroy, Equity Jurisprudence § 21, at 43 (Equitable Remedies Supp.1905). In refusing to enforce a patentee's claim of infringement, the Supreme Court invoked the maxim: "Courts of equity, it has often been said, will not assist one who has slept upon his rights, and shows no excuse for his laches in asserting them." Lane & Bodley, 150 U.S. at 201, 14 S.Ct. at 81. In Environmental Defense Fund v. Alexander, 614 F.2d 474 (5th Cir.), cert. denied, 449 U.S. 919, 101 S.Ct. 316, 66 L.Ed.2d 146 (1980), the court explained the rationale underlying the doctrine of laches in this apt manner:

Laches is a clement doctrine. It assures that old grievances will some day be laid to rest, that litigation will be decided on the basis of evidence that remains reasonably accessible and that those against whom claims are presented will not be unduly prejudiced by delay in asserting them. Inevitably it means that some potentially meritorious demands will not be entertained. But there is justice too in an end to conflict and in the quiet of peace.

Id. at 481.

Extended to suits at law as well, laches became "part of the general body of rules governing relief in the federal court system." Id. at 478. As a defense to a claim of patent infringement, laches was well established at the time of recodification of the patent laws in 1952.6 The commentary of one of the drafters of the revised patent statute confirms the intention to retain the defense of laches, specifically by 35 U.S.C. § 282:7

The defenses which may be raised in an action involving the validity or infringement of a patent are[:] .... 'Noninfringement, absence of liability for infringement, or unenforceability' [35 U.S.C. § 282][;] ... this would include ... equitable defenses such as laches, estoppel and unclean hands.

P.J. Federico, Commentary on the New Patent Law, 35 U.S.C.A. 1, 55 (West 1954). In J.P. Stevens & Co. v. Lex Tex Ltd. Inc., 747 F.2d 1553, 1561, 223 USPQ 1089, 1093 (Fed.Cir.1984), cert. denied, 474 U.S. 822, 106 S.Ct. 73, 88 L.Ed.2d 60 (1985), this court so interpreted section 282 stating:

Paragraph (1) [of Section 282] includes "equitable defenses such as laches, estoppel and unclean hands."

Aukerman argues, nevertheless, that the defense of laches is inapplicable, as a matter of law, against a claim for damages in patent infringement suits. For this proposition, Aukerman first argues that recognition of laches as a defense conflicts with 35 U.S.C. § 286 (1988), which provides:

Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.

Per Aukerman, this provision is comparable to a statute of limitations which effectively preempts the laches defense.

Aukerman's argument is doubly flawed. First, Aukerman is in error in its position that, where an express statute of limitations applies against a claim, laches cannot apply within the limitation period. In other areas of our jurisdiction, laches is routinely applied within the prescribed statute of limitations period for bringing the claim. See Cornetta v. United States, 851 F.2d 1372 (Fed.Cir.1988) (in banc) (military pay); accord Reconstruction Finance Corp. v. Harrisons & Crosfield Ltd., 204 F.2d 366 (2d Cir.), cert. denied, 346 U.S. 854, 74 S.Ct. 69, 98 L.Ed. 368 (1953) (breach of contract).

Second, with respect to section 286 specifically, a six-year limitation on damages, virtually identical to section 286, has been in the patent statute since 1897. As explained in Standard Oil Co. v. Nippon Shokubai Kagaku Kogyo Co., 754 F.2d 345, 347-48, 224 USPQ 863, 865-66 (Fed.Cir.1985), section 286 is not a statute of limitations in the sense of barring a suit for infringement.8 Assuming a finding of liability, the effect of section 286 is to limit recovery to damages for infringing acts committed within six years of the date of the filing of the infringement action. One counts backwards from the date of the complaint to limit pre-filing damages arbitrarily. However, as stated in Standard Oil, with respect to the recovery of six years of damages:

This assumes, of course, no other impediment to recovery or maintenance of the suit such as application of the doctrine of laches.

Id. at 348, 224 USPQ at 865.

We are unpersuaded that section 286 should be interpreted to preclude the defense of laches and provide, in effect, a guarantee of six years damages regardless of equitable considerations arising from delay in assertion of one's rights. Without exception, all circuits recognized laches as a defense to a charge of patent infringement despite the reenactment of the damages limitation in the 1952 statute. See 5 D.S. Chisum, Patents § 19.05 (and cases cited therein); Jean F. Rydstrom, Annotation, Laches as Defense in Patent Infringement Suit, 35 A.L.R. Fed. 551 (1977). This is not remarkable inasmuch as the statutory language of section 286 was virtually identical to a predecessor provision under which laches was also recognized.9 Dwight & Lloyd Sintering Co. v. Greenawalt, 27 F.2d 823, 827 (2d Cir.1928) (L. Hand, J.) (recovery barred by thirteen-year delay for "even the earliest of the six years to which recovery is in any event limited.")

Even looked at afresh, we have no difficulty in reading section 286 harmoniously with the recognition under section 282 of the laches defense. By section 286, Congress imposed an arbitrary limitation on the period for which damages may be awarded on any claim for patent infringement. Laches, on the other hand, invokes the discretionary power of the district court to limit the defendant's liability for infringement by reason of the equities between the particular parties. See J.P. Stevens, 747 F.2d at 1561, 223 USPQ at 1093. Recognition of laches as a defense, thus, does not affect the general enforceability of the patent against others or the presumption of its validity under section 282. Nothing in section 286 suggests that Congress intended by reenactment of this damage limitation to eliminate the long recognized defense of laches or to take away a district court's equitable powers in connection with patent cases. An equitable defense under section 282 and the arbitrary limitation of section 286 do not conflict.

Aukerman also argues that laches, by reason of being an equitable defense, may be applied only to monetary awards resulting from an equitable accounting, not to legal claims for damages. Inasmuch as the patent statute was amended in 1946 to eliminate the remedy of an equitable accounting, per Aukerman, this change also eliminated the basis for a laches defense. We disagree.

For many decades, parties have generally been allowed to plead equitable defenses at law without having to resort to a separate bill in equity. In 1915, Congress enacted 38 Stat. 956, codified as 28 U.S.C. § 398, which authorized such pleadings. As of that time, laches became available to bar legal relief, including patent damage actions. See Banker v. Ford Motor Co., 69 F.2d 665, 666 (3d Cir.1934); accord Ford v. Huff, 296 F. 652, 658 (5th Cir.1924). Section 398 was then superseded in 1937 by Fed.R.Civ.P. 2 which merged legal and equitable claims into a single civil action. See Fed.R.Civ.P. 2 Advisory Committee note 1; 2 J.W. Moore, Moore's Federal Practice p 2.05, at 2-33 n. 49 (2d ed. 1991). Section 398 was later repealed as being obsolete in light of Fed.R.Civ.P. 2. Id. The right to interpose the equitable defense of laches in patent litigation, therefore, remains as viable today as it was when section 398 was first enacted in 1915.10

In any event, the right to interpose the equitable defense of laches in a civil action is specifically recognized in Fed.R.Civ.P. 8(c). Accord Technitrol, Inc. v. NCR Corp., 513 F.2d 1130 (7th Cir.1975) (adopting, inter alia, Part II of district court opinion in Technitrol, Inc. v. Memorex Corp., 376 F.Supp. 828, 830-32 (N.D.Ill.1974)). Hence, we are unpersuaded that the technical distinction between application of laches against legal damages and an equitable accounting which Aukerman asks us to draw should be made.

Finally, Aukerman asserts that it is improper to utilize laches as a defense to completely bar recovery of prefiling damages flowing from a continuing tort, such as patent infringement. We understand Aukerman to be arguing that, because each act of infringement is deemed a separate claim, the laches defense, like a statute of limitations, must be established separately with respect to each such act. Compare Union Planters Nat'l Bank v. Markowitz, 468 F.Supp. 529, 532 (W.D.Tenn.1979) (six-year limitation runs separately on each note of indebtedness for the amount), with Hart v. United States, 910 F.2d 815 (Fed.Cir.1990) (six-year limitation does not run separately on claim to monthly annuity).

Aukerman's theory conflicts with the precedent of the Supreme Court in which laches has been applied against continuing torts as in Lane & Bodley, 150 U.S. 193, 14 S.Ct. 78 (patent infringement) and Menendez v. Holt, 128 U.S. 514, 9 S.Ct. 143, 32 L.Ed. 526 (1888) (trademark infringement). In those cases, as well as in our precedent and that of other circuits, laches has been viewed as a single defense to a continuing tort up to the time of suit, not a series of individual defenses which must be proved as to each act of infringement, at least with respect to infringing acts of the same nature. See, A.C. Aukerman Co. v. Miller Formless Co., 693 F.2d 697, 700 n. 4, 216 USPQ 863, 865 (7th Cir.1982). To that extent, continuing tortious acts may be deemed to constitute a unitary claim. Cf. Young Eng'rs v. United States Int'l Trade Comm'n, 721 F.2d 1305, 1316, 219 USPQ 1142, 1152 (Fed.Cir.1983) (claim preclusion applies against same type of infringing acts).

In any event, Aukerman's argument, which focuses on acts of the defendant, distorts the basic concept of laches. Laches focuses on the dilatory conduct of the patentee and the prejudice which the patentee's delay has caused. As stated in Holmberg v. Armbrecht, 327 U.S. 392, 396, 66 S.Ct. 582, 584, 90 L.Ed. 743 (1946).

A federal court ... may dismiss a suit where the plaintiffs' "lack of diligence is wholly unexcused; and both the nature of the claim and the situation of the parties was such as to call for diligence ..." Benedict v. City of New York, 250 U.S. 321, 328 [39 S.Ct. 476, 478, 63 L.Ed. 1005 (1919) ].

Thus, we reaffirm the ruling in Leinoff v. Louis Milona & Sons, 726 F.2d 734, 220 USPQ 845 (Fed.Cir.1984) and our subsequent precedent11 that laches is available as a defense to a suit for patent infringement. As explained in Leinoff:

Since there is no statute from which to determine the timeliness of an infringement action, vis-a-vis the patentee's first knowledge of infringement, courts use the equitable doctrine of laches.

726 F.2d at 741, 220 USPQ at 850.

The application of the defense of laches is committed to the sound discretion of the district court. Jamesbury, 839 F.2d at 1551, 5 USPQ2d at 1785; Bott v. Four Star Corp., 807 F.2d 1567, 1576, 1 USPQ2d 1210, 1216-17 (Fed.Cir.1986); Leinoff, 726 F.2d at 741, 220 USPQ at 850; Studiengesellschaft Kohle mbH v. Eastman Kodak Co., 616 F.2d 1315, 1325, 206 USPQ 577, 586 (5th Cir.), cert. denied, 449 U.S. 1014, 101 S.Ct. 573, 66 L.Ed.2d 473 (1980). With its origins in equity, a determination of laches is not made upon the application of "mechanical rules." Holmberg, 327 U.S. at 396, 66 S.Ct. at 584. The defense, being personal to the particular party and equitable in nature, must have flexibility in its application. Id. A court must look at all of the particular facts and circumstances of each case and weigh the equities of the parties. See Bott, 807 F.2d at 1576, 1 USPQ2d at 1216-17.

It is, however, well settled that, to invoke the laches defense, a defendant has the burden to prove two factors:

1. the plaintiff delayed filing suit for an unreasonable and inexcusable length of time from the time the plaintiff knew or reasonably should have known of its claim against the defendant, and

2. the delay operated to the prejudice or injury of the defendant.

Costello v. United States, 365 U.S. 265, 282, 81 S.Ct. 534, 543, 5 L.Ed.2d 551 (1961); Meyers v. Brooks Shoe Inc., 912 F.2d 1459, 1461, 16 USPQ2d 1055, 1057 (Fed.Cir.1990); Hottel Corp. v. Seaman Corp., 833 F.2d 1570, 1572, 4 USPQ2d 1939, 1940 (Fed.Cir.1987) and cases cited therein.

The length of time which may be deemed unreasonable has no fixed boundaries but rather depends on the circumstances. Galliher v. Cadwell, 145 U.S. 368, 373, 12 S.Ct. 873, 875, 36 L.Ed. 738 (1892); Rosemount, Inc. v. Beckman Instruments, 727 F.2d 1540, 1550, 221 USPQ 1, 10 (Fed.Cir.1984) (patentee denied damages because of a three-year delay); see also Meyers, 912 F.2d at 1462-63, 16 USPQ2d at 1057-58; Advanced Hydraulics v. Otis Elevator Co., 525 F.2d 477, 481 n. 2, 186 USPQ 1, 4 n. 2 (7th Cir.1975). The period of delay is measured from the time the plaintiff knew or reasonably should have known of the defendant's alleged infringing activities to the date of suit. However, the period does not begin prior to issuance of the patent, Bott, 807 F.2d at 1575, 1 USPQ2d at 1216; Studiengesellschaft Kohle, 616 F.2d at 1326, 206 USPQ at 587.

Material prejudice to adverse parties resulting from the plaintiff's delay is essential to the laches defense. Such prejudice may be either economic or evidentiary. Cornetta, 851 F.2d at 1378. Evidentiary, or "defense" prejudice, may arise by reason of a defendant's inability to present a full and fair defense on the merits due to the loss of records, the death of a witness, or the unreliability of memories of long past events, thereby undermining the court's ability to judge the facts. Barrois v. Nelda Faye, Inc., 597 F.2d 881, 885 (5th Cir.1979); Smith v. Sinclair Ref. Co., 257 F.2d 328, 330,