Christa Laser on Patent Law’s Equitable Defenses

The following post comes from Wade Cribbs, a 2L at Scalia Law and a Research Assistant at CPIP.

By Wade Cribbs

In patent law, equitable defenses can play an essential role in multi-million-dollar patent infringement cases. Unclean hands, misuse, or estoppel can render a potential verdict unenforceable. CPIP Edison Fellow and Assistant Professor of Law at Cleveland-Marshall College of Law Christa J. Laser dives into the unique and unsettled role of equity in her Edison Fellowship paper, Equitable Defenses in Patent Law, which is forthcoming in the University of Miami Law Review.

Professor Laser compares two theories to determine how courts might interpret undefined language governing equitable defenses in patent statutes, given that the Supreme Court has repeatedly dodged the issue. One interpretive method is a traditional point of view, the faithful agent approach, that advocates for courts to only interpret the statutes’ scope from the legislature’s intent when crafting them. The alternative approach, referred to as dynamic statutory interpretation, suggests that courts should determine what the law ought to be given the vague nature of patent statutes. The unique relationship between patent law and equity and the historically broad language of patent statutes frame the discussion about how courts should interpret equitable patent defenses.

Professor Laser sets the stage by discussing the historical distinction between law and equity before merging in 1938. The distinction in patent law is that most patent claims had been brought in equity since 1870. In the Patent Act of 1870, Congress granted equity courts the ability to award actual damages in addition to equitable remedies, effectively giving equity courts the power of law and equity regarding patents.

This early delegation of patent law to equity courts fits with Congress’s lack of specific rules for patents. Equity has historically been more flexible than law. A common argument is that Congress’s lack of specific rules for patents is to enable a common law approach to patents. Congress establishes the rough outlines of the law while leaving the finer contours for the courts, and flexibility is a necessary trait in establishing these contours. However, even if that was once the case, equity has been constrained to standards that resemble the law. In 1952, Congress amended the Patent Act in an attempt to stabilize the common law approach by codifying it.

The question now is, did Congress codify preexisting decisional law or expand it? Also, what methods should courts take to determine the answer? The confusion and its specific relation to equity arose out of the 1952 amendment removing the specifically delineated equitable defenses established under the 1870 Act and replacing them with a defense of unenforceability. Further confusion arose because Congress eliminated the statement that the listed “defenses may be pleaded in any suit in equity for relief against alleged infringement” and left it to state only that “the following shall be a defense in any action.” While committee notes clarified that unenforceability covered the previously recognized equitable defenses, there was no comment on what “defenses in any action” meant. Previously, all equitable defenses were not understood to bar all claims under both law and equity. For example, estoppel barred claims in law and equity, but laches was limited to actions at law.

Professor Laser proposes three possible interpretations of the “defenses in any action” language. The phrase could mean that the defenses would apply equally in law and equity, that the equitable defenses would only bar claims in equity, or that courts should adopt a case-by-case approach, drawing guidance from prior case law. Professor Laser tosses out the first two alternatives as too stark a change from established law, given the lack of legislative comment. The case-by-case approach is unproblematic when it comes to latches and estoppel because their applications to law and equity claims is well delineated. However, for unclean hands, inequitable conduct, and patent misuse, the case law is much less clear, and the disagreement over statutory interpretation is necessary.

As a case-by-case approach is necessary, Professor Laser outlines the case law before 1952 and the impact the amendment had on unclean hands, inequitable conduct, and patent misuse defenses.

For prior case law on unclean hands, Professor Laser looks at Keystone, Hazel-Atlas, and Precision Instruments. Keystone highlights that unclean hands can serve as a bar to equitable relief when plaintiffs commit acts such as bribery or suppression of evidence. Hazel-Atlas allowed unclean hands to bar a judgment at law in an infringement suit because the plaintiff based both the patent itself and the infringement case upon bribery and fraud. In Precision Instruments, the court dismissed the case because blackmail by the plaintiff was an act related to the cause of action that transgressed equitable principles. The case law before 1952 illustrates that equitable claims are barred when a party commits an unconscionable act related to the cause of action, and legal claims are barred if fraud leads to a legal judgment.

After the 1952 amendment, the Federal Circuit has expanded unclean hands to bar both legal and equitable relief without the related cause of action requirement. In Gilead v. Merck, the Federal Circuit held that unclean hands constituted grounds for summary judgment on both legal and equitable claims where an attorney had given false testimony in support of unethically obtained patent strategy information. Pre-1952 case law did not bar legal relief when the conduct was not inequitable, but in Gilead, the court held that conduct that was unclean hands—but that was not inequitable—still barred legal relief.

Some courts believe that inequitable conduct arose out of the unclean hands doctrine. However, inequitable conduct was a defense against patent claims in the first Patent Act passed in 1790. Inequitable conduct and invalidity overlap heavily. Inequitable conduct requires a deceptive intent with misleading information to render a patent invalid. Invalidity requires no such intent. Previously, the reasoning for pleading inequitable conduct instead of invalidity was that inequitable conduct had infectious invalidity. If a claim was invalid, only that claim was invalid and did not affect any other claim in the patent. However, inequitable conduct in a claim would infect the entire patent making it invalid. Congress removed this distinction in 2011 when it passed the America Invents Act and removed the infectious invalidity result from inequitable conduct. The doctrines is now no longer distinguishable from invalidity.

Patent misuse is improperly using a patent outside of the scope of the patent grant. The Supreme Court, in Continental Paper Bag, held that an unused patent was not a misused patent. On the other hand, in Morton Salt and B.B. Chemical, the Supreme Court found that product tying did qualify as patent misuse, and selling a patented machine cannot be tied to the sale of an unpatented dependent product. Before 1952, patent misuse was only an equitable defense to prevent infringing injunctions. There has not been a patent misuse Supreme Court case since 1952, so how the amendment affected the doctrine has yet to be seen.

The policy arguments supporting a dynamic statutory interpretation are that courts more readily see the impact of policy decisions and therefore are better suited to craft policy. Also, Congress acts too slowly to handle the rapid advancement of the latest technology.

The counterpoint, Professor Laser explains, is that slow and deliberate policymaking is advantageous in patent law. Much of a patent’s value comes from the predictability of patents. A single case changing the landscape of an industry or invalidating hundreds or thousands of patents would ruin faith in the patent industry. Congress is slow because it takes time to gather information in ways that courts cannot. This ability to obtain the necessary knowledge to craft patent legislation is essential in the highly technical application of broad policy. Finally, courts are not policymakers, and judges who are not practiced in crafting policy may prove hesitant or rash in their decisions. While rash decisions have apparent consequences, even inaction will lead to unintentional policy. Judges are accustomed to making decisions based on precedent, not broad policy implications.

Professor Laser closes by suggesting a third strategy. Congress could delegate its authority to an agency to handle the ever-changing patent landscape. This would have the positives of superior access to knowledge and practiced policymakers without Congress’s gridlock and combative lobbying forces. The fact is, until the Supreme Court or Congress provides guidance on how to handle the vague nature of patent statutes, lower courts are left on their own to consider an ever-growing list of factors when determining equity’s impact on patent litigation.

To read Professor Laser’s paper, please click here.