Patentee Equitably Estopped from Asserting Patent Due to 10-Year Delay in Filing Suit

Earlier this year, in Akeso Health Sciences, LLC v. Designs for Health, Inc., District Judge S. James Otero of the U.S. District Court for the Central District of California granted a motion for summary judgment filed by Defendant Designs for Health, Inc. ("DFH"), in which DFH argued, inter alia, that Plaintiff Akeso Health Sciences, LLC should be equitably estopped from asserting U.S. Patent No. 6,500,450 due to Akeso's ten-year delay in filing suit.  Akeso had filed suit against DFH for infringement of the '450 patent, which relates to a dietary supplement for the treatment of migraine headache, asserting that DFH's manufacture and sale of the migraine treatment product Migranol indirectly infringed the asserted claims due to various instructions and implications on the label.

On April 18, 2006, counsel for Akeso's founder and the sole inventor of the '450 patent, Curt Hendrix, sent a letter to DFH informing DFH of Hendrix's ownership of the '450 patent and demanding that, due to the "similarity" between Migranol and the compositions of the patent, DFH "cease manufacture and/or distribution of [Migranol], remove the inventory of [Migranol] from any stores in which you have placed the product, destroy all inventory and returned product labeled as [Migranol] and provide our office with written confirmation of your specific actions in these regards by the close of business on May 1, 2006."  On April 27, 2006, counsel for DFH responded that it required additional time to analyze the patent and discuss the issue with DFH, and that it would provide a response "no later than 12 May 2006."  However, no further communications were exchanged between Akeso and DFH until Akeso filed its infringement action on October 18, 2016.  DFH responded to Akeso's complaint by filing a motion for summary judgement.

The District Court noted that the applicability of equitable estoppel is "committed to the sound discretion of the trial judge," citing A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1042 (Fed. Cir. 1992) (en banc).  Quoting Radio Sys. Corp. v. Lalor, 709 F.3d 1124, 1130 (Fed. Cir. 2013), the Court explained that:

Three elements are required for equitable estoppel to bar a patentee's suit: (1) the patentee, through misleading conduct (or silence), leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer; (2) the alleged infringer relies on that conduct; and (3) the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.

The Court indicated that for silence to be considered misleading, it "must be accompanied by some other factor which indicates that the silence was sufficiently misleading as to amount to bad faith," citing Hemstreet v. Computer Entry Sys. Corp., 972 F.2d 1290, 1295 (Fed. Cir. 1992) (emphasis in original).  Citing Meyers v. Asics Corp., 974 F.2d 1304, 1309 (Fed. Cir. 1992) (citations and quotations omitted), the Court also noted that "[i]n the cases that have applied intentionally misleading silence in the patent infringement context, a patentee threatened immediate or vigorous enforcement of its patent right but then did nothing for an unreasonably long time."  [It should be noted that in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, where the Supreme Court eliminated laches as a defense in patent infringement actions, the Court indicated that equitable estoppel remained a viable defense.]

According to the Court, the sole question in the dispute between Akeso and DFH was whether the ten-year silence after DFH received the cease-and-desist letter was by itself sufficiently misleading as to provide a basis for equitable estoppel.  On this question, the Court noted that the Federal Circuit's decisions in Hemstreet and Aspex Eyewear Inc. v. Clariti Eyewear, Inc. were instructive.  After reviewing these decisions, the Court stated that "[t]aken together, these cases suggest that in order for a period of silence to be construed as misleading, the initial contact leading to silence must be 'adversarial' in that it can be reasonably viewed 'as a threat of an infringement suit' rather than a 'license negotiation.'"  According to the Court:

Here, the language of the cease-and-desist letter mirrors Aspex far more than it does Hemstreet; Hendrix demands that DFH immediately cease manufacture and distribution of the accused product as well as destroy all of its current inventory.  . . .  At no point in the letter does Hendrix suggest that licensing is a possibility.  There is simply no plausible interpretation that Hendrix's position was non-adversarial; the threat of litigation was implied heavily throughout, even if not explicitly stated.

Upon finding that the cease-and-desist letter to DFH constituted a threat of litigation for the purposes of finding a misleading silence, the Court next turned to the question of whether the delay in filing suit constituted an "unreasonably long time."  The Court noted that "[w]hen DFH failed to meet its own extended deadline, Hendrix chose not to follow up on his threats," and concluded that "[t]his decision could have been interpreted by DFH, after a reasonable period of time, as a relinquishment of Hendrix's infringement claims."

The Court indicated that its finding was further bolstered by 35 U.S.C. § 286, which precludes a patentee from recovering for any infringement committed more than six years prior to the filing of the complaint.  In particular, the Court explained that "the patentee's failure to preserve over four years' worth of potential lost profits is reasonably interpreted as an abandonment of its claims."  With respect to the first element of equitable estoppel, the Court therefore found that "the patentee, through misleading conduct (or silence), [led] the alleged infringer to reasonably infer that the patentee [did] not intend to enforce its patent against the alleged infringer," quoting Radio Sys. Corp. v. Lalor, 709 F.3d at 1130.

With respect to the second element, detrimental reliance, the Court cited a declaration submitted by DFH Chairman Jonathan Lizotte stating that if Akeso had diligently pursued its claim of infringement, DFH would have considered modifying Migranol's labeling and/or composition to avoid DFH's claims or directing its investment, marketing, production and sales efforts into other products.  In response to Akeso's argument that DFH did rely on Akeso's conduct because its sales of Migranol were relatively low between 2006 and 2010 and did not substantially increase until 2012 to 2017, the Court pointed out that "an inference of abandonment would have been substantially bolstered after six years had passed from Akeso's threat of infringement, and therefore, "[c]ontrary to Akeso's arguments, the longer DFH waited to invest in Migranol, the stronger its claim of reliance may be."  The Court therefore concluded that DFH had adequately demonstrated reliance.

Finally, with respect to the third element, material prejudice, the Court noted that in the six years leading up to Akeso's suit, DFH's marketing and investment efforts in Migranol yielded sales that nearly quadrupled its revenue.  The Court concluded that "[r]ather than demonstrate that the investment was 'simply a business decision to capitalize on a market opportunity,' as Akeso claims, these facts indicate more strongly that Akeso saw a market opportunity to resuscitate its previously abandoned claims in order to capitalize on DFH's stronger revenues."  The Court therefore found that "DFH would be undeniably prejudiced if the Court allowed Akeso to bring forth its claims only after DFH made substantial investments in its product."

Finding evidence in support of all three elements for equitable estoppel to bar Akeso's suit, the District Court granted DFH's motion for summary judgment.

Akeso Health Sciences, LLC v. Designs for Health, Inc. (C.D. Cal. 2018)
Order Granting Defendant's Motion for Summary Judgment by District Judge Otero