Previous posts, e.g., here and here, reported on Boston University’s LED patent enforcement activity.  A recent decision handed down by a Massachusetts federal court hearing infringement lawsuits against Epistar and Everlight Electronics made an interesting ruling on the defense of laches.
Laches is neglect or delay in bringing suit which causes harm to the adverse party. Â A successful laches defense acts as an equitable bar on the plaintiff’s claim or can limit the time period for potential damages, reducing a defendant’s financial exposure. Â One key question in a laches inquiry is when the plaintiff knew about a defendant’s infringement; plaintiff’s knowledge of infringement can start the laches period.
Accused of infringing U.S. Patent No. 5,686,738 (‘738 Patent), defendants Epistar and Everlight asserted the defense of laches, arguing that BU unreasonably delayed bringing suit against them, and the delay caused them economic prejudice.
The ‘738 Patent is entitled “Highly insulated monocrystalline gallium nitride thin films†and is directed to gallium nitride semiconductor devices and methods of preparing highly insulating GaN single crystal films in a molecular beam epitaxial growth chamber.
The laches issue was complicated by a timeline dating back to 2001 during which multiple parties, including predecessors of the defendants, were involved in selling allegedly infringing products and other parties licensed the ‘738 Patent.
In March 2001, BU and Cree entered into an exclusive license agreement, which required Cree to enforce the ‘738 Patent against infringers, but did not require Cree to bring more than one infringement suit at a time. Â BU and Cree ended that arrangement in January 2012, and BU took back control of the ‘738 Patent.
According to the court decision, BU was aware of infringement as early as April 2002, when BU’s head of licensing wrote in an internal draft presentation that United Epitaxy was infringing the ‘738 Patent. Â United Epitaxy (UE) merged with Epistar in 2005, and there is no evidence that Epistar continued to make UE products after the merger.
Epistar pointed to this knowledge of possible infringement by Epistar’s predecessor company UE to assert a “tacking” theory of laches, i.e., they urged the court to tack together the full period of time from the 2012 filing date of the lawsuit all the way back to BU’s knowledge of UE’s potential infringement in 2002.
However, Epistar could not show that the predecessor products the same or similar to the accused products in this case, so the court rejected the tacking argument:
Because Epistar failed to provide sufficient evidence that its predecessors’ products were the same or similar to the accused products in this case . . . Epistar’s “tacking argument fails.
The court found Cree was not aware of Epistar’s infringement until October 2010, which was a short enough period before BU brought the lawsuit that laches did not apply.
Everlight, on the other hand, succeeded in its tacking argument.  In May 2004, Cree accused Fairchild Semiconductor of infringing the ‘738 Patent; at that time, Everlight was making LED products for Fairchild based on Fairchild’s specifications.  In 2006, Everlight purchased Fairchild’s LED business assets.
The court therefore found tacking of infringement knowledge back to 2004 for Everlight and a presumption of laches:
[T]his Court finds that Everlight is the “successor-in-interest” to Fairchild’s LED business. Â Because Everlight has satisfied the requirements for “tacking” and Cree knew of the Fairchild-Everlight LED business purchase in 2006, this Court finds that Cree’s knowledge of Everlight’s infringing activity “tacks” back to 2004, more than six years before BU filed this suit. Â Therefore, the presumption of laches applies with respect to Everlight.
Although the 8-year period from 2004 to the lawsuit filing date in 2012 was reduced somewhat due to other factors, the court went on to find two sub-periods of time unreasonable:
[G]iven BU’s failure to provide any acceptable excused for the periods from May 2004 to September 2006, and from March 2009 to October 2012, BU has failed to rebut the presumption of laches and Everlight has proven that these delays were unreasonable.
But that wasn’t the end of the story; Everlight still had to show material economic prejudice as a result of BU’s unreasonable delay in bringing suit.
And that they failed to do. Â Everlight could not provide the actual percentage of its costs directly attributable to designing packages for Epistar’s infringing LED chips or the economic impact of altering its production processes.
Everlight argued it could have stopped purchasing Epistar LED chips if BU had sued earlier. Â However, Everlight had very close ties with Epistar, including holding $100 million in Epistar stock, such that any reduction in Epistar’s profits would have economically harmed Everlight. Â Epistar also provided Everlight with its non-infringement analysis and denied infringement.
Accordingly, the court was not convinced that, had BU sued sooner, Everlight would have avoided infringement liability by ceasing its purchase of Epistar LED chips and altering its LED package design:
This Court finds it unlikely that, had BU sued earlier, Everlight – with its close ties to Epistar, Epistar’s noninfringement and invalidity analysis, and its indemnity agreement – would have ceased purchasing Epistar chips and altered its LED package design based on such a small percentage of its total worldwide sales. Â Because Everlight has failed to prove a nexus between BU’s delay in filing suit and any economic prejudice, this Court finds for the plaintiff on the issue of laches with respect to Everlight.
Thus, the court went on to award BU $9.3 million in damages from Epistar and $4 million from Everlight, plus prejudgement and post judgement interest from both parties.
