United States of America

Report - Question Q192

Acquiescence (tolerance) to infringement

of Intellectual Property Rights

Contributors: Tim Crean, Duo Chen, Timothy May, Jeff Berkowitz, Justin Kayal, James Rosini, Kristen McCallion, Mark Fischer, Hans Troesch, Joy Tassin, Steve Lindholm, Marcus Hunt

1. The Groups are invited to indicate if their system of national law provides rules conferring an effect of the tolerance shown by the holder of an intellectual property right with regard to a third party who infringes his/her right.

Does this effect of tolerance apply to all intellectual property rights (patents, designs, trade marks and other distinctive signs) or only to some?

The Groups are also invited to provide the justifications put forward in their country for the introduction of this rule on the acquisition of rights as an effect of tolerance and to define its scope.

Finally, the last question is to identify if the rules relating to the acquisition of rights through the effect of tolerance should be the same for different kinds of intellectual property rights.

Do national laws make a distinction between intellectual property rights that have been registered and intellectual property rights which are simply conferred by use and not by registration?

General

The effects of tolerance and acquiescence of rights generally come in three flavors under the U.S. intellectual property law: statutes of limitation, laches, and estoppel. Statutes of limitation put a time limitation on back damages or liability for past infringement. Laches is an equitable doctrine aimed at discouraging stale demands. It therefore bars relief from certain pre-filing infringement actions but does not act as a total bar from relief. Equitable estoppel, on the other hand, may act as a total bar from relief.

Patent

United States patent law recognizes three types of rules for when a patent holder’s tolerance of an infringer’s actions may excuse that infringer from liability. These rules include the statutory provisions under 35 U.S.C. § 286 and the equitable defenses of laches and estoppel.

As to § 286 of the patent statute, it limits the period for which a patent holder can recover damages to no more than six years before the filing of the infringement claim. Section 286 is not a statute of limitations in the sense of barring a suit for infringement. A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1030 (Fed. Cir. 1992). It merely prevents the patent holder from recovering damages for infringing acts “tolerated” for more than six years before filing of the suit. Id. Thus, the third party is still liable for infringing acts occurring within the six-year period.

To obtain greater relief than that provided by § 286, a third party in the United States will often assert the doctrine of laches. Laches limits damages for a claim where the patent holder, knowing of its claim, unreasonably delays in bringing its suit to enforce that claim and the delay causes material prejudice to the third party. Id. at 1028. In such circumstances, equity will not permit the patent holder to recover damages accruing during the period of its delay or “tolerance.” Hair v. United States, 350 F.3d 1253, 1257 (Fed. Cir. 2003) (“Even without a specific statutory bar to call into play, courts will impose a parallel bar—under the rubric of laches—in cases in which the plaintiff has failed to act in a reasonably prudent manner to protect and enforce rights, and when a perceived injustice to the defendant exists.”) Thus, laches, if applicable, bars only pre-filing damages. A.C. Aukerman, 960 F.2d at 1041. Laches has no effect on a patent holder’s right to seek post-filing damages or, generally, an injunction enjoining future infringement. Id.

Finally, the doctrine of equitable estoppel may arise when the patent holder’s tolerance causes the third party to reasonably infer that the patent holder does not plan to enforce the patent. More specifically, equitable estoppel requires that: (1) the patent holder’s conduct led the third party to reasonably infer that the patent holder did not intend to enforce its patent against the third party; (2) the third party relied on that conduct; and (3) due to that reliance, the third party will be materially prejudiced if the patent holder is allowed to proceed with its claim. Id. at 1028, 1046. Thus, while laches focuses on the reasonableness of the patent holder’s “delay” in filing suit, equitable estoppel focuses on what the third party has been “led to reasonably believe” from the patent holder’s conduct. Id. at 1034. Unlike laches, equitable estoppel bars all relief for infringement. Id. at 1041.

Generally speaking, the justification for these rules stems from the view that patent holders should not be entitled to sit on their rights indefinitely, or wait for long periods of time for damages to accrue, and then pursue an infringement claim. The Federal Circuit more specifically explained the justification for laches as follows:

A patentee, of course, may sleep upon the right to exclude others from making, using, offering to sell or selling a patented invention. This right is held by the patentee against the public; by inexcusably failing to exercise timely its right to exclude, the patentee, in effect, authorizes the public to infringe–to “make, use, offer to sell, or sell” a patented invention–during the laches period.

Odetics, Inc. v. Storage Technology Corp., 185 F.3d 1259, 1273 (Fed. Cir. 1999). As to equitable estoppel, it is based on the principle:

that where one party has by his representations or his conduct induced the other party to a transaction to give him an advantage which it would be against equity and good conscience for him to assert, he would not in a court of justice be permitted to avail himself of that advantage.

Union Mut. Ins. Co. v. Wilkinson, 80 U.S. (13 Wall.) 222, 233 (1871).

Trademark

Under the United States Trademark law, the doctrine of laches addresses the situation and effect resulting from a trademark owner’s tolerance of the infringement of its trademark as there is no statute of limitation for trademark infringement actions brought under the U.S. Lanham Act. See J. THOMAS MCCARTHY at § 31:1. Laches is an equitable defense wherein the junior user claims that the trademark owner inexcusably and unreasonably delayed in filing suit to such an extent that the present filing of a suit would cause prejudice to the junior user. In general, the longer the inexcusable delay, the less severe the prejudice need be. Conversely, the greater the prejudice, the shorter the required delay. A successful defense of laches may result in estoppel by laches wherein the trademark owner is barred from injunctive and/or monetary relief. See J. THOMAS MCCARTHY at § 31:2.

Although it is an equitable defense, an explicit laches defense for trademark cases is codified at 15 U.S.C.S. § 1115(b)(8). In general, in order to succeed on a laches defense, a junior user must show: (1) that the trademark owner had knowledge (whether constructive or actual) of the junior user’s use of its mark, (2) inexcusable delay in taking action with respect to a junior user’s use of its mark, (3) junior user would suffer prejudice as a result of trademark owner’s assertion of rights at the present time, and (4) good faith conduct on the part of the junior user. See New York Racing Assoc., Inc. v. Perlmutter Publishing, Inc., 1996 U.S. Dist. LEXIS 11764 (N.D.N.Y. July, 1996).

In addition, because trademark rights in the United States are acquired through use, if the junior user is allowed to use the mark unchallenged for a prolonged period of time, it may eventually acquire rights in the given trademark. One case has stated that when “a junior user obtains the right to use a mark through the application of equitable principles such as laches, the junior user’s mark stands in parity with the complaining senior party’s mark. Acordingly, when a senior user delays in enforcing its rights, a junior user may acquire a valid trademark in a related field, enforceable against even the senior user.” Tillamook Country Smoker, Inc. v. Tillamook County Creamer Assoc., 333 F. Supp 2d 975, at 989 (D. Ore. 2004).

The general justification for the defense of laches is that it would be inequitable to allow a junior user to be lulled into a false sense of security over a period of time, and to have acted on that sense of security, only to later be prejudiced as a result. This prejudice may take the form of loss of business or financial resources which were built up over the time period, or the present inability to mount an adequate defense as a result of lost or stale evidence.

There is no distinction between registered and unregistered trademarks regarding a defense of laches. In fact, a defense of laches is one of the few affirmative defenses applicable to a charge of infringement of a federally registered trademark which have achieved “incontestable” status.

There is no federal statute of limitations for actions brought under the Lanham Act. When there is a need for a statute of limitations in a Lanham Act case, the courts may look to the relevant forum state statute which best effectuates the federal law. In infringement suits, however, it is generally laches, as analyzed on a strict doctrinal basis without regard to any statute of limitations, that is invoked to determine the availability of injunctive and monetary relief.

Copyright

Unlike real property laws which have specific doctrines for conveying property to a third party when the property owner is tolerant of that party’s presence (e.g. easements), copyright law has no specific provisions that confer ownership rights to an infringer resulting from tolerance by the copyright owner. However, three doctrines which result from tolerance by the copyright owner, which do not convey ownership rights in the infringer, but rather prevent the copyright owner from suing for infringement, are applicable here. Namely, they are the expiration of the statute of limitations, laches, and estoppel.

The statute of limitations prevents copyright holders from suing for past infringement occurred after a certain period of time defined by statute. Under the U.S. copyright law, the statute of limitation is 3 years. 17 U.S.C. § 507. However, the statute of limitations does not confer tolerance of future infringement; it only forgives certain acts of past infringement. Most courts, namely, courts in the Fifth, Second and Sixth circuits,[1] have held that in a case of continuing infringement they would disallow damages for the acts occurring outside the statute of limitations period. See e.g., Makedwde Publishing Co. v. Johnson, 37 F.3d 180, 182 (5th Cir. 1994); Stone v. Williams, 970 F.2d 1043 (2nd Cir. 1992); Hoste v. Radio Corp. of America, 654 F.2d 11 (6th Cir. 1981). However, the Seventh circuit has held that continuing infringement will preserve the cause of action until the last act of infringement, thereby making the accused infringer liable for acts occurring outside the limitations period. Taylor v. Meirick, 712 F.2d 1112, 1118 (7th Cir. 1983).

The doctrine of laches also prevents copyright holders from suing for past infringement, however, unlike the bar created by statute of limitation, there is no set period of time for raising the laches defense. Because the Copyright Act contains an express statute of limitations, courts are divided as to whether the defense of laches is cognizable in the copyright context.[2] In this regard, because Congress has given copyright holders a certain time period in which to bring a copyright infringement suit, a judicially created doctrine such as laches, arguably should not be used to supersede legislative intent. On the other hand, one justification for the application of laches, is that it is inequitable for a copyright owner, with full awareness of an intended or on-going infringement, to remain inactive while the infringer puts forth money and time in exploiting the copyrighted work, but then decide to step in once the work has achieved a degree of success.

The principles of estoppel are applicable in copyright infringement actions. There are different species of estoppel that are applicable to different aspects of the law. For example, ‘equitable estoppel’, which is discussed in further detail below, serves as a defense to a charge of copyright infringement.

Furthermore, there is a distinction between registered and unregistered copyrighted works. Registration of the copyrighted material, although not necessary to confer the copyright, does bestow to the owner additional, favorable legal rights and privileges. Most notably, an owner of a copyright cannot sue for infringement until the owner has filed an application to register the copyright (except for works of origin from other signatories to the Berne Convention). 17 U.S.C. §411(a). Once registration has been effectuated, an action may be instituted for infringements that occurred before, as well as after, the effective date of registration. See 3-12 Nimmer on Copyright §12.08 (2005).

An additional doctrine that is exclusive to copyright law, which is appropriate to discuss here, is “fair use”. Fair use is not necessarily derived from tolerance of a copyright owner, however, it does secure certain rights in a copyrighted work to a subsequent user, or alleged infringer. Fair use is also an affirmative defense that rests on equitable principles. The doctrine has developed through a substantial number of US Supreme court decisions over the years[3], and has been codified in section 107 of the Copyright Act. 17 U.S.C. § 107. Section 107 contains a list of the various purposes for which the reproduction of a particular work may be considered “fair,” such as criticism, comment, news reporting, teaching, scholarship, and research, and it also sets out four factors to be considered in determining whether or not a particular use is fair. They are as follows: (1) the purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.