Plaintiff Diligence Needed to Avoid Equitable Estoppel

In Akeso Health Sciences, LLC v. Designs for Health, Inc.[1] recently decided in the Central District of California, the court granted defendant’s motion to dismiss based on the doctrine of equitable estoppel.

On April 18, 2006, Akeso sent a cease and desist letter to Designs for Health (Designs) demanding Designs stop producing its antimigraine product Migranol, stating the product was covered by U.S. Patent Number 6,500,450 assigned to Akeso.  In the letter, Akeso demanded that Designs cease manufacturing of Migranol, remove Migranol from any stores, destroy its inventory and returned product, and provide confirmation these actions were completed by May 1, 2006.  Designs’ lawyers responded by saying it needed more time to analyze the ‘450 patent and would respond by May 12, 2006.  Designs’ response also included contact information for its lawyers.

There was no further communication between Akeso and Designs until Akeso filed its infringement action on October 18, 2016, over ten years later.  In the intervening years, Designs had increased its marketing of Migranol and revenue from the product increased by 400%.  In the complaint, Akeso accused Designs of infringing at least claim 16 of the ‘450 patent and asked for damages in the form of lost profits or alternatively a reasonable royalty.  Akeso also asked for triple damages based on willful infringement.  On March 19, 2018, Designs filed a Motion for Summary Judgement to Dismiss based on the defense of equitable estoppel.

Equitable estoppel is a reliance-based estoppel. Reliance-based estoppel protects a party from harm that results from its reliance on the actions, or lack thereof, of another party.  A party can be precluded from asserting its rights where the relying party would be harmed.

There are three elements required to assert an equitable estoppel defense in a patent infringement action.  First, 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.  Second, the alleged infringer relies on that conduct.  Third, the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.

Where silence is the misleading conduct, there must also be “some other factor which indicates the silence was sufficiently misleading as to amount to bad faith.  Hemstreet v. Computer Entry Sys. Corp., 972 F.2d 1290, 1295 (Fed. Dir, 1992). In Akeso, this other was the “adversarial” nature of the cease and desist letter. The letter was not merely notice and an offer to take a license, but was a perceived as threat to immediately enforce patent rights if the defendant did not destroy inventory within two weeks. The court held that silence over such a lengthy time following such an imminent threat created an inference that Akeso did not intend to enforce its patent, thereby satisfying the first element of equitable estoppel.  Notably, the fact that Designs did not follow up had no bearing on the court’s analysis.

Designs fulfilled the second element, reliance on Akeso’s silence, by showing it would have acted differently if it believed that litigation was imminent. Design submitted a declaration that if Akeso had pursued its claim, they would have modified the Migranol formula or put its resources into other products, instead of making further investment in Migranol. The court found that this was sufficient showing of reliance on Akeso’s inaction.

Design also demonstrated it would be materially prejudiced if Akeso was allowed to proceed with its claim. Sales of Designs’ Migranol product had quadrupled in the previous four years after considerable marketing and investment efforts.  The court found that “[a]fter ten years of failing to follow up on its threat of infringement, (Designs) would be undeniably prejudiced if the Court allowed Akeso to bring forth its claims only after (Designs) made substantial investments in its product.”

The lesson here is that a plaintiff must diligently pursue a claim once it informs others of its patent in an adversarial manner, or risk being barred by equitable estoppel. The threat of suit can be inferred by the content and tone of the letter, even if litigation is not specifically mentioned in the initial contact. Inaction by the defendant does not negate equitable estoppel, the onus is on plaintiffs to diligently and consistently follow through and litigate their claims.

[1] Case No. 2:16-cv-07749, (CDCA April 26, 2018).


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