A Day Late And A Dollar Short – Court Grants Summary Judgment On Laches Defense

Order Granting Summary Judgment On Dropbox Laches Claims, Dropbox, Inc. v. Thru Inc., Case No. 15-cv-01741-EMC (Judge Edward M. Chen)

The proverb “[e]quity aids the vigilant, not the sleeping ones” aptly describes the rationale behind the defense of laches-i.e., the legal doctrine which states that a plaintiff who unjustifiably delays pursuing a claim may forfeit it. Intended to encourage the timely resolution of disputes and to avoid prejudice to defendants, laches can have dire consequences for plaintiffs who unreasonably delay bringing their claims.

Thru Inc. (“Thru”)-a provider of file management software-learned this harsh lesson earlier this month in Dropbox, Inc. v. Thru Inc., when Judge Edward M. Chen granted summary judgment on Dropbox’s laches defense against Thru’s trademark infringement counterclaims. Although Judge Chen acknowledged that-summary judgment on a laches defense is an extraordinary result, he concluded it was warranted given the overwhelming evidence of Thru’s unreasonable and deliberate six-year delay in pursuing its claims against Dropbox.

The litigation concerns the “dropbox” trademark, which Dropbox filed for in 2009. Several other companies claimed rights in the trademark, but Dropbox settled a lawsuit with one such company and the others did not press their claims. The United States Patent and Trademark Office (“PTO”) accordingly issued the trademark to Dropbox in February 2014.

According to Thru, it had offered its customers a file transfer service similar to Dropbox’s called “DropBox” as early as 2004. However, it took no steps to enforce its rights against Dropbox until December 2011. Even then, Thru merely informed Dropbox by letter about its claims, offered to meet with Dropbox to resolve the dispute, and filed a Petition for Cancellation after the PTO granted Dropbox’s trademark application. Thru took no other action until August 2015, when it asserted counterclaims in response to Dropbox’s filing of the present declaratory relief action. Dropbox filed the lawsuit to establish its rights in the dropbox trademark, while Thru countered with allegations of trademark infringement under the Lanham Act and California common law and unlawful business practices under Section 17200 of California’s Business & Professions Code.

In its summary judgment motion, Dropbox argued that laches barred Thru’s counterclaims because Thru had known of Dropbox’s use of the dropbox trademark as early as 2009 but had unreasonably delayed pursuing its claims until 2015-well outside the applicable limitations period. Thru responded that it had not become aware of Dropbox’s use of the trademark until 2011 and that filing its counterclaims in 2015 was therefore timely.

Judge Chen granted summary judgment in favor of Dropbox. Despite agreeing with Thru that a four-year limitations period applied, Judge Chen found that Thru had known about Dropbox’s use of the dropbox trademark as early as 2009. Supporting evidence included emails from 2009 in which Thru’s executives discussed Dropbox and its technology, and deposition testimony from Thru’s executives admitting awareness of Dropbox’s use of the trademark in 2009. Judge Chen found the evidence “[to be] simply uncontestable….”

Judge Chen also found Thru’s alleged unawareness of Dropbox prior to 2011 to be unreasonable given the public attention Dropbox had achieved by that time. In so concluding, he considered the number of Dropbox users in 2009, news articles, and other publicly-available information demonstrating Dropbox’s prominence. He concluded that a company (like Thru) in the same file storage and transfer business as Dropbox “should have been aware of what was, by then, the preeminent company offering similar products in the field, and that this company posed a competitive threat.”

Judge Chen next rejected Thru’s argument that its six-year delay in asserting its rights was reasonable. Thru argued it was not required to pursue its claims against Dropbox given the other disputes over the dropbox trademark in 2011. But Thru’s own emails demonstrated it had deliberately delayed pursuing its claims in the hopes that Dropbox would launch an initial public offering, which Thru believed would increase its leverage and enable a larger potential recovery. These emails stated Thru’s belief that a Dropbox lawsuit could be a “lottery ticket” and that the “best leverage [Thru has] is to sit tight and wait to the IPO announcement….”

Finally, Judge Chen found that Thru’s delay had prejudiced Dropbox because a lawsuit over the trademark now would cost Dropbox “massively” more than what it would have years ago given Dropbox’s continued investment in its brand. Even Thru conceded that “Dropbox [had] continued to ‘spend millions of dollars in attempting to build brand recognition’….”
Although Judge Chen acknowledged that granting summary judgement on a laches defense is rare, he found it warranted here given the overwhelming evidence of Thru’s unreasonable and deliberate delay and the prejudice to Dropbox. While the result here is the exception rather than the rule, it should serve as a cautionary tale for plaintiffs who might consider delaying the filing of their claims to maximize a recovery or fulfill some other strategy.