A gap exists between the tandem of traditional doctrines of preclusion—namely, claim and issue preclusion. This gap is typically realized in circumstances involving prior litigation between a patent owner and a manufacturer that is then followed by subsequent litigation brought by that patent owner against a customer of the manufacturer. Although the same patent and product may be at issue, neither preclusive mechanism is available under the well-settled principles of each of claim preclusion and issue preclusion. Claim preclusion, or res judicata, bars prior claims that were either brought, or could have been brought, in an earlier lawsuit. While issue preclusion, or collateral estoppel, bars relitigating issues that were litigated to finality between the parties previously. The Federal Circuit has explained the consequence of the gap left by claim and issue preclusion:1
[A] patent owner could sue a manufacturer for literal infringement and, if unsuccessful, file suit against the manufacturer’s customers under the doctrine of equivalents. Or, a patent owner could file suit against the manufacturer’s customers under any claim or theory not actually litigated against the manufacturer as long as it challenged only those acts of infringement that post-dated the judgment in the first action.
These two examples represent a non-exclusive set of potential exploits in serial litigation involving customer-manufacturer relationships. There are a couple of shortfalls in meeting the requirements of claim and issue preclusion that result in their unavailability in this context. First, claim preclusion does not apply where a customer is sued for sales that occurred after the litigation against the manufacturer. This is because the post-judgement sales could not possibly have been brought in the earlier dispute. Second, issue preclusion does not apply where the customer was not a party or privy to the earlier dispute. Nor does issue preclusion apply to any new issues, such as where the patent owner asserts different claims of the same patent or shifts theories of infringement by asserting direct infringement in one action and doctrine of equivalents in another.
So what remedy is available to close this gap? In steps the Kessler doctrine—an equitable defense fashioned by the Supreme Court in its early twentieth century decision.2 Because of the inherent gap, the Kessler doctrine continues to serve as “a necessary supplement to issue and claim preclusion.”3 However, as originally set forth, the Supreme Court explicitly left open a number of questions that the Court characterized as unnecessary to answer for the particular issue before it in Kessler. Thus, the narrow holding of the Court in Kessler rested only on the actual facts in that dispute.4
In the years following the pronouncement of this gap filling measure, the Kessler doctrine has seen piecemeal development by various courts in answering some of the remaining questions. In Rubber Tire Wheel, the Supreme Court ultimately characterized the Kessler doctrine as a right “which attaches to its product—to a particular thing—as an article of lawful commerce.”5 There, however, the Court did limit the doctrine to only where the product “retains its separate identity.”6 The Federal Circuit thereafter reasoned that the defense should also apply to “new iterations” of products so long as they are “essentially the same as the previously litigated” products, and precluded previously unasserted claims of the same patent that could have been brought in the earlier suit.7 Further expanding on the reasoning that the Kessler doctrine “attaches to the product itself,” the Federal Circuit went on to recognize that the policy goals of the doctrine support permitting customers themselves to assert the Kessler doctrine as a defense to infringement claims without necessarily involving the manufacturer.8 Among the more recent developments, the Federal Circuit has extended application of the Kessler doctrine in circumstances where the prior litigation ended in settlement. In In re PersonalWeb, the Federal Circuit affirmed the district court’s finding that a prior with-prejudice dismissal against a manufacturer operated as a bar to subsequent litigation against the customers of the product that was previously at issue.9 In particular, the Federal Circuit explained that a with-prejudice dismissal that was not contingent “protected [the manufacturer’s] product from subsequent infringement challenges, even when those challenges were directed at [the manufacturer’s] customers rather than at [the manufacturer] itself.”10 This was distinguishable from other instances where the Kessler doctrine was found not to apply because the voluntary dismissal included clear limitations on the scope of such a dismissal.11
Moreover, notwithstanding the Kessler doctrine’s longevity, as a judicially-fashioned doctrine it still faces challenges to its continued viability. Recently, a petition for writ of certiorari in the PersonalWeb case was filed with the Supreme Court.12 There, petitioner argues that the Kessler doctrine is outmoded since the elimination of the mutuality requirement in issue preclusion and characterized the application of the Kessler doctrine to voluntary dismissals with prejudice as another example of the Federal Circuit “improvis[ing] novel preclusion doctrines.”13 This petition for writ of certiorari has now been fully briefed and the Solicitor General has been invited to express the view of the United States. Depending on the outcome and whether the Supreme Court clarifies the scope of the Kessler doctrine it may potentially endure into the next century.
4 Kessler, 206 U.S. at 288 (“We need not stop to consider whether the judgment in the case of Eldred v. Kessler had any other effect than to fix unalterably the rights and duties of the immediate parties to it, for the reason that only the rights and duties of those parties are necessarily in question here.”).
5 Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U.S. 413, 418-19 (1914); see also SpeedTrack, Inc., 791 F.3d at 1328 (Fed. Cir. 2015) (“Kessler granted a ‘limited trade right” that attaches to the product itself.” quoting MGA, Inc. v. General Motors Corp., 827 F.2d 729, 734 (Fed. Cir. 1987)).
7 Brain Life, LLC v. Elekta Inc., 746 F.3d 1045, 1058-59 (Fed. Cir. 2014) (“That is beside the point under the Kessler Doctrine because [the manufacturer’s] [accused] products have acquired the status of noninfringing products as to the [prior asserted] patent, i.e., all claims that were brought or could have been brought in the first suit.” (emphasis added)).
8 SpeedTrack, Inc., 791 F.3d at 1326-27 (“Allowing customers to assert a Kessler defense is consistent with the Court’s goal of protecting the manufacturer’s right to sell an exonerated product free from interference or restraint. A manufacturer cannot sell freely if it has no customers who can buy freely.”).
11 Id. at 1378 (Fed. Cir. 2020) (“The dismissal in Mentor was contingent on the [patent license agreement]; when the license was terminated, the contingency disappeared, and Mentor was free to re-initiate its infringement action.” citing Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275 (Fed. Cir. 2017)).
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.