Updated: Sep 22, 2020
IN RE: PERSONALWEB TECHNOLOGIES LLC
June 17, 2020
Claim and issue preclusion are the two traditional pillars of Federal preclusion law; as their names suggest, these doctrines preclude/prevent re-litigation of claims or issues that had been raised in earlier suits. But in the patent litigation context, both of these doctrines have significant constraints that may permit a patentee to re-assert the same patent against the same product made by the same defendant—even after unsuccessful earlier litigations.
Claim preclusion bars a second suit if: (a) it involves the same parties as a first suit; (b) the second suit involves the same claim (cause of action) as the first; and (c) there was a judgment on the merits in the first suit. The Federal Circuit has said that two patent litigations typically cover the same claim/cause of action if they involve the same asserted patents, “essentially the same” accused products or processes, and cover alleged acts of infringement that take place over the same time period.
Claim preclusion bars those claims/causes of action that were brought (or could have been brought) in the first suit and it applies “whether the judgment of the court is rendered after trial and imposed by the court or the judgment is entered upon the consent of the parties.” But because acts of patent infringement that occur at different times give rise to different causes of action (that is, to different claims), a patent owner could file a second suit accusing the same product of infringing the same patents—so long as the alleged acts of infringement identified in the second litigation take place after the first has ended.
Issue preclusion does not contain the same time limitations as claim preclusion, but it applies in a narrower set of circumstances. It prevents re-litigation of an issue in a second lawsuit only when: (a) it is identical to an issue presented in a first suit; (b) the issue was actually litigated by the parties; (c) the court’s decision on the issue was necessary to the outcome of the first suit; and (d) the parties had a full and fair opportunity to litigate the issue.
These constraints on application of the claim and issue preclusion doctrines sometimes lead to the scenario presented in this appeal, In Re: PersonalWeb Technologies LLC. PersonalWeb sued Amazon.com and Amazon Web Services in Texas, accusing their Simple Storage Service (S3) product of infringing five patents, all of which (broadly speaking) use cryptographic hash functions to create unique identifiers for files stored on a computer system. In this Texas litigation, PersonalWeb said that its patents were infringed by S3’s multi-part upload and conditional GET requests features.
After the Texas court issued its claim construction order, PersonalWeb stipulated to dismissal with prejudice of all its claims against Amazon; the court then entered final judgment against PersonalWeb.
This was not the end of the dispute. PersonalWeb filed dozens of new lawsuits in several judicial districts; these suits accused Amazon’s customers of infringing the same five patents that had been asserted in the Texas litigation by using the same product (Amazon’s S3) accused in that earlier case.
Amazon intervened in all of these litigations and also filed a declaratory judgment action; the Judicial Panel on Multidistrict Litigation consolidated the cases in a multi-district proceeding that was assigned to the United States District Court for the Northern District of California. The California court proceeded with Amazon’s declaratory judgment action and one representative customer case; it stayed all of the other customer cases.
In its DJ action, Amazon argued that because PersonalWeb’s Texas lawsuit had been dismissed with prejudice—and PersonalWeb could have accused Amazon’s customers in that suit—claim preclusion barred recovery for all alleged acts of infringement tied to the S3 product that took place before the final judgment in the Texas action. Amazon also made the case that the century-old (and rarely used) Kessler doctrine—first adopted by the Supreme Court in Kessler v. Eldred, 206 U.S. 285 (1907)—barred PersonalWeb's lawsuits that relate to alleged acts of infringement (by the S3 product) that took place after the final judgment in the Texas action.
As the Federal Circuit explained in its 2014 Brain Life decision, the Kessler doctrine “fills the gap” left by claim and issue preclusion by "allowing an adjudged non-infringer to avoid repeated harassment for continuing its business as usual post-final judgment in a patent action where circumstances justify that result." The California court ultimately agreed that the Kessler doctrine applies, and dismissed all of the cases against Amazon’s customers that were based solely on their use of the S3 product.
PersonalWeb urged two main points on appeal: first, claim preclusion cannot apply to the actions against Amazon’s customers because the Texas case involved a different feature of the S3 product—and therefore a different cause of action—than the feature at issue in the customer cases. Second, the Kessler doctrine only applies where there has been an adjudication of non-infringement on the merits, and not merely a voluntary dismissal (as there had been in this case).
The Federal Circuit rejected both arguments. On the topic of whether the original Texas case and the Amazon customer cases involved different features of the accused S3 product, the court said, “different arguments or assertions in support of liability do not all constitute separate claims … [r]ather, the party must raise in a single lawsuit all the grounds of recovery arising from a particular transaction that it wishes to pursue.” During this appeal, PersonalWeb conceded that the S3 features at issue in the customer cases (the conditional GET requests features) were identified in the infringement contentions in the Texas case. Although PersonalWeb may have shown that it emphasized different facts in support of a different theory of infringement in the earlier litigation, the panel explained that this is not enough to avoid claim preclusion because “under well-settled principles of [the claim preclusion doctrine], different arguments or assertions in support of liability do not all constitute separate claims.”
Finally, the Court of Appeals said that “the policy that drove the Supreme Court's decision in Kessler would be ill-served” if, as PersonalWeb proposes, it were restricted to only those cases in which the issue of non-infringement were “actually litigated.” Instead, the Kessler doctrine may be invoked to block a subsequent litigation when the lesser requirements for claim preclusion are met. Here, the with-prejudice dismissal of the original Texas action resolved the dispute about liability for the alleged acts of patent infringement that gave rise to that first litigation. This dismissal therefore operated as an adjudication of non-liability for infringement for purposes of invoking the Kessler doctrine, and gave Amazon “a limited trade right to continue producing, using, and selling Amazon S3 without further harassment from PersonalWeb, either directly or through suits against Amazon's customers for using that product.”