Claim Preclusion

Because patent infringement is a strict liability offense, liability typically turns on the nature of the accused product. Courts addressing claim preclusion in patent cases thus tend to focus on the extent to which a newly accused product is the same as the previously adjudicated product. See Acumed LLC v. Stryker Corp., 525 F.3d 1319, 1326 (Fed. Cir. 2008) (holding that preclusion does not apply unless the newly accused product is “essentially the same” as a previously adjudicated product). Another key issue is the extent to which nonparties may also seek the benefit of a judgment of noninfringement. Logically, once a product has been adjudicated to be noninfringing in a suit against the manufacturer, the patentee should not be able to seek another bite at the apple through subsequent suits down the distribution chain of the same product. One problem with reaching this result through a traditional res judicata, or claim preclusion, analysis is that customers are not technically in privity with their manufacturer/supplier.

The manufacturer/customer privity hurdle in patent infringement suits can be overcome by application of the Kessler doctrine. This doctrine is based on the Supreme Court's seminal 1907 decision in Kessler v. Eldred, which held that a favorable adjudication of patent infringement claims against a manufacturer precludes suit against the manufacturer's customers based on the same products. The rationale given for the Kessler doctrine is that extending preclusive effect to the customers is necessary because, otherwise, the effect of the prior judgment favorable to the manufacturer “would be virtually destroyed.” MGA, Inc. v. General Motors Corp., 827 F.2d 729, 734 (Fed. Cir. 1987). The Kessler doctrine appears to be an exception to the requirement of strict privity for application of res judicata, and has been endorsed by the Federal Circuit as a product-based privity analogous to defensive application of collateral estoppel. See Id.

The Kessler Doctrine

Decades before the Supreme Court abandoned the mutuality doctrine for defensive application of collateral estoppel in University of Ill. Found. v. Blonder-Tongue Labs. Inc., 409 U.S. 1061 (1972), the Supreme Court accorded the equivalent of collateral estoppel effect to judgments exonerating from patent infringement a specific type of accused device. In Kessler v. Eldred, 206 U.S. 285 (1907), the Court upheld the right of a manufacturer to obtain an injunction to preclude further infringement suits by the patent owner against customers who bought, used, or sold a type of device as to which a final judgment of noninfringement had been entered in a suit between the manufacturer and the patent owner. In so doing, the Court expressly declined to determine whether the judgment was a bar to suits against customers or whether the customers were “privy to the original judgment” or even whether the judgment freed the articles from the control of the patent. Rather, the Court determined that the injunction was necessary to protect the right to sell that the manufacturer had secured by the favorable judgment. Id. at 289. As the Court explained, “[n]o one wishes to buy anything, if with it he must buy a law suit.” Id.

Several years later, the Court elaborated on Kessler, noting that the decisive factor in Kessler was that the first lawsuit had conclusively established the manufacturer's right to lawfully make and sell the product. Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U.S. 413, 418-19 (1914). The Court held that the principle applied in Kessler is the grant of a limited trade right that is “the right to have that which [a court has determined] it lawfully produces freely bought and sold without restraint or interference. It is a right which attaches to its product ' to a particular thing ' as an article of lawful commerce ' ” Id.

Modern Application of the Kessler Doctrine

The Kessler doctrine has not been limited to anti-suit injunction cases, but has since been extended by courts to justify dismissal of infringement claims against customers where the accused products had previously been adjudicated to be noninfringing in a suit against the manufacturer/seller. The Kessler doctrine is not frequently invoked, perhaps because the result is so logical and compelling that patentees have not historically sought to push its boundaries. Given the ever-increasing stakes in patent litigation, however, patentees may be more motivated than ever to circumvent the impact of unsuccessful claims against manufacturers by going after others down the distribution chain. The continued viability and modern application of the Kessler doctrine are confirmed by several appellate and district court decisions. For example:

MGA, Inc. v. General Motors Corp., 827 F.2d 729, 734 (Fed. Cir. 1987) (“The Kessler doctrine bars a patent infringement action against a customer of a seller who has previously prevailed against the patentee because of invalidity or noninfringement of the patent; otherwise, the effect of the prior judgment would be virtually destroyed.”).

Minnesota Mining & Mfg. Co. v. Superior Insulating Tape Co., 284 F.2d 478 (8th Cir. 1960) (noting that “the final determination of infringement issues between the patent holder and the manufacturers alleged to have infringed, determines the same issues as to the manufacturer's customer”).

Unitronics (1989) R'G Ltd. v. Gharb, 532 F. Supp. 2d 25 (D.D.C. 2008) (applying the Kessler doctrine to grant an injunction precluding additional suits by patentee against manufacturer or its customers, in view of a previous judgment of noninfringement in favor of the manufacturer).

Global Maintech Corp. v. AIG Techs., Inc., 2006 U.S. Dist. LEXIS 11486 (D. Minn. 2006) (applying res judicata to bar claims against a customer, and invoking the Kessler doctrine, explaining that “where a patentee alleges that the same products infringe the same patents in separate suits against a manufacturer and the manufacturer's customer, the patentee's infringement claims against the manufacturer's customer generally arise out of the same nucleus of operative facts as the patentee's claims against the manufacturer”).

Molinaro v. American Tel. & Tel. Co., 460 F. Supp. 673 (E.D. Pa. 1978) (tracing history of the Kessler doctrine, and observing that “[c]ourts soon recognized that the rationale underlying the Kessler doctrine would support the assertion not only by a manufacturer, but also by a customer, of the preclusive effect of a prior judgment in favor of the manufacturer-supplier and against the patentee”), aff'd, 620 F.2d 288 (3d Cir. 1988) (unpublished).

Faced with such a defense, a patentee may attempt to argue that preclusive effect does not apply because the customer is putting the previously adjudicated product to a “unique” use. At least one court has rejected such an argument on several grounds, including the fact that the patentee was aware of the allegedly unique use during its proceedings against the manufacturer, and also on the basis that the claims against the customer nevertheless arose “out of the same nucleus of operative fact” as its claims against the manufacturer, and were therefore precluded. See Global Maintech Corp., 2006 U.S. Dist. LEXIS 11486, at *14-15.

The Kessler doctrine is not only an important defense that may be invoked by a manufacturer as well as by its customers, but it should also be factored into a patent owner's litigation strategy. Patent owners should not assume that serial litigation down the distribution chain is available should they fail in their infringement claims against a product manufacturer.

Customer Invocation of Collateral Estoppel

As noted by the Federal Circuit in MGA, the Kessler doctrine is similar in effect to defensive application collateral estoppel. 827 F.2d at 733. And, in fact, defensive application of collateral estoppel is another route to reach a preclusive result, as recently recognized in Monolithic Power Sys., Inc. v. O2 Micro Int'l, Ltd., 476 F. Supp. 2d 1143 (N.D. Cal. 2007). In that case, the patentee lost its infringement claims against the manufacturer on summary judgment, which was rendered following a determination that the patentee had failed to timely disclose its infringement theory in accordance with the Northern District of California local Patent Rules. Because the patentee did not have any evidence to support its infringement theories that were timely disclosed, the district court determined that summary disposition was appropriate. The grant of summary judgment was affirmed by the Federal Circuit on appeal. O2 Micro Int'l Ltd., v. Monolithic Power Sys., 467 F.3d 1355, 1363 (Fed. Cir. 2006).

During the pendency of its appeal of summary judgment in favor of the manufacturer, the patentee sued several of the manufacturer's customers. The customers moved for summary judgment, arguing that the patentee was collaterally estopped from reasserting its infringement claims due to the previous judgment of noninfringement in favor of the manufacturer under that same patent. Monolithic Power Sys., 476 F. Supp. 2d at 1156. The patentee attempted to defeat collateral estoppel by arguing that the decision in the first case was not a judgment on the merits, but was instead a procedural ruling in the nature of a sanction. Id. Although it did not invoke the Kessler doctrine, the district court determined that the previous judgment of noninfringement in favor of the manufacturer collaterally estopped the patentee from suing the customers, and granted summary judgment in their favor. Id. at 1156-57.

As a practical matter, whether preclusion is invoked under the Kessler doctrine or under principles of collateral estoppel may not make a difference. Under either scenario, the fundamental issue will be whether the accused product has been previously adjudicated to be noninfringing.

Conclusion

Given the ever-increasing stakes in patent litigation, patent owners are highly motivated to seek damages from multiple parties. Even a judgment of noninfringement may not deter a persistent patent owner from proceeding down the distribution chain. The Kessler doctrine, however, precludes patentees from attempting to circumvent a noninfringement judgment against a manufacturer by going after the manufacturer's customers. A similar result can be reached by nonparties through defensive invocation of collateral estoppel.

Amber Hatfield Rovner is Counsel in the Austin office of Weil, Gotshal & Manges LLP, and is a member of the firm's Patent Litigation and Patent Appellate practice groups.

Because patent infringement is a strict liability offense, liability typically turns on the nature of the accused product. Courts addressing claim preclusion in patent cases thus tend to focus on the extent to which a newly accused product is the same as the previously adjudicated product. See Acumed LLC v. Stryker Corp. , 525 F.3d 1319, 1326 (Fed. Cir. 2008) (holding that preclusion does not apply unless the newly accused product is “essentially the same” as a previously adjudicated product). Another key issue is the extent to which nonparties may also seek the benefit of a judgment of noninfringement. Logically, once a product has been adjudicated to be noninfringing in a suit against the manufacturer, the patentee should not be able to seek another bite at the apple through subsequent suits down the distribution chain of the same product. One problem with reaching this result through a traditional res judicata, or claim preclusion, analysis is that customers are not technically in privity with their manufacturer/supplier.

The manufacturer/customer privity hurdle in patent infringement suits can be overcome by application of the Kessler doctrine. This doctrine is based on the Supreme Court's seminal 1907 decision in Kessler v. Eldred, which held that a favorable adjudication of patent infringement claims against a manufacturer precludes suit against the manufacturer's customers based on the same products. The rationale given for the Kessler doctrine is that extending preclusive effect to the customers is necessary because, otherwise, the effect of the prior judgment favorable to the manufacturer “would be virtually destroyed.” MGA, Inc. v. General Motors Corp. , 827 F.2d 729, 734 (Fed. Cir. 1987). The Kessler doctrine appears to be an exception to the requirement of strict privity for application of res judicata, and has been endorsed by the Federal Circuit as a product-based privity analogous to defensive application of collateral estoppel. See Id.

The Kessler Doctrine

Decades before the Supreme Court abandoned the mutuality doctrine for defensive application of collateral estoppel in University of Ill. Found. v. Blonder-Tongue Labs. Inc. , 409 U.S. 1061 (1972), the Supreme Court accorded the equivalent of collateral estoppel effect to judgments exonerating from patent infringement a specific type of accused device. In Kessler v. Eldred , 206 U.S. 285 (1907), the Court upheld the right of a manufacturer to obtain an injunction to preclude further infringement suits by the patent owner against customers who bought, used, or sold a type of device as to which a final judgment of noninfringement had been entered in a suit between the manufacturer and the patent owner. In so doing, the Court expressly declined to determine whether the judgment was a bar to suits against customers or whether the customers were “privy to the original judgment” or even whether the judgment freed the articles from the control of the patent. Rather, the Court determined that the injunction was necessary to protect the right to sell that the manufacturer had secured by the favorable judgment. Id. at 289. As the Court explained, “[n]o one wishes to buy anything, if with it he must buy a law suit.” Id.

Several years later, the Court elaborated on Kessler, noting that the decisive factor in Kessler was that the first lawsuit had conclusively established the manufacturer's right to lawfully make and sell the product. Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co. , 232 U.S. 413, 418-19 (1914). The Court held that the principle applied in Kessler is the grant of a limited trade right that is “the right to have that which [a court has determined] it lawfully produces freely bought and sold without restraint or interference. It is a right which attaches to its product ' to a particular thing ' as an article of lawful commerce ' ” Id.

Modern Application of the Kessler Doctrine

The Kessler doctrine has not been limited to anti-suit injunction cases, but has since been extended by courts to justify dismissal of infringement claims against customers where the accused products had previously been adjudicated to be noninfringing in a suit against the manufacturer/seller. The Kessler doctrine is not frequently invoked, perhaps because the result is so logical and compelling that patentees have not historically sought to push its boundaries. Given the ever-increasing stakes in patent litigation, however, patentees may be more motivated than ever to circumvent the impact of unsuccessful claims against manufacturers by going after others down the distribution chain. The continued viability and modern application of the Kessler doctrine are confirmed by several appellate and district court decisions. For example:

MGA, Inc. v. General Motors Corp. , 827 F.2d 729, 734 (Fed. Cir. 1987) (“The Kessler doctrine bars a patent infringement action against a customer of a seller who has previously prevailed against the patentee because of invalidity or noninfringement of the patent; otherwise, the effect of the prior judgment would be virtually destroyed.”).

Minnesota Mining & Mfg. Co. v. Superior Insulating Tape Co., 284 F.2d 478 (8th Cir. 1960) (noting that “the final determination of infringement issues between the patent holder and the manufacturers alleged to have infringed, determines the same issues as to the manufacturer's customer”).

Unitronics (1989) R'G Ltd. v. Gharb , 532 F. Supp. 2d 25 (D.D.C. 2008) (applying the Kessler doctrine to grant an injunction precluding additional suits by patentee against manufacturer or its customers, in view of a previous judgment of noninfringement in favor of the manufacturer).

Global Maintech Corp. v. AIG Techs., Inc., 2006 U.S. Dist. LEXIS 11486 (D. Minn. 2006) (applying res judicata to bar claims against a customer, and invoking the Kessler doctrine, explaining that “where a patentee alleges that the same products infringe the same patents in separate suits against a manufacturer and the manufacturer's customer, the patentee's infringement claims against the manufacturer's customer generally arise out of the same nucleus of operative facts as the patentee's claims against the manufacturer”).

Molinaro v. American Tel. & Tel. Co. , 460 F. Supp. 673 (E.D. Pa. 1978) (tracing history of the Kessler doctrine, and observing that “[c]ourts soon recognized that the rationale underlying the Kessler doctrine would support the assertion not only by a manufacturer, but also by a customer, of the preclusive effect of a prior judgment in favor of the manufacturer-supplier and against the patentee”), aff'd , 620 F.2d 288 (3d Cir. 1988) (unpublished).

Faced with such a defense, a patentee may attempt to argue that preclusive effect does not apply because the customer is putting the previously adjudicated product to a “unique” use. At least one court has rejected such an argument on several grounds, including the fact that the patentee was aware of the allegedly unique use during its proceedings against the manufacturer, and also on the basis that the claims against the customer nevertheless arose “out of the same nucleus of operative fact” as its claims against the manufacturer, and were therefore precluded. See Global Maintech Corp., 2006 U.S. Dist. LEXIS 11486, at *14-15.

The Kessler doctrine is not only an important defense that may be invoked by a manufacturer as well as by its customers, but it should also be factored into a patent owner's litigation strategy. Patent owners should not assume that serial litigation down the distribution chain is available should they fail in their infringement claims against a product manufacturer.

Customer Invocation of Collateral Estoppel

As noted by the Federal Circuit in MGA, the Kessler doctrine is similar in effect to defensive application collateral estoppel. 827 F.2d at 733. And, in fact, defensive application of collateral estoppel is another route to reach a preclusive result, as recently recognized in Monolithic Power Sys., Inc. v. O2 Micro Int'l, Ltd., 476 F. Supp. 2d 1143 (N.D. Cal. 2007). In that case, the patentee lost its infringement claims against the manufacturer on summary judgment, which was rendered following a determination that the patentee had failed to timely disclose its infringement theory in accordance with the Northern District of California local Patent Rules. Because the patentee did not have any evidence to support its infringement theories that were timely disclosed, the district court determined that summary disposition was appropriate. The grant of summary judgment was affirmed by the Federal Circuit on appeal. O2 Micro Int'l Ltd., v. Monolithic Power Sys. , 467 F.3d 1355, 1363 (Fed. Cir. 2006).

During the pendency of its appeal of summary judgment in favor of the manufacturer, the patentee sued several of the manufacturer's customers. The customers moved for summary judgment, arguing that the patentee was collaterally estopped from reasserting its infringement claims due to the previous judgment of noninfringement in favor of the manufacturer under that same patent. Monolithic Power Sys., 476 F. Supp. 2d at 1156. The patentee attempted to defeat collateral estoppel by arguing that the decision in the first case was not a judgment on the merits, but was instead a procedural ruling in the nature of a sanction. Id. Although it did not invoke the Kessler doctrine, the district court determined that the previous judgment of noninfringement in favor of the manufacturer collaterally estopped the patentee from suing the customers, and granted summary judgment in their favor. Id. at 1156-57.

As a practical matter, whether preclusion is invoked under the Kessler doctrine or under principles of collateral estoppel may not make a difference. Under either scenario, the fundamental issue will be whether the accused product has been previously adjudicated to be noninfringing.

Conclusion

Given the ever-increasing stakes in patent litigation, patent owners are highly motivated to seek damages from multiple parties. Even a judgment of noninfringement may not deter a persistent patent owner from proceeding down the distribution chain. The Kessler doctrine, however, precludes patentees from attempting to circumvent a noninfringement judgment against a manufacturer by going after the manufacturer's customers. A similar result can be reached by nonparties through defensive invocation of collateral estoppel.

Amber Hatfield Rovner is Counsel in the Austin office of Weil, Gotshal & Manges LLP, and is a member of the firm's Patent Litigation and Patent Appellate practice groups.