Aspex of Claim Preclusion: Confusion?

Claim preclusion, a branch of res judicata, brings closure to litigation. It is essential that practitioners, especially patent litigators, understand the contours of this closure. For example, in Aspex v. Marchon, the U.S. Court of Appeals for the Federal Circuit held that, in the absence of an explicit agreement, a patentee will be permitted to bring an action against the same products for infringing the same patents provided that the patentee limits his claim to acts of infringement occurring after the settlement agreement. ¹Aspex Eyewear, Inc. v. Marchon Eyewear, Inc., 672 F.3d 1335, 2012 BL 58955, 101 U.S.P.Q.2d 2015 (Fed. Cir. 2012) (83 PTCJ 738, 3/23/12).

This article provides an overview of claim preclusion and then examines three Federal Circuit cases addressing claim preclusion.

Res Judicata, Claim Preclusion and Issue Preclusion

Res judicata refers to the binding effect of a judgment in a prior case on the claims or issues that may be raised in a subsequent case. Res judicata is a fundamental principle of legal system,

demanded by the very object for which civil courts have been established, which is to secure the peace and repose of society by the settlement of matters capable of judicial determination. Its enforcement is essential to the maintenance of social order; for, the aid of judicial tribunals would not be invoked for the vindication of rights of person and property, if, as between parties and their privies, conclusiveness did not attend the judgments of such tribunals in respect of all matters properly put in issue and actually determined by them. ²Southern Pacific R. Co. v. United States, 168 U.S. 1, 49 (1897) (Harlan, J., per curiam).

Res judicata has two distinct branches—claim preclusion and issue preclusion. Claim preclusion bars a party (and its privies) from bringing a claim in a subsequent case which was litigated to a final judgment in a prior case. Somewhat confusingly, claim preclusion is often also referred to as res judicata. ³See, e.g., Aspex, 672 F.3d 1335 at 1340. For the sake of clarity, the remainder of this article will refer to claim preclusion as claim preclusion and reserve res judicata for the broader doctrine that includes both claim preclusion and issue preclusion.

In contrast to claim preclusion, issue preclusion bars subsequent litigation of an issue decided in a prior case, even where different claims are asserted in the prior and subsequent case. Where due process permits, issue preclusion can apply to persons who were not parties in the prior case. Because it protects a judicial determination on an issue from collateral attack, issue preclusion is sometimes called collateral estoppel.

The remainder of this article primarily addresses the first branch of res judicata—claim preclusion. However, as discussed below, a basic understanding of issue preclusion is helpful when reconciling Aspex with past Federal Circuit precedents.

Claim Preclusion

Three elements must be met for claim preclusion to bar a subsequent claim as a result of a prior case: (1) there must have been a final judgment on the merits in the prior case; (2) the prior case must have involved the same parties or their privies; and (3) the prior case must have involved the same claim. ⁴18-131 Moore’s Federal Practice—Civil §131.01. See
Cromwell v. Sac County, 94 U.S. 351, 352 (1876).

In patent infringement cases, the first two prongs of this test for claim preclusion (i.e., whether there has been a final judgment and whether the parties are the same) are analyzed under the law of the regional circuit in which the district court sits. ⁵Roche Palo Alto LLC v. Apotex, Inc., 531 F.3d 1372, 1379, 2008 BL 144487, 87 U.S.P.Q.2d 1308 (Fed. Cir. 2008) (76 PTCJ 381, 7/18/08). The first prong—whether there has been a final judgment on the merits—is rarely controversial in patent infringement cases. Importantly, dismissal with prejudice pursuant to a settlement agreement constitutes a final judgment on the merits for the purposes of claim preclusion. ⁶Lawlor v. National Screen Serv. Corp., 349 U.S. 322, 327 (1955). The second prong, privity, is also rarely controversial in patent infringement cases where the patentee sues the same party or its privy in a second suit.

The third prong—whether the claim is the same in the prior lawsuit and the subsequent lawsuit—is an issue particular to patent law, and, therefore, is analyzed under Federal Circuit law. ⁷Roche, 531 F.3d at 1379. This prong has been the focus of several Federal Circuit decisions.

For Claim Preclusion to Apply, the Accused Products in Both Cases Must Be Essentially the Same.

Understanding the contours of the third prong of the test for claim preclusion requires reconciling three Federal Circuit cases. The first is Foster v. Hallco. ⁸Foster v. Hallco Mfg. Co. Inc., 947 F.2d 469, 20 U.S.P.Q.2d 1241 (Fed. Cir. 1991). In Foster, the Federal Circuit addressed the third prong of the claim preclusion test to determine whether a claim is the same in two cases if the product accused of infringement in the first case is different from the product accused of infringement in the second case. Foster and Hallco were competitors in the market for reciprocating floor conveyor systems. In a prior case, Hallco had sued Foster for infringement of U.S. Patent Nos. 4,143,760 and 4,184,587, among other patents. This prior case settled, and, in the settlement agreement, Foster agreed that the ’760 and'587 patents were valid. ⁹Id. at 472.

Following settlement of the first case, Foster brought a second case for a declaratory judgment that the ’760 and ’587 patents were invalid and that Foster’s new products did not infringe the ’760 and ’587 patents, among other things. In response, Hallco brought a motion for summary judgment on the ground that the settlement agreement precluded Foster from challenging the validity of the ’760 and ’587 patents.

On appeal, the Federal Circuit determined whether claim preclusion barred Foster’s action for declaratory judgment of invalidity. The Federal Circuit held that, for claim preclusion to apply, Hallco, the defendant, had to establish that the accused products in the second case were “essentially the same” as those in the prior case. ¹⁰Id. at 479-80. If the accused products were not essentially the same as those in the prior case, then the two cases would involve different claims, and claim preclusion would not bar Foster’s action for declaratory judgment of invalidity in the second case. ¹¹The Federal Circuit remanded the determination of whether the products were essentially the same to the district court.

This relationship, between (i) what constitutes the same claim and (ii) the accused products, arises by virtue of the meaning of “claim” in the context of claim preclusion. Specifically, “a ‘claim’ rests on a particular factual transaction or series thereof on which a suit is brought.” ¹²Id. at 478-9. The structure of the accused products constitutes “an essential fact of a patent infringement claim.” ¹³Id. at 479 (citing Young Eng’rs, Inc. v. Int’l Trade Comm’n, 721 F.2d 1305, 1316, 219 U.S.P.Q. 1142 (Fed. Cir. 1983)). The Federal Circuit was “unpersuaded that an ‘infringement claim,’ for purposes of claim preclusion, embraces more than the specific devices before the court in the first suit.” Consequently, Foster’s action for declaratory judgment could only be barred on the grounds of claim preclusion by the prior case, if the accused products in the two suits were essentially the same. ¹⁴Id. at 479-80. However, if the accused products are “materially different,” then the claims differ and claim preclusion would not bar Foster’s action for declaratory judgment. ¹⁵Id. at 480.

The second case in the trilogy of Federal Circuit cases important for understanding claim preclusion in patent cases is Nystrom v. Trex. ¹⁶Nystrom v. Trex Co., 580 F.3d 1281, 2009 BL 190753, 92 U.S.P.Q.2d 1060 (Fed. Cir. 2009) (78 PTCJ 599, 9/18/09). In Nystrom, the Federal Circuit appeared to extend Foster‘s “essentially the same” test. The background to the Nystrom case follows.

In a prior case, Ron Nystrom sued Trex for infringement of U.S. Patent No. 5,474,831. The ’831 patent is directed to outdoor wood-flooring board, with a crown on its top surface to shed water, and a bottom surface shaped to permit stacking of the boards. Following claim construction, Nystrom conceded that he could not prove infringement, and the district court entered a judgment of noninfringement. Nystrom’s ensuing appeals were unsuccessful.

Nystrom then brought a subsequent case against Trex, and others, asserting infringement of the ’831 patent by a new Trex product. Trex moved for summary judgment based on the doctrine of claim preclusion. The district court denied Trex’s motion. On appeal, the Federal Circuit reversed, holding that Nystrom’s claim was barred by “claim preclusion” because the new Trex product was essentially the same with respect to the claims construed in the prior case. ¹⁷Id. at 1285-86. The Federal Circuit explained that because, “[i]n essence, Nystrom would be attempting to prove infringement of the same claim limitations as to the same features of the accused devices … . As such this case presents the exact situation that res judicata seeks to prevent.” ¹⁸Id. The Federal Circuit refused to “permit Nystrom to have a second bite at the apple.” ¹⁹Id. at 1286.

Claim Preclusion Does Not Bar a Subsequent Case Addressing Infringement Occurring After the Prior Case Is Filed.

However, in Aspex—the third case relevant to understanding claim preclusion in patent cases—the Federal Circuit held that even where the accused products are essentially the same, claim preclusion will not bar a subsequent case, if that subsequent case is based on a claim that arose after the prior case. Again, a summary of the background is useful.

Aspex had previously sued several defendants, including Revolution and Marchon, for patent infringement. Revolution and Marchon argued that two previous cases in the U.S. District Court for the Central District of California barred recovery in a subsequent case on the basis of claim preclusion.

In the first of these cases, Aspex was awarded a judgment for patent infringement by Revolution, as well as an injunction against Revolution. ²⁰Aspex, 672 F.3d at 1339, 1344. In the second case, Aspex and Marchon resolved their dispute through a settlement agreement stipulating to a dismissal with prejudice of that case and all the claims which could have arisen in that case. ²¹Id. at 1339. All three cases (Aspex and the two previous Central District of California cases) involved the same patent. Additionally, the Aspex defendants argued that all three cases involved “essentially the same” products.
²²Id. at 1342.

Against this backdrop, the Federal Circuit rejected the defendants’ defense of claim preclusion and held that claim preclusion will not bar an action for infringement as to infringing activities, such as making and selling a product, occurring after final resolution of a previous action, even if the previous action involved the same patent, the same parties and products that are “essentially the same.” ²³Id. The Federal Circuit reasoning was “simple”:

[I]n order for a particular claim to be barred, it is necessary that the claim either was asserted, or could have been asserted, in the prior action. If the claim did not exist at the time of the earlier action, it could not have been asserted in that action and is not barred by [claim preclusion]. ²⁴Id.

The Federal Circuit relied on both tort law and patent law. In tort law, “a party who sues a tortfeasor is ordinarily not barred by a prior judgment from seeking relief for discrete tortious action by the same tortfeasor that occurs subsequent to the original action.” ²⁵Id. As examples, the Federal Circuit cited, among others, Lawlor v. National Screen (subsequent antitrust claims not barred by prior ones, even where “both suits involved ‘essentially the same course of wrongful conduct’”), ²⁶349 U.S. at 328. and Kilgoar v. Colbert County (subsequent employment claims not barred by prior ones, even where the conduct complained of is “of the same nature” as the previously complained of conduct). ²⁷Kilgoar v. Colbert Cnty. Bd. of. Ed.,
578 F.2d 1033, 1035 (5th Cir. 1978).

The holding in Lawlor (and the line of cases that follows it) applies with equal force in patent litigation, according to the Federal Circuit, because “the ‘claim’ that gives rise to preclusion” only encompasses the “particular infringing acts or products that are accused in the first action or could have been made subject to that action.” ²⁸Aspex, 672 F.3d at 1343 (citing Young Eng’rs, 721 F.2d at 1316). As examples of this principle in action in patent litigation, the Federal Circuit cited, among others, Cordis v. Boston Scientific (subsequent patent infringement claims not barred by prior ones, even where the accused products are identical), ²⁹Cordis v. Boston Scientific Corp., 635 F. Supp. 2d 361, 2009 BL 155353 (D. Del. 2009). and Williams v. Gillette (subsequent patent infringement claims not barred by prior ones, even where accused products are identical). ³⁰Williams v. Gillette Co., 887 F. Supp. 181, 36 U.S.P.Q.2d 1374 (N. D. Ill. 1995).

Importantly, in Aspex, the Federal Circuit noted that the outcome would have been different if the parties had agreed to extend claim preclusion to subsequent infringing acts or products in their settlement agreement. ³¹Aspex, 672 F.3d at 1345 (“the parties to an action can determine for themselves what preclusive effect the settlement of the first action will have as to any potential subsequent actions between the parties”). For claim preclusion purposes, the normal rule is that the accused products at issue in a patent suit are those in existence at the time the suit is filed. ³²Id. at 1346 (citing Gillig v. Nike, Inc., 602 F.3d 1354, 1363, 2010 BL 86894, 94 U.S.P.Q.2d 1742 (Fed. Cir. 2010) (79 PTCJ 805, 4/23/10)). Because the settlement agreement between Aspex and Marchon did not expressly address the accused products in the subsequent case, the settlement agreement did not bar Aspex’s subsequent suit against Marchon. ³³Id. (citing Pactiv Corp. v. Dow Chemical Co.,
449 F.3d 1227, 1231, 78 U.S.P.Q.2d 1939 (Fed. Cir. 2006) (72 PTCJ 156, 6/9/06) (departure from normal rules of claim preclusion must be express)).

Reconciling Foster and Aspex

Some have suggested that the holdings in Foster and the Lawlor line of cases cited in Aspex are incompatible. For example, in Williams, the defendants asserted claim preclusion under Foster based on previous litigation involving the same patent and product. The district court denied the defendant’s motion for summary judgment on claim preclusion, explaining that the Williams defendants read Foster too broadly. Foster does not, the Williams court stated, establish that claim preclusion “will always apply in a second suit between the same parties based on the same patent and the same device. In other words, having the same device and the same patent is a necessary but not sufficient condition to apply claim preclusion principles in a patent infringement case.” ³⁴Williams, 887 F. Supp. at 185 (emphasis in original).

Aspex never mentions Foster by name. However, it confirms the Williams reconciliation of Foster and the Lawlor line of cases, both through its reliance on the Lawlor line of cases and its favorable citation of Williams. ³⁵Aspex, 672 F.3d at 1343.

Reconciling Nystrom and Aspex

In Nystrom, the Federal Circuit held that Nystrom’s infringement claim was barred, because the new Trex product was essentially the same as the product at issue in the prior case. However, in Aspex, the Federal Circuit held that even where products are essentially the same, claim preclusion does not apply if the subsequent case is based on conduct that occurred after the prior case (e.g., sales of the new, but essentially the same, Trex products). ³⁶Id.

How can Nystrom be reconciled with Aspex? The answer given by the Federal Circuit in Aspex originates in confusion between res judicata’s two branches—claim preclusion and issue preclusion.

In Aspex, the Federal Circuit explained that, while the Nystrom court “characterized its analysis as falling under the general rubric of res judicata or claim preclusion,” it actually involved issue preclusion, or “collateral estoppel.” ³⁷Id. In Nystrom, the prior case “had resolved certain issues against the appellant [claim construction], and the appellant sought to litigate those issues again in the second case, hoping for a different outcome.” ³⁸Id. Consequently, because the Federal Circuit considered Nystrom to be an issue preclusion case, it had no bearing on Aspex’s treatment of claim preclusion.

Notes to Practitioners

In light of the limitations on claim preclusion in the patent infringement context, practitioners should think carefully about the rest and repose that they want to achieve through a settlement agreement and draft it accordingly. If a settlement agreement is intended to preclude future allegations of patent infringement based on the same patents and the same or similar products, it will need to say so explicitly. The parties may also want to explicitly reserve the right to litigate particular matters in the future.

Regardless, when drafting settlement agreements, practitioners will need to consider the implications of both claim preclusion and issue preclusion.