Federal Circuit Reaffirms Kessler Doctrine As A Patent Infringement Defense For Customers

Monday, July 06, 2015

Applying a doctrine dating to Kessler v. Eldred, 206 U.S. 285 (1907), the U.S. Court of Appeals for the Federal Circuit recently ruled that when a patentee’s infringement action against the manufacturer of an accused product results in a final judgment for the defendant, the manufacturer’s customers may raise the judgment as a defense in a subsequent infringement action involving the same patent and an identical accused product. Speedtrack, Inc. v. Office Depot, Inc., No. 2014-1475 (Fed. Cir. Jun. 30, 2015).

In Speedtrack, the patentee originally filed suit against Walmart alleging infringement of U.S. Patent No. 5,544,360, covering a computer filing system for accessing files and data according to user-designated criteria. The supplier of the software Walmart used, Endeca Technologies, Inc., intervened in the action. The district court granted summary judgment in favor of Endeca and Walmart, ruling that the Endeca software did not literally infringe the ‘360 patent and that Speedtrack failed to preserve the right to assert the doctrine of equivalents. The Federal Circuit affirmed that result. Speedtrack, Inc. v. Endeca Techs., Inc., 524 F. App’x 651 (Fed. Cir. 2013).

The patentee then turned to a parallel case filed against Office Depot and other Endeca customers using the software. The district court granted summary judgment in favor of the defendants based on res judicata and on the Kessler doctrine. On appeal, the Federal Circuit affirmed the judgment under the Kessler doctrine, but did not reach the res judicata issue.

The Federal Circuit noted that the Kessler doctrine dates to the 1907 caseKessler v. Eldred, in which the Supreme Court ruled that the enforcement of a final judgment against a patentee in an action against the supplier of an accused product precludes later infringement actions against the supplier’s customers based on the same products. “Leaving entirely out of view any rights which [the supplier’s] customers have or may have, it is [the supplier’s] right that those customers should, in respect of the articles before the court in the previous judgment, be let alone by [the patentee], and it is [the patentee’s] duty to let them alone. The judgment in the previous case fails of the full effect which the law attaches to it if this is not so.” Kessler, 206 U.S. at 289. As a result of the doctrine, a successful defendant has “the right to have that which it lawfully produces freely bought and sold without restraint or interference.” Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U.S. 413, 418 (1914).

In its decision, the Federal Circuit clarified several aspects of the Kesslerdoctrine. First, unlike res judicata, which is a defense that is personal to the parties in a prior litigation, the Kessler Doctrine “attaches to the [accused] product itself” and precludes a patentee from reasserting the same patent against the same (or “essentially the same”) product in a subsequent action. In addition, the Kessler doctrine is a defense against any claims that “were or could have been asserted” in the prior action.Brain Life, LLC v. Elekta, Inc., 746 F.3d 1045, 1050 (Fed. Cir. 2014). Thus, although Speedtrack did not assert the doctrine of equivalents in its lawsuit against Walmart, that theory was available, so it is barred in the later action.

Second, the Federal Circuit ruled that the Kessler doctrine may be raised by customers as well as the product manufacturer or supplier. Noting a circuit split on the issue, with the Fourth Circuit allowing customers to raise the doctrine as a defense, but the Sixth Circuit limiting the doctrine to manufacturers, the Federal Circuit held that:

We conclude that the rationale underlying the Kessler doctrine supports permitting customers to assert it as a defense to infringement claims. Although the Supreme Court in Kessler focused exclusively on the manufacturer’s rights, and expressed no opinion on whether a customer could assert the defense, it recognized the fact that the manufacturer and customer’s interests are intertwined, remarking that “[n]o one wishes to buy anything if with it he must buy a law suit.” 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.

Slip op. at 18 (citation omitted).

Third, the Federal Circuit held that the Kessler doctrine applied to Speedtrack’s claim even though the Endeca software allegedly infringed only when combined with the customer’s own computer hardware. Speedtrack argued that the Endeca software was not a “commodity” having a “separate identity,” and thus fell within an exception to theKessler doctrine recognized in Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U.S. 413 (1914) (holding that “If that [accused] commodity is combined with other things in the process of the manufacture of a new commodity, the trade right in the original part as an article of commerce is necessarily gone.”) The Federal Circuit held that the Rubber Tireexception did not apply to the accused Endeca software, because in both actions against Walmart and Office Depot Speedtrack alleged that the customer’s use of the software was infringing, and there was no discernable difference between the uses in either situation.

Finally, the Federal Circuit rejected Speedtrack’s contention that theKessler doctrine should be overturned because it has been replaced by modern concepts of collateral estoppel. See, e.g., Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971). The appeals court noted, to the contrary, that the doctrine “is a necessary supplement to issue and claim preclusion: without it, 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.” Slip op. at 21-22. In any event, the Kessler case remains binding precedent, and the appeals court recognized that it “must follow Kessler unless and until the Supreme Court overrules it[.]” Id. at 22.