Issue Preclusion, Claim Preclusion, and Expansion of the Kessler Doctrine
Dismissal with prejudice generally gives rise to the application of two doctrines, issue preclusion and claim preclusion. Issue preclusion prevents a party from raising an issue that was or could have been brought in a previous lawsuit. So, a party who sues another party may not assert an issue it raised or could have raised in the earlier suit. Claim preclusion is more-specific, barring any claim that was brought or could have been brought in a prior suit. But, claim preclusion does not generally apply to acts of infringement after a final judgment in an earlier suit.
There is a bit of an intricacy in those doctrines in that patent infringement can occur in the past, be occurring in the present, and may occur in the future. This may be with the same product or service, or new products or services. So, there is a question of whether future infringement, which had literally not taken place when a first lawsuit was filed, is precluded, either by claim preclusion or by issue preclusion, from liability in future suits once a lawsuit is dismissed with prejudice or even when a final judgment has been entered.
Kessler v. Eldred
The discussion of this issue begins in 1907 with the case Kessler v. Eldred, 200 U.S. 285 (1907). Eldred used Kessler for infringement of a patent related to an electric lighter. The patent was found not-infringed by the district court in Indiana and Eldred appealed. The 7th Circuit affirmed. Later, Eldred sued one of Kessler’s customers in the Western District of New York. Kessler lost many customers and orders went unpaid-for. Kessler assumed the defense of Eldred and won an injunction against Eldred from further suits. Appeal was taken to the Supreme Court.
There, the Court for the first time considered the effect of a finding of non-infringement in one district court and subsequent circuit court on infringement by customers or the same party in other jurisdictions. The Supreme Court found that the issue had been decided in that first case and that subsequent litigation regarding the same issue was barred by the final judgment in the earlier case in Illinois. The Court further found that Kessler’s customers, like Kessler, were also free to sell the same Kessler products “free of molestation.” Subsequent elucidation of this principal came to be known as issue preclusion, requiring identity of the issue, privity between the parties and a final judgment on the merits.
This concept became known as the Kessler doctrine in patent law and is related to claim and issue preclusion, but remains distinct in that it addresses future acts of infringement when that infringement was already decided in a previous suit. However, a question remained whether issues that are not actually litigated (e.g. decisions on the merits) invoke the Kessler doctrine so that subsequent suits may not be brought, for infringing acts occurring following dismissal of cases not considered on the merits.
PersonalWeb and Kessler Expansion
In 2020, the Federal Circuit answered that question in In re PersonalWeb Technologies LLC, 961 F.3d 1365 (Fed. Cir. 2020). PersonalWeb sued Amazon and Dropbox, Inc. for infringement in 2011 in the Eastern District of Texas under a number of patents. The implicated functionality was Amazon Web Services S3 (Simple Storage Service) for much of the functionality at issue. Dropbox was a customer of Amazon’s S3 service. Following the claim construction order, PersonalWeb stipulated to dismissal of all claims against Amazon with prejudice. Final judgment against PersonalWeb was entered thereafter.
In 2018, PersonalWeb filed dozens of lawsuits in various districts against website operators under the same patents, many of which were Amazon’s customers using the same S3 service. Amazon intervened in these cases and separately filed declaratory judgment action against PersonalWeb, based upon the earlier decision. Amazon sought summary judgment in its declaratory judgment action, and partial summary judgment in the lead intervenor case on the basis that PersonalWeb had lost, with prejudice, in its earlier dispute and its assertions were now barred in the subsequent cases.
The district court held that all the requirements of claim preclusion were met by the earlier case, that all of these customers were in privity with Amazon through their S3 contracts, and that the causes of action asserted in the cases were the same. However, claim preclusion only applied up to the date of the final judgment in the Texas action. Regarding the Kessler doctrine, the E.D. Tex. court found that the earlier case gave rise to a limited trade right to continue the alleged acts of infringement that were at issue in that case, but that issue preclusion did not apply because non-infringement was not adjudicated (e.g. not a decision on the merits).
The Federal Circuit generally agreed with the Texas court’s discussion of issue and claim preclusion. But, it disagreed regarding the appropriate application of the Kessler doctrine. In particular, the purpose of the Kessler doctrine was to avoid repeated harassment of the alleged infringer or the alleged infringer’s customers. Noting that nothing in the earlier cases required an adjudication on the merits, the Federal Circuit found that Kessler should apply to al litigation decisions, including merely dismissal with prejudice. In essence, a victory is a victory and should have consequences. No “actually litigated” requirement as proposed by PersonalWeb was required for the Kessler doctrine to apply.
Accordingly, PersonalWeb’s claims were dismissed because it already accused Amazon’s S3 service of infringement, and lost. It gave up its right to relitigate the same issue later.
Amazon Patent and Trademark Takedown Practice
Our firm is growing increasingly capable in the practice of policing intellectual property rights on Amazon.com. We have had recent successes in protecting our clients rights in what is for some products the only relevant market. It is also a place for rampant, easy infringement of trademark and patent rights. We will discuss recent developments and best practices in Amazon.com patent and trademark policing.
Join us for MCLE
All are welcome to join SoCal IP for an MCLE on these two cases on Monday, March 22, 2021 at 1:00 pm. Please email Elisha Manzur (elisham [at] socalip.com) to RSVP and to receive the meeting invitation link.