269-1. Federal Circuit Confirms Amazon’s Customers are Protected from Lawsuit via the Kessler Doctrine, Despite the Previous Case being Voluntarily Dismissed with Prejudice

The Federal Circuit recently affirmed a district court dismissal of eight infringement lawsuits against Amazon customers. The district court found, and the Federal Circuit agreed, that PersonalWeb’s previous lawsuit against Amazon, which PersonalWeb dismissed with prejudice, barred the new suits against Amazon’s customers. The Federal Circuit also clarifies that the Kessler doctrine prevents lawsuits after final judgement on “any products as to which the manufacturer established a right not to be sued for infringement.” See In re PersonalWeb Techs. LLC, No. 2019-1918, 2020 U.S. App. LEXIS 18939 (Fed. Cir. June 17, 2020) (Before Wallach, Bryson, and Taranto, Circuit Judges) (Opinion for the Court, Bryson, Circuit Judge).

The case began in 2011, when PersonalWeb Technologies LLC (“PersonalWeb”) sued Amazon.com, Inc., and Amazon Web Services, Inc., (collectively “Amazon”) in the Eastern District of Texas, alleging infringement of claims found in five patents, referred to in the opinion as “the True Name patents.” These patents, which all share similar specifications, relate to means for speeding up network traffic by providing a “substantially unique” identifier for items in a system. The identifier depends only on the content of the data itself and can be created by a hash function. This identifier can be used to retrieve the data. Similar steps can be performed on large files by partitioning the file and then creating an identifier for each part.

Amazon sells a product called Amazon Simple Storage Service (S3) to customers that host websites. The S3 system allows a piece of data (an “object”) to be stored in “buckets” that are then accessible to the web. S3 creates an ETag for each object, such that it can be retrieved when someone wishes to access the data. To use an illustration provided in the opinion, if a website includes the picture of a puppy, the S3 system can save the puppy picture in storage with an ETag. When a user then accesses the website, one copy of the puppy and ETag is saved in the user’s cache. When the user accesses the website again, the S3 system will first check to see if the ETag file is found in the cache: if yes, there is no reason to retransmit the puppy; if no, an HTTP “GET” request can retrieve the puppy picture. This “conditional GET” logic can also be applied to large files that are partitioned, wherein each part gets an ETag. This is known to Amazon as Multipart Upload Application Program Interface.

At the Eastern District of Texas, PersonalWeb argued that the S3 product infringed claims of the True Name patents. After the court issued an order on claim construction, PersonalWeb dismissed its case with prejudice, and the court issued an order dismissing the case in 2014. In 2018, PersonalWeb filed “dozens” of lawsuits against Amazon customers that use the S3 system to store data. Amazon intervened, the cases were consolidated, and the District Court for the Northern District of California was assigned for pretrial proceedings. In a motion for declaratory judgment, Amazon argued that PersonalWeb was precluded from suing Amazon’s customers in light of the with-prejudice dismissal. The district court agreed, finding all elements of claim preclusion to be satisfied, and finding the Kessler doctrine to bar actions after the judgment in the first case. PersonalWeb subsequently appealed to the Federal Circuit (“Court”).

The issues on appeal were whether (1) “claim preclusion is inapplicable to the actions against Amazon’s customers because the Texas case involved a different feature of Amazon’s S3 system, and therefore a different cause of action, than the feature that is at issue in the customer cases,” and (2) whether the dismissal in the first case was insufficient to trigger the Kessler doctrine.

As for the first issue, PersonalWeb argued that the first case against Amazon and the subsequent cases against the customers involved different causes of action. In patent cases, the court will look at the “factual overlap” of the claims, which includes “the overlap of the product or process accused in the instant action with the product or process accused in the prior action.” (quoting Senju Pharm. Co. v. Apotex Inc., 746 F.3d 1344, 1349 (Fed. Cir. 2014) (emphasis in opinion)). Further, just because additional arguments are presented in the latter case to support liability does not mean that plaintiff is arguing a separate claim. PersonalWeb argued that the first case was focused on the partitioning embodiment, while the second case was directed to the conditional GET embodiment.

The Court disagreed. The original litigation matter discussed the conditional GET embodiment throughout. PersonalWeb alleged the “conditional operations” infringed the patent claims. Regardless, the Court noted that the first case focused on PersonalWeb’s objection to “infringement consisting of the manufacture, use, sale, importation, and/or offer for sale of the Amazon S3 product.” (emphasis added). Since the present eight cases are also focused on the S3 product, it is the same claim for claim preclusion purposes.

The Court next discussed the Kessler doctrine, first described in Kessler v. Eldred, 206 U.S. 285 (1907). The doctrine “fills the void” between claim and issue preclusion, such that actions taken post-judgement in a patent case are not subject to additional litigation. This is particularly valuable for customers of an original defendant-manufacturer that previously had a favorable judgment. “The Court in Kessler recognized that even if a manufacturer of goods were to prevail in a patent infringement suit, the manufacturer could be deprived of the benefits of its victory if the patentee were free to sue the manufacturer’s customers.”

PersonalWeb argued that the Kessler doctrine should not apply when the previous case was voluntarily dismissed, as “no issues” were actually litigated below before any adjudication. The Court then reviewed previous cases that did hold that the doctrine precludes issues that were previously litigated, e.g., Brain Life, LLC v. Elekta Inc., 746 F.3d 1045, 1053 (Fed. Cir. 2014), SpeedTrack, Inc. v. Office Depot, Inc., 791 F.3d 1317, 1328 (Fed. Cir. 2015), and SimpleAir, Inc. v. Google LLC, 884 F.3d 1170, 1165 (Fed. Cir. 2018). “As Brain Life, SpeedTrack, and SimpleAir illustrate, we have treated the Kessler doctrine as a close relative to claim preclusion, without its temporal limitation, rather than as an early version of non-mutual collateral estoppel, as PersonalWeb characterizes it.”

The Court concluded that the Kessler doctrine provides a “limited trade right” that attaches to the product itself. “The scope of that right is not limited to cases involving a finding of non-infringement that was necessary to the resolution of an earlier lawsuit, but extends to protect any products as to which the manufacturer established a right not to be sued for infringement.” The fact that PersonalWeb stipulated dismissal with prejudice “operated as an adjudication of non-liability for infringement for purposes of invoking the Kessler doctrine.”

In so holding, the Court affirmed the district court’s dismissal of all eight cases against Amazon’s customers.

The Kessler doctrine acts as a gap filler between claim and issue preclusion. This gap filler protects defendants who previously received a favorable judgment of non-infringement and their customers. Even if the patent holder stipulates to dismissal with prejudice in the prior case, that favorable result for the original defendant will operate as an adjudication of non-infringement for the purposes of the Kessler doctrine.