Late last year, the Federal Circuit affirmed an award of over $5 million in attorneys’ fees in favor of the defendants in PersonalWeb v. Patreon. In addressing the propriety of the award, the Federal Circuit also took the opportunity to reaffirm (albeit over the dissent of Judge Dyk) the applicability of the so-called Kessler doctrine, which an earlier panel of the court had relied on to dismiss the claims in the case.
The Kessler doctrine is a preclusion doctrine that is peculiar to patent cases. As a refresher, the Supreme Court has held that “claim preclusion prevents parties from raising issues that could have been raised and decided in a prior action—even if they were not actually litigated.” Lucky Brand Dungarees, Inc. v. Marcel Fashions Group., Inc. However, claim preclusion generally does not bar claims that are predicated on events that postdate the filing of the initial complaint.
Issue preclusion is a doctrine distinct from claim preclusion. The Supreme Court has held that issue preclusion prevents a party from relitigating an issue actually decided in a prior case and necessary to the judgment. Unlike claim preclusion, issue preclusion may apply to bar claims that post-date the underlying complaint and/or judgment. However, the Federal Circuit has held that issue preclusion does not apply when the parties consent to a judgment on an issue prior to trial, because the issue was not actually litigated to finality.
The Kessler doctrine, a third form of preclusion specific to patent cases, derives from the Supreme Court’s opinion in Kessler v. Eldred, 206 U.S. 285 (1907). In that controversy, Eldred sued Kessler for patent infringement and lost, with the 7th Circuit affirming a judgment of non-infringement in favor of Kessler.
Seemingly dissatisfied with that outcome, Eldred then sued Kessler’s customers, who were selling lighters identical to those at issue in the suit against Eldred. Kessler stepped in to assume the defense based upon the prior judgment of non-infringement. In an effort to put a stop to the vexatious litigation against his customers, Kessler sought an injunction to prevent Eldred from suing Kessler’s customers for sale of Kessler’s lighter, which the 7th Circuit already found did not infringe Eldred’s patents.
The Supreme Court ruled that, based on the 7th Circuit’s earlier judgment of non-infringement, Kessler was free to manufacture and sell the same lighter at issue in the underlying case “without molestation by Eldred.” Any suit by Eldred against a customer of Kessler relating to the infringement of the same lighter was “a wrongful interference by Eldred with Kessler’s business.”
The Kessler decision is a logical product of its time. Because Kessler’s customers were not parties to the underlying lawsuit that Eldred lost, they were unable to use the result in that case to fend off the lawsuits that Eldred brought against them. They would have had to litigate the issue all over again had Kessler not stepped in to protect them by obtaining an injunction against Eldred. It would not be until the Supreme Court’s 1971 decision in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation that defendants could defend an action on the basis of non-mutual issue preclusion.
The Kessler doctrine remained fairly dormant for the better part of a century. But over the last 10 years, the Federal Circuit has breathed new life into the doctrine. The most recent case to substantively tackle the doctrine is PersonalWeb v. Patreon.
PersonalWeb sued Amazon for patent infringement in 2011. In 2014, after claim construction but before the court could rule on the question of infringement, PersonalWeb voluntarily dismissed its claims with prejudice.
In 2018, PersonalWeb filed 80 separate patent infringement lawsuits against Amazon’s customers for use of the same product that was the subject of the earlier lawsuit against Amazon. The lawsuits were consolidated and Amazon intervened to assume the defense of its customers, invoking the Kessler doctrine.
PersonalWeb bears some similarities to Kessler, with one critical difference: in Kessler, there was an adjudication of non-infringement on the merits. In PersonalWeb, there was a voluntary dismissal with prejudice, but not an adjudication that the product in question did not infringe.
The Federal Circuit, affirming the district court’s decision to dismiss the lawsuit, found that claim preclusion barred all claims that pre-dated the 2014 dismissal. This portion of the decision is non-controversial and consistent the traditional application of claim preclusion. Neither the court nor the parties addressed issue preclusion, presumably because no one believed that a voluntary dismissal with prejudice equated to “actual litigation” such that the claims would be barred by issue preclusion.
With claim and issue preclusion unable to preclude PersonalWeb’s litigation, Amazon and the Federal Circuit relied on the Kessler doctrine, which “fills the gap” left by claim and issue preclusion. The Federal Circuit found that the Kessler doctrine barred PersonalWeb’s claims because the voluntary dismissal with prejudice in the underlying litigation served to label the products in question as non-infringing. Once the products are considered to be non-infringing, the Kessler doctrine applies. As applied by the Federal Circuit in PersonalWeb, the Kessler doctrine is an expanded form of claim preclusion that is specifically tied to the product alleged to be infringing. The Supreme Court declined to consider PersonalWeb’s bid for certiorari review, leaving in place the Federal Circuit’s application of the Kessler doctrine.
The Federal Circuit had the opportunity to revisit its decision when it affirmed an attorney’s fee award of over $5 million dollars pursuant to 35 U.S.C. § 284. The Federal Circuit held that a “final judgment of non-infringement” was all that was needed for Kessler to apply and, as a result, PersonalWeb took an objectively unreasonable position in the litigation against Amazon’s customers. Quoting the district court, the Federal Circuit stated that “PersonalWeb’s infringement claims related to the use of Amazon S3 were objectively baseless and clearly untenable based on established Federal Circuit precedent[s] and in light of the with-prejudice dismissal of the [underlying action].”
In light of the Supreme Court’s denial of cert and the Federal Circuit’s doubling-down on the “established Federal Circuit precedent” that is the Kessler doctrine, patent litigators should be ready to wield or defend against the doctrine when the situation makes the doctrine relevant.
Accused infringers can and should take advantage of the Kessler doctrine when the same or similar products have already been accused of infringement in prior lawsuits. The Kessler doctrine may be a winning defense.
Patentees, in settling litigations in which they seek to enforce their patents, should attempt to negotiate a dismissal that does not bar all future claims of infringement arising from the patents. The outcome in PersonalWeb might have been different had PersonalWeb reserved its right to sue and/or obtained a declaration that there was no adjudication regarding the question of infringement. It is also important for licensees to be aware of Kessler, as litigation previously settled by the licensor may preclude future litigation by the licensee.
