|The famous Kessler Twins|
To understand the Federal Circuit's decision, it is necessary to go back to 1997, when MIDCO sued Elekta, alleging that three products sold by the defendant (GammaKnife, GammaPlan, and SurgiPlan) infringed US Patent No. 5,398,684. The patent at issue contained only two independent claims, respectively disclosing an apparatus and a method for generating a video image from a variety of scanner imaging sources, including a computerized axial tomography image, a nuclear magnetic resonance image, and an X-ray. During discovery, MIDCO focused on the apparatus claims and did not oppose Elekta's motion for dismissal of the method claims prior to trial. Accordingly, the district court dismissed the method claims without prejudice. The jury rendered a verdict in favor of the plaintiff, finding that Elekta's products infringed claim 1 of the '684 patent. On appeal, the infringement finding was reversed, and the case remanded to the district court to enter judgment of non-infringement as a matter of law in favor of Elekta.
A few years after these events, MIDCO licensed its patent to a third party, which, in turn, licensed it to Brain Life. The licensee filed suit against Elekta (and several other defendants), maintaining that four of its products (GammaKnife, GammaPlan, SurgiPlan, and ERGO++) infringed the method claims of the '684 patent. At first instance, the district court granted summary judgment in favor of the defendant. Finding that there was no material difference between the accused products and those adjudicated in the previous proceeding between MIDCO and Elekta, the court held that allowing the plaintiff to assert the method claims would amount to impermissible claim splitting. Thus, it concluded that 'Brain Life cannot revisit the decision MIDCO made many years ago to forego including in its infringement action [the method claim], when it could have been asserted in the first litigation, and revive that allegation now against products that are essentially the same as the accused products that were found not to infringe'.
The Federal Circuit reviewed the district court's decision under the three doctrines mentioned above. First, it discussed the applicability of claim preclusion. Under the law of the Ninth Circuit, claim preclusion applies where the prior suit (i) involved the same claim or cause of action as the later suit, (ii) reached a final judgment on the merits, and (iii) involved the same parties or privies. The presence of a final judgment, which ended a cause of action, bars the parties from relitigating both the claims that were brought and those that could have been brought in the prior suit. In this perspective, the doctrine of claim preclusion effectively prevents claim splitting (as expressly acknowledged, for example, in Shaver v F.W. Woolworth Co. - the Tenth Circuit, in Hartel Springs Ranch of Colorado Inc. v Bluegreen Co., reviewed several decisions that recognized a similar correlation). The court highlighted that, according to the teaching of Nystrom v Trex Co. Inc. and Foster v Hallco Mfg. Co., the party that demands the application of the doctrine of claim preclusion in a patent case must demonstrate that the accused product is 'essentially the same' as that accused in the prior suit.
Brain Life acknowledged the similarity between the products litigated in the MIDCO trial and those accused in the later suit. However, it contended that the final judgment rendered in the prior suit could not bar the assertion of the method claims, which were dismissed without prejudice. The Federal Circuit disagreed, clarifying that '[w]hile the dismissal without prejudice allowed for the possibility that acts of infringement of the method claims could be subject to a future cause of action, that possibility was cut-off for all such acts predating the final MIDCO judgment once that judgment was entered'. The court observed that the doctrine of claim preclusion does not prevent Brain Life from asserting either the apparatus or method claims against Elekta, for acts of infringement occurred after the judgment rendered in the prior suit. The panel recited the recent decision of Aspex Eyewear Inc. v Marchon Eyewear Inc., which clearly explained that 'if the party could not have asserted particular claims - because the tortious conduct in question had not occurred at that time - those claims could not have been asserted and therefore are not barred by res judicata'.
The opinion then looked at the doctrine of issue preclusion, or collateral estoppel, under which 'once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation' (Montana v United States). Actual litigation and determination of an issue of fact or law in a final judgment is the element that distinguishes issue preclusion from claim preclusion. The court found that the method claims originally asserted by MIDCO against Elekta 'were not fully, fairly, and actually litigated to finality'. Therefore, it held that issue preclusion does not bar a second suit on those claims. Similarly, as the ERGO++ product was not included among the accused products in the prior suit, issue preclusion cannot bar the assertion of any claim of the '684 patent in relation to said product.
Finally, the panel turned to the Kessler doctrine, suggesting that it 'fills the gap between [claim preclusion and issue preclusion], allowing an adjudged non-infringer to avoid repeated harassment for continuing its business as usual post-final judgment in a patent action where circumstances justify that result'. In particular, this doctrine applies to new acts of (alleged) infringement, which are excluded from the applicability of claim preclusion. The Kessler doctrine was created, in 1907, by the Supreme Court in Kessler v Eldred: Eldred, after losing an infringement suit brought against Kessler's electric lighters, had sued a customer of Kessler that was selling the same products accused in the first suit. According to the Federal Circuit, the Kessler decision went beyond the perimeter of the doctrine of claim preclusion, as the Supreme Court 'granted Kessler a limited trade right to continue producing, using, and selling the electric lighters that were the subject of the first suit and to do so without fear of allegations of infringement by Eldred - even when the acts of infringement occurred post-final judgment and even when it was third-parties who allegedly engaged in those acts of infringement'.
The court acknowledged that its past reliance on the Kessler doctrine has been sparse, but recalled the cases of Rubber Tire Wheel Co. v Goodyear Tire and Rubber Co. and MGA Inc. v General Motors Corp. The latter described Kessler as a doctrine that 'bars a patent infringement action against a customer of a seller who has previously prevailed against the patentee because of invalidity or noninfringement of the patent; otherwise, the effect of the prior judgment would be virtually destroyed'. The Federal Circuit suggested that the Kessler doctrine may be less valuable today than at the time of its creation, as the strict doctrine of mutuality that was applied at that time has been replaced by the development of defensively applied issue preclusion. Applying Kessler, the court found that, after the final judgment of non-infringement, Elekta was free to continue engaging in the accused commercial activity as a non-infringer, in relation to all the products adjudicated in the MIDCO litigation. 'Simply', explained the court, 'by virtue of gaining a final judgment of noninfringement in the first suit - where all of the claims were or could have been asserted against Elekta - the accused devices acquired a status as noninfringing devices, and Brain Life is barred from asserting that they infringe the same patent claims a second time'. The panel reiterated, however, that this conclusion does not apply to Elekta's ERGO++ product, which was never included in the prior suit. Thus, it reversed the district court's judgment regarding this product, remanding for further proceedings.