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Admission of Privity Bars Second Patent Infringement Suit Under the Doctrine of Claim Preclusion

06-1077
January 18, 2007
Bianco, Krista E.

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Last Month at the Federal Circuit - February 2007

Judges: Michel, Plager (author), Bryson

[Appealed from: D. Minn., Judge Magnuson]

In Transclean Corp. v. Jiffy Lube International, Inc., No. 06-1077 (Fed. Cir. Jan. 18, 2007), the Federal Circuit affirmed the district court’s grant of SJ, finding that the doctrine of claim preclusion bars a second patent infringement suit filed against customers of a manufacturing company previously found to infringe U.S. Patent No. 5,318,080 (“the ’080 patent”). The Federal Circuit also reversed the district court’s default judgment against several other customers.

James P. Viken, Jon A. Lang, and Donald E. Johnson are the owners of the ’080 patent, which is directed to an apparatus for changing automatic transmission fluid, and Transclean Corporation is their exclusive licensee (collectively “Transclean”). In an earlier case, Transclean obtained a judgment that the “T-Tech machine” manufactured and sold by Bridgewood Services, Inc. (“Bridgewood”) infringed Transclean’s ’080 patent, and was awarded $1,874,500 in damages. In that case, the trial court barred Bridgewood from asserting that it did not infringe those claims as a sanction for abuse of discovery.

After Transclean failed to collect its earlier judgment against Bridgewood, it filed the current infringement suit against Jiffy Lube International, Inc. (“Jiffy Lube”) and more than thirty other fast lube businesses who had purchased T-Tech machines from Bridgewood. Transclean sought a reasonable royalty of $10,000 for the use of each allegedly infringing device. Several of the defendants failed to answer the complaint (“Defaulting Defendants”). Transclean obtained an order entering a default judgment and a permanent injunction against the Defaulting Defendants. The district court, however, granted SJ to Jiffy Lube and eight other “Participating Defendants,” holding that, under the doctrine of claim preclusion, the judgment against Bridgewood barred Transclean from suing Bridgewood’s customers.

On appeal, Transclean argued that its infringement claims should not be barred by the application of claim preclusion since the law allows a patentee to sue manufacturers or sellers and users of an infringing device as joint tortfeasors and permits multiple suits, just not multiple recoveries. Since Transclean did not collect its judgment against Bridgewood, it contended that it was free to sue users of the T-Tech machine. In response, the Federal Circuit noted that Transclean’s argument involved only the doctrine of full compensation and “fail[ed] to take into account the separate issue of claim preclusion, under which such a second suit, otherwise available, may be barred.” Slip op. at 8.

The Federal Circuit considered the key question before it as whether Transclean should be bound by its repeated statements that the defendants were in privity with Bridgewood. Since that question was not peculiar to patent law, the Federal Circuit applied Eighth Circuit law in its decision. In the Eighth Circuit, “an earlier suit bars a party from asserting a claim in a later suit if (1) the first suit resulted in a final judgment on the merits; (2) the prior judgment was rendered by a court of competent jurisdiction; (3) both suits involve the same cause of action; and (4) both suits involve the same parties or their privies.” Id. at 9. Here, the parties did not dispute that the first two elements were satisfied. The Federal Circuit found that the third element was met since little doubt existed that a second suit against Bridgewood itself for using the same T-Tech machine would involve the same cause of action as the prior litigation. 

The Federal Circuit then focused on the fourth issue, privity of the parties, as the decisive issue. In the district court and in its appeal brief, Transclean admitted several times that the defendants in this case were in privity with Bridgewood. Only in its reply brief and at oral argument did Transclean first assert that privity did not exist at least to bar its suit under the doctrine of claim preclusion. Under the standard of privity, “a manufacturer or seller of a product who is sued for patent infringement typically is not in privity with a party, otherwise unrelated, who does no more than purchase and use the product.” Id. at 12. While the actual circumstances of this case did not necessarily support the conclusion of privity, the Federal Circuit determined that privity is a question of fact that can be admitted in the Eighth Circuit and Transclean made a binding tactical decision to admit that Bridgewood was in privity with its customers. Since there is, however, a split of authority as to whether privity is a question of law or fact, the Court further found that the doctrine of judicial estoppel similarly bound Transclean to its concession of privity, as Transclean was taking inconsistent positions in related litigations. Therefore, the Court affirmed the district court’s grant of SJ in favor of the Participating Defendants.

The Court next turned sua sponte to the district court’s judgment against the Defaulting Defendants. Applying the same claim preclusion analysis, the Court found that Transclean, by never distinguishing between the Participating Defendants and the Defaulting Defendants, had admitted that all defendants in this case were in privity with Bridgewood. Accordingly, the Court reversed the judgment against the Defaulting Defendants.