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Offensive Collateral-Estoppel Issues Turn on Plaintiffs’ Ease in Joining Prior Suit

September 08, 2003

Decision icon Decision

Last Month at the Federal Circuit - October 2003

Judges: Bryson (author), Rader, and Dyk (concurring)

In Dana v. E.S. Originals, Inc., No. 02-1531 (Fed. Cir. Sept. 8, 2003), the Federal Circuit vacated a district court’s ruling that collateral estoppel barred Defendants from asserting invalidity or noninfringement, and remanded the case for further proceedings.

Alfred Dana III owned U.S. Patent No. 4,158,922 (“the ‘922 patent”) prior to August 11, 1993, at which time he sold it to L.A. Gear, Inc. The ‘922 patent concerns technology that involves flashing footwear that features light displays. Dana filed suit on this patent in Florida district court alleging infringement (that took place before the August date) against nine Defendants. Dana asserted collateral estoppel, stating that the Defendants were prevented from denying infringement and validity based on a prior action in a California district court regarding the same Defendants and L.A. Gear, Inc.

In the previous California proceeding, the district court had found that the ‘922 patent was valid and enforceable and that the Defendants infringed under the DOE. The case then settled. In the Florida district court action, Dana sought to use the earlier rulings as a basis to preclude the Defendants from asserting noninfringement and invalidity. The Florida district court held that the Defendants were barred from relitigating the validity and infringement issues.

The Federal Circuit evaluated the legal prerequisites for collateral estoppel and weighed equitable factors against the offensive use of collateral estoppel in reviewing the decision.

With regard to the legal prerequisites for collateral estoppel, the Defendants argued on appeal that the previous partial SJ orders in the California case did not afford them a full and fair opportunity to litigate the issues. Applying Eleventh Circuit law, the Federal Circuit held that the California district court’s orders were final and that the issues in the Florida district court were identical to those resolved in the California district court. Furthermore, the Court noted that the inclusion of language in the settlement consent decree attempting to limit collateral estoppel was evidence that the parties were fully aware of the potential future application of collateral estoppel. Consequently, the Federal Circuit concluded that the legal prerequisites for applying collateral estoppel were indeed present.

Turning to the equitable factors, however, the Federal Circuit observed that offensive estoppel carries with it the danger that in cases involving multiple potential plaintiffs, the plaintiffs will not all join in a single lawsuit, but instead some plaintiffs will postpone filing their actions to await the outcome of the other plaintiffs’ efforts. This danger requires courts to consider the plaintiffs’ actions, in particular, whether the plaintiff could have easily joined the prior suit. If so, then the plaintiff may be denied the benefits of a favorable outcome in the prior case because he chose not to expose himself to the risk of an unfavorable one. Since the district court did not make this inquiry, the Federal Court vacated the decision of the Florida district court and remanded for further inquiry with respect to this specific equitable factor