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Res Judicata Does Not Prevent Infringement Suit over Trading Cards

July 11, 2003

Decision icon Decision

Last Month at the Federal Circuit - August 2003

Judges: Mayer (author), Michel, and Dyk

In Media Technologies Licensing, LLC v. The Upper Deck Co., No. 02-1555 (Fed. Cir. July 11, 2003), the Federal Circuit reversed a district court’s decision barring the assertion of infringement for res judicata.

Adrian Gluck is the inventor of a patent directed to memorabilia cards. Gluck had assigned his patent to LNCJ, Ltd. (“LNCJ”), which in turn licensed the patent to Telepresence Technologies (“Telepresence”), a company for whom Gluck was a principal. Telepresence brought an infringement action against several of its competitors. Due to a defective initial assignment by Gluck to LNCJ, the district court dismissed the case for lack of standing.

To remedy the assignment defect, Gluck created Media Technologies Licensing, LLC (“Media”), naming himself as president of the company. Gluck then perfected the assignment of his patent rights to LNCJ, terminated the license agreement between LNCJ and Telepresence, and assigned LNCJ’s recently acquired rights in the patent to Media. In addition, Gluck and Telepresence quitclaimed any interest they had in the patent to Media.

Media then initiated an action against The Upper Deck Company and others (collectively “Upper Deck”) for infringement. Upper Deck moved for SJ of claim preclusion. The district court granted the motion, and Media appealed.

Because the case turned on general principles of claim preclusion rather than a rule of law having special application to patent cases, the Federal Circuit applied the law of the Ninth Circuit. Claim preclusion in the Ninth Circuit requires the following elements: (1) the prior litigation was terminated by a final judgment on the merits; (2) the prior litigation involved the same claim or cause of action; and (3) the same parties, or their privities, were involved in the prior litigation.

Media argued on appeal that the district court had erred in concluding that the dismissal of Telepresence’s prior action was a final judgment on the merits. Applying the law of the Ninth Circuit, the Federal Circuit ruled that standing is a threshold question that is resolved before proceeding to the merits of the case, and, therefore, dismissal based on lack of standing precludes a ruling on the merits. Thus, the district court had erred with respect to the first element of claim preclusion—the prior litigation had not been terminated by a final judgment on the merits.

The Federal Circuit also concluded that the district court had erred in applying claim preclusion because Telepresence and Media lacked privity. Privity extends to parties who have sufficient commonality between them so that one may be bound by the prior decision if his interests were virtually represented by the other party in that action, the Court stated. In this case, Media was not the equivalent of Telepresence coming back for a second bite of the apple; it was a later-created entity with a perfected interest in the patent that was lacking before, and, therefore, it was not in privity with Telepresence because its interests could not have been virtually represented by Telepresence’s unperfected patent rights.