Preclusion; Customer Lawsuits; and the Kessler Doctrine

by Dennis Crouch

PersonalWeb Technologies, LLC v. Patreon, Inc., Docket No. 20-1394 (Supreme Court 2021).

This is a core civil procedure case pending before the Supreme Court.  Of course, procedure can and often does have a major impact on substantive rights.  The Supreme Court has now issued a Call for the Views of the Solicitor General (CVSG)–seeking the government’s input on whether to hear the case.  Although certiorari is certainly not guaranteed, CVSG is generally seen as a major step in that direction.

We know about issue preclusion and claim preclusion. This case is about a quirky intermediary known as the Kessler Doctrine. See, Kessler v. Eldred, 206 U.S. 285 (1907).

• Claim Preclusion (res judicata) prevents a party from re-litigating a claim once a court has issued a final judgment on that claim.  Claim preclusion is powerful, in part, because it does not require the claim to be actually litigated (just be subject to the final judgment).  Further, claim preclusion bars both those claims that were brought as well as claims stemming from the same transaction or occurrence that could have been brought in the earlier lawsuit.  However, claim preclusion is quite narrow because it does not apply in the non-mutual setting.
• Issue Preclusion (collateral estoppel) prevents a party from re-litigating an issue of fact or law that was already determined in a prior case.  Issue preclusion is powerful because it applies in non-mutual settings.  Issue preclusion can prevent a patentee from later arguing in a new lawsuit that its patent is valid after an earlier finding of invalidity, even if the new lawsuit is against a different party.  The major weakness of issue preclusion is that it requires that the issue have been actually decided in the prior lawsuit, with a full-and-fair opportunity to litigate, and be essential to the prior judgment (not just dicta). As an example, issue preclusion does not attach following a settlement.
• Kessler Doctrine is particular to patent law and falls somewhere in-between issue and claim preclusion–allowing preclusion in instances where it would not be traditionally available.  In particular, the doctrine bars a patent infringement lawsuit suit against the customer of a seller who had previously prevailed against a patentee in an earlier patent infringement suit. Kessler v. Eldred, 206 U.S. 285 (1907).  In that situation claim preclusion would not apply because of non-mutuality; and issue preclusion might not apply if the issues being barred were not actually litigated in the first case.

One justification for the Kessler doctrine back in 1907 was that issue preclusion generally did not apply to unrelated parties.  However the 20th century saw a great expansion of issue preclusion that culminated with the Supreme Court’s 1971 decision in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971) (“the principle of mutuality of estoppel … is today out of place”).  However, rather than relegating Kessler to a prior time, the Federal Circuit has recently substantially expanded the doctrine even beyond its usual bounds.  That revival began with the 2014 decision in Brain Life, LLC v. Elekta Inc., 746 F.3d 1045 (Fed. Cir. 2014), but has subsequently been relied upon in a series of cases from the appellate court. SpeedTrack, Inc. v. Office Depot, Inc., 791 F.3d 1317, 1323-1329 (Fed. Cir. 2015), cert. denied, 577 U.S. 1063 (2016); SimpleAir, Inc. v. Google LLC, 884 F.3d 1160, 1169-1170 (Fed. Cir. 2018); Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275, 1301 (Fed. Cir. 2017), cert. dismissed, 139 S. Ct. 44 (2018);  Xiaohua Huang v. Huawei Techs. Co., 787 F. App’x 723, 724 (Fed. Cir. 2019); In re PersonalWeb Techs. LLC, 961 F.3d 1365 (Fed. Cir. 2020); ABS Glob., Inc. v. Cytonome/ST, LLC, 984 F.3d 1017, 1022 (Fed. Cir. 2021).

The Supreme Court has repeatedly declined (in other situations) to expand preclusion beyond its traditional bounds without congressional intervention. See Lucky Brand Dungarees v. Marcel Fashions Grp., Inc., 140 S. Ct. 1589, 1594-95 (2020) (rejecting “defense preclusion” as a cognizable doctrine).  Likewise, the court has rejected patent-specific procedural rules.  Those lines of cases all suggest a good likelihood that the court cabin-in the doctrine.

Preclusion cases always involve two lawsuits, and the question is whether something that happened in the first lawsuit precludes a party from taking some action in the section lawsuit.   Here, PersonalWeb sued Amazon for patent infringement back in 2011 based upon Amazon’s use of its S3 cloud storage services. However, after a narrow claim construction, PersonalWeb stipulated to dismissal of its case with prejudice.  In 2018, PersonalWeb sued a number of Amazon customers for post-2011 activities.  The courts dismissed the case — holding that the action was barred by the Kessler Doctrine.

PersonalWeb’s petition for certiorari begins with a preamble and then asks two questions:

This Court has repeatedly held that, absent guidance from Congress, courts should not create special procedural rules for patent cases or devise novel preclusion doctrines that stray beyond the traditional bounds of claim and issue preclusion. Nonetheless, over the past seven years, the Federal Circuit has created and then repeatedly expanded a special, patent-specific preclusion doctrine that it attributes to this Court’s 114-year-old decision in Kessler v. Eldred, 206 U.S. 285 (1907)—a case this Court has not cited for almost 70 years. The Federal Circuit now routinely applies its so-called “Kessler doctrine” to reject suits like this one that would survive under ordinary preclusion principles.

The questions presented are:

1. Whether the Federal Circuit correctly interpreted Kessler to create a freestanding preclusion doctrine that may apply even when claim and issue preclusion do not.

2. Whether the Federal Circuit properly extended its Kessler doctrine to cases where the prior judgment was a voluntary dismissal.

[Petition for Certiorari]

In its responsive briefing, Amazon and its customers have rewritten the questions in slightly different form, emphasizing their arguments.

In Kessler v. Eldred, 206 U.S. 285 (1907), this Court held that a patent-infringement judgment establishing the right of a manufacturer to make and sell a product includes “the right to have others secure in buying that article, and in its use and resale.” Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U.S. 413, 418 (1914). Accordingly, “a judgment in [the manufacturer’s] favor bars suits against his customers.” Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 185 (1952). The questions presented are:

(1) whether the Federal Circuit properly interpreted Kessler as a bar on suits against customers for use of the same articles that were the subject of the prior judgment, rather than a mere application of non-mutual issue preclusion;

(2) whether Kessler should be overruled, despite stare decisis, when Congress has never revised the Patent Act to overrule Kessler, and when its rule is necessary to prevent the kind of vexatious litigation in which the district court found Petitioner to have engaged; and

(3) whether Kessler applies to judgments of voluntary dismissal with prejudice, which this Court has long held to have the same preclusive effect as an adjudication on the merits of a claim.

[Brief in opposition].

Next stop in this case is input from the Biden Administration via the Solicitor General.  That brief probably won’t be submitted until Spring 2022.

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Note – Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 185 (1952) was decided prior to the Patent Act of 1952.