Posted on June 4, 2015
by Monte Cooper and Anthony Tartaglio

Report and Recommendation Denying Motion For Judgment On the Pleadings, Technology Properties Limited LLC v. Barnes & Noble, 3:12-cv-03863-VC (Magistrate Judge Grewal)

“Talk up anyone in the patent litigation business, and she will almost certainly agree: the International Trade Commission (ITC) is as important a forum for resolving patent matters as any federal district court. And for good reason. Just like district courts the ITC may determine the infringement of United States patent rights. There are, however, several key differences. For one thing, an ITC infringement determination can only give rise to an order of exclusion from the United States—not damages. This case highlights another key difference. Unlike with an earlier district court judgment, Congress has mandated that an earlier ITC determination ‘cannot have preclusive effect’ in a later district court case under the doctrines of claim and issue preclusion.”

With these introductory observations about ITC practices, Magistrate Judge Grewal in Technology Properties Limited LLC v. Barnes & Noble recently the addressed the question of whether a final ruling from the ITC nonetheless could prevent an unsuccessful plaintiff from re-litigating the issue it lost before the ITC in a follow-on US District Court proceeding. Under the “long-dormant” Kessler doctrine, which derives from an obscure 1907 Supreme Court decision authored by Justice Mooney, an earlier judgment of non-infringement by a “court of competent jurisdiction” precludes a later claim in district court even where the first finding would not be considered a “judgment” for the purposes of applying res judicata or collateral estoppel (a.k.a. issue preclusion). Upon analysis of the Kessler doctrine, Magistrate Judge Grewal concluded that the doctrine does not permit a defendant who prevails at the ITC to use the ITC noninfringement decision as a basis to dismiss the district court action.

Background: Plaintiffs filed suit in District Court and the ITC in July of 2012, resulting in the District Court proceedings being stayed while the ITC action proceeded to a final ruling. Later, after the ITC found no infringement of the underlying patents (and Plaintiffs did not appeal), the District Court stay was lifted, and defendant Barnes & Noble (“B & N”) moved for a judgment on the pleadings of no infringement predicated upon the Kessler doctrine. B & N conceded that ITC decisions do not create issue or claim preclusion in district courts. But it nevertheless argued that Kessler precluded the Plaintiffs’ District Court action. Magistrate Judge Grewal issued a Report and Recommendation in which he recommended that presiding District Judge Chhabria deny the motion for judgment on the pleadings.

Kessler created an important limitation on a plaintiff’s ability to bring a patent suit independent of the doctrines of collateral estoppel and res judicata. In Kessler, a district court found that the defendant Kessler’s product did not infringe. The patentee Edlred then sued a customer of Kessler for patent infringement regarding the same product at issue in the original suit. The Court held that although there was no mutuality of parties (and hence no estoppel), the prior judgment of non-infringement was “entitled to respect” and barred the new lawsuit against Kessler’s customer. Kessler can therefore “fill the gap” in certain cases where there is, strictly speaking, no issue or claim preclusion.

Magistrate Judge Grewal nonetheless found Kessler inapplicable in the context of judgments entered in earlier ITC proceedings for three reasons. First, the Federal Circuit has held that ITC findings have no preclusive effect on district courts. Even though the Federal Circuit has never squarely addressed whether the Kessler doctrine applies to judgments entered in ITC proceedings, the Court of Appeals’ precedent that there is no preclusive effect arising from ITC actions has been rendered with the recognition that Kessler remains binding precedent. Second, Magistrate Judge Grewal concluded that Kessler extends only to courts that can issue a judgment that would otherwise be determinative for res judicata/collateral estoppel purposes, which would not include ITC decisions. Third, and finally, the Supreme Court recently explained that courts must defer to Congress’s express views on the preclusive effect of agency determinations. When it comes to unappealed ITC determinations, Congress has suggested that claim and issue preclusion do not apply at all. In B&B Hardware v. Hargis Industries, Justice Alito wrote—with respect to the TTAB—that the “question is whether there is an ‘evident’ reason why Congress would not want [the agency] decisions to receive preclusive effect, even in those cases in which the ordinary elements of issue preclusion are met.” And the legislative history of the ITC’s creation states that: “The Commission’s findings neither purport to be, nor can they be, reargued as binding interpretations of the U.S. patent laws in particular factual contexts. Therefore, it seems clear that any disposition of a Commission action by a Federal Court should not have a res judicata or collateral estoppel effect in cases before such courts.”

It remains to be seen if Magistrate Judge Grewal’s analysis will be adopted by Judge Chhabria or other Courts. For now, though, his Report and Recommendation suggest that the District Courts will still be entertaining patent infringement actions, even where the plaintiff previously has unsuccessfully asserted the same claims before the ITC.

http://blogs.orrick.com/norcal-ip/2015/06/04/magistrate-judge-grewal-wrestles-with-kessler/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original