## United States Court of Appeals for the Federal Circuit

05-1260

PACTIV CORPORATION, Plaintiff-Appellant,

v.

DOW CHEMICAL COMPANY, Defendant-Appellee.

Robert T. Tobin , Kenyon & Kenyon, of New York, New York, argued for plaintiffappellant. With him on the brie f were Anita Pamintuan Fusco ; and Sheila A. Ozalis , Smith & Ozalis LLP, of Newtown, Connecti cut. Of counsel was James Galbraith

. Arthur M. Lieberman , Ganfer & Shore, LLP, of New York, New York, argued for defendant-appellee. Of counsel on t he brief were Dawn L. Rudenko , Dickenstein Shapiro Morin & Oshinsky LLP and Bruce M. Kanuch , The Dow Chemical Company, of Midland, Michigan. Appealed from: United States District Cour t for the Northern District of New York Judge David N. Hurd

## United States Court of Appeals for the Federal Circuit

05-1260 PACTIV CORPORATION, Plaintiff-Appellant,

v.

DOW CHEMICAL COMPANY, Defendant-Appellee.

___________________________ DECIDED: June 5, 2006

___________________________ Before MICHEL, Chief Judge , BRYSON, and DYK, Circuit Judges

. DYK, Circuit Judge

. Pactiv Corporation (“Pactiv”) appeals from the district court’ s dismissal of its declaratory judgment action against Dow Chem ical Company (“Dow”), in which Pactiv sought a judgment of noninfringement, invalid ity, and unenforceability with respect to U.S. Patent Nos. 5,424, 016, and 5,586,058 (the “’016 patent” and the “’058 patent” respectively). Because we agree with the dist rict court’s determination that Pactiv’s claims are precluded by res judicata, we affirm. BACKGROUND In litigation commenced in 1995, Dow sued Pactiv for infringement of the ’016 and ’058 patents, and Pactiv asserted invalidity and unenforceability counterclaims. That action, which resulted in Settlement and License Agreements (hereinafter,collectively the “1998 Agreement ”), was dismissed with prejudice pursuant to a joint stipulation. J.A. at 281. The present controversy conc erns the effect of the 1998 Agreement and the judgment that was entered pursuant to that agreement. 1 Pursuant to the 1998 Agreement, Pactiv agreed to pay royalties to Dow on the ’016 and ’058 patents. However, in late 2002, Pactiv ceased payments. On November 4, 2003, Dow advised Pactiv that Pactiv was in material breach of the License Agreement and that if Pactiv did not cure this breach, it woul d lose the right to practice Dow’s patents. Pactiv notified Dow that it believed the patents were invalid and for that reason would no longer pay any royalties. Soon thereafter, on December 30, 2003, Pactiv filed a declaratory judgment ac tion against Dow, alleging noninfringement, invalidity, and unenforceability of the ’016 and ’058 patents. Dow moved for dismissal under Federal Rule of Civil Procedure 12(b)(6), arguing that Pactiv’s suit was barred by res judicata (claim preclusion). The parties agreed that the prior dismi ssal was preclusive, unless (1) the 1998 Agreement reserved Pactiv’s right to chall enge the patents in the future or (2) the judgment was unenforceable because Pactiv was denied a full and fair opportunity to litigate the invalidity and unenforceablity claims. The district court (Judge David N. Hu rd) considered the various agreements and concluded that Pactiv’s declaratory judgment action was barred by the prior adjudication

1 For convenience, we refer both to Pactiv itself and its predecessors as “Pactiv.” Although not explaining the deta ils of the successorship question, Pactiv concedes that the prior litigation involved Pactiv’s predecessors in interest (Tenneco Protective Packaging, Inc., and Astro-Valcour, Inc.) and that the 1998 Agreement was executed by Pactiv’s predecessor (Tenneco Protective Packaging, Inc.). Appellant’s Br. at 3, 8; J.A. 49, 51.

05-1260 2and that the plain language of t he agreements did not expressly reserve future litigation rights to Pactiv. The district court did not specifically address the contention that Pactiv was deprived a full and fair opportuni ty in the prior adjudication. The district court thus granted Dow’s 12(b)(6) motion and dismissed Pa ctiv’s declaratory judgment action. Pactiv Corp. v. Dow Chem. Co. , No. 1:04-CV-0081 (N.D.N.Y. Feb. 3, 2005). Pactiv timely appealed.

As Pactiv was in breac h of the License Agreement and was in reasonable apprehension of suit, the distri ct court had jurisdiction over Pactiv’s declaratory judgment action. See Gen-Probe Inc. v. Vysis, Inc. , 359 F.3d 1376, 1380 (Fed. Cir. 2004). We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1). DISCUSSION At the outset, we must address Dow’s cont ention that claim preclusion issues are governed by the law of this circuit. The cl aim preclusion issues in this case do not depend on any “rule of law having special applic ation to patent cases”; we therefore apply the law of the regional ci rcuit in which the district court sits—here the Second Circuit. Media Techs. Licensing, LLC. v. Upper Deck Co. , 334 F.3d 1366, 1369 (Fed. Cir. 2003) (applying regional circuit law in a cl aim preclusion case); Mars Inc. v. Nippon Conlux Kabushiki-Kaisha , 58 F.3d 616, 618 (Fed. Cir. 1995) (applying regional circuit law in a patent infringement claim preclusion case). In any event, under the circumstances of this case, we see no difference between the application of claim preclusion under our court’s precedent and that of the Second Circuit. Turning to the merits, the defense of claim preclusion will generally be available where the asserted claim was, or could hav e been, raised in a prio r action between the

05-1260 3parties which has been adjudicat ed on the merits. N. Assurance Co. of Am. v. Square D Co. , 201 F.3d 84, 87 (2d Cir. 2000); Hallco Mfg., Co. v. Foster , 256 F.3d 1290, 1294 (Fed. Cir. 2001). A dismissal with prejudice is a judgment on the meri ts for purposes of claim preclusion. Chase Manhatt an Bank, N.A. v. Celotex Corp. , 56 F.3d 343, 345 (2d Cir. 1995); Hallco Mfg., Co. , 256 F.3d at 1297. As the first action between Dow and Pactiv was dismissed with prejudice, it is a judgment on the merits for claim preclusion

purposes. I Here, Pactiv does not dis pute that under general claim preclusion principles, it would be barred from asserting the claims at issue. Instead, Pa ctiv argues that an exception to claim preclusion applies because Pa ctiv reserved the right to challenge the ’016 and ’058 patents in the 1998 Agreement. Pactiv also argues that the district court erred in granting Dow’s motion to dismiss bec ause there are material factual disputes between the parties. For the reasons descr ibed below, we do not think there are any material factual disputes here, and we think Pa ctiv is incorrect with respect to the legal

effect of the dismissal.

An ex ception to the normal rules of cl aim preclusion ex ists when “[t]he parties have agreed in terms or in effect that the pl aintiff may split his cl aim, or the defendant has acquiesced therein . . . .” Restatement (Second) of Judgments § 26(1)(a) (1982);

see also 18 Charles Allan Wright & Arthur R. Miller, Federal Pr actice and Procedure § 4415, at 354 (2d ed. 2002) (“[C]ourts have expressed willingness to honor an express agreement between the parties that an action on one part of the claim will not preclude a second action on another part of the same claim . . . .”). Thus, the parties can, in a

05-1260 4separate agreement, like the 1998 Ag reement here, reserve the right to litigate a claim that would otherwise be barred by res judica ta. Restatement (S econd) of Judgments § 26, cmt a (“So also the parties may enter into an agreement, not direct ed to a particular contemplated action, which may have the e ffect of preserving a claim that might otherwise be superseded by a judgment . . . .”). But that reservation must be express. 2 Initially we note that Pactiv has the st andard backwards: it ur ges that “[t]he plain and express language [of the 1998 Agreement] does not preclude Pactiv from participating in [future litigati on].” Appellant’s Br. at 23. The question is not whether the 1998 Agreement precluded Pactiv from future litigati on; the question is whether the 1998 Agreement expressly permitted Pactiv to participate in future litigation. We

conclude that it did not. Pactiv points to the following prov isions in the Settlement Agreement:

2 See, e.g. , Norfolk S. Corp. v. Chevron, U.S.A. , 371 F.3d 1285, 1289 (11th Cir. 2004) (“In determining the res judicata effect of an order of dismissal based upon a settlement agreement, we should also attempt to effectuate the parties’ intent. The best evidence of that intent is, of course, the se ttlement agreement itself. . . . as interpreted according to traditional principles of contract law.”); Hallco Mfg. Co. , 256 F.3d at 1297 (noting that in a settlement and dismissal judgment, the parties can expressly reserve the right to later litigate an iss ue); Herrmann v. Cencom Cable Assocs. , 999 F.2d 223, 225 (7th Cir. 1993) (noting that “[t]he parties can also if they want agree to split a single claim into two or more su its”); Keith v. Aldridge , 900 F.2d 736, 741 (4th Cir. 1990) (holding that “[c]laim preclu sion will not apply, however, if th e parties intended to settle only one part of a single claim and intended to leave another part open for future litigation”); Epic Metals Corp. v. H.H. Robertson Co. , 870 F.2d 1574, 1577 (Fed. Cir. 1989) (stating that an express reservation “mu st be discerned within the four corners of the consent decree, and cannot be expanded beyond the decree’s express terms”); Medina v. Wood River Pipeline Co. , 809 F.2d 531, 533-34 (8th Cir. 1987) (recognizing general rule that parties may by express agr eement consent to the splitting of a cause of action); Urbanizadora Santa Clara, S.A. v. United States , 518 F.2d 574, 578 (Ct. Cl. 1975) (“If plaintiff intended to preserve and purs ue a claim . . . following the execution of the release, it was incumbent on plaintiff to manifest this intention in a clearly recognizable manner. . . .”).

05-1260 5Except as to obligations imposed by or under this Agreement [or] the License Agreement . . . [Pactiv] . . . does hereby release each and every Dow Released Party from . . . any and a ll claims . . . for the period from and after April 27, 1997 relating to thos e Dow Patents which are subject to patents or pending patent applicati ons as of the date hereof. Settlement Agreement at ¶ 6( b) (emphasis added). Pactiv then refers us to section 4.5(a) of the License Agreement which provides in pertinent part: [Pactiv’s] obligation to pay royalty . . . will terminate if: (1) the particular Dow Patent or claim is found invalid through any final judicial or administrative proceeding . . . [or] (3) t he Dow Patent or claim is found to be unenforceable through any final judicial or admin istrative proceeding . .

. . License Agreement (emphasis added). Pactiv’s position is that section 4.5(a) of the License Agreement provides t hat anyone, including Pactiv, can challenge the validity or enforceability of the patents at issue; that the Settlemen t Agreement preserves this right; and that the obligation to pay royalties ceases if t he patents are held invalid or unenforceable in such litigation. Appellant’s Br. at 20. We find that the 1998 Agreement contains no language reserving Pactiv’s right to challenge the patents at issue, much less the required express reservation. Section 4.5(a) simply states that Pactiv’s obligation to pay ro yalties will terminate if Dow’s patents are found invalid through any proceedi ng. Although other provisions of the Agreement use “third party” terminology, and sect ion 4.5(a) does not specifically limit the “proceedings” to third party proceedings , that cannot render section 4.5(a) an express reservation. That provision does not expressly reserve the right to maintain

05-1260 6future invalidity and enforceability challenges . To the contrary, Pactiv expressly released Dow from all claims “relating to” those patents. 3 Finally, Pactiv argues that a separate agr eement executed by the parties in 2002,

which related to three other patents not at issue here, dem onstrates that the parties’ original intent in the first agreement was to preserve Pactiv’s right to bring future challenges of the ’016 and ’058 patent s. That 2002 agreement stated: This agreement shall not preclude nor impact in any way the rights of Pactiv Corporation . . . or Dow Chem ical Corporation . . . to bring any action or otherwise assert any claim agai nst each other relating directly or indirectly to the Dow Patents. 2002 Settlement Agreement ¶ 3. This 2002 agreement says nothing about how to interpret the 1998 Agreement. Ra ther than defining the rights of the parties, this later agreement simply preserved the then-existing rights of the parties. We thus conclude that there was no express reservation of Pactiv ’s right to challenge the patents at issue.

II Pactiv alternatively argues that res judica ta is not a bar to this action because “Pactiv was denied a full and fair opportunity to litigate the [ ] patents as a result of

3 The release provisions of the 1998 Settl ement Agreement provided in pertinent part: (a) Except as to obligations imposed by or under this Agreement [or] the License Agreement . . . Dow . . . does her eby release [Pactiv] from . . . any and all claims, demands, actions and causes of action, whether at law or in equity, that [Dow] . . . ever had or hereafter may have against any [ ] Released Parties relating to any of the Dow Patents

. . . . (b) Except as to obligations imposed by or under this Agreement [or] the License Agreement . . . [Pactiv] . . . does hereby release each and every Dow Released Party from . . . any and a ll claims . . . for the period from and after April 27, 1997 relating to thos e Dow Patents which are subject to patents or pending patent applicati ons as of the date hereof. Settlement Agreement, at ¶ 6(a) & (b) (emphasis added).

05-1260 7Dow’s fraudulent misrepresentations in the earlier litigation.” 4 Reply Br. at 12. Specifically, Pactiv alleges t hat during discovery in the initial action, Dow served Pactiv with an expert report which related to the va lidity of the ’016 and ’ 058 patents. Pactiv

asserts that after it settled that action, it discovered t hat the data relied upon by Dow’s expert had been fabricated. Pactiv argues that without this ex pert report, its charges of invalidity would have been much stronger and it would not have agreed to the settlement, including the dismissal. Appellant’s Br. at 32.

The denial of a full and fa ir opportunity to litigate is a defense to collateral estoppel (issue preclusion). Nat’l Labor Relations Bd. v. Thalbo Corp. 171 F.3d 102, 109 (2d Cir. 1999). In the cont ext of collateral estoppel, preclusive effect may be refused when there is a compelling showing of unfairness or inadequacy in the prior litigation. See Montana v. United States , 440 U.S. 147, 163-64 (1979); Restatement (Second) of Judgments § 28, cmt j. But that doctrine has a more limited role to play with respect to res judicata (claim preclusi on). In Kremer v. Chemical Construction Corp. , 456 U.S. 461 (1982), the Supr eme Court stated in a f ootnote: “[w]hile our previous expressions of the requirement of a full and fair opportunity to litigate have been in the context of collateral estoppel or issue preclusion, it is clear from what follows that invocation of res judicata or claim preclusion is subject to the same

limitation.” Id. at 481 n.22. But at the same time, the Court made clear that res judicata was precluded only where there was a denial of due process:

4 Dow argues that Pactiv waived this i ssue below. Appellee’s Br. at 25-27. Our review of the record convinces us that Pactiv did in fact preserve the argument regarding its full and fair opportuni ty in the prior adjudication.

05-1260 8Our previous decisions have not spec ified the source or defined the content of the requirement that the first adjudica tion offer a full and fair opportunity to litigate. But for pr esent purposes, where we are bound by the statutory directive of [28 U.S.C.] § 1738, st ate proceedings need do no more than satisfy the minimum procedur al requirements of the Fourteenth Amendment’s Due Process Clause in or der to qualify for the full faith and credit guaranteed by federal law.

Id. at 481.

Thus Kremer only requires that the prior j udgment be denied preclusive effect when there has been a due proce ss violation. See, e.g. , 18 Wright & Miller, § 4415, at 366 (stating that the “foot note observation [in Kremer ] need mean no more than that claim preclusion cannot arise from proceedings that deny due process ”); Mass. Sch. of

Law v. Am. Bar Ass’n , 142 F.3d 26, 39 (1st Cir. 1998) (“We do not envision a significantly less latitudinarian test fo r federal court judgments [than for state judgments]. We hold, therefor e, that as long as a prio r federal court judgment is procured in a manner that sa tisfies due process concerns, the requisite ‘full and fair opportunity’ existed.”); Fehlhaber v. Fehlhaber , 681 F.2d 1015, 1027-1029 (5th Cir. 1982) (“Thus ordinarily all that due process requi res in a civil case is proper notice and service of process and a court of competent ju risdiction; procedural irregularities during the course of a civil case, even serious ones , will not subject the judgment to collateral attack.”). There is no claim for a denial of due process here. To be sure, the Restatement suggests t hat there may be some circumstances in

which fraud could be a defense to the res judicata rule against the splitting of a cause of action, for example, where aspec ts of the claim or a particular legal theory in support of the claim were not presented at all in the or iginal action because of fraud. Restatement

05-1260 9(Second) of Judgments § 26 cmt j. 5 The Second Circuit, while not deciding whether such relief is available, has expressed some reluctance to require such relief in light of the availability of Rule 60(b). See In re Lawrence , 293 F.3d 615, 620-22 (2d Cir. 2002) (assuming but not deciding that the defense of res judicata barred a securities fraud claim that had not been raised in the previous sale order action because of alleged fraudulent concealment by defendants). We also need not decide the question here.

Even under the Restatement ru le, if the basic legal theory has been presented and determined (by adjudication or settlement), “[m] ere presentation of false evidence . . . does not generally warrant relief.” 18 Wri ght & Miller, § 4415, at 365-68; see, e.g. , Travelers Indem. Co. v. Gore , 761 F.2d 1549, 1552 (11th Cir. 1985); Rogoski v. City of Muskegon , 550 F.2d 1075, 1077 (6th Cir . 1977); Rhodes v. Meyer , 334 F.2d 709, 716 (8th Cir. 1964). Thus Pactiv’s assertion t hat it was denied a full and fair opportunity in the prior adjudication to litigate the scope of invalidity because of fraud is not sufficient to bar application of res judicata (claim preclusion).

5 “A defendant cannot justly object to being sued on a part or phase of a claim that the plaintiff failed to include in an earlier action because of the defendant’s own fraud. Thus, when the defendant takes severa l articles at one time and on being asked by the plaintiff fraudulently denies taking some of them and suit is brought for the remainder, a judgment in that action does not bar the plaintiff from subsequently maintaining an action for those articles not included in the first action. So when there have been several breaches of contract some of which are concealed by the defendant, a judgment for the other breaches does not prevent an action for those concealed although prior in occurrence to the others. So also when the plainti ff brings an action against the defendant for cancellation of a c ontract made between th em, alleging that the plaintiff was mentally incompetent at t he time of the making of the contract, and a verdict and judgment are given for the defendan t, the plaintiff is not precluded from maintaining a second action for the cance llation of the contra ct on the ground of a misrepresentation the defendant c oncealed from the plaintiff at the time when the first action was brought.” Id.

05-1260 10To the extent Pactiv is attempting to set aside the previous judgment based on fraud, Pactiv was required to directly chall enge the first judgment in a Rule 60(b) motion filed in the original proceeding. See Campaniello Imps., Ltd. v. Saporiti Italia S.p.A. , 117 F.3d 655, 661, 663 (2d Cir. 1997) (quoting Federated Dep’t Stores, Inc. v. Moitie , 452 U.S. 394, 398 (1981)). CONCLUSION For the foregoing reasons, the decision below is affirmed.

AFFIRMED COSTS

No costs.

05-1260 11