Opinion ID: 2812948
Heading Depth: 2
Heading Rank: 1

Heading: The Kessler Doctrine

Text: The Kessler doctrine “bars a patent infringement action against a customer of a seller who has previously prevailed against the patentee because of invalidity or noninfringement of the patent.” MGA, Inc. v. Gen. Motors Corp., 827 F.2d 729, 734 (Fed. Cir. 1987). As noted, this doctrine originated in the Supreme Court’s decision in Kessler v. Eldred, 206 U.S. 285 (1907). There, Eldred held a patent for an electric lighter and brought a claim of infringement against Kessler, a manufacturer and retailer of electric cigar lighters. Id. at 285. The district court found that Kessler’s product did not infringe, and the Seventh Circuit affirmed on appeal. Id. at 286. Six years later, Eldred filed suit alleging that one of Kessler’s customers infringed the same patent. Kessler intervened to indemnify its customer, and also filed a separate suit against Eldred, seeking to enjoin him from filing infringement suits against Kessler’s customers for use of the same lighter that had already been found to be noninfringing in the prior action. See id. at 286-87. On appeal, the Supreme Court agreed with Kessler, finding that the final decision in the first suit against Kessler had “settled finally and everywhere . . . that Kessler has the right to manufacture, use and sell” the product in question. Id. at 288. The Court further found that the prior suit “conclusively decreed the right of Kessler to manufacture and sell his manufactures free from all interference from Eldred . . . and the corresponding duty of Eldred to recognize and yield to that right everywhere and always.” Id. In reaching this conclusion, the Supreme Court indicated that it “need not stop to consider whether the judgment in the case of Eldred v. Kessler had any other effect than to fix unalterably the rights and duties of the immediate parties to it, for the reason that only the rights and duties of those parties are necessarily in question here.” Id. The Court further stated that “[i]t may be that the judgment in Kessler v. 12 SPEEDTRACK, INC. v. OFFICE DEPOT, INC. Eldred will not afford Breitwieser, a customer of Kessler, a defense to Eldred’s suit against him. Upon that question we express no opinion.” Id. Instead, the relevant inquiry was “whether, by bringing a suit against one of Kessler’s customers, Eldred has violated the right of Kessler.” Id. at 289. The Court concluded that, “[l]eaving entirely out of view any rights which Kessler’s customers have or may have, it is Kessler’s right that those customers should, in respect of the articles before the court in the previous judgment, be let alone by Eldred, and it is Eldred’s duty to let them alone.” Id. The Supreme Court subsequently explained that, under Kessler, a party who obtains a final adjudication in its favor obtains “the right to have that which it lawfully produces freely bought and sold without restraint or interference.” Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U.S. 413, 418 (1914). The Court specified that this right “attaches to its product—to a particular thing—as an article of lawful commerce . . . .” Id. We have likewise recognized that Kessler granted a “limited trade right” that attaches to the product itself. MGA, 827 F.2d at 734-35 (“Since the accused machines here are admittedly the same in both suits, it is LaSalle Tool’s right that the accused machines be freely traded without interference from MGA.”). More recently, we reaffirmed the continued vitality of the Kessler doctrine, holding that it “precludes some claims that are not otherwise barred by claim or issue preclusion.” Brain Life, 746 F.3d at 1055-56. In Brain Life, we explained that, in an action against a manufacturer or supplier of an allegedly infringing device, “when [the] alleged infringer prevails in demonstrating noninfringement, the specific accused device(s) acquires the ‘status’ of a noninfringing device vis-à-vis the asserted patent claims.” Id. at 1057 (citation omitted). There, the plaintiff’s predecessor in interest—MIDCO—accused defendant Elekta of infringing its patent. Although SPEEDTRACK, INC. v. OFFICE DEPOT, INC. 13 MIDCO accused Elekta of infringing both the patent’s apparatus and method claims, it ultimately abandoned the method claims prior to trial. Id. at 1058. At trial, the jury found that Elekta infringed the apparatus claims, but on appeal, we reversed the infringement finding, and remanded the case to the district court to enter judgment of noninfringement as a matter of law in favor of Elekta. Id. at 1050. On remand, MIDCO attempted to revive the method claims, but the district court refused to reopen the case, and instead entered final judgment in favor of Elekta. MIDCO appealed that judgment and we summarily affirmed the district court’s decision not to reopen the case. Id. MIDCO subsequently licensed the patent at issue to another company which, in turn, licensed it to Brain Life. Id. Brain Life filed suit against Elekta, seeking to assert the method claims that were dismissed prior to trial in the previous MIDCO case. Although the district court granted summary judgment in Elekta’s favor on res judicata grounds, we found that only those claims predating the final judgment in the MIDCO litigation were barred on those grounds. We went on to find, however, that, though not barred by res judicata, Brain Life’s claims were barred by the Kessler doctrine. Specifically, we found that, “once the accused devices in the MIDCO Litigation were adjudged to be noninfringing with respect to the asserted claims and judgment was entered as to all claims, Elekta was free to continue engaging in the accused commercial activity as a non-infringer.” Id. at 1058. We concluded that, “by virtue of gaining a final judgment of noninfringement in the first suit—where all of the claims were or could have been asserted against Elekta—the accused devices acquired a status as noninfringing devices, and Brain Life is barred from asserting that they infringe the same patent claims a second time.” Id. 14 SPEEDTRACK, INC. v. OFFICE DEPOT, INC. The district court here found that “the Kessler doctrine, as applied by the Brain Life court, is directly applicable to this case,” and that the IAP software acquired the status of a noninfringing product in Walmart. SpeedTrack, 2014 WL 1813292, at . There is no doubt that if Oracle were a party to this action, the facts here would fall squarely within Kessler. SpeedTrack alleged in a prior suit that Walmart’s use of the IAP software infringed the ’360 Patent. Walmart, 524 F. App’x at 653-54. Oracle’s predecessor, Endeca, intervened in that suit and sought declaratory judgment that its technology does not infringe. Both the district court and this court agreed, finding that the IAP software, and Walmart’s use of that software, does not infringe the ’360 Patent. Id. at 657. SpeedTrack is now pursuing the same infringement claims against other Oracle customers for allegedly infringing the same patent using the same IAP software found not to infringe in Walmart. As the district court found, Appellees in this case demonstrated that their use of the IAP software is “‘essentially the same’ as the implementation adjudged to be non-infringing in Wal- Mart—specifically, [Appellees] have shown that they use numbers, rather than names, as category descriptors.” SpeedTrack, 2014 WL 1813292, at . 1 And, the district court found that, despite discovery, SpeedTrack “has been unable to identify any material differences between 1 Likewise, at oral argument, counsel for Speed- Track conceded that Appellees’ use of the IAP software is “essentially the same” as that at issue in Walmart. See Oral Argument at 3:08-3:20, available at http://www.cafc. uscourts.gov/oral-argument-recordings/14-1475/all (“Their other use of the software is essentially the same as the use of the software in Walmart—we concede that—but that is not dispositive for claim preclusion and it is certainly not dispositive for issue preclusion.”). SPEEDTRACK, INC. v. OFFICE DEPOT, INC. 15 [Appellees’] use of the software and Wal-Mart’s noninfringing use of the same software.” Id. Given these circumstances, the judgment in the Walmart case “settled finally and everywhere” that the IAP software does not infringe the ’360 Patent. Kessler, 206 U.S. at 288. Applying Kessler, it is Oracle’s right that its “customers should, in respect of the [IAP software], be let alone by” SpeedTrack, and it is SpeedTrack’s “duty to let them alone.” Id. at 289. Because Kessler creates a limited trade right that attaches to the IAP software itself, Oracle would have the right to an order prohibiting SpeedTrack from asserting that Oracle’s customers infringe the ’360 Patent by their use of the same software litigated in the Walmart case. See Rubber Tire, 232 U.S. at 418; MGA, 827 F.2d at 734-35. SpeedTrack does not seriously dispute this conclusion on appeal. Instead, it argues that: (1) the right recognized in Kessler is one assertable, if at all, only by the product manufacturer or supplier, not by its customers; (2) Kessler does not apply where the manufacturer supplies only a component which is combined with other components and it is the combined configuration that infringes; and (3) Kessler is a doctrine which has been rendered obsolete by later developments in the law. We address each of these arguments in turn.