The U.S. Court of Appeals for the Federal Circuit upheld a district court ruling that barred declaratory judgment action alleging non-infringement, invalidity and unenforceability of several Dow patents on the basis of res judicata arising from an earlier settled case. Pactiv Corp. v. Dow Chem. Co., Case No. 05-1260 (Fed. Cir. June 5, 2006) (Dyk, J.).
Pactiv’s declaratory judgment action grew out of proceedings in 1998 in which Dow had sued Pactiv for infringement of two patents. In those proceedings, Pactiv asserted counterclaims of invalidity and unenforceability. Pactiv agreed to pay royalties, and pursuant to a settlement and license agreement the action was dismissed with prejudice. However, in 2002 Pactiv ceased payments and notified Dow it believed the patents were invalid. Pactiv responded by filing a declaratory judgment action seeking rulings on invalidity, unenforeability and non-infringement. The district court granted Dow’s rule 12(b)(6) motion to dismiss on grounds of res judicata, holding that in the 1998 agreement Pactiv had not expressly reserved future litigation rights.
Applying Second Circuit law on the issue of claim preclusion, the Federal Circuit upheld the district court and ruled that the defense of claim preclusion is available "where the asserted claim was…raised in a prior action between the parties which has been adjudicated on the merits." Because the 1998 action had been dismissed with prejudice, the Court determined it had been adjudicated on the merits, thus invoking res judicata.
The Court went on to reject Pactiv’s argument that it had reserved the right to challenge the patents in the 1998 agreement. Applying legal standard (the right to litigate a claim otherwise barred by res judicata must be based on an express reservation in an agreement between the parties), the Court held that the language of the 1998 agreement did not contain express language. It also rejected Pactiv’s argument that it should allow the action because the 1998 agreement did not expressly forbid future litigation.
The Court also discarded Pactiv’s alternative argument that res judicata did not bar its action because it had been denied "a full and fair opportunity to litigate the patents" due to Dow’s fraudulent misrepresentations during the 1998 action. In making clear that res judicata is precluded "only where there is a denial of due process," the Court held that because Pactiv was not claiming denial of due process, its assertion of fraud was "not sufficient to bar application of res judicata."
Catherine Shiang wrote the above article with the assistance of Jake Freed, a summer associate in McDermott's Washington, D.C. office.
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