United States: Patent Owners May Not Sue Customers Of Those Who Prevailed In Showing The Accused Products Did Not Infringe, Even Under A New Theory Of Infringement

Abstract

The Supreme Court recently declined to review a June 2015 Federal Circuit ruling in SpeedTrack, Inc. v. Office Depot, Inc.¹, which enforced the Kessler doctrine to bar a patent-infringement suit against a customer of a manufacturer who prevailed against the patent owner. SpeedTrack accused Office Depot and other customers of Oracle Corp. of infringement because of their use of Oracle's Endeca Information Access Platform software ("the IAP software"). The Federal Circuit barred SpeedTrack's claims under the Kessler doctrine based on an earlier case SpeedTrack lost against Walmart in which Endeca (later purchased by Oracle) had intervened and received judgment that its IAP software does not infringe the patent. SpeedTrack's claims against Office Depot and other Oracle customers were barred even though SpeedTrack alleged a new theory of infringement from the Walmart case. In its decision, the Federal Circuit rejected SpeedTrack's multiple challenges to the application of the Kessler doctrine. Notably, for the first time, the Court found that the Kessler defense may be invoked by an accused customer without the need for the seller to intervene to "protect the unencumbered sale" of products previously found not to infringe. 

As the Federal Circuit has explained on prior occasions, 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." Established by the Supreme Court in 1907 in Kessler v. Eldred, the doctrine is based on the rights of the prevailing manufacturer to freely manufacture, use, and sell the product that has been deemed not to infringe without interference. The Supreme Court has subsequently described this as a "limited trade right" that attaches to the adjudged noninfringing product itself. The continued vitality of the Kessler doctrine was confirmed by a recent decision of the Federal Circuit in SpeedTrack, Inc. v. Office Depot, Inc. (2015).

Background

In 2006, SpeedTrack, Inc. filed suit against Walmart alleging that Walmart's online retail website infringed SpeedTrack's United States Patent No. 5,544,360 ("the '360 patent") directed to a computer filing system for accessing files and data according to user-designated criteria. According to SpeedTrack, Walmart's website infringed through the use of Endeca Technologies, Inc.'s Information Access Platform software ("IAP software"), which allows website visitors to search for products by selecting pre-defined categories descriptive of the products. Endeca intervened in the suit and sought a declaratory judgment that its IAP software did not infringe.

SpeedTrack's asserted patent claims required the use of "category descriptions" that correspond to one or more stored files. The term "category descriptions" was construed to require "information that includes a name that is descriptive of something about a stored file." Following claim construction, Walmart and Endeca filed motions for summary judgment arguing in part that the accused product did not infringe because it did not include a name that is descriptive of something about a stored file," but instead included a number. In light of this noninfringement argument, SpeedTrack moved to amend its infringement contentions to include a doctrine-of-equivalents theory. The district court denied SpeedTrack's motion to amend, finding that SpeedTrack had been on notice for more than five months of Walmart and Endeca's noninfringement position. The district court then granted summary judgment of noninfringement in favor of Walmart and Endeca based on the IAP software's use of numerical identifiers instead of descriptive words. The Federal Circuit affirmed this decision on appeal.

While the Walmart action was pending in 2007, SpeedTrack filed a patent-infringement suit against Office Depot and other retailers (collectively "defendants") alleging that their use of the same Endeca IAP software infringed the '360 patent. Because the issues in the Office Depot action overlapped with those in Walmart, the case was stayed pending resolution of the Walmart suit. Following the Walmart decision, SpeedTrack informed the district court in the Office Depot action that it would limit its claims to infringement under the doctrine of equivalents. The defendants moved for summary judgment, invoking the Kessler doctrine, among other defenses. Granting judgment in the defendants' favor, the district court agreed that the Kessler doctrine barred SpeedTrack's lawsuit. In particular, the district court found that "by failing to prevail in its infringement suit against Wal-Mart, SpeedTrack lost the right to assert any claims of the '360 patent against any customers of Endeca who use the accused software in 'essentially the same' manner as did Wal-Mart." SpeedTrack appealed the district court's decision to the Federal Circuit.

The Federal Circuit's SpeedTrack v. Office Depot Decision

On appeal, the Federal Circuit agreed that the Kessler doctrine barred all of SpeedTrack's claims, referencing as support the Court's earlier 2014 decision in Brain Life, LLC v. Elekta, Inc. In Brain Life, the Federal Circuit applied the Kessler doctrine to preclude an infringement suit based on method claims where a previous suit based on the asserted patent's apparatus claims resulted in a judgment of noninfringement. According to the Brain Life decision, "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." Thus, "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."

By the same token, the Federal Circuit noted that if Oracle (which had acquired Endeca, the IAP software developer) were a party in the lawsuit, Oracle could invoke the Kessler doctrine to prohibit SpeedTrack from asserting infringement claims against Oracle's customers who use the same software deemed to be noninfringing in the Walmart case. Oracle, however, was not a party to the Office Depot action. Thus, for the first time, the Federal Circuit ruled that customers alone, such as Office Depot in this case, may assert the Kessler doctrine as a defense to infringement.

The Court relied on the doctrine's underlying rationale to protect a manufacturer's right to freely sell an adjudged noninfringing product, which, the Court noted, a manufacturer cannot do if it has no customers who can buy freely. According to the Court, "[b]ecause it is a right that attaches to the noninfringing product, and it is a right designed to protect the unencumbered sale of that product, SpeedTrack's argument that the Kessler doctrine can only be invoked by a manufacturer must fail."

The Court also rejected SpeedTrack's argument that the Kessler doctrine does not apply where the manufacturer sells a component that is later combined with other objects into an infringing product.  In particular, SpeedTrack argued that its patent claims are method claims targeting Oracle's software combined with each defendant's own hardware, software, and data.  The Court rejected this argument, pointing out that SpeedTrack's complaint was directed to the defendants' use of Oracle's IAP software and that SpeedTrack could not identify any material differences between the defendants' use of the IAP software and Walmart's noninfringing use of the same software

Finally, the Federal Circuit rejected SpeedTrack's argument that the Kessler doctrine has been effectively displaced by other legal principles, such as non-mutual collateral estoppel.  For example, without the Kessler doctrine, the Court explained, a patent owner could sue a manufacturer for literal infringement and, if unsuccessful, file suit against the manufacturer's customers under the doctrine of equivalents. 

The Federal Circuit explained that it "must follow Kessler unless and until the Supreme Court overrules it."  Subsequently, the Supreme Court declined to review the Federal Circuit's decision, so the Kessler doctrine remains in force

Strategy and Conclusion

In addition to upholding the Kessler doctrine, the court's decision clarifies that the doctrine can be used by customers as a defense to patent infringement where the seller or manufacturer has previously received a judgment of noninfringement, without any need to join the seller or manufacturer in the case. 

Footnote

1. The SpeedTrack, Inc. v. Office Depot, Inc. decision may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/SpeedtrackvOffice%20Depot2014-1475.pdf

Previously published by LES Insights

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