Friday, January 19, 2007

Patentee's Admission of Privity Triggers Preclusion Against Infringer's Customers

Transclean Corp. v. Jiffy Lube Int'l, Inc. (06-1077) - January 18, 2007

Transclean successfully sued Bridgewood Services, Inc. for infringement on Transclean's patent. After obtaining the judgment, Transclean then filed a separate suit against Jiffy Lube and more than thirty other fast lube businesses that had purchased machines from Bridgewood.

When some of the defendants asserted non-infringement, Transclean filed a motion for summary judgment in which it argued that the defendants should be precluded from asserting a non-infringement defense because the Bridgewood litigation concluded with a judgment of infringement by the same machines. As part of its argument that issue preclusion applied, Transclean asserted that the defendants were in privity with Bridgewood.

Perhaps smelling blood, the defendants also filed motions for summary judgment, claiming that Transclean was itself subject to claim preclusion, and was aware of defendant’s use of the infringing machines during the earlier litigation, but chose not to pursue a cause of action. The district court granted the defendant's motion.

Relying on 8th Circuit law, the CAFC found that an earlier suit bars a party from asserting a claim in a later suit if (1) the first suit resulted in a final judgment on the merits; (2) the prior judgment was rendered by a court of competent jurisdiction; (3) both suits involve the same cause of action; and (4) both suits involve the same parties or their privies. The only disputed issue in the court's eyes was whether Transclean's admission of privity was binding:

The term ‘privity’ is a label that expresses the conclusion that a particular nonparty in earlier litigation should be treated the same as a party to that litigation for claim preclusion purposes . . . In the Eighth Circuit, privity exists when the parties are "so closely related" and their interests are "so nearly identical" that "it is fair to treat them as the same parties for purposes of determining the preclusive effect" of the first judgment. Ruple v. City of Vermillion, 714 F.2d 860, 862 (8th Cir. 1983).

It is important to recognize that under this standard, a manufacturer or seller of a product who is sued for patent infringement typically is not in privity with a party, otherwise unrelated, who does no more than purchase and use the product . . . In other words, ordinarily such parties are not so closely related and their litigation interests are not so nearly identical that a patentee’s suit against one would bar a second action against the other under the doctrine of claim preclusion.

The question facing us, therefore, is how to treat Transclean’s representations that Bridgewood, the manufacturer and seller of the T-Tech machine, was in privity with its customers when the actual circumstances do not necessarily support that conclusion. Transclean made a tactical decision to admit that such a "special relationship" existed, first in connection with its issue preclusion argument and then for purposes of claim preclusion as well. Should Transclean be bound by its litigation strategy—its concession that Bridgewood and its customers were in privity?

The CAFC concluded that, yes, Transclean's admission was binding, and was thus estopped, although there was some question whether privity was a question of law or a question of fact:
While some circuits have limited application of judicial estoppel to inconsistent factual assertions, others have applied the doctrine to legal conclusions as well . . . The Eighth Circuit has not specifically addressed whether judicial estoppel extends to legal positions, but the majority of circuits that have spoken on the issue have either squarely held that the doctrine may be applied to inconsistent legal positions or indicated that the doctrine would apply to questions of law, or at least the application of law to fact . . . In the absence of Eighth Circuit law to the contrary, we conclude that judicial estoppel may be applied to the question of privity, whether considered a legal conclusion or a question of fact.

The CAFC also upheld the district court's application of preclusion against defaulting defendants as well:
Although the general rule is that claim preclusion and issue preclusion must be pleaded, an exception exists where all relevant data and legal records are before the court and the demands of "comity, continuity in the law, and essential justice" mandate invocation of preclusion principles . . . The trial court found that these interests weighed in favor of applying issue preclusion to the Defaulting Defendants.

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