Drawing the Line – Customers Exonerated Where Manufacturer Prevailed

12.29.15

A recent decision by the U.S. Federal Circuit Court of Appeals — SpeedTrack Inc. v. Office Depot, Inc. — is good news for manufacturers accused, but exonerated, of patent infringement. These parties need no longer worry about accusers harassing customers with infringement suits after the initial allegations against the manufacturer have failed.

Customer complaints

SpeedTrack, Inc. sued Office Depot and three other retailers, alleging infringement of its patent for a computer filing system for accessing files and data according to user-designated criteria. Specifically, SpeedTrack alleged that the defendants’ online retail websites infringed the patent by using software developed by Endeca Technologies, Inc.

The defendants claimed the lawsuit should be dismissed because SpeedTrack’s claims were precluded by a prior lawsuit in which the Federal Circuit had affirmed a trial court’s judgment that the same software didn’t infringe the patent. The trial court here agreed, granting judgment for the defendants. SpeedTrack appealed.

Kessler doctrine

The district court relied on the so-called Kessler doctrine, which 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. (The doctrine’s name refers to the 1907 case of Kessler v. Eldred.) According to the U.S. Supreme Court, 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.”

In 2014, the Federal Circuit reaffirmed the continued vitality of the doctrine, holding that it precludes some claims that wouldn’t otherwise be barred by “claim or issue preclusion” (that is, when a cause of action or issue of fact is barred from being relitigated because it has already been settled between the parties). In that case, the court explained that, when the alleged infringer succeeds in showing noninfringement, the specific accused device(s) acquires the status of a noninfringing device in relation to the patent claims that had been allegedly infringed.

The same claims

SpeedTrack had already lost a similar lawsuit against Walmart. There, the trial court and Federal Circuit had held that the Endeca software, and Walmart’s use of it, didn’t infringe SpeedTrack’s patent. In this case, the appellate court found that SpeedTrack was pursuing the same infringement claims against other customers of Oracle (which acquired Endeca in 2011). The defendants established that their use of the software was “essentially the same” as the use found to be noninfringing in the earlier case.

Therefore, the appeals court dismissed SpeedTrack’s argument that customers weren’t entitled to invoke Kessler — that only manufacturers could do so. Allowing customers to assert the doctrine, it said, is consistent with the Supreme Court’s goal of protecting the manufacturer’s right to sell an exonerated product free from interference or restraint.

Comforting decision

The court’s ruling on the availability of the Kessler doctrine to defeat future infringement claims against exonerated products should provide some comfort to manufacturers. As long as the customer can show that its use is “essentially the same” as that exonerated, it will be immune.