The High Cost of Settlement: Patentees May Be Prevented from Re-Litigating Claim Construction Issues Decided in Previously Settled Litigation

Patentees need to be aware that if they sue multiple entities at different times and in different courts for patent infringement, they may be “stuck” with the claim construction rendered by the first court in later litigations. As a result, patentees must carefully consider both the venue and order in which they face their opponents.

A patentee may believe that several different products, produced by different parties, are infringing his patent and, because of this, may wish to sue the entities responsible for those products at different times. Patentees will often sue one of the smaller entities first with the hope of building a war chest (either through settlement or judgment) for later, more expensive litigations.

One of the patentee's advantages, if he plans to bring suit, is the opportunity to choose the forum for litigation. While the patentee's choice of forum is limited to a court that has personal jurisdiction over the accused infringer, patentees typically choose the forum that is convenient for them or provides a home-field advantage.

However, based on recent case law, a patentee must also be aware that if he receives an unfavorable claim construction from the court in a prior case that is settled before a final resolution, he may be forced to live with that claim construction in later litigations.

For example, assume a patentee asserts his patent in one district court against defendant A, but the court decides the disputed claim construction issues unfavorably to the patentee. The parties then settle the case before a final resolution can be made by the court. Due to this settlement, the patentee cannot appeal the unfavorable claim construction ruling to the Federal Circuit because settlement moots any issues for appeal. The patentee then asserts the same patent against defendant B (who makes, uses or sells a different product from defendant A) in a different district court. If the claim construction issues are the same in the second case and the first case, the patentee may be collaterally estopped from disputing the court's claim construction decision from the first case against defendant A.

Collateral estoppel (ie, issue preclusion) requires that: 1) the issue in question is identical to the one decided in the first action; 2) the issue was actually litigated in the first action; 3) resolution of the issue was essential to a final judgment in the first action; and 4) the plaintiff had a full and fair opportunity to litigate the issue in the first action. A.B. Dick Co. v. Burroughs Corp., 713 F.2d 700, 702 (Fed. Cir. 1983).

After Markman

Since the Markman decision in 1995, courts have not been consistent in determining whether a patentee is collaterally estopped from disputing a claim construction ruling from an earlier case that settled prior to final resolution. For example, in TM Patents, L.P. v. IBM Corp., 72 F. Supp. 2d 370 (S.D.N.Y. 1999), the court decided that the plaintiffs were collaterally estopped from disputing certain claim construction rulings from an earlier case settled against a separate defendant. On the other hand, the court in Kollmorgen Corp. v. Yaskawa Electric Corp., 147 F. Supp. 2d 464 (W.D. Va. 2001), decided the opposite ' that the plaintiff was not collaterally estopped from disputing an earlier claim construction from a previously settled case.

The Federal Circuit has yet to resolve this precise issue in a manner that binds all future litigants. In RF Delaware, Inc., v. Pacific Keystone Technologies, Inc., 326 F.3d 1255 (Fed. Cir. April 21, 2003) the Federal Circuit recently addressed a similar but distinguishable issue. In that case, the Federal Circuit considered whether collateral estoppel should be applied to a prior district court's claim construction determination as set out in a partial summary judgment of validity and non-infringement. The Federal Circuit found that, under 11th Circuit law, collateral estoppel should not be applied. The court's reasoning was based on the fact that: 1) the claim construction issue had not been “fully heard” because no evidentiary hearing or oral argument was held; and 2) the issue was not sufficiently final because no judgment was entered approving the settlement.

Surprisingly, the Federal Circuit relied on 11th Circuit precedent in making its decision. This suggests that even if the Federal Circuit decided the issue of whether the claim construction is binding in the context of a settled case (as opposed to partial summary judgment as in RF Delaware), a party in a later case in a different circuit could argue that different circuit law warrants a different result. It is clear that the Federal Circuit must strive for consistency on this issue to prevent widespread forum shopping.

Patentee Must Develop a Game Plan

As the Federal Circuit has not established clearly binding precedent on this issue, a patentee must be cognizant of where he brings later litigations, and whether or not the district courts being considered for those litigations have taken a position on this issue. The patentee should consider this information in developing a game plan for whom to sue, when to sue and in which district court to bring suit. The patentee must also realize that the defendant can always challenge his choice of forum and possibly force the court to transfer the case to a forum more convenient to both parties. See 28 U.S.C. '1404.

For example, if a patentee plans to bring a later litigation against a separate defendant in the Southern District of New York, he must be aware of that court's position on collateral estoppel as set out in TM Patents, and that he will probably be relegated to the claim construction decided by the first court if that case settles.

In order to be effective in its decision-making, the patentee must have a clear understanding, before suing any party, of all the products he plans to accuse of infringement and attempt to avoid making any statements in the first litigation that would be inconsistent with the patentee's position in later litigation(s).

Factor This Into Decision to Settle

One rationale behind a court invoking collateral estoppel in these circumstances is that the patentee cannot forum shop for a new or different claim construction for the same patent. On the other hand, a patentee who receives an unfavorable claim construction in the first case may be hesitant to settle the case if it restricts him from appealing the unfavorable claim construction and forces him to accept such a construction in later litigations.

Defendants in later litigations are at a significant advantage if they are sued in a court that considers such previous claim constructions binding, such as the Southern District of New York. If the case is brought in such a forum, the defendant may be aware, in advance, of the patentee's position on claim construction. The defendant can then either accept the previous court's claim construction ruling, if favorable, or litigate those issues if the previous court's decision was unfavorable. Also, since claim construction information is available at the very start of the later litigation, this greater degree of certainty regarding claim construction may facilitate a quicker settlement.

Alternatively, if a patentee plans to bring a later action against a defendant in a forum where such prior claim construction is not binding, such as the Western District of Virginia, he must also be aware of that court's position on collateral estoppel.

In Kollmorgen, a case in the Western District of Virginia, the court held that a claim construction ruling from a previously settled litigation lacked the finality required to be a basis for estoppel. The ruling was premised on the fact that claim construction is only the first part of the two-part analysis required to determine infringement or validity. Thus, the court found that only a decision that completes either the infringement or validity analysis presents an appealable order that must be heard by the Federal Circuit. Kollmorgen, 147 F. Supp. 2d at 469.

The Federal Circuit's refusal of interlocutory appeals on claim construction was a key factor in the Kollmorgen court's determination that a claim construction alone is not sufficiently final to create an estoppel. In the court's view, it would be illogical to both: 1) deny the interlocutory appeal of a claim construction; and 2) apply collateral estoppel to a claim construction ruling for a case that settles before the patentee could choose to appeal as a matter of right.

Moreover, employing such a system would favor uniformity over correct rulings because the Federal Circuit, historically, reverses a high percentage of the claim construction issues it addresses.

The Kollmorgen court was particularly sensitive to the effect that applying estoppel would have on the settlement of future cases. Under a regime in which collateral estoppel is applied to all claim construction rulings, a patentee that seeks to assert its patent against other infringers, but is faced with a negative claim construction, might resist an otherwise attractive settlement because it risks jeopardizing the other cases.

One perceived weakness of the Kollmorgen court's approach is that it gives patentees multiple bites at the claim construction apple. The impression is that an overreaching patentee can make mischief by rolling the dice on claim construction multiple times until it finally receives a favorable ruling. This conclusion, however, is premised on a rather cynical view of patentees' motives and presumes that the initial negative claim construction rulings are correct.

On the other hand, regardless of whether the previous claim construction is deemed binding, the record from the earlier claim construction ruling will be available to both the courts and the parties in later litigations. Nothing prevents the court from following the earlier claim construction ruling if the patentee is not able to persuasively point to errors that mandate a departure from the original decision. The key distinction would be that, even if the second court adopts the original claim construction ruling, that court has made its own determination, which can later be reviewed by the Federal Circuit on appeal.

Conclusion

Until the Federal Circuit finally resolves this issue, patentees who intend to sue multiple potential infringers should carefully consider both the venue and the order in which they face their opponents. Careful thought should be given to balancing the risk versus reward by suing more egregious infringers early. A patentee can also prepare in advance for future cases against other infringers. For example, if a patentee is balancing settlement against the preclusive effect of a negative claim construction, it might condition the settlement on the court vacating its negative claim construction ruling.

Alternatively, parties who are under threat of an infringement allegation should consider carefully monitoring the litigation activities of the patentee. If the patentee is burdened with an unfavorable claim construction from a prior litigation, the alleged infringer could attempt to bring a declaratory judgment action in a jurisdiction that will adopt that claim construction under collateral estoppel.

In all, forum choice will remain of significant strategic importance for claim construction until the Federal Circuit resolves this issue.

Patentees need to be aware that if they sue multiple entities at different times and in different courts for patent infringement, they may be “stuck” with the claim construction rendered by the first court in later litigations. As a result, patentees must carefully consider both the venue and order in which they face their opponents.

A patentee may believe that several different products, produced by different parties, are infringing his patent and, because of this, may wish to sue the entities responsible for those products at different times. Patentees will often sue one of the smaller entities first with the hope of building a war chest (either through settlement or judgment) for later, more expensive litigations.

One of the patentee's advantages, if he plans to bring suit, is the opportunity to choose the forum for litigation. While the patentee's choice of forum is limited to a court that has personal jurisdiction over the accused infringer, patentees typically choose the forum that is convenient for them or provides a home-field advantage.

However, based on recent case law, a patentee must also be aware that if he receives an unfavorable claim construction from the court in a prior case that is settled before a final resolution, he may be forced to live with that claim construction in later litigations.

For example, assume a patentee asserts his patent in one district court against defendant A, but the court decides the disputed claim construction issues unfavorably to the patentee. The parties then settle the case before a final resolution can be made by the court. Due to this settlement, the patentee cannot appeal the unfavorable claim construction ruling to the Federal Circuit because settlement moots any issues for appeal. The patentee then asserts the same patent against defendant B (who makes, uses or sells a different product from defendant A) in a different district court. If the claim construction issues are the same in the second case and the first case, the patentee may be collaterally estopped from disputing the court's claim construction decision from the first case against defendant A.

Collateral estoppel (ie, issue preclusion) requires that: 1) the issue in question is identical to the one decided in the first action; 2) the issue was actually litigated in the first action; 3) resolution of the issue was essential to a final judgment in the first action; and 4) the plaintiff had a full and fair opportunity to litigate the issue in the first action. A.B. Dick Co. v. Burroughs Corp., 713 F.2d 700, 702 (Fed. Cir. 1983).

After Markman

Since the Markman decision in 1995, courts have not been consistent in determining whether a patentee is collaterally estopped from disputing a claim construction ruling from an earlier case that settled prior to final resolution. For example, in TM Patents, L.P. v. IBM Corp., 72 F. Supp. 2d 370 (S.D.N.Y. 1999), the court decided that the plaintiffs were collaterally estopped from disputing certain claim construction rulings from an earlier case settled against a separate defendant. On the other hand, the court in Kollmorgen Corp. v. Yaskawa Electric Corp., 147 F. Supp. 2d 464 (W.D. Va. 2001), decided the opposite ' that the plaintiff was not collaterally estopped from disputing an earlier claim construction from a previously settled case.

The Federal Circuit has yet to resolve this precise issue in a manner that binds all future litigants. In RF Delaware, Inc., v. Pacific Keystone Technologies, Inc., 326 F.3d 1255 (Fed. Cir. April 21, 2003) the Federal Circuit recently addressed a similar but distinguishable issue. In that case, the Federal Circuit considered whether collateral estoppel should be applied to a prior district court's claim construction determination as set out in a partial summary judgment of validity and non-infringement. The Federal Circuit found that, under 11th Circuit law, collateral estoppel should not be applied. The court's reasoning was based on the fact that: 1) the claim construction issue had not been “fully heard” because no evidentiary hearing or oral argument was held; and 2) the issue was not sufficiently final because no judgment was entered approving the settlement.

Surprisingly, the Federal Circuit relied on 11th Circuit precedent in making its decision. This suggests that even if the Federal Circuit decided the issue of whether the claim construction is binding in the context of a settled case (as opposed to partial summary judgment as in RF Delaware), a party in a later case in a different circuit could argue that different circuit law warrants a different result. It is clear that the Federal Circuit must strive for consistency on this issue to prevent widespread forum shopping.

Patentee Must Develop a Game Plan

As the Federal Circuit has not established clearly binding precedent on this issue, a patentee must be cognizant of where he brings later litigations, and whether or not the district courts being considered for those litigations have taken a position on this issue. The patentee should consider this information in developing a game plan for whom to sue, when to sue and in which district court to bring suit. The patentee must also realize that the defendant can always challenge his choice of forum and possibly force the court to transfer the case to a forum more convenient to both parties. See 28 U.S.C. '1404.

For example, if a patentee plans to bring a later litigation against a separate defendant in the Southern District of New York, he must be aware of that court's position on collateral estoppel as set out in TM Patents, and that he will probably be relegated to the claim construction decided by the first court if that case settles.

In order to be effective in its decision-making, the patentee must have a clear understanding, before suing any party, of all the products he plans to accuse of infringement and attempt to avoid making any statements in the first litigation that would be inconsistent with the patentee's position in later litigation(s).

Factor This Into Decision to Settle

One rationale behind a court invoking collateral estoppel in these circumstances is that the patentee cannot forum shop for a new or different claim construction for the same patent. On the other hand, a patentee who receives an unfavorable claim construction in the first case may be hesitant to settle the case if it restricts him from appealing the unfavorable claim construction and forces him to accept such a construction in later litigations.

Defendants in later litigations are at a significant advantage if they are sued in a court that considers such previous claim constructions binding, such as the Southern District of New York. If the case is brought in such a forum, the defendant may be aware, in advance, of the patentee's position on claim construction. The defendant can then either accept the previous court's claim construction ruling, if favorable, or litigate those issues if the previous court's decision was unfavorable. Also, since claim construction information is available at the very start of the later litigation, this greater degree of certainty regarding claim construction may facilitate a quicker settlement.

Alternatively, if a patentee plans to bring a later action against a defendant in a forum where such prior claim construction is not binding, such as the Western District of Virginia, he must also be aware of that court's position on collateral estoppel.

In Kollmorgen, a case in the Western District of Virginia, the court held that a claim construction ruling from a previously settled litigation lacked the finality required to be a basis for estoppel. The ruling was premised on the fact that claim construction is only the first part of the two-part analysis required to determine infringement or validity. Thus, the court found that only a decision that completes either the infringement or validity analysis presents an appealable order that must be heard by the Federal Circuit. Kollmorgen, 147 F. Supp. 2d at 469.

The Federal Circuit's refusal of interlocutory appeals on claim construction was a key factor in the Kollmorgen court's determination that a claim construction alone is not sufficiently final to create an estoppel. In the court's view, it would be illogical to both: 1) deny the interlocutory appeal of a claim construction; and 2) apply collateral estoppel to a claim construction ruling for a case that settles before the patentee could choose to appeal as a matter of right.

Moreover, employing such a system would favor uniformity over correct rulings because the Federal Circuit, historically, reverses a high percentage of the claim construction issues it addresses.

The Kollmorgen court was particularly sensitive to the effect that applying estoppel would have on the settlement of future cases. Under a regime in which collateral estoppel is applied to all claim construction rulings, a patentee that seeks to assert its patent against other infringers, but is faced with a negative claim construction, might resist an otherwise attractive settlement because it risks jeopardizing the other cases.

One perceived weakness of the Kollmorgen court's approach is that it gives patentees multiple bites at the claim construction apple. The impression is that an overreaching patentee can make mischief by rolling the dice on claim construction multiple times until it finally receives a favorable ruling. This conclusion, however, is premised on a rather cynical view of patentees' motives and presumes that the initial negative claim construction rulings are correct.

On the other hand, regardless of whether the previous claim construction is deemed binding, the record from the earlier claim construction ruling will be available to both the courts and the parties in later litigations. Nothing prevents the court from following the earlier claim construction ruling if the patentee is not able to persuasively point to errors that mandate a departure from the original decision. The key distinction would be that, even if the second court adopts the original claim construction ruling, that court has made its own determination, which can later be reviewed by the Federal Circuit on appeal.

Conclusion

Until the Federal Circuit finally resolves this issue, patentees who intend to sue multiple potential infringers should carefully consider both the venue and the order in which they face their opponents. Careful thought should be given to balancing the risk versus reward by suing more egregious infringers early. A patentee can also prepare in advance for future cases against other infringers. For example, if a patentee is balancing settlement against the preclusive effect of a negative claim construction, it might condition the settlement on the court vacating its negative claim construction ruling.

Alternatively, parties who are under threat of an infringement allegation should consider carefully monitoring the litigation activities of the patentee. If the patentee is burdened with an unfavorable claim construction from a prior litigation, the alleged infringer could attempt to bring a declaratory judgment action in a jurisdiction that will adopt that claim construction under collateral estoppel.

In all, forum choice will remain of significant strategic importance for claim construction until the Federal Circuit resolves this issue.