<i>TecSec v. IBM</i>: The (Not-So) Reaching Impact of Rule 36 Affirmances

On appeal, TecSec challenged both aspects of the district court's judgment: 1) the district court's claim construction and holding that IBM did not practice the limitations of the claims as construed; and 2) the district court's holding that TecSec had failed to produce any evidence of direct or indirect infringement by IBM. The Federal Circuit summarily affirmed the district court's judgment under Federal Circuit Rule 36 without opinion and remanded.

The Mandate Rule

On remand, the case resumed as to the remaining defendants. In the second proceeding, TecSec stipulated that it could not prove infringement by the non-IBM defendants under the district court's previous claim construction. Based on this stipulation, the district court entered a judgment of non-infringement as to the remaining defendants and TecSec appealed a second time, leading to the question of whether the Federal Circuit's mandate rule ' or alternatively the doctrine of collateral estoppels ' precluded TecSec from rearguing claim construction.

Relying on the mandate rule, the defendants argued that the Federal Circuit's Rule 36 judgment in the IBM appeal precluded TecSec from raising any claim construction arguments in the second appeal. Conversely, TecSec argued that the mandate rule was not applicable because it was impossible to determine what issues the Federal Circuit relied on in its Rule 36 affirmance.

As explained by the majority panel, the mandate rule “'forecloses reconsideration of issues implicitly or explicitly decided on appeal.'” Slip Op. at 9. In order to be implicitly decided, an issue must be “decided by necessary implication.” Id. (citations omitted). Moreover, “'both the letter and spirit of the mandate must be considered'” when interpreting the Court's mandate. Id. (citations omitted).

Claim Construction

Here, the majority agreed with TecSec and held that the mandate rule did not bar TecSec from challenging the district court's claim construction. According to the majority, “[t]he district court's judgment was based on two independent grounds.” Id. First, the district court “ruled as a matter of law that TecSec's direct and indirect infringement claims failed for failure of proof that IBM itself or any of its customers performed every claimed step or made, used, sold, offered for sale or imported any system containing all of the limitations of the asserted claims.” Id. In so doing, the district court “did not rely on any rejection of TecSec's constructions of the terms at issue here.” Id. at 10. Persuasive to the majority was IBM's representation during the appeal that affirmance was proper “solely based on TecSec's 'complete failure of proof'” such that the court need not reach the issue of claim construction. Id.

While acknowledging that claim construction had occurred at the lower court, and that IBM's software was found not to meet each limitation of the construed claims, the Federal Circuit's Rule 36 affirmance did not include any description of the basis for the court's decision, much less a de novo review of the district court's claim construction. Id. As a result, the majority concluded that summary affirmance did not provide any basis to imply that it had decided the claim construction issues in the IBM appeal. Id. “Had claim construction been the only issue in the IBM appeal, and had that claim construction been essential to sustaining the judgment of noninfringement, the preclusive effect of our Rule 36 judgment would have been undeniable. But that was not the case.” Id. at 11. Accordingly, TecSec was not precluded by the mandate from challenging the district court's claim construction during the second appeal.

Collateral Estoppel

The Federal Circuit then addressed whether TecSec was precluded from re-litigating the claim construction issues under the doctrine of collateral estoppel. Relying on certain language in the summary judgment order, the defendants pointed out that the district court had construed claims that it considered “strictly necessary” to the granting of summary judgment in IBM's favor, therefore rendering immaterial the court's alternative grounds for summary judgment. In response, TecSec argued that collateral estoppel did not apply because the district court's claim constructions were not necessary to the final judgment, which rested on multiple, independent grounds.

As with the mandate rule, the majority held that collateral estoppel did not operate to preclude TecSec from rearguing the claim construction issues. In order to invoke collateral estoppel, a party “must show that the litigated issue was 'actually determined in the prior proceeding' and was a 'critical and necessary part of the decisions in the prior proceeding.'” Id. at 12 (citation omitted). But where a court in a prior proceeding determined two issues, “'either of which could independently support the result, then neither determination is considered essential to the judgment.'” Id.

Here, the majority held that the district court's decision was “independently predicated on alternative grounds,” the first of which (failure of proof) was unrelated to the district court's claim construction. The majority therefore concluded that claim construction was not actually determined by ' or critical and necessary to ' the Federal Circuit's summary affirmance in the IBM appeal, and thus did not preclude TecSec's subsequent challenge of the district court's claim construction.

Circuit Judge Reyna dissented, opining that “[c]laim construction and sufficiency of the evidence showing an act of infringement are not alternative grounds which to find noninfringement. They are part of a singular analysis.” Dissent, at 6. In Judge Reyna's view, to find a failure of proof of infringement, the district court had to first construe the claims, and only then determine whether the evidence offered by TecSec raised a triable issue of material fact. Thus, “[r]ather than being a separate, independent analysis, the district court's description of TecSec's failure of proof is merely the second step of its infringement analysis after the claims were construed in the first step.” Id. at 8. As a result, Judge Reyna concluded that the district court's claim construction was critical and necessary to the Federal Circuit's prior Rule 36 affirmance, and should have precluded TecSec from relitigating claim construction issues under either the mandate rule or collateral estoppel.

Conclusion

Although arising from a unique procedural posture, the TecSec decision illustrates at least one of the pitfalls inherent to a summary affirmance under Rule 36. In the absence of clear guidance from the Federal Circuit in situations where a district court decision is predicated on multiple grounds, litigants are left to wonder which of the grounds will have preclusive effect. Granted, the number of circumstances in which this problem can arise may be limited. But here, the result was exacerbated by the Federal Circuit's failure to reach consensus on whether the district court's decision in the first case involving IBM necessarily implicated claim construction. While the differing views of the majority and the dissent can be at least in part attributed to alternate interpretations of the legal issues surrounding claim construction, perhaps a cleaner record at the lower court could have helped to avoid the confusion in this case. Thus, where a district court judgment covers multiple issues, and the prospect of at least some of the same issues arising in a subsequent or related proceeding exists, it is incumbent on the parties to take into account the possibility of a Rule 36 affirmance in seeking clarification of the judgment prior to appeal.

Doug Stewart is a partner in Bracewell's Seattle office focusing on patent infringement litigation and counseling, with a particular emphasis on assisting Japanese technology companies with U.S. patent issues. Jared Schuettenhelm is an associate in Bracewell's Seattle office focusing on intellectual property litigation, counseling, and opinion work. A registered patent attorney before the U.S. Patent and Trademark Office (USPTO), he utilizes his experience as a scientist to represent clients in the medical device and pharmaceuticals industries.

In TecSec, Inc. v. IBM Corp., et al., 2012-1415 (Fed. Cir. Oct. 2, 2013), the Federal Circuit explained the effect of Federal Circuit Rule 36, under which the Federal Circuit may “enter a judgment of affirmance without opinion” if certain conditions are met. Fed. Cir. R. 36. The TecSec decision highlights the impact of a Rule 36 affirmance on related issues in subsequent litigation, particularly where the Federal Circuit summarily affirms a district court decision that is based on multiple, independent grounds. Parties that may be subject to a Rule 36 affirmance should thus be aware of the potentially limited scope of such a judgment.

TecSec filed suit in the Eastern District of Virginia against a number of defendants, alleging that defendants' Internet servers and related software products infringed TecSec's patents related to methods and systems that secure computer data. The district court severed TecSec's claims against IBM and proceeded with claim construction. At the same time, the district court stayed the proceedings against the remaining defendants.

IBM subsequently filed a motion for summary judgment of non-infringement, which the district court granted on two separate grounds. First, the district court held that TecSec had failed to produce any evidence that IBM itself performed every element of the asserted claims. Because the claims required both software and hardware, but IBM sold only software, the district court found as a matter of law that TecSec failed to present a triable issue of fact as to whether IBM practiced every limitation of any asserted claim, and had also produced insufficient evidence of indirect infringement. As an alternative ground for granting summary judgment, the district court construed the claims and held that, as a matter of law, TecSec had failed to show that IBM's software met the limitations of the claims as construed. As a result, the district court entered final judgment for IBM.

On appeal, TecSec challenged both aspects of the district court's judgment: 1) the district court's claim construction and holding that IBM did not practice the limitations of the claims as construed; and 2) the district court's holding that TecSec had failed to produce any evidence of direct or indirect infringement by IBM. The Federal Circuit summarily affirmed the district court's judgment under Federal Circuit Rule 36 without opinion and remanded.

The Mandate Rule

On remand, the case resumed as to the remaining defendants. In the second proceeding, TecSec stipulated that it could not prove infringement by the non-IBM defendants under the district court's previous claim construction. Based on this stipulation, the district court entered a judgment of non-infringement as to the remaining defendants and TecSec appealed a second time, leading to the question of whether the Federal Circuit's mandate rule ' or alternatively the doctrine of collateral estoppels ' precluded TecSec from rearguing claim construction.

Relying on the mandate rule, the defendants argued that the Federal Circuit's Rule 36 judgment in the IBM appeal precluded TecSec from raising any claim construction arguments in the second appeal. Conversely, TecSec argued that the mandate rule was not applicable because it was impossible to determine what issues the Federal Circuit relied on in its Rule 36 affirmance.

As explained by the majority panel, the mandate rule “'forecloses reconsideration of issues implicitly or explicitly decided on appeal.'” Slip Op. at 9. In order to be implicitly decided, an issue must be “decided by necessary implication.” Id. (citations omitted). Moreover, “'both the letter and spirit of the mandate must be considered'” when interpreting the Court's mandate. Id. (citations omitted).

Claim Construction

Here, the majority agreed with TecSec and held that the mandate rule did not bar TecSec from challenging the district court's claim construction. According to the majority, “[t]he district court's judgment was based on two independent grounds.” Id. First, the district court “ruled as a matter of law that TecSec's direct and indirect infringement claims failed for failure of proof that IBM itself or any of its customers performed every claimed step or made, used, sold, offered for sale or imported any system containing all of the limitations of the asserted claims.” Id. In so doing, the district court “did not rely on any rejection of TecSec's constructions of the terms at issue here.” Id. at 10. Persuasive to the majority was IBM's representation during the appeal that affirmance was proper “solely based on TecSec's 'complete failure of proof'” such that the court need not reach the issue of claim construction. Id.

While acknowledging that claim construction had occurred at the lower court, and that IBM's software was found not to meet each limitation of the construed claims, the Federal Circuit's Rule 36 affirmance did not include any description of the basis for the court's decision, much less a de novo review of the district court's claim construction. Id. As a result, the majority concluded that summary affirmance did not provide any basis to imply that it had decided the claim construction issues in the IBM appeal. Id. “Had claim construction been the only issue in the IBM appeal, and had that claim construction been essential to sustaining the judgment of noninfringement, the preclusive effect of our Rule 36 judgment would have been undeniable. But that was not the case.” Id. at 11. Accordingly, TecSec was not precluded by the mandate from challenging the district court's claim construction during the second appeal.

Collateral Estoppel

The Federal Circuit then addressed whether TecSec was precluded from re-litigating the claim construction issues under the doctrine of collateral estoppel. Relying on certain language in the summary judgment order, the defendants pointed out that the district court had construed claims that it considered “strictly necessary” to the granting of summary judgment in IBM's favor, therefore rendering immaterial the court's alternative grounds for summary judgment. In response, TecSec argued that collateral estoppel did not apply because the district court's claim constructions were not necessary to the final judgment, which rested on multiple, independent grounds.

As with the mandate rule, the majority held that collateral estoppel did not operate to preclude TecSec from rearguing the claim construction issues. In order to invoke collateral estoppel, a party “must show that the litigated issue was 'actually determined in the prior proceeding' and was a 'critical and necessary part of the decisions in the prior proceeding.'” Id. at 12 (citation omitted). But where a court in a prior proceeding determined two issues, “'either of which could independently support the result, then neither determination is considered essential to the judgment.'” Id.

Here, the majority held that the district court's decision was “independently predicated on alternative grounds,” the first of which (failure of proof) was unrelated to the district court's claim construction. The majority therefore concluded that claim construction was not actually determined by ' or critical and necessary to ' the Federal Circuit's summary affirmance in the IBM appeal, and thus did not preclude TecSec's subsequent challenge of the district court's claim construction.

Circuit Judge Reyna dissented, opining that “[c]laim construction and sufficiency of the evidence showing an act of infringement are not alternative grounds which to find noninfringement. They are part of a singular analysis.” Dissent, at 6. In Judge Reyna's view, to find a failure of proof of infringement, the district court had to first construe the claims, and only then determine whether the evidence offered by TecSec raised a triable issue of material fact. Thus, “[r]ather than being a separate, independent analysis, the district court's description of TecSec's failure of proof is merely the second step of its infringement analysis after the claims were construed in the first step.” Id. at 8. As a result, Judge Reyna concluded that the district court's claim construction was critical and necessary to the Federal Circuit's prior Rule 36 affirmance, and should have precluded TecSec from relitigating claim construction issues under either the mandate rule or collateral estoppel.

Conclusion

Although arising from a unique procedural posture, the TecSec decision illustrates at least one of the pitfalls inherent to a summary affirmance under Rule 36. In the absence of clear guidance from the Federal Circuit in situations where a district court decision is predicated on multiple grounds, litigants are left to wonder which of the grounds will have preclusive effect. Granted, the number of circumstances in which this problem can arise may be limited. But here, the result was exacerbated by the Federal Circuit's failure to reach consensus on whether the district court's decision in the first case involving IBM necessarily implicated claim construction. While the differing views of the majority and the dissent can be at least in part attributed to alternate interpretations of the legal issues surrounding claim construction, perhaps a cleaner record at the lower court could have helped to avoid the confusion in this case. Thus, where a district court judgment covers multiple issues, and the prospect of at least some of the same issues arising in a subsequent or related proceeding exists, it is incumbent on the parties to take into account the possibility of a Rule 36 affirmance in seeking clarification of the judgment prior to appeal.

Doug Stewart is a partner in Bracewell's Seattle office focusing on patent infringement litigation and counseling, with a particular emphasis on assisting Japanese technology companies with U.S. patent issues. Jared Schuettenhelm is an associate in Bracewell's Seattle office focusing on intellectual property litigation, counseling, and opinion work. A registered patent attorney before the U.S. Patent and Trademark Office (USPTO), he utilizes his experience as a scientist to represent clients in the medical device and pharmaceuticals industries.