2010-1134 Cummins v. TAS Distribution

Cummins appeals from the summary judgment of Judge McDade finding its declaratory judgment action for patent invalidity, misuse, and contract termination barred under the doctrine of claim preclusion (f/k/a res judicata). 

This is the third lawsuit between the parties since 2003, and all derive from a 1997 License Agreement from TAS to Cummins which included a license to TAS's 5,072,703 and 5,222,469 patents.

Background:  TAS first sued Cummins in 2003 alleging that Cummins had breached the License by failing to adequately market the technologies as required; Cummins counterclaimed, alleging that its obligation to pay royalties under the License Agreement expired on March 31, 2003.  This case ("TAS I") ended with the granting of summary judgment on some claims, ultimately affirmed by the Seventh Circuit.

TAS filed another suit in 2007 alleging that Cummins had failed to pay certain royalties due under the License, and had also breached the License by using a competing technology in its products instead of the patented technology.  TAS II is pending in the CD/IL.

The present action was filed by Cummins in early 2009, seeking to: (1) dismiss TAS II, (2) declare the ‘703 and ‘469 patents invalid, (3) declare the License Agreement void for patent misuse, (4) declare that TAS engaged in patent misuse, (5) declare the ‘703 and ‘469 patents unenforceable based on inequitable conduct, and (6) rescind the License.

Analysis: The Court found that all of the contract and patent claims asserted by Cummins were barred under claim preclusion by TAS I.  Saying that it was "sitting in diversity," the Court applied Illinois law:

Illinois requires that three requirements be met in order for res judicata to
bar a subsequent suit: “(1) there was a final judgment on the merits rendered by a court of competent jurisdiction, (2) there is an identity of cause of action, and (3) there is an identity of parties or their privies.”

Order, p. 7.  Noting that the first and third elements were clearly met, the Court elaborated in the second:

In order to determine whether the two suits involve the same cause of action, Illinois applies a transactional test. This test views a claim “in ‘factual terms’ and considered ‘coterminous with the transaction, regardless of the number of substantive theories, or variant forms of relief flowing from those theories, that maybe available to the plaintiff;…and regardless of the variations in the evidence needed to support the theories or rights.’” Id. at 892 (quoting REST. 2D JUDG. § 24, cmt. a (1982)) (alteration in original). “[S]eparate claims will be considered the same cause of action for purposes of res judicata if they arise from a single group of operative facts, regardless of whether they assert different theories of relief.” Id. at 893 (citing Rodgers v. St. Mary's Hosp. of Decatur, 597 N.E.2d 616, 621 (Ill. 1992)). The res judicata “bar extends to what was actually decided in the first action, as well as those matters that could have been decided in that suit.”

* * *

Res judicata binds both parties to the earlier suit. Fuller Family Holdings v. Northern Trust Co., 863 N.E.2d 743, 755-56 (Ill. App. 2007); Corcoran Hakala, 840 N.E. at 520. Even the party who was the defendant in the prior suit is barred from later bringing a claim against the former plaintiff if the later suit is “based on facts that would have constituted a counterclaim or defense in the earlier proceeding where successful prosecution of the later action would either nullify the earlier judgment or impair the rights established in the earlier action.”

Order, pp. 8-9.  

Addressing first Cummins' contract claims, the Court found that the operative facts alleged by Cummins to void the contract existed at the time of TAS I and could have been brought at that time.  Further, the Court found challenging the validity of the License and alleging a breach thereof "arose from a single group of operative facts," and therefore res judicata applied.   Id. at 9-15.

Turning to the patent claims, the Court found that the invalidity/misuse claims also arose out of the same group of facts needed for the TAS I contract claims:

If Cummins had argued in TAS I that the Agreements were void because they are based on invalid patents, or that the Agreements were fraudulently induced, it would have had to prove that these patents were indeed invalid or unenforceable, either because of the three allegedly patent-defeating facts or because of inequitable conduct before the U.S. Patent Office, in order to make that case. Under its own theory, all of Cummins’ contract claims are based on the patent allegations; there are no contract claims without the patent claims. Therefore, in order to make any of its contract claims as a defense or counterclaim in TAS I, Cummins would have had to show that the patents were invalid or unenforceable; the showing that the patents were invalid would be a necessary part of a finding that the Agreements were unenforceable. Thus, Cummins’ patent-based claims are also barred by res judicata.

Order, p. 15-16.

The Court then reviewed–and rejected–a number of exceptions to res judicata.  First is a so-called "declaratory judgment exception" where preclusion does not apply to a later case in which "the only relief sought in the first suit is a declaratory judgment.”  Id. at 18.  The court found no such exception under Illinois law, but further noted that TAS I involved a claim for contract damages and was thus not a only a DJ action.

The Court also rejected a fraud/misrepresentation exception where the claim was omitted from the first action as a result of the defendant's fraud or misrepresentation.  The fraud or misrepresentation has to be the reason that the claim was omitted, and the Court found no such fraud or misrepresentation present.  Id. at 19-28.

Finally, the Court rejected a policy argument [the last refuge of the desperate] that Federal policy favored determining validity on the merits and therefore res judicata would not apply.  While acknowledging an interest in weeding out invalid patents, the Court found that the policy did not trump the policy of conserving judicial resources and avoiding piecemeal litigation.  Id at 28-31.

NOTE: The Court applied Illinois state law for issue preclusion, writing "a federal court sitting in diversity is governed by 'federal common law,' which provides for the application of the law of the state in which the federal court sits."  Opinion, p. 7.  However, with Cummins' patent claims the district court had federal subject matter jurisdiction, not just "diversity" jurisdiction.  The Federal Circuit says that the law to be applied to claim preclusion in patent cases is the regional law of the circuit, in this case the Seventh Circuit.  See, e.g., Pactiv Corp. v. Dow Chem. Co., 449 F.3d 1227, 1230 (Fed.Cir.2006) (applying regional circuit law to dismissal on the grounds of claim preclusion).  I am not sure an analysis under Seventh Circuit law would yield a different result though.

2010-1134 SJ Mem

2009-1168 Fairchild Semiconductor v. Third Dimension (3D)

Patentee/declaratory-judgment defendant 3D appeals from the grant by Judge D. Brock Hornby of a preliminary injunction prohibiting it from terminating a patent license to Fairchild.  The license relates to patent 5,216,275 and a related Chinese patent directed to superMOSFET technology for silicon semiconductors.

The parties dispute whether Fairchild's SuperFET™ products are covered by either patent, and thus whether royalties are owed under the license agreement.  3D threatened or attempted to terminate the license for failure to pay/agree.

The court employed the usual factors for a preliminary injunction (likelihood of success, etc.), and a prior claim construction from Power Mosfet Techs., LLC v. Siemans AG, 378 F.3d 1396 (Fed. Cir. 2004) and collateral estoppel factored heavily into claim construction and the infringement analysis.

For licensees there is some nice language from the court regarding irreparable harm and balance of hardships regarding terminated licenses, as well relating to the public interest prong.  Fairchild did have to post a bond of $330,000 (in place from the TRO).

More reading:

Counsel:

Fairchild: Pierce Atwood (Portland, Maine)
Third Dimension: Shore Cahn Bragalone (Dallas); Richardson Whitman Large & Badger (Portland, Maine)

2008-1560 Aventis v. Sandoz

Aventis appeals from the order of Judge Mariana Pfaelzer granting Sandoz’s motion for summary judgment finding 5,389,618 and RE38,743 unenforceable for inequitable conduct and dismissing Aventis’s infringement claims.  The patents are directed to a composition comprising low molecular weight heparins (“LMWHs”) marketed as Lovenox® in the United States and Clexane® in Europe and is effective in preventing thromboses
(blood clotting) while minimizing the possibility of hemorrhaging,
especially during high-risk surgery. 

Judge Pfaezer’s opinion is short, simple and straight-forward.  She previously found that patents unenforceable for inequitable conduct, a decision affirmed by the Federal Circuit in Aventis v. Amphastar, 525 F.3d 1334 (Fed. Cir. 2008). 

The court ruled that collateral estoppel applies here.  The same issue is also on appeal in Aventis v. Hospira, 2008-1499.

Aventis has appealed from Judge Pfaelzer’s Order granting Hospira’s motion for judgment on the pleadings and dismissing Aventis’s infringement claim with prejudice based on collateral estoppel. 

Aventis owns U.S. Patent No. 5,389,618 claiming enoxaparin sodium sold under the brand name LOVENOX®.  Enoxaparin sodium is
used for the treatment and prevention of deep vein thrombosis.

The ’618 patent is no stranger to litigation.  In 2003 and 2004,
Aventis sued Amphastar and Teva for infringement of the ’618 patent
after each had filed ANDAs for enoxaparin sodium products.  In 2005,
the Central District of California granted summary judgment in
Amphastar’s case, finding the ’618 patent unenforceable for inequitable
conduct–the Court held that Aventis and its agent failed to disclose
material information to the PTO.  While the Federal Circuit agreed that
Aventis had failed to disclose material information, it remanded the
case for trial on the issue of "Aventis’s intent to deceive the PTO.  In 2007, after a four-day bench trial, the Central District of California again found the ’618 patent unenforceable.  Aventis Pharma S.A. v. Amphastar Pharmaceuticals, Inc. 475 F. Supp. 2d 970, 994 (C.D. Cal. 2007).   

While an appeal of that decision was pending, Hospira filed ANDAs for enoxaparin sodium products and sent the required notice to Aventis, triggering the 45-day clock for Aventis to file an action.  On the last day of that window, Aventis filed the instant infringement action. Citing the Court’s earlier unenforceability decision, Hospira moved for judgment on the pleadings under Rule 12(c).

The gist of Hospira’s motion was simple:  Aventis’s claims are barred under collateral estoppel because the Court already determined that the ’618 patent was unenforceable.  As Hospira argued, Aventis simply filed its infringement action to "game the system"–it knew that the filing would trigger a 30-month stay of Hospira’s ANDA approval. 

Aventis, however, never hid this fact.  It not only acknowledged the prior ruling in its Complaint, but it offered to waive the 30-month stay if the ANDA was approved before the Federal Circuit decided Aventis’s appeal.  Aventis even admitted that it filed suit to "preserve" its rights. 

The end result was a "damned if you do, damned if you don’t" scenario under Hatch-Waxman.  Aventis argued that staying the action was prudent because dismissal would terminate its Hatch-Waxman rights–for good–even if the Federal Circuit ultimately overturned the adverse inequitable conduct ruling.  At that point, Aventis’s  only recourse against Hospira would have been a preliminary injunction.  Hospira countered that anything short of dismissal with prejudice–including Aventis’s requested stay–was "functionally equivalent" to a preliminary injunction.  And because the Hatch-Waxman Act does not provide for a private waiver of the statutory stay, Aventis’s waiver offer was useless. 

Ultimately, the Court asked the parties to wait it out.  While the Court never formally  issued a stay order, judgment was reserved until the Federal Circuit ruled–and it ruled against Aventis.  Upon receiving the Federal Circuit’s opinion, the Court indicated that it would grant Hospira’s motion.  Aventis sought a writ of mandamus to stay judgment pending Aventis’s motion for rehearing en banc.  While the Federal Circuit issued a temporary stay order, it ultimately denied Aventis’s requested writ.  Aventis asked  Judge Pfaelzer for a stay one last time, but the Court granted Hospira’s motion and entered judgment dismissing Aventis’s case with prejudice.   

Notes:

• In addition to appealing Judge Pfaelzer’s Order dismissing the case with prejudice, Aventis is still pursuing its motion for rehearing–and receiving a bit of amicus support. 

• Coverage of the underlying Amphastar can be found at the Orange Book Blog.

• While not shelved for 30 months, Hospira’s ANDAs were stayed over six months because of the lawsuit.

More Reading:

Hospira’s Brief In Support Of Judgment On The Pleadings

Aventis’s Brief In Opposition

Hospira’s Reply Brief

Counsel:

For Hospira: Winston & Strawn, Los Angeles (Gail J. Standish and Daniel Whang), Chicago (James F. Hurst and Kathleen B. Barry), and Washington (Charles B. Klein)

For Aventis:  Finnegan, Henderson, Farabow, Garrett & Dunner, Washington (Donald R. Dunner and Allen M. Skoal) and Atlanta (Robert C. Stanley); Morris, Polich & Purdy, Los Angeles (Daniel L. Ridge and Megas S. Wynne)
 

2008-1460 Hemphill v. Kimberly-Clark

Allegra Hemphill appeals from Judge Rosemary Collyer’s order dismissing her case based on res judicata.  She previously sued over the same products and lost, but returns to try a different claim from the same patent. 

In 2002 Hemphill sued Kimberly -Clark and co-defendant Proctor & Gamble alleging that the accused products–sanitary napkins and adult incontinence products branded Kotex, Always and Poise–infringed claim 1 of 4,557,720.  The district court granted summary judgment of non-infringement, upheld by the Federal Circuit.

Hemphill now alleges that the same products infringe claim 2.  On a motion to dismiss, the court took judicial notice of the first case and the fact that the same products are at isse  The court then wrote of res judicata:

The doctrine embodies the principle “that a party who once has had a chance to litigate a claim before an appropriate tribunal usually ought not to have another chance to do so."

The court then found the current case barred:

As is readily apparent from the face of the Complaint in conjunction with the decision in Hemphill II, of which the Court takes judicial notice, this case involves the same defendants and products that were at issue in Hemphill II. Compare Def.’s Mem. Ex. 1 at ¶ 13 with Compl. ¶¶ 16-17.  Ms. Hemphill makes no assertion to the contrary. It is therefore of no moment that she now accuses Defendants of infringement of Claim 2, for the “nucleus of facts” is identical in both suits. See Foster v. Hallco Mfg. Co., 947 F.2d 469, 479-80 (Fed. Cir. 1991) (“It follows that for claim preclusion to apply here, the devices in the two suits must be essentially the same. . . . Colorable changes in an infringing device or changes unrelated to the limitations in the claim of the patent would not present a new cause of action.”). Ms. Hemphill could have raised the instant allegations in the prior suit. Drake, 291 F.3d at 66. Accordingly, this case must be dismissed.

The court did deny defendants’ motion for sanctions under Rule 11.

More reading:

Order on Res Judicata

Order Denying Rule 11

Counsel:

Allegra Hemphill: pro se
Kimberly-Clark: Kramon and Graham, Baltimore (James Ulwick).
Proctor & Gamble: Jones Day (Gregory Castanias).

2008-1351 Cygnus Telecom. v. WorldPort Comm.

Plaintiff Cygnus appeals from Judge Ronald Whyte’s Order denying Plaintiff’s Motion for Permanent Injunction.  Cygnus sought a permanent injunction against Chris Canfield, Telenational Communication, and Rapid Link, Inc. from infringing Cygnus’s patents, including 6,035,027, which are generally directed at an interactive telephone callback system designed to exploit different tariff rates applicable to originating calls.

Unfortunately for Cygnus, there were two problems with the request:

• Judge Whyte (in the 02-00142 case) already had found the patents to be invalid under the on-sale bar of § 102(b);

• Canfield and Telenational were not parties to any of the actions, and Rapid Link was a party to the 02-00142 case where the patents were held invalid.

Without needing much analysis, the court found that Cygnus could not establish "irreparable injury" and therefore denied the motion.

Background.  Cygnus filed several lawsuits in 2001 and 2002 on these patents, including the 2 related to this matter.  A simple chart/time-line might help:

Essentially, Cygnus argued that (i) Canfield is bound by the Consent Judgment because he was once a part owner/officer of ICX; (ii) that Telenational is bound by its July 2002 license and to the Consent Judgment through Canfield; and (iii) Rapid Link is likewise bound to the Consent Judgment and license because it purchased Telenational.

Privity.  Judge Whyte was unimpressed.  While the parties to the Consent Judgment agreed to certain terms and to not contest validity, neither Telenational nor Canfield were parties to that judgment (or the litigation).  The court further found no evidence that they were "alter egos" of the named parties nor evidence that they were or are in privity with them, citing Int’l Nutrition Co. v Horphag Research.

As to the 2002 Cygnus-Apex license, the court noted that Cygnus had terminated that license on 02 March 2007.  However, it was undisputed that Apex and Telenational had paid all of the royalties they owed under the license until terminated–thus the licensees were not in breach.  The court then concluded that Rapid Link (and Canfield) were not bound by the license because they were not parties to it and, in any event, the license had been terminated.

Notes: Most of the background and discussion regarding privity are
covered by the court in a related Order denying Cygnus’s efforts to
collect royalties under either the Consent Judgment or the license.

The 02-00142 case is on appeal to the CAFC as 2007-1328.

Documents:

2008-1351_Order_on_Injunction.pdf

2008-1351_Order_on_Royalties.pdf

Plaintiff TIP appeals summary judgment of non-infringement.  TIP owns two patents related to “inmates phones” for prisoners’ use in correction facilities.  TIP had separately sued others, but had summary judgment of non-infringement entered against it (on appeal as 2007-1279 and 1241). 

Here, the court had previously dismissed AT&T and SBA with prejudice, and Judge Lee Rosenthal has now granted defendant Securus summary judgment of non-infringement.  Securus apparently is the parent-holding company of one of the defendants in the other case.  Summary judgment is appropriate because (1) as a holding company Securus does not make, use, sell or offer phones for sale and is not liable for subsidiaries under Stucki or Tegal; and (2) issue preclusion from the other case applies to TIP.  The court also denied TIP’s motion to stay pending the appeal from the other case.

Kuhl owns 6,042,194 and 6,520,592.  Hayes Lemmertz had filed a declaratory judgment action that its Struktur Wheel didn’t infringe.  Counterclaims followed, and Kuhl attempted to add GM and Ford as infringers, arguing that the claims were virtually identical (apparently Ford and GM purchase wheels from Hayes).  That court denied the motion, so Kuhl filed this action which then was stayed pending the first.  After the other case determined that the Struktur Wheel did not infringe, this court issued an order to show cause why GM and Ford should not prevail.  Despite Kuhl’s argument that there was no evidence that Ford and GM purchase the Struktur Wheel or one materially identical, Judge Cleland granted judgment to Ford and GM based on issue preclusion (to the extent that Ford and GM did, in fact, purchase the Struktur wheel).  The court found also that Kuhl did not have a good faith basis under Rule 11 to continue the action.

Kuhl’s appeal of the Hayes action is docketed as 2008-1179.