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The Federal Circuit affirmed the grant of summary judgment that the patent infringement claims brought by SpeedTrack accusing infringement by four Oracle customers for their use of Oracle-provided software were precluded under the Kessler doctrine.  In a first lawsuit, SpeedTrack sued Walmart for infringement of a patent directed to methods of searching for computer files stored in a database.  The supplier of the software used by Walmart for the search capability, Endeca (who was later purchased by Oracle), intervened.  Following claim construction, and a change of their non-infringement position by Walmart and Endeca, the district court in the Walmart action held that there was no infringement because the infringing method used numbers whereas the claim, as construed, required the use of alphabetic descriptive names.  Although SpeedTrack sought to assert the doctrine of equivalents, it was precluded from doing so in the Walmart action.

In the subsequent district court action at issue here, each defendant used the same Oracle software as Walmart used and it was conceded that each customer’s use of that software was “essentially the same” as Walmart’s use.  SpeedTrack limited its claims to the doctrine of equivalents.  Defendants moved for summary judgment on the grounds of claim preclusion (res judicata), issue preclusion (collateral estoppel), and the Kessler doctrine (Kessler v. Eldred, 206 U.S. 285 (1907)).  The district court held that res judicata applied but only for acts occurring prior to the date of judgment (finding that Endeca’s customers were in privity with Endeca due solely to indemnification agreements), held that collateral estoppel did not apply because the issue of infringement under the doctrine of equivalents had not been litigated, and held that the Kessler doctrine precluded SpeedTrack’s claims in their entirety.  The Kessler doctrine was recently addressed in the Brain Life case and, according to the Federal Circuit, when a manufacturer prevails in proving that its product does not infringe a patent, that product is deemed non-infringing and a patentee will be precluded from suing a customer of that product for patent infringement, even if that lawsuit would been permitted to proceed under the rules for res judicata and collateral estoppel. 

In affirming the district court, the Federal Circuit: (1) held that customers, in addition to manufacturers, may be permitted to invoke the Kessler doctrine; (2) rejected SpeedTrack’s argument that the Rubber Tire exception to the Kessler doctrine applied (i.e., under Rubber Tire, the Kessler doctrine does not apply where the manufacturer only sells a component that is later combined by the customer with other objects and that combined product infringes) because the allegations here involved the use of Endeca’s software; and (3) rejected SpeedTrack’s argument that Kessler, while still good law, was displaced by Blonder-Tongue which authorized non-mutual collateral estoppel, because the Kessler doctrine is obviously necessary to prevent patent owners from suing customers on issues that were not litigated against the manufacturer. 

The lesson for patent owners when suing manufacturers is to make sure that all issues and claims are adjudicated against the manufacturer, because claims or issues not litigated will be foreclosed by the Kessler doctrine in future litigation against customers.

SpeedTrack, Inc. v. Office Depot , Inc., Case No. 2014-1475 (June 30, 2015); Opinion by: O’Malley, joined by Prost and Mayer; Appealed From: District Court for the Northern District of California, Hamilton, J. Read the full opinion here.

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