Jump Rope Systems Asks CAFC for Initial En Banc Rehearing Challenging Collateral Estoppel Ruling in XY v. Trans Ova Genetics

On April 19, exercise equipment developer Jump Rope Systems filed a petition with the U.S. Court of Appeals for the Federal Circuit (CAFC) seeking an initial hearing en banc to challenge a consent judgment entered in a patent infringement case filed in the Southern District of Ohio. Jump Rope Systems is asking the full Federal Circuit to overturn its own decision in XY, LLC v. Trans Ova Genetics, L.C. (2018), arguing that preclusive effect cannot be given to invalidity determinations issued by the Patent Trial and Appeal Board (PTAB) because XY conflicts with U.S. Supreme Court rulings on collateral estoppel doctrine.

Judge Newman’s Dissent from XY LLC’s Collateral Estoppel Ruling Proves Prescient

Jump Rope Systems’ petition comes directly after U.S. District Judge Michael H. Watson entered a consent judgment invalidating patent claims asserted by Jump Rope Systems against alleged infringer and gym equipment manufacturer Coulter Ventures, doing business as Rogue Fitness. The asserted claims were from U.S. Patent No. 7789809, Jump Rope System, and U.S. Patent No. 8136208, Handle System, both of which were invalidated in inter partes review (IPR) proceedings at the PTAB. Judge Watson’s consent judgment applied collateral estoppel without consideration of any exceptions, a legal conclusion compelled by the Federal Circuit’s holding in XY LLC.

In XY LLC, the alleged infringer, Trans Ova Genetics, appealed the district court’s denial of post-trial motions challenging a jury verdict that found no invalidity for XY’s patent claims covering the sorting of chromosome-bearing sperm cells. Instead of addressing Trans Ova Genetics’ invalidity arguments, the Federal Circuit sua sponte found that XY was collaterally estopped from asserting the validity of its patent claims, which were first invalidated in IPR proceedings at the PTAB and then those invalidations affirmed by the Federal Circuit.

Judge Pauline Newman had authored a dissent in XY LLC challenging the panel majority’s disposal of the invalidity issues in that case. Judge Newman pointed out that there was non-mutuality of parties involved in the issue, as Trans Ova Genetics was not the petitioner challenging the validity of XY’s patent claims at the PTAB. Further, when considering the exceptions to collateral estoppel under which issues are not precluded from relitigation, as set out by the Restatement (Second) of Judgments §§ 28-29, Judge Newman found clear inconsistencies in the different evidentiary burden of proof standards for validity issues applied at the PTAB, where validity rulings must be supported by “substantial evidence,” and U.S. district court validity rulings, which must be supported by “clear and convincing evidence.”

Judge Newman also raised issues of constitutional balance between administrative agencies and Article III courts that Jump Rope Systems’ petition credits as prescient. In September 2019, the Federal Circuit issued Chrimar Systems v. ALE USA, applying the holding in XY LLC to invalidate patent claims that were upheld as valid by a jury verdict and through post-trial motions.

Judge Watson’s consent judgment invalidating Jump Rope Systems’ patent claims in the district court action under XY LLC noted that legal standards in the U.S. Court of Appeals for the Sixth Circuit, the regional circuit court handling appeals from Southern Ohio, normally disfavor appeals from consent judgments. Jump Rope Systems’ petition for initial en banc hearing by the Federal Circuit, however, notes that multiple circuit courts including the Sixth Circuit have recognized exceptions to the bar against appealing consent judgments. Further, the appellant pointed to objections against the consent judgment raised in a final joint status report submitted to Judge Watson, including the stated intention to appeal the judgment to challenge XY LLC, as proof that it had explicitly reserved the right to appeal the consent judgment at the district court level.

Jump Rope Systems: Collateral Estoppel Issue Resolved by Grogan, B&B Hardware

“The resolution of [the collateral estoppel] issue is simple and is clearly dictated by binding Supreme Court precedent,” Jump Rope Systems argues in its petition for initial en banc hearing. The appellant cites the Supreme Court’s 1991 ruling in Grogan v. Garner as fully supporting the points raised by Judge Newman in her XY LLC dissent. Grogan dealt with different evidentiary standards applied in a civil action for securities fraud and bankruptcy proceedings for discharging damages awarded in the fraud judgment. While the evidence of securities fraud charges in the civil action was assessed based on a preponderance standard, the Supreme Court ruled that if nondischargeability of the debt incurred by the fraud judgment was based on a clear and convincing evidentiary standard, then collateral estoppel would not apply. The Supreme Court’s decision in Grogan ultimately found that the preponderance standard should be applied by bankruptcy courts to determine “actual fraud” under U.S. bankruptcy code, but Grogan’s collateral estoppel findings should also apply to the patent validity context, Jump Rope Systems contends.

In passing the America Invents Act (AIA), Congress created a preponderance of the evidence standard of proof for petitioners challenging validity in IPR proceedings, codified at 35 U.S.C. § 316(e). As Grogan had been decided two decades prior to the AIA’s passage, Jump Rope Systems argues that Congress could have created a statutory exception to Grogan allowing for collateral estoppel to apply to PTAB rulings despite the different evidentiary standards between the PTAB and U.S. district court. Where the AIA did address collateral estoppel issues, Jump Rope Systems notes that the only such provision, 35 U.S.C. § 315(e), impacts the petitioner’s ability to bring invalidity claims to civil actions in U.S. district court.

Jump Rope Systems also contends that reversal of XY LLC is also compelled by the Supreme Court’s ruling in B&B Hardware v. Hargis Industries (2015), a trademark case that considered different applications of the likelihood of confusion test at the Trademark Trial and Appeal Board (TTAB) and in the U.S. Court of Appeals for the Eighth Circuit, which vary based on the confusion factors that are assessed. The Supreme Court ultimately found that issue preclusion applied in that case as the likelihood of confusion tests used in trademark registration and infringement litigation were essentially the same. The Court also acknowledged that “issues are not identical if the second action involves application of a different legal standard, even though the factual setting of both suits may be the same.” B&B Hardware also cited the Restatement’s views on issue preclusion approvingly, which adds weight to Judge Newman’s consideration of the Restatement’s exceptions to collateral estoppel in her XY LLC dissent, according to Jump Rope Systems.

“It would be a waste of judicial resources to send this case initially to a three-judge panel when the ultimate destination of the case would be before this Court en banc (or the Supreme Court) based on the clear conflict between the panel decision in XY, LLC and the Supreme Court’s decisions in Grogan and B&B Hardware, Inc.,” Jump Rope Systems’ petition reads. As a result, Jump Rope Systems is asking the Federal Circuit to grant its petition for initial en banc hearing, reverse the Southern Ohio district court’s ruling on consent judgment and remand for a determination of patent validity on the facts and the law.