“The Court in Kessler recognized that even if a manufacturer of goods were to prevail in a patent infringement suit, the manufacturer could be deprived of the benefits of its victory if the patentee were free to sue the manufacturer’s customers.”
The U.S. Court of Appeals for the Federal Circuit today ruled in In Re PersonalWeb Technologies, Inc. that a district court’s 2014 dismissal of a patent infringement suit brought by PersonalWeb against Amazon barred PersonalWeb’s new infringement actions against Amazon and its customers. The Court affirmed the United States District Court for the Northern District of California’s finding that the lawsuits against Amazon and its customers—Patreon, Vox Media, Dictionary.com, Vice Media, Oath, Inc., Buzzfeed, Popsugar and Ziff Davis—were barred in part by a 1907 Supreme Court ruling, Kessler v. Eldred, which said that a losing patent holder cannot later assert the same patents against the winning party’s customers. Judge Bryson delivered the opinion for the Court.
Today’s ruling relates to eight of dozens of lawsuits against 80 of Amazon’s customers that PersonalWeb has filed since 2018. The present appeal involves five patents: U.S. Patent Nos. 5,978,791 (“the ’791 patent”), 6,928,442 (“the ’442 patent”), 7,802,310 (“the ’310 patent”), 7,945,544 (“the ’544 patent”), and 8,099,420 (“the ’420 patent”). The patents purported to solve a problem in the way computer systems of the mid-1990s identified data in their systems, by devising “True Names” for data items. According to the CAFC opinion, “The True Name system created a ‘substantially unique’ identifier for each data item that depended only on the content of the data itself,” rather than “less reliable means of identifying data items, such as user-provided file names.”
In 2011, PersonalWeb sued Amazon and DropBox for patent infringement in the Eastern District of Texas, alleging that Amazon had infringed its patents through the use and sale of its cloud storage service, Amazon Simple Storage Service (S3). That system automatically generates an “ETag” for every object stored in S3. But after the Texas court issued its claim construction order in the case, PersonalWeb stipulated to the dismissal of all its claims against Amazon with prejudice and in June 2014, the court dismissed all claims against Amazon with prejudice and later entered final judgment against PersonalWeb. PersonalWeb had also earlier stipulated to dismissal of its claims against DropBox.
Claim Preclusion and Kessler Doctrine Apply
When PersonalWeb then began suing Amazon’s customers in 2018, Amazon stepped in and undertook the defense of the customers. Amazon filed a declaratory judgment complaint against PersonalWeb seeking to bar the new lawsuits based on the 2014 dismissal. The Judicial Panel on Multidistrict Litigation consolidated the cases and assigned them to the Northern District of California, which ultimately held that claim preclusion barred PersonalWeb’s claims regarding acts of infringement occurring prior to the final judgment in the Texas action, and that the “Kessler doctrine” barred PersonalWeb’s claims of infringement relating to S3 after the final judgment in the Texas action.
With respect to the claim preclusion argument, PersonalWeb said that the Texas action and the customer suits involved different causes of action. In the Texas case, PersonalWeb said it accused only the multipart upload functionality of Amazon’s S3 system, while in the cases before the California court, it accused the “cache control” functionality, “an entirely different feature of Amazon’s S3 system.” However, the Federal Circuit held that “At most, PersonalWeb has shown that it emphasized different facts in support of a different theory of infringement in the prior case. But that is not enough to avoid claim preclusion.”
The Court next turned to PersonalWeb’s contention that the Kessler doctrine did not apply here. In Kessler , the Supreme Court said that “If rights between litigants are once established by the final judgment of a court of competent jurisdiction those rights must be recognized in every way, and wherever the judgment is entitled to respect, by those who are bound by it.” The Federal Circuit rejected PersonalWeb’s argument that the Kessler doctrine did not apply in this case because the Texas dismissal did not determine Amazon to be “an adjudged non-infringer” and that the doctrine cannot be invoked unless the issue of infringement or invalidity was “actually litigated” in the prior case. But the CAFC pointed to its own precedent in cases like Brain Life, LLC v. Elekta Inc., SpeedTrack, Inc. v. Office Depot, Inc. and SimpleAir, Inc. v. Google LLC to demonstrate that“we have treated the Kessler doctrine as a close relative to claim preclusion, without its temporal limitation, rather than as an early version of non-mutual collateral estoppel, as PersonalWeb characterizes it.” The Court added:
The policy that drove the Supreme Court’s decision in Kessler would be ill-served by adopting the rule proposed by PersonalWeb. The Court in Kessler recognized that even if a manufacturer of goods were to prevail in a patent infringement suit, the manufacturer could be deprived of the benefits of its victory if the patentee were free to sue the manufacturer’s customers.
The Court thus affirmed the district court’s order that the consequence of the Texas Court’s dismissal was to bar PersonalWeb’s infringement actions against Amazon’s customers.