In its only precedential patent opinion this week, the Federal Circuit held that a lawsuit was not precluded by res judicata based on an earlier judgment. The case turned on whether a judgment for an ongoing royalty of direct infringement claims was res judicata as to a later infringement case alleging induced infringement by the same party of the same claims. The Court held that it was not.
The case involved a long-running dispute relating to bull semen. Specifically, the patents in suit concern technology for creating small tubes or “straws” of bull semen that are predominantly either male or female sperm cells. Having a greater likelihood of genetically male or female sperm is beneficial to livestock breeders, dairy farmers, and beef farmers, who rely on artificial insemination of their herds to increase fertility rates.
In 2006, appellant ABS and Inguran, doing business as STGenetics (“ST”), entered into a contract for sorting semen. The parties entered into another contract in 2012. In 2014, ABS filed an antitrust lawsuit against ST alleging that ST was maintaining a monopoly for sexed semen processing. ST brought counterclaims for a variety of causes of action including patent infringement concerning ST’s ’987 patent. ABS stipulated to direct infringement of three claims of the patent. A jury found one claim invalid and awarded ST a lump sum award for past infringement and $1.25 per straw on a going-forward basis. The Seventh Circuit affirmed the validity findings and remanded for an issue unrelated to the ongoing royalty.
In 2017, ST filed another patent infringement lawsuit against ABS. That suit was consolidated for trial with the remand of the first suit. During trial, ST learned that ABS was using its infringing technology in a new way: licensing it to third parties and teaching them how to use it so those third parties could process and produce their own sexed straws.
In January 2020, ST filed a third suit against ABS, asserting the same claims from the same patent, in addition to two recently issued patents. In the third suit, ST asserted, among other claims, induced infringement based on ABS’s selling or licensing its technology to third parties. The district court held that the claims in the third suit relating to the ’987 patent were barred by res judicata, and that the royalty awarded from the first trial was applicable to the technology that ABS had been licensing to third parties, and was subsumed within that judgment. ST appealed.
The Federal Circuit reversed. Noting the three requirements for res judicata—same parties, identity of the cause of action, and final judgment—the Court found only the second factor to be in play. The Court held that there was not an identity of the cause of action, which it held is “based on the transactional facts from which [suit] arises.” The Court cited precedent for the proposition that res judicata does not bar the assertion of “new rights acquired during the action which might have been, but which were not, litigated. . . . Indeed claim preclusion requires that the claim either was asserted, or could have been asserted, in the prior action.” In this case, ABS’s licensing program, and the induced infringement claim arising therefrom, could not have been brought at the time of the first lawsuit, and thus the cases were not based on the same transactional facts. Specifically, the first suit concerned direct infringement and the third suit concerned induced infringement by third parties. “[T]he evidence that ST needs to support a claim for direct infringement by ABS is different from the evidence required to sustain a claim of induced infringement by third parties. ST would need additional facts to plausibly allege an induced infringement claim—facts that largely came to light during discovery in” the second lawsuit.
The Court also concluded that the district court’s clarification of its judgment in the first lawsuit at the time of its res judicata order was improper. Citing Seventh Circuit law cautioning against giving too much deference to a court’s later interpretation of an earlier order where doing so would create the risk that interpretation of an order becomes a means to rewrite it, the Court held that the original order did not cover acts of induced infringement, and that interpreting the order otherwise was improper.
The opinion can be found here.
By Nika Aldrich
