Customers May Invoke Kessler Doctrine as Patent Infringement Defense: Federal Circuit | Practical Law

Customers May Invoke Kessler Doctrine as Patent Infringement Defense: Federal Circuit | Practical Law

In SpeedTrack, Inc. v. Office Depot, Inc., the US Court of Appeals for the Federal Circuit expanded the Kessler doctrine, holding that customers of products that have been found not to infringe a patent in an earlier lawsuit may assert that finding of non-infringement as a defense to new allegations of infringement.

Customers May Invoke Kessler Doctrine as Patent Infringement Defense: Federal Circuit

by Practical Law Intellectual Property & Technology
Published on 02 Jul 2015 • USA (National/Federal)
In SpeedTrack, Inc. v. Office Depot, Inc., the US Court of Appeals for the Federal Circuit expanded the Kessler doctrine, holding that customers of products that have been found not to infringe a patent in an earlier lawsuit may assert that finding of non-infringement as a defense to new allegations of infringement.
On June 30, 2015, in SpeedTrack, Inc. v. Office Depot, Inc., the US Court of Appeals for the Federal Circuit expanded the rarely-invoked Kessler doctrine by allowing customers and sellers of previously-adjudged non-infringing products to assert the earlier judgment as an infringement defense, even where the product manufacturer has not intervened (No. 2014-1475, (Fed. Cir. June 30, 2015)).
SpeedTrack, Inc. is the owner by assignment of US Patent No. 5,544,360 (the '360 Patent), directed to a computer filing system for accessing files and data according to user-designated criteria. In 2006, SpeedTrack sued Wal-mart Stores, Inc. (Walmart), alleging that Walmart's website infringed the '360 Patent. Walmart licensed and used software developed by Endeca Technologies, Inc., the Endeca Information Access Platform (IAP). Because SpeedTrack's allegations were based on Walmart's use of Endeca's IAP software, Endeca intervened in the lawsuit.
In 2007, SpeedTrack filed a separate suit against Office Depot, Inc., CDW Corporation, Newegg Inc. and PC Connection, Inc. (Appellees) for their use of Endeca's IAP software on their respective websites. The US District Court for the Northern District of California stayed the Office Depot case pending the outcome of the Walmart litigation.
In 2012, the district court granted summary judgment of non-infringement to Walmart and Endeca. On appeal, the Federal Circuit affirmed the district court's claim construction and award of summary judgment that Endeca's IAP software was non-infringing based on that construction. After the Federal Circuit's affirmance, the district court lifted the stay in the Office Depot case and the Appellees moved for summary judgment based on the district court's non-infringement judgment in the Walmart case. The district court granted summary judgment, finding that:
  • Appellees used the IAP software in the same way as Walmart.
  • SpeedTrack's infringement claims were barred by res judicata for acts occurring on or before the date of the final judgment in Walmart.
  • The Kessler doctrine precluded the entirety of SpeedTrack's suit.
On appeal, SpeedTrack sought to avoid the Kessler doctrine by arguing that:
  • The right recognized in Kessler can only be asserted by the product manufacturer or supplier, not its customers.
  • Kessler does not apply where:
    • the manufacturer supplies a component;
    • that component is combined with other components; and
    • the combined configuration is alleged to infringe.
  • Kessler has been rendered obsolete.
The Federal Circuit rejected each of these arguments. First, it expanded its prior Kessler jurisprudence, holding that a customer, as well as a manufacturer, may assert the Kessler doctrine as a defense to an infringement claim. The court explained that:
  • Allowing customers to assert a Kessler defense protects the manufacturer's right to sell an exonerated product free from interference or restraint.
  • Because the Kessler doctrine is a right that attaches to a non-infringing product, and it is a right designed to protect the unencumbered sale of that product, it can be asserted by either the manufacturer or the customer that purchased the product.
The Federal Circuit also held that the allegations in SpeedTrack's complaint were directed specifically to Appellees' use of the IAP software to provide search functionality for their respective websites, not to any other uses of the software or combinations of the software with other activities. Therefore, because SpeedTrack alleged that Appellees infringed for using the same software as Walmart, and not that Appellees infringed by combining Endeca's IAP software with some other activity, SpeedTrack could not avoid Kessler by arguing that it is inapplicable when a combined configuration is alleged to infringe.
Finally, the Federal Circuit rejected SpeedTrack's argument that Kessler is no longer good law. The Federal Circuit noted that it had recently invoked the Kessler doctrine in Brain Life, LLC v. Elekta Inc., 746 F.3d 1045 (Fed. Cir. 2014) (for more information on this decision, see Legal Update, Rarely Used Kessler Doctrine Limits Second Lawsuit Against Prevailing Accused Infringer: Federal Circuit). It also explained that the doctrine is necessary to prevent patent owners from getting multiple bites at the infringement apple by suing manufacturers and then alternating their strategies to sue customers.