Federal Circuit Reverses District Court’s Preclusion-Based Dismissal of Induced Infringement Suit
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  • Federal Circuit Reverses District Court’s Preclusion-Based Dismissal Of Induced Infringement Suit

    On July 5, 2023, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) issued an opinion reversing the U.S. District Court for the Western District of Wisconsin’s decision dismissing—on the basis of res judicata—the induced infringement suit of Appellant, Inguran, LLC (“Inguran”). Inguran, LLC v. ABS Global, Inc., __ F.4th __ (Fed. Cir. July 5, 2023).
    Inguran, which does business under the name STGenetics (“ST”), holds a patent for sorting bull sperm cells according to a specific DNA characteristic, which allows dairy farmers or beef producers, for example, to preselect the gender of a domestic animal’s offspring.  ST provided its bull semen-processing services to Appellee ABS Global, Inc. (and Appellee’s parent company Genus PLC) (“ABS”), which is in the “bull stud” business—i.e., ABS sells semen drawn from its own bulls, packaged in small tubes, or “straws,” for use in artificial insemination.

    In 2014, ABS brought an antitrust lawsuit (“ABS I”), against ST alleging that ST was maintaining monopoly power through its contractual terms and acquisition of patents.  ST counterclaimed that ABS’s competing semen-straw technology—the GSS System—directly infringed its patent.  ABS stipulated to direct infringement of claims 1, 2, and 7 of the patent, and the parties presented expert testimony on damages, as well as validity evidence, to the jury.  The jury found claim 2 invalid, but the rest of the claims valid and infringed, and the district court entered a judgment in favor of ST, which included a lump-sum damages award plus a running royalty of $1.25 per straw sold by ABS.  The validity findings were affirmed on appeal, and unrelated matters were remanded to the district court.

    In 2017, ST filed another suit against ABS (“ABS II”), asserting infringement of several patents as well as trade secret misappropriation claims, which action was consolidated with the remand proceedings from ABS I.  During trial, ST learned that ABS had begun selling and licensing its GSS System to third parties and teaching them how to use the technology to produce their own straws.  At the conclusion of ABS II, the district court entered a judgment that included, inter alia, an ongoing royalty and supplemental damages for straws processed by foreign ABS licensees and imported for sale in the United States.

    In 2020, ST filed a third suit against ABS (“ABS III”), asserting, inter alia, induced infringement under 35 U.S.C. § 271(b) of the patent it previously asserted in ABS I, based on ABS’s selling or licensing GSS machines to third parties—which activities ST had learned about during ABS II.  The district court granted ABS’s motion to dismiss the induced infringement claims on the grounds that ST’s claims were precluded by the judgment in ABS I.  In June 2020, and further in December 2021, the district court clarified the scope of its previous ABS I order, stating that “the judgment is reasonably interpreted to cover straws produced by third parties using GSS technology as licensed by ABS” and that “the court agrees that Count I of [ABS III] is precluded by the judgment in ABS I.  ST appealed both the district court’s interpretation of the scope of the judgment providing the ongoing royalty and the district court’s finding of claim preclusion.

    Under Seventh Circuit law (the relevant regional circuit), there are three elements to claim preclusion:  (1) an identity of the parties or their privies in the first and second lawsuits; (2) an identity of the cause of action; and (3) a final judgment on the merits in the first suit.  On appeal, the parties disputed only the second element—whether the causes of action in ABS I and ABS III were the same.

    ST argued that the direct infringement claims it brought in ABS I and the induced infringement claims it brought in ABS III are separate and distinct.  To support its argument, ST highlighted the different elements required to prove direct infringement under 35 U.S.C. § 271(a) from those needed to prove induced infringement under 35 U.S.C. § 271(g) and asserted that it would have been premature to bring an inducement action during ABS I because, at that time, ABS had not yet begun selling or licensing its GSS technology to third parties.  ST further argued that, even if it were on notice that ABS planned to do so, notice of a potentially infringing activity cannot form the basis of a justiciable claim.

    ABS, on the other hand, argued that ST accused the same conduct—its licensing program—in both ABS I and ABS III and that the transactional facts “are all but identical.”  ABS responded to ST’s ripeness argument by noting that the entire accused activity in ABS I had not yet occurred. ABS also cited to testimony from ABS I purporting to show that ST and the jury understood the anticipated commercial uses of its GSS technology.

    The CAFC explained that it applies the general rule that res judicata does not bar the assertion of “new rights acquired during the action which might have been, but which were not, litigated.”  The CAFC further explained that claim preclusion requires that the claim either was asserted, or could have been asserted, in the prior action.

    In applying the law of claim preclusion to the ABS litigations, the CAFC found that (1) ST did not assert an induced infringement claim in ABS I, and (2) the induced infringement claim brought in ABS III was not based on the same transactional facts as the direct infringement claim brought in ABS I.  With respect to the latter, the CAFC found that, in ABS I, the accusations centered on ABS’s direct infringement activity, while, in ABS III, the accusations centered around third parties whose direct infringement activities are induced by ABS.  The CAFC noted that, to prove induced infringement, ST is required to prove additional elements—i.e., that ABS knowingly induced infringement and possessed specific intent to encourage another’s infringement.  With respect to ripeness, the CAFC explained that an induced patent infringement claim brought during ABS I would have been based on speculation and was therefore not ripe.

    The CAFC also addressed the district court’s clarification—five years later—of the language in its order that the judgment covered not only straws sold by ABS that were processed with GSS technology and imported into the United States for sale, but also straws produced by third parties using GSS technology as licensed by ABS.  The CAFC found that the district court’s subsequent interpretation essentially rewrote the order to cover actions of third-party licensees using GSS technology to make their own straws, which was improper in light of the CAFC’s rationale with respect to claim preclusion.
    Category: Claim Preclusion

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