Addressing for the first time whether an invalidity order merges with a voluntary dismissal for purposes of finality, the US Court of Appeals for the Federal Circuit held that an interlocutory order merges with the final dismissal, rendering the interlocutory order final for purposes of issue preclusion. Koss Corp. v. Bose Corp., Case No. 22-2090 (Fed. Cir. July 19, 2024) (Hughes, Stoll, Cunningham, JJ.). As a consequence, the Federal Circuit found that the patent owner’s appeal from an adverse decision in an inter partes review (IPR) was moot under the doctrine of nonmutual collateral estoppel.

In July 2020, Koss filed a patent infringement lawsuit against Bose in the Western District of Texas, asserting three patents whose common specification discloses a “wireless earphone that communicates with a digital-audio source, such as an iPod, over an ad hoc wireless network like Bluetooth.” The same day, Koss asserted the same patents against Plantronics. Bose filed a motion challenging venue and also petitioned for inter partes review (IPR) of the three patents. Later in 2020, Bose filed a declaratory judgment action seeking a declaration of noninfringement in the District of Massachusetts on the three patents Koss asserted against Bose in the Texas litigation. The Massachusetts litigation was stayed pending the resolution of the venue motions in the Texas case.

In 2021, the Texas court dismissed Koss’s complaint against Bose for improper venue. Koss then asserted a counterclaim of infringement of the same three patents in the Massachusetts litigation. The Massachusetts court again stayed the litigation pending the resolution of the IPRs, which (by that time) the Patent Trial & Appeal Board had instituted. Meanwhile, Koss’s case against Plantronics was transferred to the Northern District of California, and Plantronics moved to dismiss the complaint on the ground that all the asserted claims (which included all the claims asserted against Bose) were invalid under 35 U.S.C. § 101. The California court granted Plantronics’s motion, rendering all the asserted claims invalid. However, that order did not finally dispose of the case.

Koss then moved for leave to amend its complaint, which the California district court granted. In the amended complaint, Koss asserted two additional patents. Plantronics moved to dismiss the asserted claims in those patents as invalid under § 101. The parties fully briefed Plantronics’s motion, but before the district court issued a decision on the merits of that motion, Koss voluntarily stipulated to dismissal with prejudice, disposing of the lawsuit in its entirety. Koss did not ask the district court to vacate its earlier order finding certain claims invalid under § 101. The California district court then issued an order dismissing the case with prejudice. The deadline for Koss to appeal the judgment came and went – Koss did not appeal.

Arguing that the patents had been finally adjudicated invalid in the Plantronics litigation, Bose moved to dismiss Koss’s appeal from the Board in the IPR proceedings as moot. Koss opposed the motion, arguing that its amended complaint rendered the invalidity decision on the prior complaint non-final because the amended complaint superseded the California court’s invalidity determination.

The Federal Circuit, applying Ninth Circuit law on issue preclusion, noted that an interlocutory order (here, the district court’s invalidity finding) generally merges with a subsequent final judgment. Attempting to distinguish that precedent, Koss argued that the patent claims rendered invalid in the original order were not reasserted in the amended complaint and were thus not appealable. The Federal Circuit disagreed.

Although the invalidity order was not final and appealable when it issued because the district court granted Koss leave to amend its original complaint and continue the litigation, upon dismissing the litigation with prejudice, that order became final and appealable. The Federal Circuit reasoned that Koss’s decision not to reallege all the dismissed claims in the amended complaint did not affect the finality of the original invalidity judgment for preclusion purposes. Koss’s voluntary dismissal with prejudice, without seeking to vacate the original invalidity order or preserve its appeal rights, gave rise to issue preclusion. Since the claims at issue in the IPR appeal had already been finally determined invalid in the California district court litigation related to Plantronics, the Federal Circuit dismissed the IPR appeal as moot. The Federal Circuit explained that Article III compelled the dismissal because, regardless of the outcome of the claims on appeal from the Board, the California district court’s final judgment had already rendered those claims invalid, albeit under § 101.

Practice Note: To safeguard against appeals being dismissed for mootness, parties subject to an invalidity decision in one forum should appeal that decision once it becomes final, even if it is a different order that ends the case. In this case, even though the prior litigation (in the California district court) involved a different party (Plantronics), Bose was able to take advantage of that invalidation decision under the doctrine of nonmutual collateral estoppel.