The US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court’s dismissal of claims of copyright infringement, violation of the Digital Millennium Copyright Act (DMCA) and breach of contract, finding preclusion of certain of those claims based on the plaintiff’s earlier patent infringement suit. Media Rights Technologies, Inc. v. Microsoft Corporation, Case No. 17-16509 (9th Cir. May 2, 2019) (Gould, J).

In 2013, Media Rights Technologies (MRT) brought a patent infringement lawsuit against Microsoft claiming that Microsoft developed a similar piracy detection technology after learning critical information regarding the technology from MRT and its digital rights management product called the Controlled Data Pathway (CDP). MRT voluntarily dismissed the patent suit with prejudice when the court, in a separate proceeding, declared one of the CDP patents invalid.

One year later, MRT filed a different suit against Microsoft for copyright infringement, violation of the DMCA and breach of contract based on allegations of reverse engineering and copying by Microsoft when MRT discovered its CDP copyright watermark in a large number of Microsoft products. The district court dismissed MRT’s entire complaint, citing claim preclusion based on the same nucleus of facts and much of the same evidence in both the patent and copyright infringement suits, with both suits involving intellectual property rights in the CDP software. MRT appealed.

The Ninth Circuit explained that claim preclusion bars a party in successive litigation from pursuing claims that were raised, or could have been raised, in a prior action. Here the test reduced to whether MRT’s patent infringement suit (1) involved the same claim or cause of action as the copyright suit, (2) reached a final judgment on the merits, and (3) involved identical parties or privies. Only the first prong of the test was at issue in MRT’s appeal, as well as the accrual timing of the claims or causes of action at issue.

Citing the Ninth Circuit’s 2017 holding in Howard v. City of Coos Bay, MRT argued that its copyright claims did not accrue until after it filed the patent infringement lawsuit, as preclusion does not apply to claims that accrue after the filing of the first action at issue. The Court, however, clarified the meaning of “accrue” under Howard, explaining that preclusion will apply to claims that were in existence and legally cognizable at the time of the first action.

The Ninth Circuit barred the copyright infringement claims, the DMCA claim and the claims for breach of contract that arose from the sale of Microsoft software products and had accrued before or at the time of MRT’s patent infringement suit. The Court found that all of the claims could have arisen from the same events (namely, Microsoft’s alleged misappropriation of the CDP technology) and that MRT could have reasonably investigated and discovered Microsoft’s alleged copying of MRT’s software so as to give rise to a claim for copyright infringement at the time of the patent lawsuit. Moreover, the Court found that MRT’s copyrights protected MRT’s exclusive right to use and sell the embodiment of its copyright in the CDP software, a right that was at issue in the patent lawsuit.

Under the Copyright Act’s separate-accrual rule, however, successive acts of infringement are each actionable new wrongs. Therefore, the Ninth Circuit determined that at the time of the patent infringement lawsuit, MRT could not have sued for copyright infringement with respect to post-patent lawsuit sales of allegedly infringing Microsoft products. As such, claim preclusion did not bar MRT’s separate and independent copyright infringement claims for those later sales of the Microsoft software. The DMCA and breach of copyright claims remained precluded, however, as those causes of action did not benefit from the separate accrual rule. In the end, the Ninth Circuit affirmed in part and reversed and remanded in part, with only MRT’s post-patent lawsuit copyright infringement claims surviving claim preclusion.