Soverain Software LLC v. Victoria’s Secret Direct Brand Management, LLC

Clarifying the application of issue preclusion in the context of patent invalidity, the U.S. Court of Appeals for the Federal Circuit explained that its prior judgment of obviousness applies to all subsequent parties, even if neither party asked the court to find the patent obvious in the prior appeal. Soverain Software LLC v. Victoria’s Secret Direct Brand Management, LLC, Case No. 12-1649; -1650 (Fed. Cir., Feb. 12, 2015) (Dyk, J).

Plaintiff Soverain filed lawsuits against two groups of defendants.  In the first lawsuit, Soverain obtained a judgment that defendant Newegg infringed the asserted patents and that those patents were not invalid.  Newegg appealed the judgment to the Federal Circuit.  While the Newegg appeal was pending, Soverain prevailed against a second group of defendants, with the jury returning the same verdict against Defendants Victoria’s Secret Direct Brand Management and Avon Products.  A short time later, the Federal Circuit issued a ruling in the Newegg appeal, reversing the district court and holding that the Soverain patents were invalid as obvious.  For the subsequent defendants, the question became whether the Federal Circuit ruling in Newegg appeal should extend to their own appeal by way of collateral estoppel or issue preclusion.

Although Soverain conceded that issue preclusion would typically apply to any subsequent party, Soverain argued that it was not provided a full and fair opportunity to litigate the obviousness issue and so it should not be subject to issue preclusion.  In response to the unique argument raised by Soverain, the Federal Circuit went back and analyzed the specific arguments made during the Newegg appeal.  In Newegg, the district court granted Soverain’s motion for JMOL non-obviousness, so the jury did not opine on that issue.  Although Newegg raised the obviousness issue in its post-trial filings at the district court level, on appeal Newegg argued only that the district court erred by granting Soverain’s motion of non-obviousness and denying Newegg’s request for a new trial.  The Federal Circuit, however, did not limit itself to Newegg’s explicitly requested relief, but addressed the obviousness issue directly.  In finding the asserted patents obvious, the Federal Circuit concluded that Soverain’s arguments in support of non-obviousness relied on features that were either “not embodied in the claims” or “related to incorporation of known internet technology.” 

Applying its holding to the subsequent appeal, the Federal Circuit explained that “once the claims of a patent are held invalid in a suit involving one alleged infringer, an unrelated party who is sued for infringement of those claims may reap the benefit of the invalidity decision under principles of collateral estoppel.”  In dismissing Soverain’s argument with respect to issue preclusion, the Federal Circuit noted that “Soverain does not argue that it was deprived of crucial evidence or witnesses in the first litigation or that it would present additional evidence at a new trial. Nor is there any contention that Soverain did not have a full and fair opportunity to litigate the question of obviousness at the district court.”  The fact that Soverain “might have argued differently” on appeal does not suggest that Soverain was not offered “a full and fair opportunity to litigate” and thus does not preclude the application of issue preclusion.

Soverain also argued that issue preclusion should at least not apply to one specific claim, because that claim includes an additional limitation that was not previously found obvious.  But the Federal Circuit was again unpersuaded, explaining that “[c]omplete identity of claims is not required to satisfy the identity-of-issues requirement for claim preclusion. If the differences between the unadjudicated patent claims and adjudicated patent claims do not materially alter the question of invalidity, collateral estoppel applies.”  For those reasons, the Federal Circuit reversed the judgment of infringement and no invalidity.