WILLIAM J. MARTINEZ, District Judge.
In this lawsuit, Plaintiffs XY, LLC, Beckman Coulter, Inc., and Inguran, LLC (together, "XY") bring patent infringement claims, as well as certain non-patent claims, against defendant Trans Ova Genetics, LC ("Trans Ova"). Currently before the Court is Trans Ova's Motion to Dismiss Plaintiffs' Second Amended Complaint. (ECF No. 31.) Since this motion's filing, XY has filed two additional amended complaints, and the Fourth Amended Complaint (ECF No. 74) is the currently operative complaint. However, the parties filed a Joint Status Report stating that Trans Ova's motion may be decided as if directed at the Fourth Amended Complaint (see ECF No. 83), which the Court will refer to below simply as the "Complaint."
For the reasons stated below, the Court will grant Trans Ova's motion as to XY's Counts II and IV-XI, but will otherwise deny the motion. The upshot of this order is that this case will proceed on XY's Counts I, III, and XII.
Broadly speaking, this case centers around technology developed by XY that attempts to sort, and usually succeeds in sorting, non-human mammalian semen based on whether a sperm cell carries an X chromosome or a Y chromosome. Such "sexed semen" is useful in artificial insemination to ensure the gender of the offspring.
Trans Ova provides semen-sorting services through XY's technology. Many XY patents related to this technology, as well as a patent license agreement ("License Agreement") between XY and Trans Ova, were already litigated before the undersigned in XY, LLC v. Trans Ova Genetics, LC, Case No. 13-cv-876-WJM-NYW. The Court will refer to this as the "2012 Lawsuit" because, although it bears a — Case number, it was originally filed in 2012 in the Eastern District of Texas, and was later transferred here.
The 2012 Lawsuit was tried to a jury in January and February 2016, resulting in a verdict mostly in XY's favor. (See 2012 Lawsuit, ECF No. 461.) In particular, the jury found that XY had breached the parties' License Agreement sometime before April 2009, but that Trans Ova had also breached the Agreement before that date, and so the License Agreement terminated by then and deprived Trans Ova of its right to practice XY's patents. (Id. at 1-2.) The jury also found that XY's patents had been infringed, and that most of Trans Ova's defenses and counterclaims failed (including assertions of invalidity, and antitrust violations). (Id. at 3-9.) The lone defense with which the jury agreed was Trans Ova's assertion of unclean hands, thus barring any claims by XY for unjust enrichment or injunctive relief. (Id. at 9.) The jury ultimately awarded $4.585 million to XY as patent infringement damages and $1.481 million as contractual damages, but the latter sum was subsequently offset by $528,000 that the jury awarded to Trans Ova as contractual damages against XY. (Id. at 2, 9.)
On April 8, 2016, the Court entered an Order on Post-Trial Motions upholding the jury verdict (except as to ancillary matters not relevant here), denying enhanced damages and attorneys' fees to XY, awarding XY prejudgment interest, and also awarding XY an ongoing royalty in lieu of an injunction. (2012 Lawsuit, ECF No. 500.) XY subsequently filed a Rule 59(e) motion to amend the judgment, arguing that the ongoing royalty was set at an unlawfully low rate. (Id., ECF No. 505.) By order dated November 10, 2016, the Court denied that motion. (Id., ECF No. 555 at 1-6.)
The 2012 Lawsuit is now on appeal to the Federal Circuit. (Id., ECF Nos. 556, 557.)
On December 6, 2016—just short of four weeks after the Court's order on XY's motion to amend the judgment—XY filed a new lawsuit against Trans Ova in the Eastern District of Texas, which the Court will refer to as the "2016 Lawsuit." (ECF No. 1-1.)
(ECF No. 74 at 8-36.)
Trans Ova asserts—and XY nowhere denies—that this lawsuit is XY's second attempt to do what it failed to do in the 2012 Lawsuit, namely, shut down Trans Ova, thus eliminating a competitor. (ECF No. 31 at 2, 14-15; see also ECF No. 41 at 1-2, 3 n.3, 5, 8.) Trans Ova, however, makes no argument that such intentions are themselves the basis for dismissal. Rather, Trans Ova's Motion to Dismiss argues that the ongoing royalty this Court awarded in the 2012 Lawsuit equates to a perpetual license to practice all of XY's patents, including all of those asserted in this lawsuit. Trans Ova further argues that the causes of action asserted in Counts II-XI are barred by claim preclusion. The Court addresses these arguments in turn.
Trans Ova's first argument turns on language used by the Court in its Order on Post-Trial Motions in the 2012 Lawsuit. Specifically, when awarding an ongoing royalty, the Court ordered that "Trans Ova shall pay a rate of 12.5% of all gross receipts for the licensed products set forth in the parties' prior License Agreement, with an additional 2% royalty for reverse sorting services." (2012 Lawsuit, ECF No. 500 at 36, ¶ 4.) Trans Ova notes that "licensed products" under the License Agreement included "the Technology," which the License Agreement further defined to include all intellectual property that XY "now or hereafter, owns, controls, licenses, or has an interest in." (ECF No. 31 at 6-7 (internal quotation marks omitted; emphasis removed).) Thus, says Trans Ova, it "has a perpetual, paid-up license" to all of XY's intellectual property, including all of the patents and trade secrets at issue in this lawsuit. (Id. at 7.)
XY counters, correctly, that this consideration was never before the Court in the 2012 Lawsuit. Rather, the Court was resolving XY's motion specifically for an ongoing royalty relating to the 2012 Lawsuit's patents-in-suit. (ECF No. 39 at 2-3.) The Court never intended to grant, and never was informed (until now) that its language might be construed to grant, a perpetual license to all of XY's intellectual property, existing or yet to be acquired. Accordingly, the Court rejects this basis for dismissal of XY's new lawsuit.
Claim preclusion (res judicata) can apply to patent infringement causes of action, but the extent to which a prior suit precludes such a cause of action is a question "particular to patent law, [and therefore analyzed] under applicable Federal Circuit law," rather than regional circuit law. Hallco Mfg. Co. v. Foster, 256 F.3d 1290, 1294 (Fed. Cir. 2001).
"The general concept of claim preclusion is that when a final judgment is rendered on the merits, another action may not be maintained between the parties on the same `claim,' and defenses that were raised or could have been raised in that action are extinguished." Id. In approaching this analysis, the Federal Circuit has endorsed the "pragmatic," "transactional" Restatement approach:
Acumed LLC v. Stryker Corp., 525 F.3d 1319, 1324 (Fed. Cir. 2008) (quoting Restatement (Second) of Judgments § 24 (1982)) (ellipses as in original). That said, many Federal Circuit cases do not explicitly engage in a pragmatic evaluation, but instead focus on the similarities between the patents asserted in the earlier and later lawsuits; and the similarities between the devices or processes accused in the earlier and later lawsuits. See Senju Pharm. Co. v. Apotex Inc., 746 F.3d 1344, 1349 (Fed. Cir. 2014).
As for similarity of the accused devices, Trans Ova argues—and XY does not dispute—that this 2016 Lawsuit attacks "the same sex-selection technology" examined in the 2012 Lawsuit. (ECF No. 31 at 4.) Thus, the questions primarily argued in the parties' briefs are: (1) whether XY was fairly in a position to assert, in the 2012 Lawsuit, causes of action for infringement of the patents asserted in this lawsuit; and (2) whether the patent claims asserted in this lawsuit are the same (or "materially" the same, or in some other sense "the same") as those asserted in the 2012 Lawsuit. The Court finds that these two questions are, under the circumstances, analytically distinct, and so the Court will address them separately.
Trans Ova argues XY could have brought infringement claims in the 2012 Lawsuit based on the 422 Patent (Count V), the 265 Patent (Count IV), and the 116 Patent (Count II), because those patents issued before the 2012 Lawsuit began. (ECF No. 31 at 9.) Trans Ova further argues that XY could have brought an infringement claim in the 2012 Lawsuit based on the 769 Patent (Count VI) because, "although [it] issued after the case started, it could have been added by amendment (just as XY added [to the 2012 Lawsuit, through an unopposed motion to amend, a particular patent that] issued only three months earlier [than the 769 Patent])." (Id.)
XY, however, invokes the Federal Circuit's "general rule" set forth in Kearns v. General Motors Corp., 94 F.3d 1553 (Fed. Cir. 1996), which is supposedly that there can be there "no claim preclusion with regard to `patents that had not been included in the [prior] suit, were not before the [prior] court, and were not part of the [prior] judgment' because `[e]ach patent asserted raises an independent and distinct cause of action.'" (ECF No. 39 at 5-6 (quoting Kearns, 94 F.3d at 1555).) To the extent XY means to say that Kearns essentially obviates any "could have been brought" analysis, XY is incorrect. Kearns itself acknowledges the argument that "the causes of action should have been litigated together" is "[a] possible basis for barring the [later] suit." 94 F.3d at 1556.
XY also claims that "the Federal Circuit has cautioned against" could-have or should-have arguments, "noting that some cases have `used language that, standing alone, could be misread as providing that the application of claim preclusion turns solely on whether a claim could have been brought in an earlier action.'" (ECF No. 39 at 12 (quoting Acumed, 525 F.3d at 1325).) XY is correct that the Federal Circuit has steered courts away from any claim preclusion analysis that turns "solely" or "merely" on whether a cause of action could have been brought in a previous lawsuit. See Acumed, 525 F.3d at 1325-26. But XY is incorrect to characterize the Federal Circuit as "caution[ing] against" any could-have inquiry. Rather, Acumed makes clear that "could have been brought" is—except in certain circumstances described below (Part II.B.3)— a necessary but not sufficient condition for claim preclusion. In other words, if the new cause of action could not have been brought in the prior lawsuit, then claim preclusion usually fails, but the inverse is not always true. Once it has been established that the new cause of action could have been brought in the prior lawsuit, the application of claim preclusion turns on whether the new cause of action "arises from the same transactional facts as a prior action." Id. at 1326.
Accordingly, the Court must first answer the threshold question of whether XY could have sued for infringement of the 422, 265, 116, and/or 769 Patents in the 2012 Lawsuit. And the first step is to set forth the relevant events in chronological order:
Without question, in a basic literal sense, XY could have sued on at least the 422, 265, and 116 Patents in the 2012 Lawsuit because they preexisted that lawsuit. XY responds that
(ECF No. 39 at 14 (citation omitted).) Trans Ova does not challenge this assertion, but instead counters that "XY had ample time to conduct discovery and determine whether it had sufficient evidence to amend its complaint," and that "Trans Ova had already shown that it was amenable to amending the pleadings in order to avoid piecemeal litigation," referring to the unopposed amendment in November 2013. (ECF No. 41 at 6.) Trans Ova directs these same arguments at the 769 Patent, which issued after the case commenced. (See id.; see also ECF No. 31 at 9-11.)
In one decision, however, the Federal Circuit appears to have already rejected this sort of reasoning, even as to claims arising from the same nucleus of operative facts:
Gillig v. Nike, Inc., 602 F.3d 1354, 1363 (Fed. Cir. 2010). Taking this language at face value, it appears that if a party acquires a patent infringement cause of action during the course of litigation, the party need not attempt to add that cause of action to the ongoing litigation or risk claim preclusion—even if the new infringement claim arises from the same transactional facts that prompted the ongoing litigation.
Despite the seemingly unequivocal nature of this language, the Court is confident that the Federal Circuit did not intend to draw a non-rebuttable line on the date that a party files its lawsuit, particularly where a later lawsuit attacks the same product or process at issue in an earlier lawsuit—as is the case here. The Court reaches this conclusion for three reasons.
First, a hard, bright line would run contrary to the explicitly "pragmatic" Restatement approach endorsed by the Federal Circuit for decades. See, e.g., Acumed, 525 F.3d at 1324; Foster v. Hallco Mfg. Co., 947 F.2d 469, 478-79 (Fed. Cir. 1991); Young Eng'rs, Inc. v. U.S. Int'l Trade Comm'n, 721 F.2d 1305, 1314 (Fed. Cir. 1983).
Second, even the Federal Circuit itself has had difficulty remaining consistent with its language in Gillig. Specifically, the Federal Circuit later avoided the rule of Gillig, as derived from the Florida Power & Light decision that Gillig quoted, precisely because it found that Florida Power & Light was addressing claims arising from a different nucleus of operative facts. Aptus Co. v. United States, 189 F. App'x 946, 949 (Fed. Cir. 2006). In other words, Aptus appears to directly contradict Gillig's assertion that Florida Power & Light's outcome was independent of whether the allegedly precluded cause of action arose from a different nucleus of operative facts.
Third, if Gillig truly draws a bright line at the filing of the complaint, it raises serious policy concerns that the Court believes the Federal Circuit would not countenance if faced with them directly. No matter how "related in time, space, origin, or motivation"; no matter whether after-acquired claims would "form a convenient trial unit" with those already in the lawsuit; and no matter "the parties' expectations or business understanding or usage," a hard-and-fast rule that the filing of the original complaint ends the availability of claim preclusion could lead to significant, costly, and potentially unmanageable mischief. A plaintiff with, say, ten patents regarding the same subject matter
In this way, a plaintiff could bring multiple successive time-consuming, resource-draining attacks against the same defendant and the same product or process, simply by ensuring that it does not obtain a reasonable Rule 11 basis to sue on all of its potentially relevant patents at once. Especially when directed at a smaller competitor, it can readily be foreseen that such an approach could result in the wearing down of a patent defendant to the point of financial and legal exhaustion. This surely cannot be the result the Federal Circuit believes best achieves the fair and just administration and adjudication of the patent laws of the United States.
Worries such as the foregoing are particularly acute in the patent context because there exists no traditional statute of limitations for a patent infringement cause of action, nor is laches an available defense. See SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, 137 S.Ct. 954, 961 (2017). Rather, patent holders are constrained by 35 U.S.C. § 286, which establishes, among other things, that "no recovery shall be had for any [patent] infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action." Thus, there is no "discovery rule" that might put a patent holder on inquiry notice, causing an infringement claim to accrue and requiring that the patent holder file a lawsuit within a certain amount of time. See SCA Hygiene, 137 S. Ct. at 962. By waiting to file a lawsuit, the patent holder sacrifices only the damages that fall outside of the six-year lookback period.
Given all this, the Court holds that after-acquired claims, at least when they address the same, or substantially the same, subject matter as previously filed claims and when directed at a previously accused product or process, may be subject to claim preclusion under the Restatement's pragmatic approach endorsed by the Federal Circuit.
Here, the various Restatement considerations lean heavily toward treating XY's infringement claims based on the 422, 265, and 116 Patents as part of the same transaction that prompted the 2012 Lawsuit. In particular, these causes of action are related in time, origin, and motivation as the patents asserted in the 2012 Lawsuit, and they certainly would have been part of a convenient trial unit. As for the 769 Patent, which issued after the 2012 Lawsuit started, the Court agrees under the circumstances that XY had a duty to move to amend (as it had already moved to amend to add an after-acquired claim) given that it would be accusing the same Trans Ova products and processes, and that the 769 Patent was a continuation of a patent already in suit. See 769 Patent, col. 1, ll. 6-16 (announcing that the patent is a continuation of U.S. Patent Nos. 7,771,921 and 7,713,687; both of these patents were litigated in the 2012 Lawsuit).
For these reasons, Trans Ova's Motion to Dismiss will be granted as to XY's Counts II, IV, V, and VI.
There is another approach to claim preclusion that could apply even to patent infringement causes of action that could never have been brought during a previous lawsuit because the patent issued too late to be added to the case. Before explaining this approach, the Court emphasizes a problem of terminology. Generally in American litigation, "claim" is a one-word substitute for the more precise term "cause of action." This is what "claim" means in the context of "claim preclusion"—it is a doctrine that can preclude a cause of action because that cause of action should have been asserted in an earlier lawsuit. However, in the patent context, "claim" often has a technical meaning, referring to the enumerated paragraphs at the end of a published patent that describe and define the invention, typically preceded by the phrase "we claim" or "what is claimed is." In truth, it is these sorts of claims that can be infringed, and not usually an entire patent (unless the defendant happens to infringe every claim within the patent). In this Part II.B.3, the Court uses the term "patent claim" to refer to the technical meaning of "claim" under patent law.
Claim preclusion can bar an infringement cause of action if the patent claims allegedly infringed in the earlier and later lawsuits are "not materially different." Aspex Eyewear, Inc. v. Marchon Eyewear, Inc., 672 F.3d 1335, 1341 (Fed. Cir. 2012). In such a situation, the later-asserted patent claims "do not create a new cause of action that was not previously available." Id.
Trans Ova argues that the 822 Patent, which issued after judgment entered, is "materially indistinguishable from those already litigated [in the 2012 Lawsuit]." (ECF No. 31 at 11.) Trans Ova specifically refers to U.S. Patent No. 7,771,920 ("920 Patent"). (See 2012 Lawsuit, ECF No. 113 ¶¶ 61-65.) Claim 1 of the 920 Patent reads as follows:
Claim 11 of the 822 Patent,
Trans Ova asserts that the only true difference between these patent claims is found in limitation "d" of the 920 Patent, which specifies "a rate of at least about 1200 sorts per second"; but, says Trans Ova, "determination of sort speed was conventional in the art" and is therefore "immaterial and fails to patentably distinguish the inventions." (ECF No. 31 at 13.) XY responds that there are actually two differences worth considering:
(ECF No. 39 at 11.) Trans Ova replies that neither of these distinctions is material. (ECF No. 41 at 8-9.)
The record before the Court does not permit it to make a ruling at this stage whether the 822 Patent materially differs from the 920 Patent. Accordingly, Trans Ova's claim preclusion challenge to XY's Count III is denied without prejudice to Trans Ova reasserting this argument at a later stage of the case (presumably through a summary judgment motion).
Trans Ova makes no preclusion argument against XY's 590 Patent (Count I) or the 559 Patent (Count XII). Accordingly, Counts I and XII remain for adjudication on the merits.
XY's Counts VII-XI all focus on Trans Ova's alleged theft of certain XY trade secrets. Specifically, during the 2012 Lawsuit, XY learned that Trans Ova had "hired a former XY employee named Todd Cox, first as a consultant and later as an employee, to obtain non-sperm sorting flow cytometers and convert them into MoFlo SX sperm sorting flow cytometers using XY trade secret information." (ECF No. 74 ¶ 14.) Cox began teaching this process of conversion to Trans Ova employees "[a]fter April, 2009." (Id. ¶ 18.) XY therefore asserts claims for trade secret misappropriation, unfair competition, quantum meruit, and unjust enrichment. (Id. at 25-34.)
Trans Ova challenges these claims as precluded by attaching the transcript of Cox's deposition, taken as part of the 2012 Lawsuit on April 9, 2014, in which Cox admits having learned the MoFlo SX conversion process from XY and having taught it to Trans Ova. (ECF No. 31-10.)
Because the causes of action asserted in Counts VII-XI are not patent-specific, regional circuit law applies. See, e.g., Elecs. for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1348 (Fed. Cir. 2003) (trade secret misappropriation claims "do not present questions that are intimately involved with the substance of the patent laws"; applying regional circuit law to the question of whether there was personal jurisdiction for a trade secret misappropriation claim). In the Tenth Circuit
Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 847 F.3d 1221, 1244-45 (10th Cir. 2017) (citations and internal quotation marks omitted; alterations incorporated; emphasis in original). The Tenth Circuit (like the Federal Circuit) endorses the Restatement approach of determining the scope of the prior transaction "pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage." Petromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d 1329, 1335 (10th Cir. 1988) (quoting Restatement (Second) of Judgments § 24) (internal quotation marks omitted).
XY asserts that its trade-secret-related claims in this 2016 Lawsuit arise from "a different nucleus of operative facts." (ECF No. 39 at 15.) XY notes that the 2012 Lawsuit centered around the parties' License Agreement, its expiration, and the effect of that expiration both from a contractual and patent-infringement standpoint. (Id.) XY says that this 2016 Lawsuit is different because "Trans Ova did not obtain or use the misappropriated trade secrets from XY under the License—it obtained and used the knowledge from a third party after the License expired." (Id.)
These distinctions do not address the proper considerations under the transactional approach. One of XY's main arguments in the 2012 Lawsuit (which the jury accepted) was that the License Agreement expired in April 2009—the very same month "[a]fter" which Cox allegedly began teaching the MoFlo SX conversion process to Trans Ova. It is difficult to see how these events were not related in "time, space, origin, or motivation." Petromanagement, 835 F.2d at 1335. Moreover, they certainly would have formed "a convenient trial unit." Id. Accordingly, the Court finds that Counts VII-XI in this 2016 Lawsuit arose from the same transaction that prompted the 2012 Lawsuit. Because XY failed to seek to amend in the 2012 Lawsuit to add the claims described in Counts VII-XI, those claims are now precluded and will be dismissed. Lenox, 847 F.3d at 1244-45.
For the reasons set forth above the Court ORDERS as follows: