In the recent case of Acumed, LLC v. Stryker Corp.,et al., (No. 2007-1115) (Fed. Cir., May 13, 2008) (“Acumed II”), the Federal Circuit addressed the meaning and application of language barring re-litigation of claims that “could have been brought” in a prior patent infringement case.

Detailed Commentary

Background

Plaintiff Acumed owned a patent for a nail used to fix proximal humeral fractures. Acumed sued Stryker Corp., alleging that Stryker’s T2 Proximal Humeral Nail (“T2 PHN”) infringed on Acumed’s patent. Acumed won that lawsuit, getting a judgment of infringement and willfulness which was affirmed on appeal. Acumed, LLC v. Stryker Corp., No. 04-CV-513 (D. Or. April 21, 2006) (“Acumed I”).

During the discovery phase of Acumed I, Acumed learned that Stryker had developed a longer version of the T2 PHN called the “T2 Long,” which Stryker began selling in the U.S. after the close of discovery. Acumed argued to the Acumed I district court that the T2 Long was “substantially similar” to the T2 PHN; the district court told Acumen that it could amend its complaint to add a claim for the T2 Long, but that would postpone the trial for up to a year. Uninterested in postponing the trial, Acumed decided to hold its claim on the T2 Long. Less than two weeks after it won the judgment against Stryker on the T2 PHN, Acumed filed a second lawsuit against Stryker on the T2 Long.

The district court dismissed Acumen’s second lawsuit against Stryker under Federal Rule of Civil Procedure 12(b)(6) on the grounds that Acumen’s T2 Long infringement claim was precluded by the judgment in Acumed I. Acumed appealed that dismissal to the Federal Circuit Court which, as explained below, reversed the district court and remanded the case for further proceedings. Acumed, LLC v. Stryker Corp., et al. (No. 2007-1115) (Fed. Cir., May 13, 2008) (“Acumed II”).

Because the devices are different, there is no claim preclusion

Under the doctrine of claim preclusion, “a judgment on the merits in a prior suit bars a second suit involving the same parties or their privies based on the same cause of action.” Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n.5 (1979). The Supreme Court has also explained:

The rule [of claim preclusion] provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.” Comm’r of Internal Revenue v. Sunnen, 333 U.S. 591, 597 (1948) (quoting Cromwell v. County of Sac, 94 U.S. 351, 352 (1876)).

Stryker acknowledged that the T2 Long had not been the subject of the prior litigation but it argued that even where a claim was not actually litigated in a prior action, that claim must be barred under the doctrine of claim preclusion upon a showing that the claim could have been litigated in the prior action.  In so arguing, Stryker cited to several Federal Circuit and Ninth Circuit cases in which the courts 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.

The Acumed court took the case as an opportunity to clarify the language “could have been” and, in doing so, it looked to the precedent of Foster v. Hallco Mfg Co. Inc., 947 F.2d 469 (Fed. Cir. 1991) for guidance as to when claim preclusion applies in a patent case. Applying the logic and reasoning of Foster, the Federal Circuit concluded that a claim for patent infringement can only be barred by claim preclusion if that claim arises from the same transactional facts as a prior action. Acumen II, slip op. p. 6 The Acumed II court further stated that “one of the essential transactional facts giving rise to a patent infringement claim is ‘the structure of the device or devices in issue.’” Acumed II, slip op. p. 6 (quoting Foster, 947 F.2d at 479). Accordingly, claim preclusion does not apply unless the devices in the two patent infringement cases are “essentially the same” – i.e. if the differences between them are merely “colorable” or “unrelated to the claims of the patent.” Id.

Applying this test, the Court then looked to Stryker’s own admissions set forth in its appellate brief, in which Stryker conceded, more than once, that the T2 PHN and the T2 Long were different and not “essentially the same” under a Foster analysis. Because Styker conceded that the devices were not the same, Acumen’s claims against T2 Long could not be barred by claim preclusion. Accordingly, the Court reversed the district court’s decision and remanded the case to district court for further proceedings.

Conclusion

Stryker was faced with a very difficult strategic decision in this case. If it were to admit that the T2 PHN and the T2 Long were “essentially the same” it would have opened itself up to further liability for infringement. However, in arguing that the devices were not the same, it removed application of the doctrine of collateral estoppel or claim preclusion and opened itself up to further litigation.

Perhaps one strategy which Stryker could have followed would have been to file a motion in the underlying proceeding seeking court permission to sell the modified nail as a non-infringing alternative.  If the district court had entertained the motion and made positive ruling then Stryker might have been successful on its claim preclusion defense.