The Federal Circuit recently issued two opinions concerning actions taken against customers in patent cases.  For any patent enforcement policy, these opinions must be considered to avoid pitfalls from pursuing customers.

Threats Against Customers As Basis for Antitrust Liability

In Hydril Co. LP, and Hydril U.K. Ltd. v. Grant Prideco LP and Grant Prideco, Inc., Case No. 06-1188 (Fed. Cir. Jan. 25, 2007), the defendants charged the patentee with antitrust violations for threatening the defendants’ customers with enforcement of a patent obtained by fraud.  The district court dismissed the antitrust claim for failure to state a claim under Fed. R. Civ. P. 12(b)(6).  The Federal Circuit reversed.

An element of an antitrust claim based on a patent obtained through fraud is a minimum level of enforcement activity by the patentee.  The Hydril case makes clear that enforcement sufficient to give rise to antitrust liability can be based on threatened enforcement directed to a defendant’s customers rather than the defendant itself.  More specifically, enforcement sufficient to create antitrust liability can be based on "[t]hreats of patent litigation against customers, based on a fraudulently-procured patent, with a reasonable likelihood that such threats will cause the customers to cease dealing with their supplier."  The Federal Circuit reasoned that "[w]ithout customers, a supplier has no business."  Thus, asserting a patent against customers instead of a supplier will not act as a defense to an antitrust claim.

Potential Bar to Patent Infringement Suits Against Customers

In Transclean Corp. v. Jiffy Lube International, Inc., Case No. 06-1077 (Fed. Cir. Jan. 18, 2007), the exclusive licensee of a patent sued various fast lube businesses for patent infringement based on use of a transmission fluid changing machine.  That machine was already the subject of a patent infringement action against the manufacturer for making and selling the machine.  The plaintiff won a damage award in the first action (against the manufacturer), although it claimed it never collected on the award.

In the second action (against the customers), the plaintiff charged the customers that used the machines with infringement and asserted that they were bound by the judgment of infringement in the first action because of claim preclusion based on alleged privity between the manufacturer and the customers.  The defendants in the second action argued that the second action in its entirety was barred by that same doctrine because the plaintiff could have sued the customers during the first action, but failed to do so.  The district court agreed and the Federal Circuit affirmed that portion of the decision.

In support of the plaintiff’s claim preclusion argument for infringement, it argued that the manufacturer sued in the first action was in privity with the customers sued in the second action.  Under the doctrine of judicial estoppel, the Federal Circuit bound the plaintiff to that contention of privity for claim preclusion as applied to the entire second action.  The Federal Circuit noted that a manufacturer or seller of a product would not ordinarily be in privity with an otherwise unrelated buyer and user of the product.

Thus, absent unusual circumstances, a patentee still retains the ability to pursue a manufacturer’s or supplier’s customers for infringement, separate from a suit against the manufacturer or supplier.  However, that ability is bound by the Supreme Court’s Birdsell v. Shaliol, 112 U.S. 485 (1884), decision and its progeny, which limit a patentee to a full single recovery for infringement.