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No Remix: Copyright Act Preempts Right of Publicity Claim

The US Court of Appeals for the Second Circuit found that the federal Copyright Act preempts a state right of publicity claim when the latter is merely “a thinly disguised effort to exert control over an unauthorized [use of a copyrighted] work.” Jackson v. Roberts, Case No. 19-480 (2d Cir. Aug. 19, 2020) (Leval, J.).

Both parties in this case are famous hip-hop artists more commonly known by their stage names: the plaintiff, Curtis James Jackson III, is known as 50 Cent, and the defendant, William Leonard Roberts II, is known as Rick Ross. In 2015, Roberts released a free mix tape that included samples from many famous songs, including Jackson’s hit “In Da Club.” The mix tape track at issue was titled “In Da Club (Ft. 50 Cent)” and included Rick Ross rapping over the “In Da Club” instrumentals, a 30-second sample of 50 Cent singing the “In Da Club” refrain, and multiple references to Rick Ross’s upcoming album.

Jackson sued Roberts, claiming that the unauthorized use of his name and voice violated his right of publicity under Connecticut common law. Pursuant to a recording agreement with his former record label, Shady Records/Aftermath Records, Jackson did not own a copyright interest in the “In Da Club” recording and therefore could not sue for copyright infringement. The district court granted Roberts’s motion for summary judgment, finding that Jackson had surrendered his publicity rights via the recording agreement and that the right of publicity claim was preempted. Jackson appealed.

The Second Circuit agreed that federal law preempted the right of publicity claim, but for different reasons than the district court: the Second Circuit found the state claim preempted under the doctrine of implied preemption or, alternatively, statutory preemption. The Court explained that “generally . . . implied preemption precludes the application of state laws to the extent that those laws interfere with or frustrate the functioning of the regime created by the Copyright Act. Statutory preemption preempts state law claims to the extent that they assert rights equivalent to those protected by the Copyright Act, in works of authorship within the subject matter of federal copyright.”

The Second Circuit used a two-part test to determine whether the state law claim was subject to implied preemption, asking (1) whether the state right of publicity claim asserted a sufficiently substantial state interest, distinct from those interests underlying federal copyright law, and (2) whether the state law claim would potentially conflict with rights established by the Copyright Act. Given that Roberts did not use Jackson’s name or persona to falsely imply Jackson’s endorsement of Roberts’ music, nor did Roberts invade Jackson’s privacy or use his persona in a derogatory nature, the Court reasoned that Jackson was not seeking to vindicate any distinct and substantial state interest. Likewise, the Court held that the second element was satisfied because Jackson’s right of publicity suit had the potential to interfere with the copyright holder’s exclusive control of its rights: “Jackson’s attempt to [control the use of the [...]

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Texas Appellate Court Clarifies Scope of Remand

The Texas Fourth Court of Appeals found that a new trial on misappropriation and fraud claims must include a non-appealed breach of contract claim arising from the same set of facts. Title Source, Inc. v. HouseCanary, Inc., Case No. 04-19-00044-CV (Tex. App. – San Antonio Aug. 26, 2020) (Watkins, J.).

On June 3, 2020, the Texas Fourth Court of Appeals issued an opinion remanding HouseCanary’s Texas Uniform Trade Secrets Act and common-law fraud claims for a new trial because the jury instructions permitted the jury to consider both permissible and impermissible theories of recovery. (IP Update, June 18, 2020). Acting on Title Source’s motion for rehearing, the Court issued a substitute opinion with additional language clarifying the scope of the remand and making clear that HouseCanary may elect to recover on its non-appealed breach of contract claim and forego recovery (along with the new trial) on its misappropriation and fraud claims. To the extent HouseCanary sought to recover on its misappropriation and fraud claims, however, the Court held that the breach of contract claim must also be within the scope of the new trial because it arises from the same facts, and failing to include it would therefore create a risk of inconsistent verdicts.




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No Bite on Parties’ Unenforceable Agreement to Agree to Sell Apple Trees

The US Court of Appeals for the Federal Circuit affirmed a grant of summary judgment, finding that the option provision in the parties’ contract was an unenforceable agreement to agree. Phytelligence, Inc. v. Wash. State Univ., Case No. 2019-2216 (Fed. Cir. Aug. 27, 2020) (Reyna, J.).

Phytelligence is an agricultural biotechnology company that used tissue culture to grow trees for sale to nurseries and growers. In 2012, Phytelligence and Washington State University (WSU) began discussing an arrangement to grow WA 38 apple trees, a new apple cultivar that WSU developed and patented. The parties executed a propagation agreement, which included a provision that granted Phytelligence an option to participate as a provider and/or seller. If WSU’s cultivar became available for licensing, Phytelligence would need to sign a separate contract with WSU or WSU’s agent to exercise the option to become a provider and/or seller.

WSU eventually began requesting proposals from companies interested in commercializing WA 38. Phytelligence did not submit a proposal. In 2014, WSU accepted a proposal from Proprietary Variety Management (PVM) and entered into a management contract granting PVM an exclusive license to propagate and sell WA 38. Three years after WSU entered into this management contract, Phytelligence notified WSU that it wanted to exercise its option to participate as a provider and/or seller under the propagation agreement. WSU responded that under the propagation agreement, Phytelligence had to sign a separate contract with WSU to exercise the option and directed Phytelligence to PVM. Phytelligence rejected all of PVM and WSU’s options for selling WA 38, and the agreement between the parties was terminated.

Phytelligence sued WSU, alleging breach of the propagation agreement and seeking damages and specific performance. WSU moved for summary judgment, arguing that the option provision of the propagation agreement was an unenforceable “agreement to agree.” The district court agreed and granted WSU’s motion. Phytelligence appealed.

The Federal Circuit affirmed the dismissal. The Court stated that an agreement to agree was an agreement to do something that requires a further meeting of the minds, and without such a meeting, the agreement would not be complete. The Court found that an agreement to agree is unenforceable because courts are unable to fix the liability of parties based on agreements that are too indefinite and uncertain. Turning to the agreement between Phytelligence and WSU, the Court explained that the plain language of the propagation agreement required the parties to sign a separate contract to exercise the option, thus rendering the provision an unenforceable agreement to agree. The Court also rejected Phytelligence’s argument that the extrinsic evidence supported its theory that the option was an enforceable contract with open terms. The Court instead found that the communications between the parties revealed that WSU did not commit to any definite terms for a future license with Phytelligence.




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Structural Limitations Are Not Met by Imaginary Demarcation Lines

The US Court of Appeals for the Federal Circuit affirmed a district court’s claim construction of the term “end plate” that required a flat external surface, and its construction of the term “protrusion extending outwardly from the end plate” that required a demarcation between the protrusion and end plate. The Federal Circuit therefore prohibited an infringement theory premised on an end plate being inside the accused product and a protrusion that was not demarcated from the end plate. Neville v. Foundation Constructors, Inc., Case No. 20-1132 (Fed. Cir. Aug. 27, 2020) (Chen, J.).

Neville owns patents directed to foundation piles, which are tubular structures placed into the ground to provide stability for the foundations built over them. One set of claims requires an “end plate having a substantially flat surface disposed perpendicular to the centerline of the tubular pile.” Another set of claims requires “at least one protrusion extending outwardly from the end plate.”

Neville filed a lawsuit alleging that Foundation Constructors’ pile tips infringed the patents. The district court granted summary judgment of non-infringement, reasoning that the plain meaning of “end plate having a substantially flat surface” did not encompass “an interior surface facing into the rest of the pile tip.” Examining the intrinsic record, the district court concluded that “the patent applicant intended the ‘substantially flat surface’ of the end plate to refer to the side of the end plate facing outward.” The court found that the accused products did not have such an “end plate.” As to claims requiring a protrusion extending outwardly from the end plate, the court reasoned that “[b]ecause the end piece of the accused pile tip is a single, conically-shaped piece, there is not a demarcation of where an ‘end plate’ should end and the ‘protrusion’ should begin,” and non-infringement was therefore appropriate. Neville appealed.

Neville argued that the district court’s ruling of non-infringement was based on an incorrect claim construction and should therefore be overturned. The Federal Circuit rejected Neville’s arguments and affirmed summary judgment.

The Federal Circuit agreed with the district court that the phrase “substantially flat surface disposed perpendicular to the centerline of the tubular pile” did not refer to any interior-facing surface. Starting with the language of the claim, the Court found that the word “end” suggested that the relevant surface of the end plate is the external one at the second end of the pile tip. The Court found that the specification reinforced the view that the invention was directed to the exterior surface of the end plate as being “substantially flat,” and through this end plate the pile tip applies force to the underlying soil. Neville argued that the specification implicitly taught that an end plate having a substantially flat surface perpendicular to the tubular pile could be fully interior to another portion of the pile tip because the specification disclosed that the pile tip, including the end plate, “could be cast as a single unit.” The Court rejected Neville’s argument, finding that under Neville’s logic, the [...]

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Not Your Grandfather’s Internet Royalties? DMCA Favorable Rates Might Apply to Internet Offerings

Reversing the Copyright Royalty Board’s determination that a favorable grandfathered royalty rate did not apply to internet streaming audio transmissions, the US Court of Appeals for the District of Columbia Circuit concluded that internet transmissions are not categorically excluded from the definition of “service” in the Digital Millennium Copyright Act of 1998 (DMCA). Music Choice v. Copyright Royalty Bd., Case No. 19-1011 (DC Cir. Aug. 18, 2020) (Rao, J.).

In the late 1990s, Music Choice, a company best known for its cable television genre-specific music channels, also offered some digital audio transmissions over the internet. These audio transmissions—and their alleged continuation through today—are the subject of this case.

Seeking to establish a new regime governing royalties for digital music services, Congress required in the DMCA that service providers pay copyright holders a market-based rate for playing digital music, but set a generally lower “reasonable rate” for certain preexisting subscription services. A preexisting subscription service—i.e., a service offering digital audio subscriptions for a fee before July 31, 1998—was entitled to the lower rate for its subscription transmissions “made in the same transmission medium used by such service on July 31, 1998.” The question here was whether those transmissions could be made over the internet.

In 2016, the Royalty Board held proceedings to set the preexisting royalty rates for 2018 to 2022, during which it referred the legal question of whether Music Choice’s internet transmissions qualified for the grandfathered rates to the Copyright Register. The Register concluded that, based on the DMCA’s legislative history, the grandfathered rates were intended to apply only to cable and satellite offerings. Accordingly, when the Royalty Board set rates for Music Choice’s offerings, it excluded its internet transmissions from the more favorable grandfathered rate.

Music Choice appealed, and the DC Circuit reversed the Royalty Board. The Court found nothing in the DMCA that required that the definition of “service” categorically exclude internet transmissions. As long as the entity existed as of July 31, 1998 (as Music Choice undisputedly did), internet transmissions could be eligible for the grandfathered rate so long as such transmissions were in the medium in existence on that date. The Court found that nothing in the clear and broad statutory definition of “transmission medium” excluded internet transmissions. The Court also concluded that the structure of the DMCA supported such a conclusion, because in other places it distinguished between particular types of transmissions, whereas in the grandfathered copyright rate at issue, the statute used language capturing all types of transmissions available before the key date.

Having concluded that the Royalty Board wrongly excluded internet transmissions per se, the DC Circuit remanded to the Board to consider “the extent to which Music Choice’s current internet offerings can be fairly characterized as included in the service offering Music Choice provided on July 31, 1998.”

Practice Note: It remains to be seen how narrowly the Royalty Board will define the service offered by Music Choice as of July 31, 1998. Regardless of what the Board finds, this case [...]

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Use of Infringing Product, Misappropriated Trade Secrets May Continue—for a Licensing Fee

The US Court of Appeals for the Sixth Circuit affirmed a district court’s stay of a permanent injunction against copyright infringement and trade secret misappropriation, permitting the infringer to continue use of an infringing product and misappropriated trade secrets but requiring the infringer to pay a licensing fee. ECIMOS, LLC v. Carrier Corp., Case Nos. 19-5436, -5519 (6th Cir. Aug. 21, 2020) (Boggs, J.).

Carrier sold HVAC systems. ECIMOS designed and sold a quality-control-testing system that assessed each HVAC unit at the end of Carrier’s assembly line. ECIMOS’s system consisted of a software program, associated hardware and a database that stored results of runtests performed by the system. Carrier paid ECIMOS to maintain and periodically upgrade its software system. ECIMOS licensed Carrier to use the system but prohibited unauthorized copying, distributing or creating derivative works based in whole or in part on the software.

Years into the relationship, ECIMOS upgraded its software to run on a new operating system. ECIMOS expected Carrier to agree to the proposed upgrade just as it had done previously. Unbeknownst to ECIMOS and without its consent, Carrier had already installed ECIMOS’s software directly onto the new operating system. Carrier started a venture with a third party, Amtec, to develop a new quality-control software and storage database to replace the ECIMOS system.

ECIMOS sued Carrier for violating the copyright on the ECIMOS system’s database, breaching the parties’ software-licensing agreement and misappropriating ECIMOS’s trade secrets. At trial, ECIMOS alleged that Carrier improperly shared ECIMOS’s copyrights and trade secrets with Amtec, allowing Amtec to develop a competing system. The jury agreed, finding that the competing system incorporated ECIMOS’s trade secrets. The jury determined that Carrier infringed the copyright on ECIMOS’s runtest database script source code, that ECIMOS held a trade secret in its software source code and its assembled hardware drawings and wiring diagrams, and that Carrier misappropriated those trade secrets by sharing them with Amtec. The jury awarded ECIMOS copyright and contract damages.

The district court also imposed a permanent injunction against Carrier’s use of the infringing Amtec database, but stayed the injunction until Carrier developed a noninfringing database. The court also enjoined Carrier from further disclosure of ECIMOS’s trade secrets, but did not enjoin Carrier from using those trade secrets. To the contrary, the district court appointed a special master to supervise the redesign and permitted Carrier to continue using the infringing database that incorporated ECIMOS’s trade secrets until the redesigned system was complete. The district court further required Carrier to pay ECIMOS the licensing fees that ECIMOS would have charged in the course of an ongoing, mutually agreeable licensing relationship. ECIMOS objected to the stay and appealed.

ECIMOS argued that the stay was an abuse of discretion, that the injunction should have prohibited Carrier from using (not just disclosing) ECIMOS’s trade secrets, and that the injunction should have prohibited Carrier’s disclosure and use of ECIMOS’s assembled hardware, not just the hardware drawings and wiring diagrams. The Sixth Circuit disagreed, affirming in full the district court’s [...]

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Epic Punitive Damages Award Violates Due Process

Addressing the appropriateness of three separate damages awards totaling $520 million, the US Court of Appeals for the Seventh Circuit affirmed the lower court’s award of $140 million in compensatory damages, but found that $280 million in punitive damages does not meet the Due Process Clause of the Fourteenth Amendment. Epic Systems Corp. v. Tata Consultancy Services Ltd., Case Nos. 19-1528, 19-1613 (Aug. 20, 2020) (Kanne, J.).

Epic Systems is a leading developer of electronic health record software, which it licenses to top hospitals in the United States. Each customer-licensed module is specific to the customer’s needs and can be customized to ensure proper integration with the customer’s systems. In order to facilitate customization and updates to the software, Epic provides a web portal called “UserWeb,” which provides access to various resources including administrative guides, training materials, software updates and forums. UserWeb also contains confidential information about the health-record software itself, and as such, Epic restricts access to the UserWeb portal via credentialed logins. Those with access are also required to keep all UserWeb information confidential.

In 2003, Kaiser Permanente—the largest managed healthcare organization in the United States—obtained a license to use Epic’s software. Due to the size and complexity of integrating and maintaining the software, Kaiser hired Tata Consultancy Services (TCS) to help with updates and integration. TCS has its own electronic health record software, Med Mantra, which was known to Epic. Accordingly, Kaiser imposed numerous rules for TCS to follow in order to maintain the confidentiality of Epic’s software. TCS employees claimed that they could perform their required tasks faster if they had full access to UserWeb, which Kaiser repeatedly asked Epic to grant to TCS. Epic repeatedly declined this request.

Undeterred, TCS was able to find another way into Epic’s UserWeb. TCS hired an employee who had full access to UserWeb, which he gained from working for a different organization that also helped manage Kaiser’s integration of Epic’s software. While in his previous position, the employee had falsely claimed to be a Kaiser employee, thus allowing him full access to UserWeb. The employee shared these credentials with numerous TCS employees, who then had unfettered access to UserWeb, which contained confidential information relating to Epic’s healthcare software.

TCS used this information to generate a “comparative analysis” document, an 11-page spreadsheet that compares TCS’s software, Med Mantra, to Epic’s software. TCS wanted to sell Med Mantra directly to Kaiser, and the first step was to be sure that “key gaps” in the Med Mantra software were addressed before the attempted sale. After viewing a presentation that included the comparative analysis document, one TCS employee alerted Kaiser and Epic to the existence of the document and the fact that TCS had gained access to UserWeb.

A few months later, Epic filed suit against TCS, alleging that TCS used fraudulent means to access and steal Epic’s trade secrets and other confidential information. After a trial, the jury returned a verdict in favor of Epic on all claims. During the damages trial, [...]

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No Refunds: Cancellation of Patent Claims in IPR Isn’t a Taking

The US Court of Appeals for the Federal Circuit found that cancellation of a patent in an inter partes review (IPR) proceeding is not a taking and does not grant the patentee any compensable claim against the United States. Christy, Inc. v. United States, Case No. 19-1738 (Fed. Cir. Aug. 24, 2020) (Hughes, J.).

After Christy sued two competitors for infringement of a patent directed to a vacuum, one of the competitors filed petitions for IPR. The Patent Trial and Appeal Board (PTAB) instituted the IPRs and ultimately found a majority of the patent claims unpatentable. Christy appealed to the Federal Circuit, which affirmed the PTAB’s invalidity decision.

Christy then filed a class action suit in the US Court of Federal Claims to recover from the government the issuance and maintenance fees Christy had paid for the patent, investments Christy had made in the patented technologies, attorneys’ fees from defending the IPR proceedings, the value of the patent claims, royalties and other payments for use of the patents. The government moved to dismiss all six claims for lack of subject matter jurisdiction and failure to state a claim. The court partially granted the motion to dismiss, but found that it had jurisdiction to consider Christy’s Fifth Amendment takings claim. The court found that Christy did not state a claim for relief on the merits, and reasoned that the cancellation of claims in an IPR did not amount to a compensable taking of Christy’s property interest. The court held that it did not have jurisdiction to consider Christy’s alternative illegal exaction claim, since a statute granting authority to the US Patent and Trademark Office (PTO) to refund mistakenly excessive patent-related fees displaced the court’s Tucker Act jurisdiction. In any case, the court found that on the merits, Christy’s issuance and maintenance fees were properly owed at the time they were paid, and were not paid by mistake. The government did not require Christy to pay any alleged damages on the government’s behalf, or at all, and so Christy’s theory that damages were illegally exacted was found “devoid of merit.” Christy appealed.

On appeal, Christy argued that the claims court erred in finding 1) that Christy failed to state a compensable taking claim based on the cancellation of patent claims, 2) that the claims court lacked subject matter jurisdiction over the illegal exaction claim, and 3) that Christy failed to state a plausible illegal exaction claim. The Federal Circuit disagreed, affirming the claims court and reiterating its finding in Golden v. United States that the AIA did not displace Tucker Act jurisdiction over IPR-based takings claims, and that cancellation of patent claims in an IPR cannot be a taking under the Fifth Amendment. Thus, the Court found that the claims court correctly found that it had jurisdiction over Christy’s takings claim, but that such cancellation was not a taking.

The Federal Circuit next considered Christy’s illegal exaction claim. Illegal exaction occurs when money is “improperly paid, exacted, or taken from the claimant [...]

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Federal Circuit Has Jurisdiction over Constitutional Questions in AIA Appeals

Addressing for the first time whether a district court has jurisdiction to hear constitutional challenges to the Patent Trial and Appeal Board’s (Board) final written decisions in an inter partes review (IPR) proceeding, the US Court of Appeals for the Federal Circuit found that the Federal Circuit has jurisdiction over AIA appeals, including constitutional questions. Security People, Inc. v. Iancu, Case No. 2019-2118 (Fed. Cir. Aug. 20, 2020) (Hughes, J.).

Security People’s patent was challenged in an IPR, and the Board issued a final written decision invalidating all challenged claims. Security People appealed the Board’s decision to the Federal Circuit, which affirmed. The Supreme Court then denied Security People’s petition for certiorari. After the Supreme Court denied certiorari, Security People filed a lawsuit in the Northern District of California, challenging the Board’s final written decision as unconstitutional. The district court dismissed Security People’s claim because it lacked subject matter jurisdiction, citing the America Invents Act’s (AIA) provision giving the Federal Circuit jurisdiction over appeals from Board decisions in IPRs. Security People appealed.

Security People argued that because the Board lacks authority to consider constitutional claims, only a district court can hear factual issues underlying a constitutional challenge. Security People also argued that its constitutional challenge was not ripe until the Federal Circuit finally resolved the Board’s decision, and that it had to exhaust its claims on the merits before raising its constitutional claims.

The Federal Circuit disagreed. The Court found that in the rare instances where fact finding would be necessary for resolving a constitutional challenge, the Federal Circuit had authority to decide those factual issues through judicial notice. The Court explained that “finality” of the agency’s decision did not require the merits appeals to fully conclude before addressing constitutional issues, because the Board’s decision-making is complete when it issues a final written decision. In short, Security People was required to bring its constitutional challenge at the same time it challenged merits of the Board’s decision. The Court found its reasoning supported by the text, structure and history of the AIA, which gave the Federal Circuit wide authority to review Board decisions without any exception for constitutional challenges. The Court also reasoned that the Administrative Procedures Act’s (APA) general authorization to review agency action in the district courts does not override the specific framework in the AIA providing judicial review to the Federal Circuit. Indeed, there is no need to look to the APA’s general authorization in this regard, because the Federal Circuit is an adequate forum to resolve any issues challenged with respect to the Board’s final written decisions.




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Res Judicata on Procedural Grounds Precludes Similar Claims Arising After Prior Judgment

The US Court of Appeals for the Federal Circuit affirmed a district court decision that res judicata can apply to dismissals on procedural grounds and to claims arising after a prior judgment. Sowinski v. California Air Resources Board, Case No. 19-1558 (Fed. Cir. Aug. 21, 2020) (Newman, J.)

Richard Sowinski is the inventor of a patent directed to an “electronic method and apparatus for validating and trading consumer pollution-control tax credits.” In a first set of lawsuits starting in 2015, Sowinski sued the California Air Resources Board (CARB) in state court, alleging infringement by CARB’s Cap-and-Trade Program. CARB removed the case to district court and filed several motions to dismiss. The district court dismissed the complaint after Sowinski failed to respond to these motions before the deadline. The dismissal was upheld on appeal.

As part of a second round of lawsuits starting in 2018, Sowinski filed a complaint in federal court that was “substantially identical” to the 2015 case, except the 2018 complaint sought infringement damages arising after the 2015 case decision. CARB moved to dismiss, arguing that the claim was barred based on the doctrine of res judicata, which prevents a civil claim from being tried if it arises out of the “same transaction or common nucleus of operative facts” of a prior case where the merits were adjudicated. The district court agreed and granted CARB’s motion to dismiss. Sowinski appealed.

Sowinski argued that res judicata did not apply to his case because the prior suit was resolved on procedural grounds, not the merits of infringement, and because the current complaint sought infringement damages occurring after the conclusion of his last lawsuit. For res judicata on what Sowinski called a “technicality,” the Federal Circuit applied Ninth Circuit procedural law. Under Ninth Circuit law, preclusion applies when a prior suit involved the same claim as the later suit, reached a final judgment on the merits and involved identical parties. The Court also noted that for preclusion purposes, dismissal for failure to prosecute is an adjudication on the merits. Applying these factors, the Federal Circuit affirmed the district court’s decision, explaining that res judicata generally applies when “a patentee seeks to assert the same patent against the same party and the same subject matter.”

The Federal Circuit found that preclusion can also apply to claims arising after the prior judgment, explaining that one cannot challenge the repetition of an act in a subsequent suit if the act was judged not wrongful. The Court explained that preclusion applies when the accused products or methods are essentially the same. Here, CARB activity was held not to be infringing in the 2015 case because of Sowinski’s failure to respond, and Sowinski’s 2018 complaint described CARB’s ongoing activities as the same as those in the 2015 case. The Federal Circuit therefore affirmed the district court’s decision, explaining that Sowinski alleged no different conduct or acts against the same defendant.




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