Friday, November 22, 2019

Split decision in Virnetx v/ Apple

The outcome:

Apple appeals. We affirm the district court’s determination that Apple is precluded by the prior litigation from
pressing its proposed invalidity challenges. We affirm the
judgment of infringement as to two of the patents but reverse as to two others. In light of our partial reversal on
infringement, we vacate the damages award and remand
for the district court to consider whether it can and should
enter a revised award without conducting a new trial and,
if not, to hold a new trial limited to damages.

Of the relevant law:

We review the district court’s ruling on issue preclusion
de novo, following the Fifth Circuit. Wills v. Arizon Structures Worldwide, LLC,
824 F.3d 541, 545 (5th Cir. 2016);
Voter Verified, Inc. v. Election Systems & Software LLC,
887 F.3d 1376, 1382 (Fed. Cir. 2018) (applying regional circuit law).
We review the grant of summary judgment de
novo and apply the “same criteria employed by the district
court.” Waste Mgmt. of Louisiana, L.L.C. v. River Birch,
Inc., 920 F.3d 958, 964 (5th Cir. 2019); Eli Lilly & Co. v.
Hospira, Inc., 933 F.3d 1320, 1327 (Fed. Cir. 2019) (applying regional circuit law).
We review the denial of a motion
for judgment as a matter of law de novo and ask whether
the underlying jury findings were supported by substantial
evidence. See Apache Deepwater, L.L.C. v. W&T Offshore,
Inc., 930 F.3d 647, 652–53 (5th Cir. 2019); Elbit Systems
Land & C4I Ltd. v. Hughes Network Systems, LLC, 927
F.3d 1292, 1296 (Fed. Cir. 2019) (following Fifth Circuit
law). We review a claim construction de novo and any underlying factual findings based on extrinsic evidence for
clear error. Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S.
Ct. 831, 841 (2015).

Of issue preclusion

A leading treatise states that, as a general rule, “preclusion applies to any issue framed by the pleadings and
not withdrawn, even though it has not been raised at trial
PRACTICE AND PROCEDURE § 4419 (3d ed.) (Wright and Miller). The Fifth Circuit has concluded that an issue is “actually litigated” when the “issue is raised and the party
who has the burden fails in his proof and the issue is decided against him.” Santopadre v. Pelican Homestead &
Sav. Ass’n, 937 F.2d 268, 274 (5th Cir. 1991) (citing United
States v. Silliman, 167 F.2d 607, 617 (3d Cir. 1948)). Here,
in the 417 litigation, Apple asserted invalidity under 35
U.S.C. §§ 101, 102, 103, and 112 from the outset, and the
issues were extensively developed in discovery. Apple expressly included a host of invalidity issues, as enumerated
above, in the pretrial order, which “supersede[d] all prior
pleadings” and governed the proceedings to come. Meaux
Surface Protection, Inc. v. Fogleman, 607 F.3d 161, 167 (5th
Cir. 2010); see In re Pirani, 824 F.3d 483, 493 n.1 (5th Cir.
2016). That framing of the issues in the trial-governing
pleadings, together with full pretrial engagement on the issues and the eventual judicial rulings resolving the issues
based on evidentiary insufficiency, is enough to constitute
actual litigation.

Preclusion in this scenario serves important interests
protected by preclusion principles. One is the judicial system’s interest in avoiding duplication caused by an earlier
bypassing of a present and adequate opportunity for conclusive resolution after fully prepared development of the
issue. Another is the related reliance interest of the opposing party: “once an issue has been framed, the opposing
party has a right to rely on the expectation that it will be
resolved conclusively in that action.” Wright and Miller § 4419. When the adversarial litigation of the issue has
proceeded as far as it did in the 417 matter, preclusion
serves the interests in “conserving judicial resources” and
“avoiding oppression or harassment of the adverse party.”
Restatement (Second) of Judgments § 27 comment e

Here, VirnetX expended “considerable effort . . . in preparing to meet a case that [was] never made” when the
time came for presentation of evidence. Wright and Miller
§ 4419. VirnetX prevailed by summary judgment on two of
the invalidity issues, including non-joinder. Then, only one
week before trial, Apple informed the district court and
VirnetX, in an “Emergency Motion to Dismiss,” that it

would prefer not to pursue the remaining invalidity challenges, but it proposed to dismiss them only if it could save
them, unimpaired, for future litigation. J.A. 25487. In response, VirnetX explained to the court:
VirnetX has spent well over a million dollars in this
case defending the validity of the patents. There
were more than 100 references asserted by Apple
in this case in their invalidity contentions. We had
to deal with all of those.
We have had extensive motion practice in this
Court on invalidity issues. We filed expert reports
in this Court. We have taken depositions in this
Court directed to invalidity.
J.A. 25585–86. When the district court denied the motion
to dismiss, Apple knew that the issues remained in the
case. But Apple bypassed the opportunity to try the issues
then and there, choosing to present no evidence on those
issues. Judgment as a matter of law for failure of proof
followed. Apple’s choice to present no evidence does not
change the character of the judgment as a resolution of issues actually litigated.


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