Hartley v. Mentor Corp.

• Decision Date: 14 March 1989
• Docket Number: No. 88-1641,88-1641
• Citation: 10 USPQ2d 1138,869 F.2d 1469
• Parties: , 10 U.S.P.Q.2d 1138 John H. HARTLEY, Jr., M.D., Plaintiff-Appellant, v. MENTOR CORPORATION, Defendant/Third-Party Plaintiff/Appellee, v. AMERICAN HOSPITAL SUPPLY CORPORATION, Third-Party Defendant/Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1469

869 F.2d 1469

57 USLW 2580, 10 U.S.P.Q.2d 1138

John H. HARTLEY, Jr., M.D., Plaintiff-Appellant, v. MENTOR CORPORATION, Defendant/Third-Party Plaintiff/Appellee, v. AMERICAN HOSPITAL SUPPLY CORPORATION, Third-Party Defendant/Appellee.

No. 88-1641.

United States Court of Appeals, Federal Circuit.

March 14, 1989.

Arthur Grebow, of Antin, Stern, Litz & Grebow, Los Angeles, Cal., submitted for plaintiff-appellant.

Alan M. Anderson, of Faegre & Benson, Minneapolis, Minn., submitted for defendant/third-party plaintiff/appellee. With him on the brief were Brian B. O'Neill, Counsel of Record, and Felicia J. Boyd, of Faegre & Benson, Minneapolis, Minn. Also on the brief was Henry H. Rossbacher, of Williams, Walsh & Sullivan, Los Angeles, Cal.

Before RICH, NIES, and MAYER, Circuit Judges.

NIES, Circuit Judge.

John H. Hartley, Jr., appeals from the July 14, 1987 final judgment of the United States District Court for the Central District of California, No. CV-86-7738-JSL, dismissing with prejudice his complaint against Mentor Corporation involving his United States Patent No. 3,934,274 ('274 patent). On a motion for summary judgment, the court ruled that because the '274 patent had been held invalid in prior litigation, Hartley v. Minnesota Mining & Mfg. Co., 222 USPQ 590 (C.D.Cal.1983) (the 3M case), Hartley was precluded from relitigating the validity of the patent in this case. We affirm.

Opinion

I

Under Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788, 169 USPQ 513 (1971), mutuality of estoppel or privity is not required for a third party to invoke collateral estoppel i.e., issue preclusion, ¹ with respect to a determination of patent invalidity in prior litigation. Issue preclusion in patent litigation may arise under the same conditions as in any litigation, the principal requirements being that the issue must have been actually litigated in the prior proceeding, the parties must have been given a full and fair opportunity to do so, and the issue must provide the basis for the final judgment entered therein. See Restatement (Second) of Judgments Sec. 27 (1980). Issue preclusion may also arise, apart from the above requirements, by reason of a stipulated judgment or consent decree. Under the latter, the primary consideration is the intent of the parties. 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction, Sec. 4443 at 382 (1981).

II

This case raises a novel question of application of principles of issue preclusion because it involves both a litigated issue and a stipulated judgment. In prior litigation the question of validity of the '274 patent was actually litigated in a suit by Hartley and his exclusive licensee, American Hospital Supply Corporation (AHS), as co-plaintiffs against Minnesota Mining and Manufacturing Co. (3M), an accused infringer. In that case Judge Lucas ruled, in granting summary judgment for 3M, that the '274 patent was invalid under 35 U.S.C. Sec. 102(b) (1982) by reason of an on-sale bar. Thereafter, the parties to the 3M suit negotiated a settlement which provided, inter alia, for entry of a stipulated judgment dismissing Hartley's infringement claim against 3M with prejudice. The question is whether or not the ruling of invalidity in the 3M litigation provides a basis for issue preclusion in this proceeding.

In this case issue preclusion is asserted, not by 3M, but by a third party, Mentor Corporation. In March 1984, just after the 3M litigation ended, Mentor purchased certain assets of Hartley's co-plaintiff AHS, including AHS's rights under an exclusive worldwide licensing agreement with Hartley. Mentor refused to pay royalties on its U.S. sales in view of the 3M decision and a provision in the license that no royalties were required for U.S. sales should the '274 patent be held invalid. The record indicates that AHS had also represented to Mentor that no royalties were due on its U.S. sales. Because of Mentor's failure to pay U.S. royalties, Hartley cancelled the license and, in 1986, brought suit against Mentor for damages and injunctive relief. ² Mentor counterclaimed, inter alia, for a declaratory judgment of invalidity of the '274 patent.

Before addressing the question of collateral estoppel being invoked by Mentor, we must resolve the question of whether the stipulated judgment in the prior case would have precluded Hartley from relitigating the issue of validity of the '274 patent with 3M in subsequent litigation, that is, whether 3M, a party in the first suit, could assert issue preclusion. If 3M could not assert issue preclusion, a fortiori, no estoppel could extend to the third party Mentor as a result of the judgment therein.

A Issue Preclusion May Rest on a Stipulated Judgment

Hartley urges that where a judgment is entered pursuant to a stipulation of the parties, the judgment will give rise only to claim preclusion, not issue preclusion, citing 18 C. Wright, A. Miller & E. Cooper, supra Sec. 4443 at 382-85. While generally correct, the stated proposition is not an absolute. Where rulings made after a full and fair opportunity to litigate are firm and consistent with the subsequent settlement agreement by the parties and the judgment actually entered in the case, issue preclusion has been applied as to those issues when raised in a subsequent suit, as in Donovan v. United States Postal Service, 530 F.Supp. 894, 898-900 (D.D.C.1981). See also Employees Own Fed. Credit Union v. City Of Defiance, 752 F.2d 243, 245 (6th Cir.1985); Swift Chem. Co. v. Usamex Fertilizers, Inc., 646 F.2d 1121 (5th Cir.1981); E.E.O.C. v. Jacksonville Shipyards, Inc., 696 F.Supp. 1438, 1442 (M.D.Fla.1988). Moreover, a stipulated final judgment may rest in part on a court's rulings during the course of a trial and in part on the agreement of the parties. See Hughes v. Santa Fe Int'l Corp., 847 F.2d 239, 241-42 (5th Cir.1988). Thus, that a judgment is entered by stipulation does not in and of itself remove the effect of a court's prior determination of specific issues in the litigation. A stipulated or consent judgment, like a contract, must be construed to determine its effect in light of all of the circumstances. 18 C. Wright, A. Miller & E. Cooper, supra Sec. 4443 at 383.

In this case, nothing in the stipulated judgment conflicts with the invalidity ruling by Judge Lucas. The judgment itself neither expressly nor by necessary implication has the effect of vacating that ruling. ³ Thus, the prior invalidity ruling could be preclusive. A further inquiry into the prior proceedings is necessary.

Hartley varies his argument that a stipulated judgment does not give rise to issue preclusion by invoking, albeit inaptly, another valid concept, namely, that issues which could not be appealed are never precluded. An apt application of that premise would be where a party wins on its claim, but loses on an issue. No issue preclusion attaches to the lost issue which could not by itself be appealed. Jackson Jordan, Inc. v. Plasser American Corp., 747 F.2d 1567, 1577-78, 224 USPQ 1, 8-9 (Fed.Cir.1984); Restatement Sec. 28(1). However, voluntary relinquishment of one's right to appeal, where one stands as overall loser, does not fall within that rationale. See Schlegel Mfg. Co. v. USM Corp., 525 F.2d 775, 187 USPQ 417 (6th Cir.1975), cert. denied, 425 U.S. 912, 96 S.Ct. 1509, 47 L.Ed.2d 763, 189 USPQ 384 (1976). Indeed, Hartley's theory would bar giving preclusive effect to any consent judgment, a view which has no support to our knowledge in any jurisdiction, and clearly not in the Ninth Circuit.

Hartley is wide of the mark with his argument, based on Luben Industries, Inc. v. United States, ⁴ that the ruling of Judge Lucas on invalidity was merely an "interlocutory" order and, therefore, provided no basis for issue preclusion. Unlike Luben, a final judgment was entered in the 3M case which is the basis for the estoppel. Contrary to Hartley's understanding, issue preclusion is likely to be based on what was at the time an "interlocutory" ruling, and generally such orders become finalized upon entry of the judgment in the case. A significant part of an analysis of issue preclusion is to review the prior litigation carefully to determine what issues were resolved during the course of proceedings by the court and were necessary to the judgment. Jackson Jordan 747 F.2d at 1577-78, 224 USPQ at 6-8; Restatement Sec. 27. An answer to issue preclusion can rarely be obtained simply by reading the judgment itself.

Similarly, Hartley overstates the proposition that a settlement moots prior court rulings in a case. In Ringsby Truck Lines, Inc. v. Western Conference of Teamsters, 686 F.2d 720, 721-22 (9th Cir.1982), the Ninth Circuit specifically refused to vacate a district court's judgment and to hold that no collateral estoppel effect could arise from the court's findings simply because the controversy was mooted by settlement. Accord Gould v. Control Laser Corp., 866 F.2d 1391, 1392, 9 USPQ2d 1718, 1721 (Fed.Cir.1989). Under Ninth Circuit law, to be assured that the judgment here would have no collateral estoppel effect, Hartley would have had to have the 3M court vacate its order, which he failed to do; otherwise the collateral estoppel effect of the judgment is left for decision by the district court in which it is asserted. Id. at 722; accord United States v. Munsingwear, Inc., 340 U.S. 36, 40, 71 S.Ct. 104, 107, 95 L.Ed. 36 (1950).

With respect to whether the issue of validity was essential to the judgment or was intended to be resolved thereby, it is significant that 3M did not enter into the familiar type of consent decree under which an accused infringer acknowledges validity and infringement of a patent in exchange for a license. The stipulated judgment here presents the apparently rare occasion where a patentee dismissed his claim with prejudice. See Note, "To Bind or Not to Bind": Bar and...