Under Rule 36 of the Federal Circuit Rules, the Federal Circuit can enter judgment without an opinion when it determines that a written opinion would not have precedential value. Commentators have observed that in recent years, as the volume of appeals it hears has increased, the Federal Circuit has cited Rule 36 more frequently. The Federal Circuit’s reliance on Rule 36 has a significant impact on patent litigation because, in patent cases, the Federal Circuit is ruling on the scope, infringement and validity of an asset that has a considerable life span. A single patent may be asserted numerous times, either by a practicing or a nonpracticing patent holder, serially and against multiple defendants during the course of its lifetime.
The Federal Circuit uses the tool of summary affirmance where the judgment below is entered without legal error or based on findings of fact that are not clearly erroneous. Although this disposes of some of the clearest cases on the court’s docket, and conserves court resources, the Federal Circuit’s frequent use of Rule 36 can encourage NPE licensing campaigns, where the same patents are asserted numerous times on similar theories of infringement. When, for example, a defendant seeks affirmance of a district court’s judgment under alternative grounds — and the Federal Circuit grants summary affirmance — Rule 36 can shield the losing NPE from the downstream application of issue preclusion by making it impossible to determine whether either ground was “necessary” to the judgment on appeal.
Over-reliance on Rule 36 has thus resulted in repeat filers being able to have multiple chances to litigate the same or similar claims — despite having had their claims rejected by the district court and the district court’s ruling affirmed by the Federal Circuit. Crucially, where issue preclusion is found not to apply following a Rule 36 affirmance, a plaintiff is free to relitigate a settled issue for the purely procedural reason that the Federal Circuit affirmed the district court’s judgment by citing Rule 36.
In this article, we provide an overview of relevant regional and Federal Circuit authority, and argue that the interests of judicial economy would be better served if in cases like this the court either provided a brief explanation of which grounds it is affirming, or revisited en banc the preclusive effect of alternative holdings affirmed under Rule 36.
Preclusive Effect of Alternative Holdings Across Circuits
Rule 36’s impact on issue preclusion derives from the long-standing question of how alternative holdings impact issue preclusion. Issue preclusion — which bars the relitigation of a settled issue — generally requires that (1) the previous determination was necessary to a decision; (2) the identical issue was previously litigated; (3) the issue was actually decided in a decision that was final, valid, and on the merits; and (4) the party being precluded from relitigating the issue was adequately represented in the previous action.
The requirement that the previous determination was “necessary” to a decision becomes ambiguous when there are two alternative, independent grounds for a decision. Alternative holdings have thus been interpreted to present two choices: Either preclusion must be available as to each of the independently sufficient findings, or it must be denied as to all. The First Restatement of Judgments (1942) resolved this question in favor of extending preclusion to each alternative holding; the Second Restatement (1982) took the opposite view.
Today, federal appellate courts are split on which approach is correct. In Jean Alexander Cosmetics Inc. v. L'Oreal USA Inc., the Third Circuit surveyed the question. See 458 F.3d 244, 251 (3d Cir. 2006). The Third Circuit explained that courts that continue to apply issue preclusion to alternative findings “sidestep” the requirement that the determination be “necessary” to the decision and “focus instead on the trustworthiness and practical considerations” surrounding the adjudication. Id. Courts that deny preclusion to independently sufficient findings do so because an alternative holding cannot be “necessary” to a judgment. Id.
The Courts of Appeals for the Second, Third, Seventh, Ninth and Eleventh Circuits have given preclusive effect to alternative findings. See Gelb v. Royal Globe Ins. Co., 798 F.2d 38, 45 (2d Cir. 1986); Jean Alexander Cosmetics, 458 F.3d at 251; Magnus Elecs. Inc. v. La Republica Argentina, 830 F.2d 1396, 1402 (7th Cir. 1987); In re Westgate-California Corp., 642 F.2d 1174, 1176-77 (9th Cir. 1981); DeWeese v. Town of Palm Beach, 688 F.2d 731, 734 (11th Cir. 1982). These decisions, however, do not hold that alternative holdings will always be given preclusive effect; courts in these circuits can structure judgments to avoid giving preclusive effect to an alternative ground by declining to consider it. See, e.g., Martin v. Henley, 452 F.2d 295, 300 (9th Cir. 1971) (“If a court of first instance … bases its judgment on alternative grounds, and the reviewing court affirms the judgment on only one of the two grounds, refusing to consider the other, the second ground is no longer conclusively established.”)
In contrast, the Courts of Appeals for the Fourth, Tenth, and Federal Circuits have generally refused to give preclusive effect to alternative findings that were each independently sufficient to support a judgment. See Kloth v. Microsoft Corp. (In re Microsoft Corp. Antitrust Litig.), 355 F.3d 322, 328 (4th Cir. 2004); TecSec Inc. v. IBM, 731 F.3d 1336, 1343 (Fed. Cir. 2013); Turney v. O'Toole, 898 F.2d 1470, 1472 n.1 (10th Cir. 1990). Similarly, the Fifth Circuit Court of Appeals has declined to adopt in all cases the Second Restatement’s rule, but has discussed the rule with approval. See Hicks v. Quaker Oats Co., 662 F.2d 1158, 1169-70, 1173 (5th Cir. 1981).
Because the applicability of issue preclusion is highly fact-dependent, courts do not always seem consistent in their treatment of the preclusive effect of alternative holdings. For example, the Third Circuit held in Jean Alexander Cosmetics that “independently sufficient alternative findings should be given preclusive effect.” 458 F.3d at 255. In Leyse v. Bank of Am. NA, however, the Third Circuit distinguished Jean Alexander Cosmetics, holding that where a summary affirmance is not clearly based on two independently sufficient grounds issue preclusion does not apply. See 538 F. App'x 156, 160 (3d Cir. 2013). In United Access Techs. LLC v. Centurytel Broadband Servs. LLC — a recent Delaware district court decision discussed in more detail below — followed Leyse, holding that issue preclusion does not apply where there is “at least some ambiguity” as to which ground has been affirmed. See 2016 U.S. Dist. LEXIS 135455, at *9-11 (D. Del. Sep. 30, 2016).
Because regional law determines the applicability of issue preclusion in patent cases, see e.Digital Corp. v. Futurewei Technologies Inc., 772 F.3d 723, 726 (Fed. Cir. 2014), the circuit split contributes to the uncertainty surrounding issue preclusion. For example, the Federal Circuit’s decision in TecSec — discussed in detail below — is based on Fourth Circuit authority on the preclusive effect of alternative holdings. See 731 F.3d at 1343-44. A future Federal Circuit decision applying Second, Third, Seventh, Ninth or Eleventh Circuit authority, however, might end in different result. This uncertainty undermines judicial economy, and could encourage forum shopping in subsequent filings.
Overview of Federal Circuit’s TecSec Decision and Its Impact
The Federal Circuit’s 2013 treatment of issue preclusion in TecSec shows the inefficiency caused by allowing plaintiffs to relitigate issues on the basis that the district court’s judgment was summarily affirmed and thus shielded from issue preclusion.
In TecSec, TecSec filed suit in the Eastern District of Virginia against IBM and several other defendants. See 731 F.3d at 1340. The district court severed TecSec’s claims against IBM and stayed proceedings against the other defendants. Id. It ultimately granted IBM’s motion for summary judgment of noninfringement. Id. TecSec appealed, challenging the district court’s claim construction as well as its conclusion that TecSec failed to prove infringement. Id.
The Federal Circuit summarily affirmed under Rule 36 the district court’s judgment of noninfringement, which itself was based on alternative grounds: TecSec’s failure of proof as to IBM’s acts and intent, and its failure to show that IBM's software met certain limitations of the claims as construed by the district court. Id. The former ground was not dependent on any claim construction. Id. The latter ground was dependent on the district court’s claim construction. On remand, proceedings resumed as to the remaining defendants, at which point TecSec stipulated that it could not prove infringement by the remaining defendants under the claim construction adopted by the district court during the proceedings with IBM. Id. The district court entered judgment of noninfringement, and TecSec appealed. Id.
On appeal, the Federal Circuit reasoned that even though the district court “stated that its claim constructions were ‘strictly necessary’” to resolving the parties’ summary judgment motions, the judgment based on TecSec’s failure of proof was “independent of the court’s construction.” Id. at 1343. Because claim construction was neither “actually determined by” nor “critical and necessary” to the summary affirmance in the IBM appeal, the Federal Circuit decided that issue preclusion did not bar TecSec’s challenge to the district court’s construction. Id. This application of Rule 36 gave TecSec a chance to relitigate claim construction.
Writing in dissent, Judge Jimmie Reyna warned that TecSec “raises an important issue concerning the court’s practice of issuing judgments pursuant to [Rule 36].” Id. at 1350. Judge Reyna noted that TecSec’s appeal raises “the same claim terms, same constructions, same arguments, and same summary judgment order” as were previously before the Federal Circuit in the IBM action, and that TecSec has not offered “any additional evidence” against the remaining defendants. Id. Judge Reyna thus dissented because “entertaining this appeal gives TecSec a second bite at the apple and undermines the utility of Rule 36.” Id. TecSec has continued with its patent assertion campaign on the same patents. See TecSec Inc. v. Adobe Sys., 658 F. App'x 570 (Fed. Cir. 2016).
TecSec has since been cited in district court opinions justifying similar results. For example, United Access Techs. — referenced above — is a recent Delaware decision that illustrates Judge Reyna’s concern by going even further than TecSec in advancing a rule that undermines issue preclusion following summary affirmance. Unlike in TecSec, where the district court’s judgment was based on two independent grounds, see 731 F.3d at 1343-44, in United Access Techs. the district court’s previous judgment was based on just one ground; defendants, however, advocated for a second independent ground for affirmance on appeal. See 2016 U.S. Dist. LEXIS 135455, at *10-11. Because the Federal Circuit issued a summary affirmance in the previous action, the United Access Techs. court found “some ambiguity” as to which ground formed the basis for the result. The court thus refused to apply issue preclusion.
Even in so ruling, the United Access Techs. court acknowledged the policy issues at stake. The court noted that it “has concerns that Plaintiffs’ view, if pressed too far, would eliminate all possibility of [issue preclusion] from cases that terminate with a Rule 36 affirmance—an outcome that cannot be correct.” 2016 U.S. Dist. LEXIS 135455, at *11 citing Ho Keung Tse v. Apple Inc., 635 F. App'x 864, 865 (Fed. Cir. 2015) (applying issue preclusion to district court decision that was summarily affirmed under Rule 36); Brain Life LLC v. Elecktra Inc., 746 F.3d 1045, 1050 (Fed. Cir. 2014) (same). Nonetheless, the court found that “under the specific circumstances here — where there is ‘some ambiguity’ as to whether an issue was ‘necessarily decided’ in a prior case, and that ambiguity arises from a party’s express appellate argument for affirmance on alternative, independent grounds that are supported by the record in the district court case—the Court feels compelled to conclude that Defendant has failed to show that [issue preclusion] applies.” 2016 U.S. Dist. LEXIS 135455, at *11. It is difficult to square the court’s recognition that (1) Rule 36 affirmances are not a per se block to issue preclusion with its holding that (2) the fact that a prior defendant merely raised an alternative ground during appeal is sufficient to create an ambiguity that bars issue preclusion on the substantive issues decided by the district court.
In short, although Rule 36 is intended as a procedural tool to help efficiently manage the Federal Circuit’s docket, its administration can have unintended consequences when applied to easy cases presented to the court by repeat litigants.
Judicial Economy of Summary Affirmances In Light of Impact on Issue Preclusion
In principle, Rule 36 serves the interests of judicial economy by allowing the Federal Circuit to quickly deliver nonprecedential opinions; this is particularly important as the volume of appeals from inter partes review proceedings increases. As shown above, however, Rule 36 has costly downstream effects. These inefficiencies are particularly troubling in light of the particular dynamics of patent litigation, where serial plaintiffs often successively assert the same or related patents against multiple defendants and in which identical issues are litigated each time.
As an alternative to Rule 36, the Federal Circuit has the option to instead issue very short, nonprecedential opinions that specifically name the grounds relied on in affirmance.
For example, the Federal Circuit’s opinion in E8 Pharms. LLC v. Inc. reads in its entirety: “We affirm the judgment of noninfringement in favor of Affymetrix, Inc. and Navigenics, Inc. We base our decision solely on our agreement with the district court’s construction of the phrase ‘randomly primed PCR-derived RCG.’ We do not reach any other issues raised on appeal.” 538 F. App’x 902 (Fed. Cir. 2013).
Despite the Federal Circuit’s compact decision, E8 Pharms’ plaintiffs would have a hard time disputing that issue preclusion prevents them from relitigating the meaning of “randomly primed PCR-derived RCG.” Such an opinion, in principle, should require no more effort than a Rule 36 affirmance. And, notably, in his TecSec dissent Judge Reyna cited U.S. Surgical Corp. v. Ethicon Inc., in which the Federal Circuit recognized that appeals whose judgments are entered under Rule 36 “receive the full consideration of the court, and are no less carefully decided than the cases in which we issue full opinions." 731 F.3d at 1350-1351 citing 103 F.3d 1554, 1556 (Fed. Cir. 1997); Judge Reyna further added that allowing a party to relitigate an issue it previously lost by summary affirmance “will erode the confidence that underpins Rule 36, that such cases are no less carefully reviewed.” 731 F.3d 1336 at 1354. Thus, with minimal additional resources the Federal Circuit could advance the interests of judicial economy without undermining issue preclusion by delivering opinions in which it briefly identifies each affirmed ground. The advantage of adopting such form over Rule 36 where there are alternative holdings and a risk of relitigation is that it leaves no ambiguity as to which grounds were affirmed, and thus precludes plaintiffs from relitigating settled issues.
Alternatively, the Federal Circuit could revisit its decision in TecSec by accepting en banc review on the issue of preclusive effect of alternative holdings. Ideally, such review would originate from a district court in the Second, Third, Seventh, Ninth or Eleventh Circuit, which could prompt the Federal Circuit to address the circuit split detailed above. If the Federal Circuit were forced by differences in regional law to issue an opinion inconsistent with its decision in TecSec, the Supreme Court could decide to grant certiorari. Although the Supreme Court recently declined to consider the circuit split on the preclusive effect of alternative holdings, see Anderson v. Comm’r, 698 F.3d 160, 165 (3d Cir. 2012), cert. denied, 133 S. Ct. 2797 (2013) (denied petition had requested that the U.S. Supreme Court “resolve the split among the Circuits as to whether all independently sufficient alternative findings in support of a judgment should be given preclusive effect”), a detailed en banc decision addressing policy issues arising under the patent laws could persuade the Supreme Court resolve the circuit split.
Rule 36 plays an important role in allowing the Federal Circuit to manage its docket. But when alternative holdings are summarily affirmed, and defendants cannot rely on issue preclusion, Rule 36 creates downstream inefficiencies by giving NPEs and other serial plaintiffs multiple bites at the apple. The Federal Circuit could either consider modifying its use of Rule 36, or revisiting whether given the unique nature of its docket, refusing to apply issue preclusion on alternative grounds supporting a prior judgment truly is the preferable approach. Either approach would advance the interest of judicial economy by foreclosing relitigation of claims the court has found not to have merit.
Originally published in Law360 on February 23, 2017.