January 29, 2020

SDNY: Collateral Estoppel Halts Social Media Patent Case

Holland & Knight Section 101 Blog
Anthony J. Fuga
Section 101 Blog

In late 2018, Plaintiff NetSoc sued Chegg in the U.S. District Court for the Southern District of New York (SDNY), alleging infringement of a patent directed to "establishing and using a social network to facilitate people in life issues." Chegg filed a motion to dismiss and argued that the asserted patent failed to claim patent-eligible subject matter.

While Chegg's motion to dismiss was pending, the U.S. District Court for the Northern District of Texas found the asserted patent to be invalid under Section 101. Chegg filed a supplemental brief and argued that the plaintiff was collaterally estopped from pursuing its patent infringement claims in SDNY because of the recent decision in Texas. The plaintiff acknowledged that it was estopped, but the court found that it must review the issue and decide whether the doctrine's requisite elements were met.

Issue preclusion, or collateral estoppel, prohibits a party from seeking another determination of the litigated issue in a subsequent action. "It is well established that once the claims of a patent are held invalid in a suit involving one alleged infringer, an unrelated party who is sued for infringement of those claims may reap the benefit of the invalidity decision under the principles of collateral estoppel."

Nevertheless, the court laid out the four elements that must be met for collateral estoppel to apply in the U.S. Court of Appeals for the Second Circuit:

  • the issues of both proceedings must be identical
  • the relevant issues were actually litigated and decided in the prior proceeding
  • there must have been "full and fair opportunity" for the litigation of the issues in the prior proceeding
  • the issues were necessary to support a valid and final judgment on the merits

SDNY found that all four criteria for collateral estoppel were clearly satisfied. The two actions involved the same plaintiff, the same patent and the same allegations. The Texas court resolved the issue after a full briefing and a hearing on the matter, with the plaintiff being represented by the same counsel in both cases. "There is no doubt that the issue was fully litigated" and that the patentee "had both fair opportunity and incentive to litigate the validity issue in the first litigation."

The Northern District of Texas' conclusion that the asserted patent claims were invalid under Section 101 was the basis and a necessary part of the motion to dismiss the plaintiff's claims with prejudice. Accordingly, the court found that Chegg could "reap the benefit" of the earlier invalidity decision, dismissed the case against Chegg and noted that plaintiff's pending appeal to the U.S. Court of Appeals for the Federal Circuit did not alter the collateral estoppel analysis.

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