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Infringement Claims in Interactive Computerized Catalog Case Barred by Collateral Estoppel

Tuesday, August 2, 2011

Furnace Brook LLC v. Aeropostale, Inc., No. 11-01025, 2011 BL 191195 (Fed. Cir. July 22, 2011) In a nonprecedential opinion, the U.S. Court of Appeals for the Federal Circuit affirmed a district court's grant of summary judgment of noninfringement of a patent relating to an interactive computerized catalog system, finding infringement claims were barred by collateral estoppel based on a prior litigation involving the same issue. Prior Litigation Furnace Brook LLC is the owner of U.S. Patent No. 5,721,832 (the '832 patent), relating to an interactive computerized catalog process comprising "a selective communication link initiated by a user between said user's telephone terminal and said computer system." In a prior litigation, Furnace Brook sued Overstock.com, Inc., alleging that the use of cellular telephones and personal computers to access Overstock's website over the Internet infringed the '832 patent. The district court in the Overstock case granted summary judgment of no infringement because, inter alia, the "telephone terminal" limitation was not met by the accused products. In the Overstock appeal, the Federal Circuit agreed with Furnace Brook that the "telephone terminal" could include a personal computer or cellular phone, but found that the terminal limitation, as used in the claims, "requires that the communication link be established over a telephone network by dialing the computer system directly." Furnace Brook at 3. (quoting Furnace Brook LLC v. Overstock.com, Inc., 230 F. App'x 984, 987 (Fed. Cir. 2007) ("Overstock")). For a discussion of the Federal Circuit's decision, see Claim Construction and Summary Judgment of Noninfringement Affirmed in Computerized Catalog System Case, Bloomberg Law Reports – Intellectual Property, Vol. 1, No. 17 (June 4, 2007). Finding that the accused products did not access the website by directly dialing the computer system, the Federal Circuit affirmed the ruling of no literal infringement and further found insufficient evidence to support Furnace Brook's claim that accessing a computer server over the Internet was equivalent to dialing a computer server over a telephone network. Despite the adverse decision in Overstock, Furnace Brook brought suit in the U.S. District Court for the Northern District of Illinois against Aeropostale, Inc., Dick's Sporting Goods, Inc., Levi Strauss & Company, Boston Proper, Inc., Nike, Inc., Hickory Farms, Inc., and Thomasville Furniture Industries, Inc., alleging infringement of the '832 patent on the same grounds as in Overstock. Reviewing the Federal Circuit's decision in Overstock, the district court concluded that the determination of noninfringement was based on the "telephone terminal" limitation and that the Federal Circuit's construction was essential to its decision that the accused system did not infringe either literally or under the doctrine of equivalents. Additionally, the district court noted that Furnace Brook conceded that the "telephone terminal" limitation was actually litigated before the Federal Circuit. Consequently, the district court held that Furnace Brook was barred from relitigating the issue of whether personal computers and cellular phones met the "telephone terminal" limitation. Infringement Claims Barred by Collateral Estoppel Under the Seventh Circuit's standard of collateral estoppel, a party may not relitigate an issue if: "1) the issue sought to be precluded must be the same as that involved in the prior action, 2) the issue must have been actually litigated, 3) the determination of the issue must have been essential to the final judgment, and 4) the party against whom estoppel is invoked must be fully represented in the prior action." Furnace Brook at 6. (quoting La Preferida, Inc. v. Cerveceria Modelo, S.A. de C.V., 914 F.2d 900, 906 (7th Cir. 1990)). The Federal Circuit noted that Furnace Brook admitted that it "actually litigated" both the construction and infringement of the "terminal telephone" limitation and was "fully represented" in Overstock. The court rejected Furnace Brook's argument that Overstock's noninfringement ruling was based on a sua sponte construction of the "selective communication link" limitation rather than the "terminal telephone" limitation. Reviewing its decision in Overstock, the Federal Circuit concluded that the noninfringement ruling was based on its interpretation of the "telephone terminal" limitation and was "essential" to that case. Accordingly, the Federal Circuit held that the district court did not err in ruling that Furnace Brook was barred by collateral estoppel from relitigating the issue of infringement. Judge O'Malley's Dissent Judge Kathleen O'Malley, dissenting, argued that Furnace Brook did not have an opportunity to present evidence that Overstock's website infringed the '832 patent, either literally or under the doctrine of equivalents, under the construction of the "telephone terminal" limitation. In Judge O'Malley's opinion, the Federal Circuit in Overstock should have returned the infringement issue to the district court after revising and narrowing the "telephone terminal" claim construction.

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