By Eric Schweibenz
On April 2, 2010, the ITC issued a notice and opinion reversing and remanding ALJ Theodore R. Essex’s initial determination (“ID”) in Certain Hybrid Electric Vehicles and Components Thereof (Inv. No. 337-TA-688).

By way of background, this investigation follows litigation between the parties in the U.S. District Court for the Eastern District of Texas (“EDTX”) in which certain Toyota hybrid vehicles were found to infringe U.S. Patent No. 5,343,970.  On March 3, 2010, ALJ Essex issued Order No. 6, which granted, on the basis of claim preclusion, Complainant Paice LLC’s (“Paice”) motion for summary determination of infringement, validity and enforceability, and denied Respondents Toyota Motor Corp., Toyota Motor North America, and Toyota Motor Sales, USA, Inc.’s (collectively, “Toyota”) cross-motion for summary determination terminating the investigation.  See our March 29, 2010 post for more details.  The parties contend that the district court’s ruling in Paice LLC v. Toyota Motor Corp. et al., C.A No. 2:04-cv-211-DF, should be afforded preclusive effect in this investigation, but disagree as to the operation and effect of the preclusion.  Having examined the record, the ID, Toyota’s petition for review, and Paice’s and the OUII’s responses thereto, the ITC determined to reverse the ID “because the variant of claim preclusion successfully urged upon the ALJ by Paice and the [OUII] constitutes legal error.”  The ITC remanded the ID to the ALJ “to determine whether and to what extent arguments regarding infringement and validity are barred by the doctrine of issue preclusion.”

Citing the Restatement (Second) of Judgments (1982) (“Restatement”) to define the scope of claim preclusion, the ITC observed that “the only claim presented in this investigation is Paice’s, . . . and if the doctrine is to be applied at all in this investigation (upon which we take no position), it is to be applied against Paice.”  The opinion provided in relevant part:
For present purposes, it is sufficient to note that if this investigation is part of the same “claim” as the district court action, and if no exception to claim preclusion applies, then this investigation is precluded altogether.  If this investigation is not part of the same “claim” as the district court action, or if an exception to claim preclusion exists, then claim preclusion does not apply at all.

Since ALJ Essex found that claim preclusion does not bar Paice from seeking relief from the ITC, the ITC held that the ALJ erred as a matter of law by barring only re-litigation of certain issues.  The ITC rejected Paice’s and the OUII’s argument that references in the Restatement to “parts” and “phases” of a claim means that claim preclusion does not operate against Paice’s claim as a whole, stating that “[t]he Restatement is quite clear that each ‘part’ of a claim for its purposes is each theory of relief maintained on the same series of transactions, and not, as Paice and the [OUII] believe, any issue of any action,” and that “‘phases’ refers, essentially, to different actions in which different theories of relief are advanced.”

The ITC also took issue with what Paice deemed binding Federal Circuit authority for its arguments.  First, the ITC found that Paice selectively quoted from Young Engineers, Inc. v. ITC, 721 F.2d 1305 (Fed. Cir. 1983), and thus misapplied that case’s holding, which merely “reiterates the basic function of claim preclusion to prevent a succession of lawsuits on a common claim” and “does not support a policy of encouraging serial filings by preventing a defendant from mounting a defense in subsequent actions.”  Second, the ITC observed that Farrel Corp. v. ITC, 949 F.2d 1147 (Fed. Cir. 1992), involved issue preclusion, not claim preclusion, and the brief discussion of res judicata in that case is therefore irrelevant to the claim preclusion matter in the instant investigation.  The third case relied upon by Paice is KSM Fastening Systems, Inc. v. H.A. Jones Co., 776 F.2d 1522 (Fed. Cir. 1985), which discusses preclusion in the context of contempt proceedings and like Farrel and Young Engineers, uses the term res judicata to include issue preclusion.  The ITC found that none of these cases support Paice’s theory of one-way operation of claim preclusion against Toyota.