Res Judicata applicable in Pactiv v. Dow

On June 5, the Federal Circuit decided its second case in as many weeks dealing with the doctrine of res judicata. The decision affirmed the district court's resolution to dismiss a declaratory judgment for noninfringement, invalidity and unenforceability. Pactiv Corporation and Dow Chemical Company were involved in a three-year suit relating to infringement of two of Dow's patents. When the parties settled the case, it was dismissed with prejudice. The two companies entered into a settlement and licensing agreement where Pactiv agreed to pay royalties to Dow for the two patents at issue. In 2002, Pactiv stopped paying its royalty fees. Shortly after being warned by Dow that it was materially breaching the settlement agreement, Pactiv sued Dow seeking to have the two patents declared invalid, not infringed, or unenforceable. Dow then moved for dismissal based on res judicata, which prevents a claim that should have been litigated in a prior action from being litigated in a second case when the first case was adjudicated on the merits. Essentially, res judicata is designed to promote judicial efficiency by forcing a party to bring all related claims against another party in the same case or lose the right to bring its remaining claims in the future. Dismissal with prejudice of an action via settlement agreement, such as the one between Dow and Pactiv in 1998, is enough to constitute judgment on the merits. Pactiv's invalidity, unenforceability, and noninfringement claims should have been litigated in the first action, and therefore res judicata ordinarily would apply to bar Pactiv's claims from being brought in a second case. Pactiv, however, argued that its case fell into an exception to res judicata.Because res judicata is not unique to the patent law context, the court first had to determine which law to apply: Federal Circuit law or Second Circuit law (the circuit in which the case had been brought). The court noted that although this case involved the validity of two patents, the application of res judicata in this case did not involve anything that was unique to the patent laws. As a result, the court applied Second Circuit law rather than Federal Circuit law.Pactiv argued that its case should not be dismissed because it fell into one of the exceptions of the res judicata doctrine. When the parties to litigation have agreed that a judgment on one claim would not preclude litigation on a related claim, courts generally permit the agreement of the parties to control, allowing the litigation of the second, related claim to proceed. In this case, the Federal Circuit held that for this exception to apply, there must be an express reservation of the right to bring the second claim. This requires more than the absence of a statement in the agreement precluding the second claim, but rather an express statement in the agreement permitting the second claim to be brought in the future. Because none of Pactiv and Dow's settlement agreements contained any such language, the court found that there was no express reservation, and therefore this exception to res judicata did not apply.


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