Transclean Corporation, et al. v. Jeffy Lube International, Inc., etc.

Transclean Corporation, James P. Viken, Jon A. Lang, and Donald E. Johnson (collectively "Transclean") brought suit against Bridgewood Services, Inc. ("Bridgewood"), alleging that the automatic transmission fluid changing machine manufactured and sold by Bridgewood, the "T-Tech machine," infringed Transclean's patent. Transclean obtained a judgment in its favor, including a damages award of $1,874,500. The judgment and award were affirmed on appeal. Transclean Corp. v. Bridgewood Servs., Inc., 290 F.3d 1364 (Fed. Cir. 2002) ("Transclean I").

Transclean then filed a separate patent infringement suit against Jiffy Lube International, Inc. ("Jiffy Lube") and more than thirty other fast lube businesses, each of which had purchased one or more T-Tech machines from Bridgewood. That case is the subject of the present appeal.

In this case, the district court granted summary judgment in favor of Jiffy Lube and eight other defendants ("Participating Defendants"), holding that under the doctrine of claim preclusion, the judgment against Bridgewood bars Transclean from bringing a separate infringement action against Bridgewood's customers. The district court previously had entered default judgment in favor of Transclean against several other defendants ("Defaulting Defendants"), none of whom had answered the complaint. Because we agree with the district court that under the doctrine of claim preclusion Transclean may not obtain relief against the Participating Defendants, we affirm that portion of the district court's judgment. In light of that affirmance, we conclude that the claims against the Defaulting Defendants should be disposed of in the same manner; accordingly, the judgment in favor of Transclean and against the Defaulting Defendants is reversed.

BACKGROUND

Viken, Lang, and Johnson are the owners of U.S. Patent No. 5,318,080 ("the '080 patent"); Transclean is their exclusive licensee. The patent is directed to an apparatus for changing automatic transmission fluid. In October 1997, Transclean filed a patent infringement suit in the United States District Court for the District of Minnesota against Bridgewood, a manufacturer and distributor of transmission service equipment. Soon thereafter, Bridgewood sold its assets to Century Manufacturing Company, which took a license from Transclean under the '080 patent for T-Tech machines sold on or after May 1, 1998. Any T-Tech machines manufactured before that date remained the subject of litigation between Transclean and Bridgewood.

This court's opinion in Transclean I discusses the Bridgewood litigation in detail; here we provide only the facts of that case that are relevant to the present appeal. With regard to liability issues, the trial court in the Bridgewood litigation granted Transclean's motion for summary judgment that Bridgewood infringed claims 1-4 and 12 of the '080 patent, after barring Bridgewood from asserting it did not infringe as a sanction for Bridgewood's failure to answer an interrogatory seeking the bases for its non-infringement position. When the case proceeded to trial, a jury found that Bridgewood infringed claim 13. On appeal we affirmed the judgment of infringement of claims 1-4
and 12, but after correcting the claim construction we vacated the judgment of infringement of claim 13. Transclean I, 290 F.3d at 1373-75.

With regard to damages, the jury in the Bridgewood case awarded Transclean three types of damages totaling $5.5 million. Id. at 1375. The trial court granted Bridgewood's motion for a new trial or remittitur in the amount of $1,874,500, the highest amount of reasonable royalty damages that the jury could have awarded based on the evidence. Id. at 1375. Transclean apparently accepted the remittitur, and neither party appealed that portion of the damages award. Id. Transclean alleges it has not collected on the judgment against Bridgewood.

Soon after this court affirmed the judgment against Bridgewood, Transclean filed the current infringement suit in the District of Minnesota, this time against Jiffy Lube and more than thirty other fast lube businesses, including many small, independently owned shops that use a single T-Tech machine. In this case, the subject of the present appeal, Transclean alleges that the defendants infringe the '080 patent by using T-Tech machines purchased from Bridgewood prior to May 1, 1998. Thus the accused devices in this case were also the subject of the suit against Bridgewood. Transclean seeks a "reasonable royalty" of $10,000 for the use of each allegedly infringing device.

Several defendants failed to answer the complaint, and Transclean filed a motion for default judgment against them. The trial court granted the motion in part, ordering entry of default judgment and a permanent injunction against those defendants but finding that it was premature to enter a default damages award at that time. Transclean Corp. v. Bill Clark Oil Co., No. 02-1138 (D. Minn. Nov. 5, 2003) (order).

Transclean, Jiffy Lube, and some of the other Participating Defendants2 filed various motions for summary judgment, most of which alleged that the judgment in the Bridgewood litigation had some preclusive effect. Transclean filed a motion for summary judgment in which it argued that the defendants in this case should be precluded from asserting a non-infringement defense because the Bridgewood litigation concluded with a judgment of infringement by the same T-Tech machines. As part of its argument that issue preclusion applied, Transclean asserted that the defendants were in privity with Bridgewood. The trial court denied Transclean's motion on the ground that the issue of infringement was not actually litigated in the Bridgewood litigation because the infringement determination in that case was in large part a sanction for abuse of discovery. Transclean Corp. v. Reg'l Car Wash Distribs., Inc., No. 02-1138, 2004 WL 1453509, at *7-8 (D. Minn. June 18, 2004).

In the same opinion, the trial court granted Jiffy Lube's motion for summary judgment that Transclean was precluded from bringing infringement claims against Jiffy Lube. The trial court concluded that the elements of claim preclusion were satisfied. First, there was no dispute that the Bridgewood litigation ended in a final judgment on the merits or that the court properly exercised jurisdiction in that matter. Nor did Transclean dispute that Jiffy Lube was in privity with Bridgewood, the defendant in the prior litigation. Finally, Transclean did not dispute that during the first litigation it was aware of Jiffy Lube's use of T-Tech machines and could have brought claims against Jiffy Lube. Id. at *2. The trial court noted, however, that summary judgment based on claim preclusion was not appropriate as to other defendants until they came forward with evidence that Transclean knew or should have known about them during the Bridgewood litigation. Id. at *3.

Transclean later conceded it was aware that each of the Participating Defendants had purchased and used at least one T-Tech machine while the Bridgewood litigation was pending. In response thereto, the trial court granted summary judgment in favor of the Participating Defendants. Transclean Corp. v. Bill Clark Oil Co., No. 02-1138, 2004 WL 2730101, at *2 (D. Minn. Nov. 18, 2004).

When Transclean moved for a determination of damages against the Defaulting Defendants - the trial court having earlier rendered judgment against them - the trial court sua sponte raised the defense of issue preclusion on their behalf. Transclean Corp. v. Bill Clark Oil Co., Inc., No. 02-1138, 2005 WL 2406036, at *2 (D. Minn. Sept. 29, 2005) ("Damages Opinion"). The trial court held that Transclean was precluded from seeking a $10,000 royalty for the use of each infringing machine because that theory was not presented in the Bridgewood litigation. Accordingly, the court limited the damages award to $550 per infringing T-Tech machine, the amount awarded in the Bridgewood litigation.3 Id. at *3. The trial court then awarded Transclean treble damages under 35 U.S.C. § 284 because the Defaulting Defendants did not respond to Transclean's allegations of willful infringement. This resulted in a damages award of $1,650 against each of the Defaulting Defendants. Id. at *3.

The trial court entered judgment in accordance with its various decisions. Transclean appeals from that judgment, challenging the trial court's rulings that claim preclusion bars Transclean's suit against the Participating Defendants and that issue preclusion limits the amount of damages recoverable from the Defaulting Defendants. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

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