The plaintiff, U.S. Ethernet Innovations, LLC ("USEI"), filed a patent infringement action against several defendants in the Eastern District of Texas. The district court then transferred the cases to the Northern District of California. While litigation in the Northern District of California proceeded, USEI filed another patent infringement case against Texas Instruments Incorporated ("TI").

The TI case then proceeded with two jury trials. The first jury returned a verdict finding that the patents-in-suit ("Early Transmit Patents") were not invalid. The second jury found that TI infringed the asserted claims of U.S. Patent No 5,434,872 and awarded USEI $3,000,000.00 in damages. After the district court rejected TI's equitable defense of laches, the district court entered a Final Judgment in the case, but the Final Judgment "specifically noted that the Court was still considering the issues raised in the parties' post-verdict briefing." 

While the district court "considered the parties' post-verdict briefing, the Northern District of California invalidated the Early Transmit Patents as anticipated by the same piece of prior art that was hotly contested by the parties in this case. . . . The Northern District of California then directed the clerk of its court to enter judgment in favor of the defendants in that action."

As a result, TI moved to dismiss the case based on collateral estoppel.

The district court explained that "USEI presents only one argument against the application of issue preclusion in this case: This Court entered a judgment in this case before the Northern District of California invalidated the Early Transmit Patents. To support its argument, USEI relies on Cycles, Ltd. v. Navistar Fin. Corp., 37 F.3d 1088, 1090 (5th Cir. 1994), a Fifth Circuit decision in a conversion action. Based on its reading of the Cycles, USEI contends that the Northern District of California's judgment is not a prior judgment for the purpose of issue preclusion."

The district court disagreed. "But the reasoning of Cycles lacks force in this patent infringement case. In patent litigation, issue preclusion applies where a party is "facing a charge of infringement of a patent that has once been declared invalid." Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 349-50 (1971). And the Federal Circuit has applied the defense of issue preclusion broadly in a number of procedural contexts that are at odds with Cycles. See Soverain Software, 2015 WL 570715 at *2 (collecting cases and describing the breadth of the Federal Circuit's application of issue preclusion). Thus, while Cycles held that it was erroneous to apply issue preclusion in procedural circumstances similar to this case, patent litigation presents concerns that were not present in Cycles. Those patent-specific concerns are within the jurisdiction of the Federal Circuit, and the Federal Circuit holds those concerns favor applying issue preclusion."

Accordingly, the district court found that the patents were invalid based on collateral estoppel.

U.S. Ethernet Innovations, LLC v. Texas Instruments, Inc., Case No. 6:11-cv-491 (E.D. Tex. Feb. 19, 2015)