A party that is dismissed from a patent litigation may expect that any subsequent judgment (e.g. against other parties remaining in the litigation) would only affect the dismissed party indirectly. For example, an injunction against a party found liable for infringement could affect future dealings between the liable party and the dismissed party; or the dismissed party could be prohibited from abetting the liable party in continued infringement. In a recent opinion, the Federal Circuit determined that an injunction could potentially apply directly to independent conduct of a dismissed party, signaling that dismissal may not end a party’s interest in the outcome of the litigation.
The scope of an injunction under the Federal Rules of Civil Procedure binds only the parties, the parties’ officers, agents, servants, employees, and attorneys, and “other persons who are in active concert or participation with” the previous groups.1 “[A]n injunction may not ‘make punishable the conduct of persons who act independently and whose rights have not been adjudged according to law.’”2 “Active concert or participation” under Rule 65(d) may include entities that either abet the liable party, or are “legally identified with the liable party.3 Some cases have found “legally identified” to mean “privity” with the liable party.4
In Asetek Danmark A/S v. CMI USA Inc.,5 the Federal Circuit was presented with the question of whether it was appropriate to extend the scope of an injunction to independent conduct of a party that was dismissed from the suit. Asetek Danmark A/S sued two parties in the Northern District of California: Cooler Master USA, Inc. (which subsequently became CMI USA Inc.) (“CMI”) and Cooler Master Co., Ltd., which is a Taiwanese company.6 Asetek alleged that the two defendants infringed U.S. Patent Nos. 8,240,362 and 8,245,764, which are directed to liquid-cooling systems for cooling computer processors. In September 2014, just prior to trial, Asetek dismissed with prejudice its claims against the Taiwanese company (“Cooler Master”).7 Asetek prevailed at trial with its claims against CMI, and received a judgment of infringement and no invalidity, and a damages award. The trial court subsequently entered an injunction covering the products which were found to infringe. As part of the injunction, the district court enjoined both CMI and Cooler Master from “making, using, offering for sale or selling in the United States, or importing into the United States, or causing to be made, used, offered for sale, or sold in the United States, or imported into the United States, the Infringing Products.”8 CMI and Cooler Master appealed, among other things, the applicability of an injunction to Cooler Master, and in particular the scope of the injunction to all of Cooler Master’s activities, not just those related to CMI.
The Federal Circuit affirmed the district court’s findings of infringement, validity, and damages.9 Cooler Master and CMI raised two arguments against the injunction. First, they argued that Cooler Master’s dismissal from the litigation prior to trial precluded the district court from subjecting Cooler Master to any injunction. Second, the appellants argued that the injunction is too broad in scope, as it reaches Cooler Master’s conduct beyond merely abetting any new violations by CMI, the only party adjudicated to be liable for infringement.
With respect to the first argument, the appellants argued that Cooler Master’s dismissal with prejudice should be considered an adjudication with claim-preclusive effect. However, the Federal Circuit noted the difference in the “claim” covered by the dismissal (which covered Cooler Master’s pre-dismissal conduct) and the “claim” covered by the injunction (which covers Cooler Master’s conduct not only post-dismissal, but also post-trial and post-injunction-issuance).10 Therefore, the difference in timing meant that the two “claims” were distinct for claim-preclusion purposes – Asetek could not have asserted a claim based on Cooler Master’s post-dismissal actions prior to the dismissal.11
With respect to the second challenge based on the scope of the injunction, the Federal Circuit acknowledged that an injunction may not “make punishable the conduct of persons who act independently and whose rights have not been adjudged according to law.12 However, the “active concert or participation” element in Fed. R. Civ. P. 65(d) allows an injunction to cover parties that are “legally identified with the liable party,”13 which may include successors (such as a bona fide purchaser),14 or a party that sufficiently controls another’s litigation of a case such that the part “may be said to have had its day in court and on that ground be subject to the injunctive obligations.”15 The district court’s decision had determined that enjoining Cooler Master separately was appropriate under the “successor” standard; however, in the case relied upon by the district court, the non-liable party was barred from selling the “infringing products obtained from” the liable party.16 In this case, the Federal Circuit noted that Cooler Master was the supplier, and there were no infringing products obtained by Cooler Master from CMI.17
The Federal Circuit punted on the ultimate determination of whether the relationship between Cooler Master and CMI could be considered a “successor” relationship, or whether there was sufficient control of the litigation by Cooler Master. Instead, the Court remanded to the district court to develop “a fuller picture of the facts described by the district court.”18 The Federal Circuit further noted some facts that it considered may be relevant to the district court in determining whether Cooler Master may be “legally identified” with CMI:
[t]he nature of the exclusivity relationship between the firms (e.g., its scope, its terminability); trademarks and other aspects of the two companies’ relations at relevant times; the origins of CMI and its relationship to Cooler Master; the details of and intent behind changes in the companies’ relations, particularly since liability was found in this case; and the companies’ relationship in the conduct of this litigation, in which products made by Cooler Master and carrying its brand name are at stake, both before and after Cooler Master was dismissed.19
While Asetek had only argued that the injunction should apply to Cooler Master under the “successor” standard, the last factor in the Federal Circuit’s guidance seems to indicate that Cooler Master could also be enjoined under the “sufficient control” standard.
The Federal Circuit further decided not to vacate the injunction while the case was being remanded (in part because appellants had not sought a stay), and that this proceeding may be mooted if Asetek pursued a new injunctive infringement action against Cooler Master directly, requesting a preliminary injunction based on the full litigation against CMI.20
Chief Judge Prost dissented, writing that the portions of the injunction that reach Cooler Master are improper and should be vacated.21 Judge Prost noted that while the majority could speculate about the relationship between Cooler Master and CMI, there was no basis to justify the injunction against Cooler Master in the majority’s own capacity.
As we have recently explained, “[c]ourts have carefully distinguished between entering an injunction against a nonparty, which is forbidden, and holding a non-party in contempt for aiding and abetting in the violation of an injunction that has been entered against a party, which is permitted.” Additive Controls, 96 F.3d at 1395. Thus, even a non-party “[h]aving a relationship to an enjoined party of the sort set forth in Rule 65(d) . . . does not justify granting injunctive relief against the non-party in its separate capacity.” Id. at 1395–96. “Unless duly summoned to appear in a legal proceeding,” one can “rest assured that a judgment recovered therein will not affect his legal rights.” Chase Nat’l Bank, 291 U.S. at 441.22
Judge Prost added that if Asetek wished to seek recourse against Cooler Master, it could pursue a contempt proceeding for aiding and abetting CMI under the injunction against CMI, without the need for a separate independent injunction against Cooler Master.23
Parties dismissed from a litigation should keep in mind that claim-preclusion does not bar adjudication on the party’s post-dismissal conduct. Furthermore, based on the relationship between the dismissed party and any party remaining in the case, the dismissed party may find itself independently enjoined against infringing conduct even if the dismissed party does not receive the infringing product from the liable party. Even if the district court in this case ultimately finds that the facts of the case do not warrant an injunction against Cooler Master, the Federal Circuit has specified the factors that may determine whether a non-party can be independently subject to an injunction. Parties cannot view their dismissal as an end to their participation in the litigation when their independent conduct may still be affected by the adjudication.