Stipulated Dismissal Barred Claims Against Dow Despite Allegations of Fabricated Evidence

Case: Pactiv Corp. v. Dow Chemical Co., Case No. 05-1260 (Fed. Cir. 6/5/06)

The One Sentence Summary: Prior settlement and dismissal with prejudice will bar claims that are not expressly reserved even if the settlement was motivated by fabricated evidence.


What They Were Fighting About: Pactiv sought a declaratory judgment that it did not infringe two of Dow's patents and that the patents were invalid and unenforceable.

Federal Circuit Holdings:

• Patent litigation, commenced in 1995, resulted in a Settlement and License Agreement between the parties whereby Pactiv agreed to pay royalties on two Dow patents. In late 2002, Pactiv ceased payments and in 2003, it filed for declaratory judgment against Dow, alleging noninfringement, invalidity and unenforceability of the patents.
• The parties agreed that Pactiv's suit was barred by res judicata unless (1) the Agreement reserved Pactiv's right to challenge the patents in the future or (2) the judgment was unenforceable because Pactiv was denied a full and fair opportunity to litigate its invalidity and unenforceability claims.
• Applying the res judicata law of the Second Circuit, the Federal Circuit affirmed the trial court's dismissal of Pactiv's complaint.
• The defense of res judicata (or claim preclusion) is generally available where the asserted claim was, or could have been, raised in a prior action between the parties which has been adjudicated on the merits.
• The dismissal of the prior case with prejudice constituted a judgment on the merits.
• Because the Agreement at issue did not expressly reserve the right to litigate Pactiv's claims, the res judicata exception for express reservation of a claim that would otherwise be barred by res judicata did not apply. To the contrary, Pactiv expressly released Dow from claims relating to the two patents.
• The court also rejected Pactiv's argument that res judicata should not apply on the ground that it was denied a full and fair opportunity to litigate the patents because data relied upon in an expert report produced by Dow in the earlier litigation had been fabricated. The denial of a full and fair opportunity to litigate is a defense to collateral estoppel, but in the context of res judicata, the prior judgment is denied preclusive effect only where there has been a due process violation. Due process requires notice, service of process, and a court of competent juridiction. Procedural irregularities, even serious ones, will not deny a judgment preclusive effect and there was no claim for a denial of due process here.