The Court Said Improper Venue Required Dismissal “For this Reason Alone” but Ruled the Patent Ineligible Anyway

“Bath & Body Works’s briefing muddied the waters of any future litigation over the preclusive effect of the district court’s Rule 12(b)(6) patent ineligibility ruling. . . .”

I. Introduction

In AML IP, LLC v. Bath & Body Works Direct, Inc. et al., No. 25-1280 (Fed. Cir. Aug. 28, 2026) (AML IP, slip op.), the Federal Circuit held that a district court which has found venue improper under Fed. R. Civ. P. 12(b)(3) may nonetheless proceed to decide a concurrently briefed motion to dismiss under alternative grounds for failure to state a claim under Rule 12(b)(6). See AML IP, LLC v. Bath & Body Works Direct, Inc., No. 4:22-cv-00216, Dkt. 47 (E.D. Tex. Aug. 13, 2024) (AML IP, D. Ct. Decision).

So far, so good.

Under ordinary circumstances, these alternative rulings address procedural defects in the plaintiff’s case, and the case is dismissed without prejudice. The plaintiff can refile the case where venue is proper, and any defects in the original complaint might be cured in the newly filed case.

But this was no ordinary case.

The Rule 12(b)(6) ruling here was not at all procedural. In ruling on the defendants’ motions, Judge Jordan of the Eastern District of Texas held that the claims of AML’s U.S. Patent No. 6,876,979 (the ’979 patent) failed to satisfy the patent eligibility requirements of 35 U.S.C. § 101. The court’s Rule 12(b)(6) ruling therefore was a substantive determination that the ’979 patent claims are invalid. And that substantive determination was made by a court that concurrently ruled that the case should have been filed somewhere else.

As one might expect, the district court’s opinion begins by analyzing venue and concluding that venue was improper. Having reached that conclusion, the court said, “For this reason alone, the case should be dismissed.” AML IP, D. Ct. Decision, at 7. If the court had stopped there and dismissed the case for improper venue alone, AML likely would have refiled the case in a different court without troubling the Federal Circuit with an appeal. Rule 41(b), after all, clarifies that improper-venue dismissals do not “operate as an adjudication on the merits.”

The district court nevertheless took up the Rule 12(b)(6) patent eligibility motion anyway and held that claim 1 of the ’979 patent, which AML conceded was representative of every other asserted claim, is directed to an abstract idea and lacks any inventive concept. Id. at 20. At the end of its opinion, the district court granted the “Defendants’ Motions,” which expressly include motions for both improper venue and failure to state a claim. The opinion concludes with the words, “Plaintiff’s claims are hereby DISMISSED.” Id. at 21.

Unlike dismissals for improper venue, Rule 41(b) treats a dismissal for failure to state a claim as “an adjudication on the merits” unless “the dismissal order states otherwise.” Here, the order stated nothing of the sort. The customary words used to exclude a dismissal from the rule’s default treatment, “without prejudice,” appear nowhere in it.

With a stroke of the pen, a district court that, by its own analysis, should never have entertained this case in the first place may well have ended AML’s campaign to assert the ’979 patent against the nation’s retail industry. And this was no small campaign.

The ’979 patent, originally assigned to Paybyclick Corporation, was later acquired by AML. The patent’s claims are broadly directed to e-commerce methods involving a “bridge computer” that acts as a transaction clearinghouse among service providers. To date, AML has asserted the ’979 patent in at least 78 separate district court actions, targeting well-known retailers such as J.C. Penney, Costco, Stripe, Bloomingdale’s, Kendra Scott, American Eagle Outfitters, Aldo, At Home, Cost Plus World Market, and others.

Rather than seeking reversal of the district court’s patent ineligibility ruling during its appeal to the Federal Circuit, AML merely sought clarity of the ruling’s preclusive effect. The Federal Circuit declined AML’s invitation for “an advisory opinion,” placing AML on a murky path forward in its bid to further monetize the ’979 patent.

Two questions remain unanswered. The first is whether AML can again sue Bath & Body Works in a district court with proper venue. That is a question of claim preclusion. The second is whether AML can sue any other retailer, anywhere. That is a question of issue preclusion.

As we will see, the answers to those two questions are not so straightforward.

II. AML’s Appeal to the Federal Circuit

AML presented two issues on appeal. First, AML contended that once the district court determined it lacked venue, “it should have stopped there and dismissed solely on that ground.” AML IP, slip op. at 6. Second, AML asserted that the district court “erred by going further and dismissing for ineligibility as well.” Id. at 3. Curiously, AML challenged the merits of neither the district court’s venue ruling nor the substance of its patent eligibility analysis. Id.

A. Power and Privilege

Thus narrowed to these purely procedural issues, the Federal Circuit found that AML’s appeal “implicates the [district] court’s docket-management authority and presents no issue unique to patent law.” Id. at 5. The district court’s decision therefore was reviewed for an abuse of discretion under Fifth Circuit law. Id.

The analysis began by determining whether the district court had the “power” to decide the patent eligibility question under Rule 12(b)(6) when simultaneously faced with an improper venue motion under Rule 12(b)(3). For comparison, the Federal Circuit observed that in similar situations involving Rule 12(b)(1) motions, “the cases are ‘legion’ for endorsing the practice of resolving the subject-matter-jurisdiction” motion only and then dismissing the matter altogether if subject-matter jurisdiction is found lacking. Id. at 7. After all, subject-matter jurisdiction implicates the court’s power to act and is not waivable. Id. at 6.

In contrast, objections to a court’s venue or personal jurisdiction over a party are waivable. And if waived, there is no inherent defect in the court’s adjudication of the case. Thus, “rather than relating to the power of a court, venue relates to the convenience of litigants and . . . is subject to their disposition.” AML IP, slip op. at 6 (quoting Lindahl v. Office of Personnel Management, 470 U.S. 768, 793 n.30 (1985)) (emphasis added).

In response to the “scarce” caselaw that “admonishes district courts to give venue motions ‘top priority,’” the Federal Circuit observed the rationale of those cases is to protect the party contesting venue from “having to litigate in an objectionable venue.” AML IP, slip op. at 7-8 (quoting In re Horseshoe Ent., 337 F.3d 429, 433 (5th Cir. 2003)). More to the point, venue and personal jurisdiction alike are “personal privileges of the defendant, rather than absolute strictures on the court.” Id. (quoting Leroy v. Great Western United Corp., 443 U.S. 173, 180 (1979)).

Here, AML was neither the defendant nor “the party contesting venue” but was instead the party who chose the venue in the first place. The Federal Circuit therefore commented, “[I]t is hardly apparent that AML could be heard to complain even if the court had run afoul of this admonition” to give “top priority” to motions contesting venue. Id. at 8 (emphasis in original). “All told,” the Federal Circuit reasoned, “AML’s reliance on this category of cases does not persuade us that the district court abused its discretion.” Id.

After finding that the district court possessed not only the power but also the discretion to decide the patent eligibility motion, the Federal Circuit lauded the judicial efficiencies of the district court deciding both pending Rule 12(b) motions. Had the district court decided only the Rule 12(b)(3) venue motion and AML appealed the merits of the ruling, a reversal and remand in AML’s favor would inevitably spawn yet a second appeal once the district court ruled against AML on patent eligibility. Here, the district court acted in a way that the merits of both Rule 12(b) motions could be addressed timely in a single appeal—if AML had, in fact, chosen to appeal the merits of those rulings.

B. A Haunting Outcome for All Parties

The irony, of course, is that AML elected not to appeal the merits of either Rule 12(b) dismissal by the district court. As for patent eligibility, AML’s appeal merely sought “certainty” in the form of “vacating the dismissal under [Rule] 12(b)(6) or a statement that the ruling has no preclusive effect.” AML IP, slip op. at 11.

The Federal Circuit refused both: “We reject AML’s request for what is essentially an advisory opinion on the preclusive effect that the district court’s judgment (and ours) might have in future cases,” because “‘the precise [preclusive] effect of the judgment[] in [the instant] case will necessarily have to be decided in any . . . later action[] that may be brought.’” Id. (quoting In re Katz Interactive Call Processing Patent Litigation, 639 F.3d 1303, 1310 n.5 (Fed. Cir. 2011)); see alsoApple Inc. v. Voip-Pal.com, Inc., 976 F.3d 1316, 1322 (Fed. Cir. 2020).

A court in any such “later action that may be brought” will inevitably ask whether AML suffered a final judgment on the merits of the ’979 patent’s eligibility under Section 101 of the Patent Act. By operation of Rule 41(b), it appears that the district court’s refusal to dismiss AML’s action “without prejudice,” resulted in “an adjudication on the merits.” And AML’s refusal to appeal the merits of that adjudication, might lead a later court to conclude that the adjudication was a “final judgment” of patent ineligibility. AML may well have forfeited its best and only chance to revive the ’979 patent before the district court’s adjudication reached finality.

But all may not yet be lost for AML. Finality is only one element of preclusion. The doctrine is multifactorial, and its other elements might instead determine the future progress of AML’s patent monetization campaign. Ironically, Bath & Body Works may have unwittingly given AML a head start.

For its part, Bath & Body Works’s briefing muddied the waters of any future litigation over the preclusive effect of the district court’s Rule 12(b)(6) patent ineligibility ruling against AML. A future court may ask whether the patent ineligibility issue was actually litigated in the prior case, and, here, Bath & Body Works appears to have said too much.

With a tinge of bravado, Bath & Body Works defended the district court’s decision to rule on patent eligibility by analogizing to cases where a district court lacking personal jurisdiction takes “a limited review of the merits to determine if ‘the case is a sure loser in the potential transferee court.’” Br. for Defendants-Appellees, No. 25-1280, Dkt. 17 at 15-16 (Fed. Cir. Apr. 25, 2025) (quoting Joslyn v. United States, 420 F. App’x 974, 979 (Fed. Cir. 2011) (citing Phillips v. Seiter, 173 F.3d 609, 611 (7th Cir. 1999))) (emphasis added). The practice, it explained, “ensures that the transferor court does not ‘waste the time of another court’ with a ‘sure loser.’” Id. at 16 (quoting Phillips, 173 F.3d at 611). And then, in Bath & Body Works’s own words: “It is understandable that a district court would have discretion to make a limited review of the merits after finding that venue is improper.” Id. at 16 (emphasis added).

There is indeed evidence that the district court’s Rule 12(b)(6) ruling resulted from a limited review. There was no claim construction proceeding of the kind contemplated by Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996). Bath & Body Works had counterclaimed for a declaration that the ’979 patent is invalid under 35 U.S.C. §§ 101, 102, 103, and 112. No such declaration was ever entered. Tellingly, the district court’s final judgment denied “[a]ll relief not previously granted.” Final Judgment, No. 4:22-CV-216-SDJ, Dkt. 48 (E.D. Tex. Aug. 13, 2024). Instead, the district court addressed the ’979 patent’s eligibility at the pleadings stage of the case by deciding a Rule 12(b)(6) motion for failure to state a claim in a format described by Bath & Body Works itself as a “limited review” of the patent.

Likewise, there is circumstantial evidence that Bath & Body Works may have overstated its assertion that AML’s defense of its patent’s eligibility was “a sure loser.” As mentioned, AML’s patent monetization campaign involved asserting the ’979 patent in at least 78 separate district court actions against household names in the nation’s retail industry. Most of those actions appear to have concluded early in their procedural lives by joint, voluntary dismissals; doubtlessly by monetary settlements. Presumably represented by highly competent counsel, the Section 101 patent eligibility issue raised by Bath & Body Works was no stranger to those other litigants who appeared to choose settlement over litigation of that issue.

And even more compelling still, in a related case AML filed before Judge Albright in the Western District of Texas, Judge Albright confronted both a challenge to venue and a challenge to the ’979 patent’s eligibility under Section 101. He denied both. On patent eligibility, Judge Albright declined to resolve the question on the pleadings at all, reasoning that “claim construction and fact discovery may bear on the Court’s § 101 analysis.” AML IP, LLC v. American Eagle Outfitters, Inc., No. 6:21-cv-00823-ADA, Dkt. 33 at 15 (W.D. Tex. Oct. 19, 2022). Apparently, Judge Albright determined that AML’s defense of its patent’s eligibility was neither a “sure loser” nor a matter that could be decided by a “limited review” at the pleadings stage of the case. Actually litigating the issue would require developing a complete record.

III. AML’s Uncertain Road Ahead

Since the Federal Circuit declined the invitation to opine on the preclusive effect of the district court’s Rule 12(b)(6) ruling and its own decision on appeal, AML’s plight is now left to district court judges who will entertain those issues in the first instance wherever AML next chooses to file a case. One court may decide whether a second properly venued lawsuit against Bath & Body Works is barred by claim preclusion. Other courts adjudicating AML’s lawsuits against other accused infringers will decide whether those suits are barred by issue preclusion.

A. Claim Preclusion: Bath & Body Works

Under Fifth Circuit precedent, for example, claim preclusion has four elements: “(1) the parties are identical or in privity; (2) the judgment in the prior action was rendered by a court of competent jurisdiction; (3) the prior action was concluded by a final judgment on the merits; and (4) the same claim or cause of action was involved in both actions.” Test Masters Educational Services, Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005). On the fourth element the Federal Circuit applies its own law, because “whether a particular cause of action in a patent case is the same as or different from another cause of action has special application to patent cases.” Acumed LLC v. Stryker Corp., 525 F.3d 1319, 1323 (Fed. Cir. 2008).

Three of the four elements are straightforward. One is not.

1. Identical Parties, Identical Claims, and a Competent Court

A new suit filed by AML against Bath & Body Works (or any of the other defendants in the initial action) would satisfy the party identity element. The fourth element, “same claim,” would also be satisfied, assuming AML asserts none other than the same patent claims addressed in the first case.

The Federal Circuit’s decision here strongly suggests that the second element, “a court of competent jurisdiction,” is satisfied too. While taking care to limit the scope of its analysis, the Federal Circuit expressly held that the EDTX had both the power and the discretion to rule on Bath & Body Works’s Rule 12(b)(6) motion and to reach its conclusion that the ’979 patent is ineligible under Section 101.

2. A Final Judgment on the Merits

That leaves “a final judgment on the merits” as the remaining element.

We saw already that under Rule 41(b), the district court’s Rule 12(b)(6) determination in this case “operates as an adjudication on the merits.” While that might appear dispositive of the “final judgment on the merits” element for claim preclusion, the situation is not so clear.

The Supreme Court addressed this issue in Semtek International Inc. v. Lockheed Martin Corp., 531 U.S. 497, 503 (2001), which traced the historical treatment by courts of a prior “judgment on the merits” and concluded that “it is no longer true that a judgment ‘on the merits’ is necessarily a judgment entitled to claim-preclusive effect.” An “adjudication upon the merits” under Rule 41(b), the Court held, is merely “the opposite of a ‘dismissal without prejudice,’” and what it primarily means is that the plaintiff may not refile the same claim in the same court. Id. at 505.

As for anywhere else: “That is undoubtedly a necessary condition, but it is not a sufficient one, for claim-preclusive effect in other courts.” Id. The danger in concluding otherwise is in assigning more weight to the Federal Rules of Civil Procedure than they deserve.

The Supreme Court explained that it would be “peculiar to find a rule governing the effect that must be accorded federal judgments by other courts ensconced in rules governing the internal procedures of the rendering court itself.” Id. at 503. This is no small concern because a broader reading “would arguably violate the jurisdictional limitation of the Rules Enabling Act: that the Rules ‘shall not abridge, enlarge or modify any substantive right.’” Id. at 503.

In place of Rule 41(b), therefore, “federal common law governs the claim-preclusive effect of a dismissal” with prejudice. Id. at 508. Turning to the Restatement (Second) of Judgments, § 19 supplies the familiar rule that “[a] valid and final personal judgment rendered in favor of the defendant bars another action by the plaintiff on the same claim.” But the very next section of the Restatement carves out an exception for judgments “of dismissal for lack of jurisdiction, for improper venue, or for nonjoinder or misjoinder of parties.” Id. § 20(1)(a). Such dismissals do not bar future actions.

And Comment e to § 20 goes even further, addressing the peculiar situation faced here by AML, dismissals resting on multiple grounds. According to that comment, where at least one ground for dismissal, e.g., improper venue, would not, standing alone, bar a second action, the judgment does not operate as a bar to a second-filed action “even if another of the determinations, standing alone, would render the judgment a bar.”

The leading federal application of this rule is found in Ruiz v. Snohomish County Public Utility District No. 1, 824 F.3d 1161, 1166 (9th Cir. 2016), which held that a dismissal resting on both lack of personal jurisdiction and a merits ground is not claim preclusive as to the merits. See also Pizlo v. Bethlehem Steel Corp., 884 F.2d 116, 119 (4th Cir. 1989) (“When a dismissal is based on two determinations, one of which would not render the judgment a bar to another action on the same claim, the dismissal should not operate as a bar”).

In Ruiz, the Ninth Circuit reasoned that an “on the merits” dismissal “‘may not have been as carefully or rigorously considered as it would have if it had been necessary to the result, and in that sense it has some of the characteristics of dicta.’” Ruiz, 824 F.3d at 1165 (quoting Comment e). Here, Bath & Body Works admitted as much in arguing to the Federal Circuit that the district court undertook “a limited review” to rule on its patent eligibility motion. And Judge Albright’s decision in American Eagle Outfitters that entertaining the Rule 12(b)(6) motion on the eligibility of the ’979 patent required a more fulsome record suggests the district court here necessarily undertook just such “a limited review” by deciding essentially the same motion at the pleadings stage of the case.

A second stated rationale for the Ninth Circuit’s Ruiz holding, however, appears to collide head on with the Federal Circuit’s decision here. According to Ruiz, “‘A court that admits its own lack of power to decide should not undertake to bind a court that does have power to decide.’” Id. (quoting 18A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4421; see also Foss v. Eastern States Exposition, No. 22-1313 (1st Cir. May 10, 2023)). Here, the Federal Circuit expressly found that a district court’s determination that venue is improper does not divest the court of “the power” to decide a substantive Rule 12(b)(6) motion, especially against a plaintiff who chose the venue.

In similarly situated cases, therefore, the Federal Circuit says the district court has the power to decide, and the Ninth Circuit says it does not. But that apparent void between the two circuits’ decisions might not be so vast.

In Ruiz, the Ninth Circuit acknowledged its own earlier seemingly contradictory decision in Wages v. IRS, 915 F.2d 1230, 1233-35 (9th Cir. 1990), which held that a “‘a district court may decide that a complaint fails to state a claim even when it does not have personal jurisdiction.’” Ruiz, 824 F.3d at 1166. One might argue that Wages reached the same conclusion as the Federal Circuit here; a district court has “the power” to decide the Rule 12(b)(6) motion. But Ruiz took a more nuanced view of Wages that equates the district court’s “power” to decide with its permitted “discretion” to decide a Rule 12(b)(6) motion in the absence of personal jurisdiction.

In Ruiz, the Ninth Circuit distinguished its prior decision by explaining that “whatever discretion a district court may have to announce decisions pursuant to the Wages rule, it is a separate matter to give res judicata effect to judgments pronounced without personal jurisdiction.” Id. (emphasis in original). In other words, the discretion of a district court to rule on all Rule 12(b) motions before it “with prejudice” does not automatically convey preclusive effect to any of the rulings where the court determines that the case was filed in the wrong court. Instead, the dismissal “ordinarily (though not always) [has] the consequence of not barring the claim from other courts, but its primary meaning relates to the dismissing court itself.” Semtek, 531 U.S. at 505 (emphasis in original).

Arguably the same rationale applies with equal force to AML’s case here. Indeed, the district court itself characterized its own action as based on “‘discretion to decide whether dismissal was appropriate on multiple grounds.’” AML IP, slip op. at 5 (quoting J.A. 3-4). And despite couching its analysis in the language of the “power” to decide, the Federal Circuit expressly limited its review of the district court’s action to “an abuse of discretion” under “the court’s docket-management authority.” Id.

When thus characterized as a discretionary determination, Ruiz teaches that “[e]ven assuming that the district court properly opined on the merits . . . , its judgement on the merits [has] no res judicata effect” if the case was filed in the wrong court. Ruiz, 824 F.3d at 1166. In such situations, the court reasoned, “‘The first court does not get to dictate to other courts the preclusion consequences of its own judgment.’” Id. at 1168 (quoting Phillips Petroleum Co. v. Shutts, 472 U.S. 794, 805 (1985)). An adjudication on the merits resulting from a dismissal based on multiple grounds therefore “is not always conclusive for the purpose of res judicata.” Id. Such an adjudication “is undoubtedly a necessary condition, but it is not a sufficient one, for claim-preclusive effect.” Semtek, 531 U.S. at 505.

AML, it seems, is not necessarily precluded from suing Bath & Body Works again in a proper venue. And Bath & Body Works has already supplied AML’s most compelling argument. The EDTX’s patent eligibility ruling was merely a discretionary “limited review” of alternative grounds for dismissal that was not necessary to deciding the prominent issue before the court, i.e., whether venue in the EDTX was proper in the first place.

B. Issue Preclusion: Everyone Else

Patent practitioners have largely grown accustomed to the notion that a prior judgment of patent invalidity effectively ends the patent’s life and precludes its assertion against any other party. While generally true, that was not always the case.

The Supreme Court’s decision in Triplett v. Lowell, 297 U.S. 638 (1936) established the so-called “mutuality of estoppel” rule, providing that a stranger to a prior judgment of patent invalidity could not invoke the prior judgment against the patentee to bar suit on the same patent. Despite a judgment of patent invalidity in an earlier case, the patentee was free to assert the same patent and the same claims in a later case so long as the accused infringer or its privy was not a party to the prior case. The logical consequence of the mutuality rule was serial litigation of the same or substantially similar patent invalidity issues in multiple courts.

In Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971), the Supreme Court overruled Triplett’s mutuality rule “to the extent it forecloses a plea of estoppel by one facing a charge of infringement of a patent that has once been declared invalid.” 402 U.S. at 350. After Blonder-Tongue, a patentee who litigates the validity of its patent and loses may be estopped from ever again asserting the patent against other accused infringers.

But the Supreme Court imposed several caveats on its ruling, and estoppel does not follow automatically from a prior adverse judgment. “Rather, the patentee-plaintiff must be permitted to demonstrate, if he can, that he did not have ‘a fair opportunity procedurally, substantively and evidentially to pursue his claim the first time.’” Id. at 333 (quoting Eisel v. Columbia Packing Co., 181 F. Supp. 298, 301 (D. Mass. 1960)). That inquiry, the Court said, “will comprehend . . . the important concerns about the complexity of patent litigation and the posited hazard that the prior proceedings were seriously defective.” Id.

Nor is the inquiry mechanical. “Determining whether a patentee has had a full and fair chance to litigate the validity of his patent in an earlier case is of necessity not a simple matter.” Id. Relevant considerations include the patentee’s choice of forum and its incentive to litigate; whether the first court purported to employ the governing legal standards; “whether the opinions filed by the District Court and the reviewing court, if any, indicate that the prior case was one of those relatively rare instances where the courts wholly failed to grasp the technical subject matter and issues in suit” and “whether without fault of his own the patentee was deprived of crucial evidence or witnesses in the first litigation.” Id.

The Court declined to reduce any of this to a formulaic rule: “[N]o set of facts, no one collection of words or phrases, will provide an automatic formula for proper rulings on estoppel pleas. In the end, decision will necessarily rest on the trial courts’ sense of justice and equity.” Id. at 333–34.

Blonder-Tongue is still good law.

1. The Elements of Issue Preclusion

The modern elements of issue preclusion, again supplied by Fifth Circuit law, are four: (1) the issue must be identical to the issue litigated in the prior action; (2) it must have been fully and vigorously litigated there; (3) it must have been necessary to support the judgment in the prior case; and (4) there must be no special circumstance that would render preclusion inappropriate or unfair. United States v. Shanbaum, 10 F.3d 305, 311 (5th Cir. 1994).

Although generalized for application to the prior adjudication of any issue, the second and fourth of these elements fairly embrace the caveats recited in Blonder-Tongue that apply specifically to the review of prior judgments of patent invalidity. That said, Blonder-Tongue does invite greater scrutiny of those prior rulings and may provide AML further leeway in asserting the ’979 patent against other accused infringers.

2. Identity of the Issue

This element is undoubtedly satisfied as to the patent claims AML asserted against Bath & Body Works, which include claims 1, 6, 7, 10, 12, and 13 of the ’979 patent. And it is conceivable that a future defendant might argue that the element is satisfied as to all claims of the patent.

In addressing the patent eligibility challenge, AML conceded that claim 1 was representative of all asserted patent claims. Expressly relying on that concession, the district court analyzed claim 1 alone. AML IP, D. Ct. Decision, at 20 & n.3. If AML asserts other claims of the patent in future cases, AML may be pressed to demonstrate that those other claims are somehow materially different from and not represented by either claim 1 of the ’979 patent or any of the remaining claims previously asserted against Bath & Body Works.

3. Fully and Vigorously Litigated

On the surface, this element is satisfied too. AML opposed the Rule 12(b)(6) motion on the merits, briefed the patent eligibility issues before the court it had chosen, appeared at a hearing, supplemented the record afterward, lost, and then moved under Rule 59(e) to undo that loss. Ordinarily, this element is left unsatisfied in the wake of a default judgment, not after several rounds of briefing and oral argument.

Digging deeper, however, reveals Bath & Body Works’s admission in its Federal Circuit briefing that the district court conducted only “a limited review of the merits” to dispose of a “sure loser.” A limited review obviously is not a full one. The question remaining is whether it was enough for purposes of issue preclusion.

Judge Albright’s deferral of essentially the same Rule 12(b)(6) patent eligibility issues until after claim construction and fact discovery lends AML a significant helping hand. Judge Albright independently concluded “that delaying the determination of a patent’s § 101 eligibility is the wisest course of action” to develop a more fulsome record. American Eagle Outfitters, Inc., No. 6:21-cv-00823-ADA, Dkt. 33 at 15. Objectively, the district court here did not conduct formal claim construction, and no discovery was conducted. AML can defensibly argue that the patent eligibility issue was not fully and vigorously litigated at the pleadings stage of the case.

4. Necessary to Support the Judgment

This is where AML may have the stronger argument, and the Federal Circuit’s decision in Voter Verified, Inc. v. Election Sys. & Software LLC, 887 F.3d 1376 (Fed. Cir. 2018), conceptually provides the relevant analysis.

Voter Verified arose in the opposite posture from AML’s case. There, it was the patentee who sought to invoke issue preclusion. In an earlier action between the same parties involving the same patent, the district court had entered judgment that Election Systems was not liable for infringement, and it rested that judgment on several determinations: that claims 1 through 93 were not infringed; that those same claims were not invalid under Sections 101 and 112; that claim 94 was invalid under Section 112; and that claim 49 was invalid under Section 103. The Section 101 ruling went in Voter Verified’s favor largely because, although Election Systems’s counterclaims asserted Section 101 invalidity, Election Systems “failed to present any arguments or evidence regarding invalidity” of the relevant claims during summary judgment briefing. Id. at 1379-80.

In a later action against Election Systems, Voter Verified asserted the same patent against different products. In that later case, Voter Verified argued that the earlier Section 101 ruling precluded Election Systems from again litigating patent eligibility. If Voter Verified were right, the patent eligibility issue would be off the table. If not, the Federal Circuit would have to review and decide patent eligibility on the merits.

The Federal Circuit held that no preclusion arose because Voter Verified failed to establish two elements of issue preclusion. The Section 101 issue “was not actually litigated,” having been “in fact barely considered” in the first case. Id. at 1383. And the Section 101 issue “was not necessary to the judgment in the first district court action.” Id.

On necessity, the court observed that the district court in the prior case “did not specify which of these determinations were critical or necessary to the final judgment.” Id. at 1383. For guidance, the Federal Circuit turned to Comment i of Section 27 of the Restatement (Second) of Judgments, which says, “If a judgment of a court of first instance is based on determinations of two issues, either of which standing independently would be sufficient to support the result, the judgment is not conclusive with respect to either issue standing alone.” Id.

In the face of that ambiguity, the court made a practical decision. Because “either an invalidity or a noninfringement determination is sufficient for a final judgment holding that a party is not liable for infringement,” the Federal Circuit concluded that the Section 101 determination “was not necessary to the judgment in the first district court action.” Id. at 1383–84; see also Hill-Rom Co. v. Kinetic Concepts, Inc., 209 F.3d 1337, 1344 (Fed. Cir. 2000) (“the district court’s resolution of the issue of invalidity was not necessary to the judgment”). Finding no issue preclusion, the Federal Circuit addressed the merits of patent eligibility and ultimately held the claims ineligible.

Unlike the prior district court in Voter Verified, which failed to “specify which of these determinations were critical or necessary to the final judgment,” the district court here left no such ambiguity in its written decision dismissing AML’s case against Bath & Body Works. After concluding that venue was improper and before turning to its analysis of patent eligibility, the district court expressly stated, “For this reason alone, the case should be dismissed.” AML IP, D. Ct. Decision, at 7. By its own analysis, therefore, to reach its ultimate decision to dismiss AML’s case, the district court needed only to decide the venue issue. The patent eligibility issue was not necessary, at all, to dismissing the case.  

5. Special Circumstances

The fourth element is Blonder-Tongue’s catch-all and asks whether the patentee had “a fair opportunity procedurally, substantively and evidentially to pursue his claim the first time.” 402 U.S. at 333. A related inquiry is whether the patentee had an “incentive to litigate” the issue. Id. Here, these equities may work in AML’s favor, especially if AML succeeds in showing that the ruling on patent eligibility was not necessary to the district court’s decision to dismiss the case.  

Comment e to Section 20 of the Restatement (Second) of Judgments, quoted by the Ninth Circuit in Ruiz, explains that a determination not necessary to the result “may not have been as carefully or rigorously considered as it would have if it had been necessary to the result.” Ruiz, 824 F.3d at 1165. Having decided that venue was improper, the district court here was obviously in no position to conduct the same scope of claim construction and discovery as contemplated by Judge Albright in the parallel WDTX case before considering and ruling on patent eligibility. In that sense, AML may not have had “a fair opportunity procedurally, substantively and evidentially to pursue [its] claim.” Blonder-Tongue, 402 U.S. at 333.

Comment i to Section 27, quoted by the Federal Circuit in Voter-Verified, states that “a judgment of a court of first instance is based on determinations of two issues, either of which standing independently would be sufficient to support the result, the judgment is not conclusive with respect to either issue standing alone.” And where one of the determinations is shown to be secondary or unnecessary to the result, courts have found that the losing party has diminished incentive to appeal the secondary determination. See Nat. Satellite Sports, Inc. v. Eliadis Inc., 253 F.3d 900, 909 (6th Cir. 2001) (“NSS had no incentive to appeal that court’s secondary decision that NSS failed to state a claim”); Halpern v. Schwartz, 426 F.2d 102, 105 (2nd Cir. 1970) (“the losing litigant . . . would have little motive to take an appeal from an alleged error which had no effect on the judgment”).

Ordinarily, a non-appealed “adjudication on the merits” is a final judgment, and AML unequivocally did not appeal the district court’s adverse ruling against AML on patent eligibility. Here, Blonder-Tongue and other case law may provide AML a rational pathway forward in demonstrating that, under the circumstances of this case, it had no reasonable incentive to appeal the merits of the district court’s ruling, and a later court weighing these equities might justifiably agree.

IV. Conclusion

Every litigant plans for its opponent. Few plan for the judge. AML asserted the ’979 patent in some seventy-eight actions against the nation's brand-name retailers, and it must have anticipated that sooner or later one of the cases would produce a head-on ruling that its patent claims were ineligible. What it could not have planned for was losing on that issue in a discretionary ruling where a dismissal for improper venue alone would have been no major setback at all. Ironically, Bath & Body Works may have provided AML with its brightest ray of hope: an admission that AML’s patent eligibility loss resulted from “a limited review.” That admission may embolden future district courts to renew AML’s patent monetization campaign against Bath & Body Works and other retailers. And a renewed campaign may well reveal whether the ’979 patent was ever the “sure loser” that Bath & Body Works portrayed.