Kroy Ip Holdings, LLC v. Groupon, Inc.

United States Court of Appeals
for the Federal Circuit
______________________
KROY IP HOLDINGS, LLC,
Plaintiff-Appellant
v.
GROUPON, INC.,
Defendant-Appellee
______________________
2023-1359
______________________
Appeal from the United States District Court for the
District of Delaware in No. 1:17-cv-01405-MN, Judge
Maryellen Noreika.
______________________
Decided: February 10, 2025
______________________
P AUL RICHTER, J R., Devlin Law Firm LLC, Wilmington,
DE, argued for plaintiff-appellant. Also represented by
T IMOTHY D EVLIN.
T HOMAS L EE D USTON, Marshall, Gerstein & Borun
LLP, Chicago, IL, argued for defendant-appellee. Also rep-
resented by CHELSEA MURRAY , RAYMOND R. RICORDATI, III.
______________________
Before P ROST , REYNA, and T ARANTO, Circuit Judges.
REYNA, Circuit Judge.
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KROY IP HOLDINGS, LLC v. GROUPON, INC. 2
Kroy IP Holdings, LLC sued Groupon, Inc. in the
United States District Court for the District of Delaware
alleging patent infringement. Groupon moved to dismiss
Kroy’s operative complaint, arguing that Kroy was collat-
erally estopped from alleging infringement of the asserted
claims based on two prior inter partes review decisions of
the Patent Trial and Appeal Board. Both of the Board’s
prior decisions involved the same patent, but claims other
than the asserted claims. The district court granted
Groupon’s motion to dismiss. Kroy timely appeals. For the
following reasons, we reverse and remand.
BACKGROUND
Kroy IP Holdings, LLC (“Kroy”) owns U.S. Patent No.
6,061,660 (“’660 patent”), which relates to providing incen-
tive programs over a computer network. ’660 patent, Ab-
stract. In October 2017, Kroy sued Groupon, Inc.
(“Groupon”) in the United States District Court for the Dis-
trict of Delaware, alleging that Groupon infringed 13 ex-
emplary claims of the ’660 patent. J.A. 1014. In October
2018, Groupon filed two inter partes review (“IPR”) peti-
tions challenging 21 claims of the ’660 patent. Groupon,
Inc. v. Kroy IP Holds., LLC, No. IPR2019-00044, 2020 WL
1900398 (P.T.A.B. Apr. 16, 2020) (“’044 IPR”); Groupon,
Inc. v. Kroy IP Holds., LLC, No. IPR2019-00061, 2020 WL
1900402 (P.T.A.B. Apr. 16, 2020) (“’061 IPR”). After
Groupon’s IPR filing deadline had passed, Kroy amended
its complaint to allege infringement of additional claims,
many of which were not included in Groupon’s IPR peti-
tions. J.A. 1925–26. In April 2020, the Patent Trial and
Appeal Board (“Board”) found all 21 of the challenged
claims unpatentable (the “Unpatentable Claims”). ’044
IPR, 2020 WL 1900398, at *1; ’061 IPR, 2020 WL 1900402,
at *1. Kroy appealed the Board’s final written decisions,
and in June 2021, this court affirmed via Federal Circuit
Rule 36 (“Rule 36”). Kroy IP Holds., LLC, v. Groupon, Inc.,
849 F. App’x 930 (Fed. Cir. 2021).
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KROY IP HOLDINGS, LLC v. GROUPON, INC. 3
In March 2022, Kroy filed a second amended complaint
alleging infringement of 14 claims of the ’660 patent (the
“Newly Asserted Claims”), none of which were at issue in
the IPR proceedings. J.A. 2457; J.A. 2472. In response,
Groupon filed a motion to dismiss pursuant to Federal Rule
of Civil Procedure 12(b)(6), arguing that the Board’s prior
IPR rulings on the Unpatentable Claims collaterally es-
topped Kroy from asserting the Newly Asserted Claims.
The district court agreed with Groupon and granted its
motion to dismiss with prejudice in December 2022. Kroy
IP Holds., LLC v. Groupon, Inc., No. 17-1405-MN-CJB,
2022 WL 17403538 (D. Del. Dec. 2, 2022). In so ruling, the
district court first determined that the Board’s final judg-
ments on the unpatentability of a patent claim have pre-
clusive effect on any pending or co-pending district court
actions involving the same claim. Id. at *4 (citing XY, LLC
v. Trans Ova Genetics, L.C., 890 F.3d 1282, 1294
(Fed. Cir. 2018)). The district court next determined that
collateral estoppel may apply to patent claims that were
not previously adjudicated if the differences between the
unadjudicated claims and the adjudicated claims “do not
materially alter the question of invalidity.” Id. (emphasis
removed) (quoting Ohio Willow Wood Co. v. Alps S., LLC,
735 F.3d 1333, 1342 (Fed. Cir. 2013)). Taking these two
principles together, the district court concluded that if the
Board issues a final judgment ruling that a patent claim is
unpatentable, and that claim is immaterially different for
purposes of invalidity from another claim, collateral estop-
pel precludes the patentee from asserting the immaterially
different claim. Id. With this legal principle in mind, the
district court turned to the merits of Groupon’s estoppel ar-
guments.
The district court started its collateral estoppel analy-
sis by observing that four requirements must be met for
collateral estoppel to apply in the Third Circuit: “(1) the
identical issue was previously adjudicated; (2) the issue
was actually litigated; (3) the previous determination was
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KROY IP HOLDINGS, LLC v. GROUPON, INC. 4
necessary to the decision; and (4) the party being precluded
from relitigating the issue was fully represented in the
prior action.” Id. (quoting Jean Alexander Cosmetics, Inc.
v. L’Oreal USA, Inc., 458 F.3d 244, 249 (3d Cir. 2006)). The
district court focused its analysis on the first requirement:
prior adjudication of the identical issue. In doing so, the
district court compared specific Unpatentable Claims to
their corresponding Newly Asserted Claims and deter-
mined that each Newly Asserted Claim was immaterially
different from one or more Unpatentable Claims for pur-
poses of invalidity. Id. at *6–14. Next, the district court
noted that the parties did not dispute that the second and
fourth collateral estoppel requirements were met. Id. at *5
n.7. Finally, the district court rejected Kroy’s argument
that the third collateral estoppel requirement was not met
because this court’s Rule 36 affirmance was “silent” as to
which theories underlying the Board’s decision it approved
of. Id. Having ruled that all four collateral estoppel re-
quirements were met, the district court granted Groupon’s
motion to dismiss with prejudice. Id. at *15.
Kroy appeals. We have jurisdiction under 28 U.S.C.
§ 1295(a)(1).
STANDARD OF REVIEW
We review a district court’s dismissal for failure to
state a claim under the law of the regional circuit. Content
Extraction & Transmission LLC v. Wells Fargo Bank, Nat’l
Ass’n, 776 F.3d 1343, 1346 (Fed. Cir. 2014). The Third Cir-
cuit reviews de novo a district court’s grant of a motion to
dismiss for failure to state a claim. Id. A district court
should grant a motion to dismiss for failure to state a claim
if the complaint does not “contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible
on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (in-
ternal quotation marks and citations omitted).
We also review a district court’s application of general
collateral estoppel principles de novo under the law of the
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KROY IP HOLDINGS, LLC v. GROUPON, INC. 5
regional circuit. Aspex Eyewear, Inc. v. Zenni Optical Inc.,
713 F.3d 1377, 1380 (Fed. Cir. 2013); Shell Petroleum, Inc.
v. United States, 319 F.3d 1334, 1338 (Fed. Cir. 2003). Fed-
eral Circuit law applies to collateral estoppel issues that
implicate substantive patent law issues. Soverain Soft-
ware LLC v. Victoria’s Secret Direct Brand Mgmt., LLC,
778 F.3d 1311, 1314 (Fed. Cir. 2015).
D ISCUSSION
This case presents a distinct question of Federal Cir-
cuit collateral estoppel law: whether a prior final written
decision of the Board that certain patent claims are un-
patentable precludes a patentee from asserting other
claims from the same patent, even assuming the asserted
claims are immaterially different from the unpatentable
claims for purposes of invalidity. Kroy argues that collat-
eral estoppel should not apply because an IPR proceeding
requires a lower burden of proof to prove unpatentability
than the burden of proof in district court for invalidity. Ap-
pellant Br. 19–20. Groupon responds that under this
court’s decisions in XY and Ohio Willow Wood, collateral
estoppel applies. Appellee Br. 16–17 (citing XY, 890 F.3d
at 1294, and quoting Ohio Willow Wood, 735 F.3d at 1342).
We agree with Kroy and hold that collateral estoppel does
not apply.
Collateral estoppel applies when “(1) the identical issue
was previously adjudicated; (2) the issue was actually liti-
gated; (3) the previous determination was necessary to the
decision; and (4) the party being precluded from relitigat-
ing the issue was fully represented in the prior action.”
Jean Alexander Cosmetics, 458 F.3d at 249 (internal quo-
tation marks and citations omitted); see also Soverain Soft-
ware, 778 F.3d at 1315. That said, collateral estoppel is
“subject to certain well-known exceptions.” B & B Hard-
ware, Inc. v. Hargis Indus., Inc., 575 U.S. 138, 148 (2015).
One such exception is when “the second action involves ap-
plication of a different legal standard,” such as a different
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burden of proof. Id. at 154; Grogan v. Garner, 498 U.S. 279,
284–85 (1991) (explaining that a prior judgment rendered
under a preponderance of the evidence standard cannot be
given collateral estoppel effect in a subsequent matter liti-
gated under a clear and convincing evidence standard);
18 Charles Alan Wright, Arthur R. Miller & Edward H.
Cooper, Federal Practice & Procedure § 4422 (3d ed. 2016)
(“[A] party who has carried the burden of establishing an
issue by a preponderance of the evidence is not entitled to
assert preclusion in a later action that requires proof of the
same issue by a higher standard.”).
This court recently examined the doctrine of collateral
estoppel and assessed the effect that prior final written de-
cisions of the Board may have on subsequent district court
litigation. In ParkerVision, Inc. v. Qualcomm Inc., we re-
viewed a district court decision that collateral estoppel
barred ParkerVision’s expert from offering testimony to
support the validity of certain method claims of a patent.
116 F.4th 1345, 1360–61 (Fed. Cir. 2024). The Board de-
termined that apparatus claims of the same patent were
unpatentable as obvious. Id. The district court ruled that
collateral estoppel barred ParkerVision from asking it or a
jury to reach factual conclusions regarding the validity of
the method claims that would conflict with the Board’s fact
findings for the apparatus claims. Id. at 1353–54, 1361.
We reversed. We recognized that in an IPR proceeding, the
petitioner has a burden to prove unpatentability by a pre-
ponderance of the evidence, whereas the district court re-
quires the higher burden of clear and convincing evidence
for invalidity. Id. at 1362. Thus we held that, under the
Supreme Court’s guidance in B & B Hardware and Grogan,
collateral estoppel did not apply due to the differing bur-
dens of proof. Id. at 1361–62.
Our reasoning in ParkerVision holds true in this ap-
peal. Collateral estoppel generally does not apply when the
second action involves application of a different legal
standard, such as a different burden of proof. B & B
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Hardware, 575 U.S. at 148, 154; Grogan, 498 U.S.
at 284–85; 18 Charles Alan Wright, Arthur R. Miller & Ed-
ward H. Cooper, Federal Practice & Procedure § 4422
(3d ed. 2016). Before the Board, Groupon proved the un-
patentability of the Unpatentable Claims by a preponder-
ance of the evidence. Before the district court, however,
Groupon’s burden to prove that the Newly Asserted Claims
are invalid is clear and convincing evidence. As such, col-
lateral estoppel should not apply. To hold otherwise would
deprive patent owners of their property right without first
requiring proof of patent invalidity that satisfies the stat-
utorily-prescribed clear and convincing evidence standard.
See Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 102
(2011).
Groupon argues that our decision in XY provides that,
notwithstanding differing burdens of proof, a final written
decision by the Board may give rise to collateral estoppel
in district court. We addressed and rejected a similar ar-
gument in ParkerVision. In XY, we established a limited
exception to the general principle that collateral estoppel
does not apply when there are different burdens of proof.
ParkerVision, 116 F.4th at 1362. Specifically, we explained
that XY stands for the more limited proposition that once
this court affirms the Board’s decision that a patent claim
is unpatentable, the same claim cannot be asserted in dis-
trict court. Id. We explained that once the claim is ruled
unpatentable, it no longer exists, whereas when a claim
has “not been found unpatentable[,] . . . those claims re-
main presumptively valid.” Id. This is so because once a
claim is already and finally held unpatentable as a result
of an IPR, the claim is subject to a wholly ministerial, in-
evitable, unreversible cancellation. The premise invoked
for collateral estoppel in XY does not rely on the Board’s
fact findings, but rather the retroactive cancellation of cer-
tain claims as a matter of law. Yet when a district court
would necessarily rely on the Board’s fact findings, and
those facts have only been proven in a prior proceeding
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KROY IP HOLDINGS, LLC v. GROUPON, INC. 8
under a lower burden of proof than what is required in dis-
trict court, collateral estoppel does not apply. Id. The rea-
soning of ParkerVision applies equally here. The Newly
Asserted Claims have not been found unpatentable and
thus continue to exist until this court affirms a Board or
district court decision that determines otherwise.
Contrary to Groupon’s assertion, Ohio Willow Wood
does not compel a different result. Groupon is correct that,
under Ohio Willow Wood, collateral estoppel may apply to
patent claims that were not previously adjudicated if the
differences between the unadjudicated claims and the ad-
judicated claims “do not materially alter the question of in-
validity.” Ohio Willow Wood, 735 F.3d at 1342. What
Groupon omits, however, is that Ohio Willow Wood ad-
dresses whether a prior district court invalidity ruling es-
topped the patentee from asserting claims in district court
that are immaterially different for purposes of invalidity.
Id. at 1341–43. Put another way, the district-court-to-dis-
trict-court scenario presented in Ohio Willow Wood does
not present the same burden of proof concern as the Board-
to-district-court case before us. The district court’s reliance
on Ohio Willow Wood to establish that a prior Board un-
patentability ruling estopped Kroy from asserting the un-
adjudicated, Newly Asserted Claims in district court
ignores B & B Hardware and Grogan and thus was legal
error.
We hold that a prior final written decision of the Board
of unpatentability on separate patent claims reached under
a preponderance of the evidence standard cannot collater-
ally estop a patentee from asserting other, unadjudicated
patent claims in district court litigation. As such, dismis-
sal was inappropriate.
CONCLUSION
We have considered the parties’ remaining arguments
and find them unpersuasive. For the reasons stated, we
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reverse the district court’s grant of Groupon’s motion to dis-
miss and remand for further proceedings.
REVERSED AND REMANDED
COSTS
Costs against Groupon.
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