Case IPR2014-00173
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`Filed on behalf of: RPX Corporation
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`Paper No. _______
`Filed: March 28, 2014
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` Oliver R. Ashe, Jr., Esq.
`ASHE, P.C.
`11440 Isaac Newton Sq. North
`Suite 210
`Reston, VA 20190
`Tel.: (703) 467-9001
`Fax: (703) 467-9002
`E-mail: oashe@ashepc.com
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`Gregory M. Howison
`HOWISON & ARNOTT, LLP
`Lincoln Centre II
`5420 LBJ Freeway, Suite 660
`Dallas, Texas 75240
`Tel.: (972) 680-6050
`Fax: (972) 479-0464
`E-mail: ghowison@dalpat.com
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`By:
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`UNITED STATES PATENT AND TRADEMARK OFFICE
`____________________
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`___________________
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`RPX CORPORATION,
`Petitioner,
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`v.
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`VIRNETX, INC. AND SCIENCE APPLICATION
`INTERNATIONAL CORPORATION,
`Patent Owner
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`_____________
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`Case IPR2014-00173
`Patent 7,490,151
`_____________
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`PETITIONER’S RESPONSE TO THE BOARD’S MARCH 17, 2014 ORDER
`(Regarding Real Party in Interest)
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` Case IPR2014-00173
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`Table of Contents
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`Page
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`Factual Background ......................................................................................... 1 
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`RPX Is the Only Real Party in Interest in Its Inter Partes Reviews ................ 2 
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`1. 
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`RPX and Apple Do Not Have a “Substantive Legal
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`Relationship” That Qualifies Under Taylor’s Second Exception ......... 3 
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`2. 
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`RPX Is Not an Agent or Representative of Apple for Purposes
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`of Taylor’s Fifth Exception ................................................................... 5 
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`I. 
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`II. 
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` Case IPR2014-00173
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`Table of Authorities
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`Page
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`Cases
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`Aevoe Corp. v. AE Tech Co., 727 F.3d 1375 (Fed. Cir. 2013) ................................ 10
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`Arviv Reexamination Proceeding, In re, Control No. 95/001,526,
`Decision Dismissing § 1.182 and § 1.183 Petitions (Apr. 18,
`2011) ............................................................................................................ 8-9
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`Chicago, R.I. & P. Ry. Co. v. Schendel, 270 U.S. 611 (1926)................................... 9
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`Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent
`Litig., In re, 504 F. App’x 900 (Fed. Cir. 2013) ............................................ 10
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`General Foods Corp. v. Massachusetts Dep’t of Pub. Health,
`648 F.2d 784 (1st Cir. 1981) ............................................................................ 4
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`Gonzalez v. Banco Cent. Corp., 27 F.3d 751 (1st Cir. 1994) .................................... 8
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`Guan Inter Partes Reexamination Proceeding, In re, Control No.
`95/001,045, Decision Vacating Filing Date (Aug. 25, 2008)........................ 10
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`Litchfield v. Crane, 123 U.S. 549 (1887) ............................................................... 4, 7
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`Rumford Chem. Works v. Hygienic Chem. Co. of New Jersey,
`215 U.S. 156 (1909)......................................................................................... 7
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`Taylor v. Sturgell, 553 U.S. 880 (2008) ............................................................passim
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`Unified Patents, Inc. v. Clouding IP, LLC, IPR2013-00586,
`Decision (Mar. 21, 2014) ................................................................................. 8
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`United States v. Bhatia, 545 F.3d 757 (9th Cir. 2008) .............................................. 8
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`Virginia Hosp. Ass’n v. Baliles, 830 F.2d 1308 (4th Cir. 1987) ................................ 8
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`Zoll Lifecor Corp. v. Philips Elecs. N.A. Corp., IPR2013-00609,
`Decision (Mar. 20, 2014) ................................................................................. 9
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`ii
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` Case IPR2014-00173
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`Statutes and Rules
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`35 U.S.C. § 311(a) ................................................................................................. 2, 4
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`35 U.S.C. § 315(b) ..................................................................................................... 9
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`Fed. R. Civ. P. 65(d)(2)(C) ...................................................................................... 10
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`Other Authorities
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`Office Patent Trial Practice Guide, 77 Fed. Reg. 48756 (Aug. 14, 2012) ................. 4
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`Restatement (Second) of Judgments § 39 cmt. c (1982) ........................................... 8
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`18A Charles Alan Wright et al., Federal Practice and Procedure,
`§ 4454 at 434 (2d ed. 2002) ............................................................................. 9
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` Case IPR2014-00173
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`Petitioner RPX Corp. is the only real party in interest in these inter partes
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`reviews. Under the framework of Taylor v. Sturgell, 553 U.S. 880 (2008), RPX
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`has no “pre-existing ‘substantive legal relationship[]’” such as that of licensor,
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`assignee, or successor, id. at 894, for any patent at issue; and RPX is expressly not
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`a “designated representative” or “agent,” id. at 895, of Apple Inc. or any other
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`relevant entity. Accordingly, RPX has the right to petition in its own name.
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`Patent Owner VirnetX, Inc. fails to fit RPX within any of Taylor’s
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`categories. VirnetX effectively concedes that it cannot prove Apple had control
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`over RPX’s decision to file the present IPR petitions or RPX’s conduct in litigating
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`them. Instead, VirnetX relies on factually overstated and legally deficient
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`allegations that Apple
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` gave it access to Apple’s counsel.
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`Under settled law, those allegations do not establish real-party-in-interest status.
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`The Board should grant the RPX petitions and institute the requested IPRs.
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`I.
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`Factual Background
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`RPX was founded as a Delaware corporation in July 2008 and issued shares
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`to the public in May 2011. At the end of 2013, RPX had more than 160 customers
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`for its patent services. RPX’s services include obtaining patent rights for its
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`customers, facilitating settlement of active litigation, gathering and analyzing
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`market intelligence and data, providing insurance against patent litigation risks, and
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`other services to reduce patent risk to customers and to help rationalize the market
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`for patent licenses.
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`II. RPX Is the Only Real Party in Interest in Its Inter Partes Reviews
`RPX filed it IPR petitions in its own name under 35 U.S.C. § 311(a), which
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`permits “a person who is not the owner of a patent [to] file with the Office a
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`petition to institute an inter partes review of the patent.” RPX’s independent
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`business reasons for seeking IPR include the effect of a successful IPR on the
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`overall market for patents, especially low-quality patents; reducing the risk of
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`assertion of VirnetX’s patents against other companies
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`; avoiding the
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`potential impact of such assertions on RPX’s insurance product; demonstrating to
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`future prospective supporters that RPX can effectively use IPR as a means of
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`improving patent quality; and enhancing RPX’s reputation in the industry.
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`In an Order dated March 17, 2014 (“Board’s Order”), the Board directed the
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`parties to address whether Apple may be a real party in interest under the second or
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`fifth exceptions identified in Taylor to the general rule against nonparty preclusion.
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`RPX agrees that Taylor provides the governing framework. Taylor reaffirmed that
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`a nonparty to a prior suit is not precluded from contesting claims and issues settled
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`in that suit because it “has not had a ‘full and fair opportunity to litigate’ th[ose]
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`claims and issues.” 553 U.S. at 892. Taylor further explained that courts recognize
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`only limited exceptions to that general rule because, “[i]n this area of the law, . . .
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`‘crisp rules with sharp corners’ are preferable to a round-about doctrine of opaque
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`standards.” Id. at 901 (citation omitted).
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`1.
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`RPX and Apple Do Not Have a “Substantive Legal Relationship”
`That Qualifies Under Taylor’s Second Exception
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`Taylor’s second exception precludes a nonparty from litigating an issue
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`where there is a pre-existing “‘substantive legal relationship[]’” between the
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`nonparty and a party bound to the prior judgment. 553 U.S. at 894 (quoting David
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`L. Shapiro, Civil Procedure: Preclusion in Civil Actions 78 (2001)). Relationships
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`that may cause preclusion under this exception include “preceding and succeeding
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`owners of property, bailee and bailor, and assignee and assignor.” Id. (citing
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`Restatement (Second) of Judgments §§ 43-44, 52, 55 (1980)). Exceptions for these
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`relationships “originated ‘as much from the needs of property law as from the
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`values of preclusion by judgment.’” Id. (quoting 18A Charles Alan Wright et al.,
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`Federal Practice and Procedure § 4448, at 329 (2d ed. 2002) (“Wright &
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`Miller”)); cf. Litchfield v. Crane, 123 U.S. 549, 551 (1887) (“[T]he term ‘privity’
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`denotes mutual or successive relationship to the same rights of property.”). RPX is
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`not a preceding or succeeding owner, a bailee, a bailor, an assignee, or an assignor
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`with respect to any relevant Apple property right.
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`The Board’s Order refers to three additional specific relationships: the
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`relationship between “trade association” and its members; a licensor-licensee
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`relationship; and an attorney-client relationship (i.e., RPX acting as Apple’s
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`“alleged law firm”). Order at 2. None of those relationships are present here.
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`First, RPX is not a trade association;
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`. See, e.g., Office Patent Trial Practice
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`Guide, 77 Fed. Reg. 48,756, 48,760 (Aug. 14, 2012). VirnetX relies (at 4-5) on a
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`case in which a trade association had asserted “standing to sue [based] on [a] claim
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`to represent its members as the real parties in interest.” General Foods Corp. v.
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`Massachusetts Dep’t of Pub. Health, 648 F.2d 784, 787 (1st Cir. 1981).
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`Second, RPX is not a licensor in any relevant way. RPX has no property
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`interest in the patents at issue and cannot license them to Apple or anyone else.
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`Third, RPX is not Apple’s “law firm.” RPX is a publicly traded corporation;
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`it is not an attorney and does not hold itself out as one.
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`2.
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`RPX Is Not an Agent or Representative of Apple for Purposes of
`Taylor’s Fifth Exception
`Taylor’s fifth exception prevents “[a] party [from] us[ing] a representative or
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`agent to relitigate an adverse judgment.” 553 U.S. at 900. The Taylor Court
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`warned that “courts should be cautious about finding preclusion” based on agency;
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`such preclusion “is appropriate only if the putative agent’s conduct of the suit is
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`subject to the control of the party who is bound by the prior adjudication.” Id. at
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`906. As VirnetX barely attempts to dispute, there is no such control here.
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`i.
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`rejection of a broader concept of “virtual representation” and its instruction to
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`apply “crisp rules with sharp corners,” 553 U.S. at 901 (citation omitted) – and its
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` Following Taylor’s
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`rejection of attempts to impose preclusion based on a “mere whiff of ‘tactical
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`maneuvering,’” id. at 906 – the parties’ clear intention should be sufficient.
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`ii.
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` there is
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`no evidence that Apple has controlled RPX’s conduct with respect to the present
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`petitions. VirnetX argues (at 8, 10)
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`that RPX had “access” to counsel and to an expert used by Apple. Even if true, this
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`unsupported argument does not establish control of RPX by Apple.
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`More recent cases have also refused to find nonparty preclusion based on
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`evidence that “a nonparty retained the attorney who represented a party to the
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`earlier action”; “assisted in financing the earlier action”; “procured witnesses or
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`evidence”; or “furnished his attorney’s assistance.” Gonzalez v. Banco Cent.
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`Corp., 27 F.3d 751, 758-9 (1st Cir. 1994) (collecting cases). In Taylor, “Taylor
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`[himself] was represented by the lawyer who represented Herrick in the earlier
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`litigation; and Herrick . . . gave Taylor documents that Herrick had obtained . . .
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`during discovery.” 553 U.S. at 889. Yet those facts were not enough for
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`preclusion; and VirnetX cannot even show as much here, because RPX’s
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`designated counsel in this proceeding – who have each affirmed RPX’s “sole
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`discretion” and “control” over this proceeding (Pet. 3-4; Ex. 2001 at 63:15-21) –
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`have never represented Apple in any matter.
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`Preclusion by agency requires the ability to control the legal theories and
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`proofs advanced. See United States v. Bhatia, 545 F.3d 757, 760-61 (9th Cir.
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`2008) (no preclusion based on “sharing of witness interviews”); Virginia Hosp.
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`Ass’n v. Baliles, 830 F.2d 1308, 1313 (4th Cir. 1987) (no preclusion based on
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`sharing of evidence, participation in a deposition, and attending conferences);
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`Restatement (Second) of Judgments § 39 cmt. c (1982). This Board’s decisions are
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`in accord. See, e.g., Unified Patents, Inc. v. Clouding IP, LLC, IPR2013-00586,
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`Paper No. 9 at 5-6 (Mar. 21, 2014) (no real-party-in-interest status without
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`evidence of “control” or “funding” the particular proceeding); In re Arviv
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`Reexamination Proceeding, Control No. 95/001,526, Decision Dismissing § 1.182
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`and § 1.183 Petitions at 5 (Apr. 18, 2011) (no “participation in a request for
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`reexamination” despite aid with “a search for” and “review of possibly useful prior
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`art,” “preparation of an invalidity defense,” and “financial support”). And, in
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`contrast, the Board found sufficient control to exist in Zoll Lifecor Corp. v. Philips
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`Elecs. N.A. Corp., IPR2013-00609, Paper 15 at 11, 14 (Mar. 20, 2014)(finding that
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`the petitioner was a wholly owned subsidiary of a parent barred under § 315(b);
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`that the parent had “100%” control, including the petitioner’s “budgets and plans”;
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`and that the petitioner and the parent shared “a common corporate
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`consciousness.”). No such relationships exist between Apple and RPX. VirnetX
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`has not met the standard set forth in these cases for establishing control.
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`iii. VirnetX argues (at 5-7) that control is not necessary under Taylor’s
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`fifth exception as applied to a party’s “representative” rather than an “agent.” But
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`Taylor specifically referred to a party’s “designated representative.” 553 U.S. at
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`895 (emphasis added). The authorities cited in Taylor show that the Court meant a
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`“representative [that has] been appointed by a valid procedure,” 18A Wright &
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`Miller § 4454, at 434 (emphasis added), such as a procedure established by federal
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`statute, see Chicago, R.I. & P. Ry. Co. v. Schendel, 270 U.S. 611, 617-18 (1926)
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`(applying the Federal Employers’ Liability Act). Id. Here, RPX was never
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`designated as Apple’s representative through any procedure of any kind.
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`The cases VirnetX cites on this point (at 5-6) did not involve representative
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` Case IPR2014-00173
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`status at all. Both Aevoe Corp. v. AE Tech Co., 727 F.3d 1375 (Fed. Cir. 2013),
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`and In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent
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`Litigation, 504 F. App’x 900 (Fed. Cir. 2013), involved a nonparty “‘in active
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`concert’” with an enjoined defendant to violate a court order. Aevoe, 727 F.3d at
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`1384 (quoting Fed. R. Civ. P. 65(d)(2)(C)); Cyclobenzaprine, 504 F. App’x at 906
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`(same). That is not the standard for nonparty preclusion under Taylor.
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`iv. VirnetX also relies (at 10) on In re Guan Inter Partes Reexamination
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`Proceeding, Control No. 95/001,045, Decision Vacating Filing Date (Aug. 25,
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`2008), but that case is easily distinguishable. The Board’s decision in Guan was
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`based on the petitioner’s statement on its website that the patent owner would
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`“never know who or how many are behind the ‘hit’” on the patent in dispute and
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`invited its customers to “[p]ick . . . patents” for that petitioner to challenge. Id. at
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`1, 2.
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`VirnetX has now been allowed discovery to test its theory that Apple is a
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`real party in interest,
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`. VirnetX has not met its burden to satisfy any of the recognized exceptions
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`to Taylor’s rule. RPX’s petitions should be permitted to proceed on the merits.
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`March 28, 2014
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`ASHE, P.C.
`11440 Isaac Newton Square North
`Suite 210
`Reston, VA 20190
`Tel.: 703-467-9001
`E-mail: oashe@ashepc.com
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` Case IPR2014-00173
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`Respectfully submitted,
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` /Oliver R. Ashe, Jr./
`Oliver R. Ashe, Jr.
`Registration No. 40,491
`Counsel for Petitioner
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` Case IPR2014-00173
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`CERTIFICATE OF SERVICE
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`The undersigned hereby certifies that a copy of the paper entitled
`“PETITIONER’S RESPONSE TO THE BOARD’S MARCH 17, 2014
`ORDER (Regarding Real Party In Interest)” was served this 28th day of March,
`2014, by e-mail, on the following counsel of record for Patent Owner:
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`
`Joseph E. Palys
`Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
`11955 Freedom Drive
`Reston, VA 20190-5675
`Phone: (571) 203-2700
`Fax: (202) 408-4400
`E-mail: joseph.palys@finnegan.com
`
`Naveen Modi
`Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
`901 New York Avenue, NW
`Washington, DC 20001-4413
`Telephone: (202) 408-4065
`Facsimile: (202) 408-4400
`E-mail: naveen.modi@finnegan.com
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`March 28, 2014
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` /Oliver R. Ashe, Jr./
`Oliver R. Ashe, Jr.
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`§ 39Person Who Controls Participation, Restatement (Second) of Judgments § 39 (1982)
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`Restatement (Second) of Judgments § 39 (1982)
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`Restatement of the Law - Judgments
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`Database updated October 2013
`Restatement (Second) of Judgments
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`Chapter 4. Parties and Other Persons Affected by Judgments
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`Topic 1. Parties and Persons Represented by Parties
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`§ 39 Person Who Controls Participation
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`Comment:
`Reporter's Note
`Case Citations - by Jurisdiction
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` A person who is not a party to an action but who controls or substantially participates in the control of the
`presentation on behalf of a party is bound by the determination of issues decided as though he were a party.
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`Comment:
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`a. Rationale. A person who assumes control of litigation on behalf on another has the opportunity to present proofs and argument
`on the issues litigated. Given this opportunity, he has had his day in court and should be concluded by the result. Such an
`assumption of control is often motivated by a direct interest the controlling party has in the litigation because its outcome will
`affect his rights or obligations to the person on behalf of whom he participates or against whom the litigation is conducted.
`It is not necessary, however, that the controlling party have a proprietary or financial interest in the outcome of the litigation.
`Although the existence of such an interest is circumstantial evidence that control has been assumed, its absence does not prevent
`a finding of control on the basis of other circumstances. The motive of the person assuming control may be that he, or someone
`else whose interests he wishes to protect, is situated similarly to the party to the action and he is in effect making the litigation
`a test case of the issues with which he is concerned. The fact of his assumption of control of the litigation is itself indicative
`that his interest is substantially equivalent to that of the party on whose behalf he appears.
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`Illustrations:
`Illustrations:
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` 1. A and B manufacture comparable machines of which A's is the subject of a patent. A sues C, a machinery retailer
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`who distributes B's machines, claiming C infringes A's patent. B assumes defense of the action. A judgment in favor
`of A is preclusive on B as to the issues determined in the action.
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` 2. A brings an action against C for damages to A's property allegedly resulting from C's negligence. B, an insurance
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`company that insured C against liability, assumes defense of the action. A judgment in favor of A is preclusive on
`B as to the issues determined in the action.
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`It should be observed that in some situations a party in a position to control litigation involving someone else may be precluded
`as to issues determined therein not only by exercising such control but by reason of the fact that he had opportunity to do so.
`Thus, an indemnitor given notice of an action against his indemnitee and empowered to assume its defense ordinarily may not
`thereafter dispute the indemnitee's liability to the injured party. See § 57.
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` © 2014 Thomson Reuters. No claim to original U.S. Government Works.
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`§ 39Person Who Controls Participation, Restatement (Second) of Judgments § 39 (1982)
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`b. Scope. The rule stated in the Section applies to issue preclusion, and not to claim preclusion, because the person controlling
`the litigation, as a non-party, is by definition asserting or defending a claim other than one he himself may have. Application
`of the rule, moreover, is subject to the exceptions in Section 28 that govern issue preclusion as it applies to a party. Thus, the
`person controlling litigation is not bound in a subsequent action if the issue is one of law and the claim in the second action
`is substantially unrelated, § 28(2)(a), or the reappearance of the issue was not sufficiently foreseeable, § 28(5)(b), or if the
`opportunity or incentive to litigate in the initial action was inadequate, § 28(5)(c). A person assuming control over presentation
`of one issue is not bound by the determination of other issues.
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`Illustrations:
`Illustrations:
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` 3. A, a recording artist, sues B, a record distributor, to enjoin B from distributing unauthorized recordings of A's
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`performances. A's action is controlled by C, who by contract with A has the exclusive right to record A's productions.
`A judgment awarding an injunction to A does not preclude an action by C against B for C's lost profits resulting from
`B's sales of the recordings.
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` 4. A brings an action against B, a corporation, in which one of the issues is the value of a certain object of property.
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`C, the principal stockholder of B, controls the defense of the action. The determination of the value of the property
`is conclusive upon C in a subsequent action between him and A.
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`c. Elements of control. To have control of litigation requires that a person have effective choice as to the legal theories and proofs
`to be advanced in behalf of the party to the action. He must also have control over the opportunity to obtain review. Compare §
`28(1). Whether his involvement in the action is extensive enough to constitute control is a question of fact, to be resolved with
`reference to these criteria. It is sufficient that the choices were in the hands of counsel responsible to the controlling person;
`moreover, the requisite opportunity may exist even when it is shared with other persons. It is not sufficient, however, that the
`person merely contributed funds or advice in support of the party, supplied counsel to the party, or appeared as amicus curiae.
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`d. Effect on opposite party. The rule stated in § 29 is that a person who has had adequate opportunity to litigate an issue against
`one party is ordinarily precluded from relitigating it with someone else. The party opposing one whose litigation is controlled by
`another therefore may be bound by determinations adverse to him in subsequent litigation with the controlling party. Whether
`such determinations are conclusive on him depends on application of the rule stated in § 29 governing the circumstances in
`which a non-party may invoke the benefits of issue preclusion. The fact that the first action was controlled by another person,
`if known to the opposing party, is relevant in determining whether the latter's opportunity and incentive to litigate the issue
`were sufficiently great to give the determination conclusive effect against him in a second action involving that other person.
`Such notice is not itself decisive of the preclusion issue, however. A party who assumes control of an action should not be
`able, merely by giving notice of his participation, to force the opposing party to treat the action as having decisive effects in
`subsequent litigation that it would not otherwise have.
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`Illustrations:
`Illustrations:
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` 5. A purchases the stock of C corporation pursuant to an agreement negotiated by B, the majority stockholder in C.
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`A sues C to rescind the sale, contending it was induced by fraudulent representations by B. B assumes the defense
`of C; judgment is for C. In A's subsequent action against B for damages for deceit, whether A is precluded as to the
`issues determined in the first suit is resolved according to § 29. Other things being equal, the fact that A knew of B's
`participation in the first suit is a factor in favor of preclusion.
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`§ 39Person Who Controls Participation, Restatement (Second) of Judgments § 39 (1982)
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` 6. A, an author, is a member of B, an association for the mutual protection of owners of literary property. B assumes
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`control of an action by A against C to recover damages on the ground that C's use of excerpts exceeds fair use of
`A's work. In a subsequent action by B to enjoin C from similarly excerpting the works of other members of the
`association, whether C is precluded as to the issue of fair use is resolved according to § 29. Other things being equal,
`the fact that C knew of B's participation in the first suit is a factor in favor of preclusion.
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`e. Effect on person having representative capacity. A person who undertakes to control litigation on behalf of another is affected
`only in the capacity in which he does so. Thus, a trustee who takes control of litigation involving another in order to protect
`the trust is not on that account bound in a subsequent action in which he appears in his individual capacity (see § 36). So
`also a person controlling an action in his individual capacity is not bound when in later litigation he appears in his capacity
`as a representative for another. An association assuming control of litigation would be subject to the rule of this Section, but
`members of the association ordinarily would not be bound. See § 44.
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`f. Effect on person surrendering control. A party surrendering control of litigation involving his interests is bound by
`determinations in it as against the opposing party, in the absence of grounds such as fraud that would permit him to avoid
`the judgment. In effect, his transfer of control converts the action into one conducted by a representative in his behalf, with
`like effects (see § 41). As between the party surrendering control and the person assuming control, there may be subsequent
`controversy over whether the person assuming control adequately represented the interests of the party surrendering control.
`In an action concerning that controversy, the party who surrendered control is not bound by the determinations made against
`him in the original action because, by hypothesis, he did not have the opportunity that a party ordinarily has to present proofs
`and argument on the issues in question. He may be subject to estoppel in pais, however, to make assertions of fact that are at
`variance with those which he made in the first action.
`
`Illustration:
`Illustration:
`
`
`
` 7. A sues B for injuries alleged to have been caused by B's negligence. C, B's insurer, assumes the defense of the
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`action. Judgment is for A, in an amount exceeding the insurance policy limits. In B's subsequent action against C for
`C's failure adequately to conduct the defense of the first action, B is not bound by the determinations in that action but
`may be estopped from asserting that the facts were otherwise than as he had asserted in the course of the prior action.
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`Reporter's Note
`
`(§ 83, Tent. Draft No. 2.) This section corresponds in substance to § 84 of the first Restatement but departs from it in omitting
`the requirement that the controlling party have “a proprietary or financial interest in the judgment or in the determination of
`a question of fact or of a question of law with reference to the same subject matter or transaction.” The kinds of relationship
`embraced by this phrase, as indicated by the Illustrations in the first Restatement, included the controlling party's potential
`liability arising from indemnity, contribution, and vicarious responsibility which assuredly entail a “financial interest in the
`judgment.” But other Illustrations in the first Restatement (2, 11, 13, 15 and 20) involved no such derivative responsibility
`and could be said to involve “the same subject matter or transaction” only in the sense that the controlling party was situated
`similarly to the party of whose litigation he had assumed control.
`
`Comment a. Most of the decided cases have involved a controlling party who had some legal interest or liability that could have
`been affected by the outcome of the litigation. See Annot. 139 A.L.R. 9 (1942). The patent cases, in which control of an action
`involving its validity is assumed by the patentee, are a familiar instance. Cases involving controlling parties with other kinds of
`legal interests have similarly referred to the presence of such an interest. See, e.g., Souffront v. La Compagnie des Sucreries de
`Porto Rico, 217 U.S. 475, 30 S.Ct. 608, 54 L.Ed. 846 (1910) (claimant of land under rival deed from common grantor); Ugast
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`§ 39Person Who Controls Participation, Restatement (Second) of Judgments § 39 (1982)
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`v. La Fontaine, 189 Md. 227, 55 A.2d 705 (1947) (claimant of misappropriated funds). Compare Montana v. United States,
`440 U.S. 147, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979). This factor has been included as a necessary condition in some statements
`of the control rule. See, e.g., Palmer v. Clarksdale Hospital, 213 Miss. 611, 57 So.2d 476 (1952) (husband's control of wife's
`unsuccessful personal injury action does not preclude his subsequent suit for medical expenses and loss of consortium).
`
`In another configuration of the patent cases, where the manufacturer of an allegedly infringing device takes over defense of his
`distributee, preclusion has been sustained on the basis of the looser formula of “financial interest” in the litigation. See Bros,
`Inc. v. W.E. Grace Mfg. Co., 261 F.2d 428 (5th Cir.1958); Tidewater Patent Devel. Co. v. Kitchen, 421 F.2d 680 (4th Cir.1970);
`Note, 70 Yale L.J. 1166 (1961). See also Vestal, Preclusion/Res Judicata Variables: Parties, 50 Iowa L.Rev. 27, 38 (1964);
`Note, Developments in the Law—Res Judicata, 65 Harv.L.Rev. 818, 856 (1952); see, e.g., Crockett v. Harrison, 26 Ill.App.2d
`9, 13, 167 N.E.2d 428, 430 (1960). Some other formulations state the rule still more generally. See 1 Freeman, Judgments §
`433 (5th ed.1925) (“some substantial interest”). On further analysis, the cases reciting the existence of a proprietary or financial
`interest can be read as meaning only that such an interest helps support the inference of control. Moreover, in some of the cases
`the finding of a financial interest has been derived circularly from the fact that control was assumed. That control itself would
`suffice is suggested in, e.g., Thaxton v. Vaughan, 321 F.2d 474 (4th Cir.1963); cf. Standard Acc. Ins. Co. v. Doiron, 170 F.2d
`206 (1st Cir.1948). Such a formulation seems appropriate because the essential question would appear to be whether, rather
`than why, control of the litigation was assumed. See also Wright, Miller & Cooper, Federal Practice and Procedure § 4451.
`
`Comment b. That the controlling person is bound with respect to issues determined, but is not subject to the rules of merger and
`bar, results from the fact that his assumption of control does not make him a party to the litigation. See Schnell v. Peter Eckrich
`& Sons, Inc., 365 U.S. 260, 81 S.Ct. 557, 5 L.Ed.2d 546 (1961); Vanguard Recording Society, Inc. v. Fantasy Records, Inc.,
`24 Cal.App.3d 410, 100 Cal.Rptr. 826 (1972) (on which Illustration 3 is based). But see Tennessee Eastman Co. v. Adams,
`214 Tenn. 451, 381 S.W.2d 269 (1964), holding that a subrogated property damage insurer who controlled litigation for one
`insured against the defendant was “barred” by an adverse judgment in that action from bringing a subsequent suit in the name
`of a differe