## Facts

- RFR Industries, Inc. (RFR) owned two patents covering an embedded railway track system using a rubber “flangeway filler” and a method for installing it.
- In 1998, RFR sued Century Steps, Inc. (Century) for infringing the patents through its flangeway-filler activities.
- In 2000, RFR and Century settled. Century agreed to stop infringing conduct, consented to a permanent injunction, and agreed to make payments and purchase flangeway filler from RFR; Century also received a license to use and sell flangeway filler it purchased from RFR.
- The 2000 settlement released Century from RFR’s infringement claims, but expressly stated that RFR was not releasing Rex-Hide Industries, Inc. (Rex-Hide) or other “Century Extruders” that manufactured flangeway filler for Century. Rex-Hide fit the settlement’s definition of a “Century Extruder.”
- The settlement included an indemnity provision requiring RFR to indemnify and hold Century harmless from claims by a “Century Extruder” that were made “as a result of” RFR’s claims against that extruder.
- Rex-Hide supplied flangeway filler to Century. Rex-Hide’s quotation/terms (followed by Century’s purchase order and Rex-Hide’s acceptance) included an indemnity clause requiring Century to indemnify Rex-Hide for claims, including patent claims, tied to Rex-Hide’s manufacture of parts to Century’s specifications.
- In 2004, RFR sued Rex-Hide for induced and contributory infringement based on Rex-Hide’s manufacture and sale of flangeway filler to Century.
- Rex-Hide filed a third-party claim against Century seeking indemnity under their sales contract. Century then asserted that RFR had to indemnify Century under the 2000 settlement.
- The district court (N.D. Texas) granted partial summary judgment for Century on the settlement-based indemnity obligation (RFR → Century).
- After a bench trial, the district court held that Century had to indemnify Rex-Hide (Century → Rex-Hide) under the sales contract, and that the two indemnities created a “circular indemnity” that extinguished RFR’s ability to recover infringement damages from Rex-Hide.
- The district court also awarded attorney’s fees and expenses to Rex-Hide and Century and entered a permanent injunction barring certain arbitration efforts and directing RFR to file future related actions in the same federal court before the same judge.

## Issues

1. Whether Century was contractually obligated to indemnify Rex-Hide for RFR’s patent-infringement claims.
2. Whether the 2000 settlement agreement required RFR to indemnify Century against Rex-Hide’s indemnity claim.
3. Whether the combined indemnity obligations created a circular payment loop that prevented RFR from recovering patent-infringement damages from Rex-Hide.
4. Whether the district court properly awarded attorney’s fees and properly entered a permanent injunction restricting arbitration and mandating a single federal forum for future related disputes.

## Decision

- The Federal Circuit affirmed the determinations that (a) Century owed Rex-Hide indemnity under the Rex-Hide/Century sales contract and (b) RFR owed Century indemnity under the 2000 settlement agreement.
- The Federal Circuit affirmed that the two indemnity obligations produced a circular indemnity that barred RFR from obtaining a net damages recovery from Rex-Hide for patent infringement.
- The Federal Circuit vacated the attorney’s-fee and expense awards and remanded for recalculation because Texas law does not allow recovery of fees incurred solely to establish the right to indemnity, and the record suggested such fees were included.
- The Federal Circuit reversed the permanent injunction in its entirety, including provisions that blocked arbitration and required future related actions to be filed only in the Northern District of Texas, while noting that ordinary preclusion rules still limit relitigation of issues already decided.

## Legal Principles

- Patent-infringement damages may be eliminated as a practical matter when enforceable contractual indemnity provisions shift liability in a closed loop, leaving the patentee unable to obtain a net recovery from an accused infringer.
- Under Texas contract law (including UCC “battle of the forms” analysis), indemnity terms in a seller’s quotation can become part of the parties’ contract when the buyer’s purchase order does not materially conflict with those terms and the seller accepts.
- A settlement agreement’s express reservation of claims against a third party does not negate separate settlement language requiring the settling patentee to indemnify the settling defendant against certain third-party claims triggered by the patentee’s suit.
- Under Texas indemnity principles, attorney’s fees incurred to prove entitlement to indemnity are not recoverable as indemnity damages; only fees tied to defending or paying the covered claim may be recoverable.
- A federal court injunction that broadly bars arbitration efforts and imposes a mandatory forum for all future related disputes exceeds proper limits when it is not justified by the case-specific judgment being enforced; issue and claim preclusion, not a sweeping filing ban, is the usual control on repeat litigation.

## Conclusion

The Federal Circuit held that Century had to indemnify Rex-Hide and RFR had to indemnify Century, producing a circular indemnity that prevented RFR from recovering net patent-infringement damages from Rex-Hide; it vacated and remanded the fee awards for recalculation to exclude nonrecoverable “fees to establish indemnity,” and it reversed the district court’s permanent injunction that restricted arbitration and forced future related disputes into a single federal forum.


RFR Industries, Inc. v. Rex-Hide Industries, Inc., 2007 U.S. App. LEXIS 7015 (2007)