Clear Touch Interactive, Inc. and The Ockers Company engaged in a reseller relationship that soured in 2017 when Clear Touch revoked Ockers' exclusivity rights. Ockers owners John and Jason Houser subsequently developed a competing product called TouchView. In 2020, Ockers sued Clear Touch in South Carolina state court for breach of contract and related claims. Clear Touch attempted to remove the case to federal court, stating an intent to assert intellectual property counterclaims, but the case was remanded to state court. The parties settled the state action in June 2021, executing a settlement agreement that included a mutual release and a specific provision to dismiss with prejudice all possible claims and counterclaims that had or could have been brought. Despite this, Clear Touch sent a cease-and-desist letter weeks later and filed a federal lawsuit alleging trademark infringement and other IP violations. The district court initially allowed the IP claims to proceed but, on the eve of trial, reversed course after reviewing new evidence regarding Clear Touch's knowledge of the infringement and the scope of the settlement, granting summary judgment to Ockers. The case proceeded to trial on Ockers' counterclaims, resulting in a jury verdict for Ockers, which Clear Touch now appeals.
The Fourth Circuit addressed two primary issues: the substantive bar of the settlement agreement and the procedural propriety of the district court's late summary judgment ruling. First, regarding the settlement, the court distinguished between the 'release' language, which covered claims arising out of the subject matter of the prior litigation prior to the agreement's effective date, and the 'dismissal' language, which covered all possible counterclaims that could have been brought. The court found that South Carolina state courts have concurrent jurisdiction over Lanham Act claims and that unrelated counterclaims are permissible under state rules. Therefore, Clear Touch's IP claims, which alleged ongoing infringement, 'could have been brought' in the state action. The court emphasized the parties' intent, noting that Clear Touch had informed Ockers counsel of its intent to assert IP counterclaims, and Ockers added a handwritten clause to ensure all such claims were dismissed. Consequently, the res judicata effect of the state court's dismissal order barred the federal suit. Second, the court reviewed the district court's use of Federal Rule of Civil Procedure 54(b) to revise its prior summary judgment order. The district court had initially denied summary judgment but reversed itself after discovering substantially different evidence: a deposition from Clear Touch's CEO admitting prior knowledge of the infringement and testimony from Ockers' counsel confirming Clear Touch's intent to assert IP claims. The Fourth Circuit held that Rule 54(b) allows district courts to revise non-final orders when there is substantially different evidence or clear error causing manifest injustice. The court found no abuse of discretion, noting that the district court acted to prevent the manifest injustice of a protracted trial on claims that were legally barred. The court also affirmed the exclusion of an untimely witness and the admission of an attorney as a fact witness after she withdrew from representation.
The decision confirms that broad dismissal clauses in settlement agreements can bar future intellectual property claims that could have been raised as counterclaims in the original state-court action, even if those claims involve ongoing infringement. It reinforces the flexibility of Rule 54(b), allowing district courts to correct legal errors and incorporate new evidence before a final judgment is entered, even on the eve of trial, to prevent manifest injustice. The ruling leaves open the question of whether post-settlement infringement claims are barred if the settlement agreement does not explicitly cover claims that 'hereafter may have' arisen, as noted in the dissent.