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Effect of Contracts on Patent Reviews Ripe for Fed. Cir. Guidance

Sept. 20, 2021, 9:00 AM

Patent owners are looking to past agreements they signed with the companies they are accusing of infringement to head off challenges at the U.S. Patent and Trademark Office.

The agency has declined to enforce forum selection clauses in the agreements when accused infringers challenge patents there, saying it doesn’t have jurisdiction to resolve contract disputes. The U.S. Court of Appeals for the Federal Circuit has touched on whether that’s appropriate in a handful of cases, but the rulings are fact-specific and aren’t all binding.

Attorneys are looking to the court to clarify whether the patent office must enforce private contracts to deny reviews as the issue is likely to keep coming up.

“It would be useful to have a precedential opinion on this issue sooner rather than later, given that so many patent licenses, agreements related to technology (such as NDAs and joint development agreements), and commercial contracts governing the sale goods/services have forum selection clauses,” intellectual property professor Jeremy W. Bock of Tulane Law School in New Orleans said in an email.

So far, the best bet for enforcing a forum selection clause seems to be going to federal court to bar the accused infringer from petitioning for agency review. Appeals of Patent Trial and Appeal Board decisions declining to enforce private agreements have been less successful.

“I think we’re seeing early days of how these cases might be shaking out,” Fish & Richardson PC partner Lauren Degnan in Washington said. “It could be a trap for the unwary if you’re not familiar with this area of the law.”

Two currently pending cases will give the Federal Circuit the chance to provide more guidance on these issues.

PTAB Resistant

Appeals of PTAB decisions not to enforce forum selection clauses haven’t been successful. That’s partially because the board decides the issue early, as part of its determination whether to begin an inter partes review of the validity of a patent.

“A direct challenge to the PTAB’s refusal to enforce a FSC is difficult because the PTAB’s decision on whether to institute an IPR is unappealable per 35 USC 314(d),” Bock said.

In its Sept. 8 In re MaxPower decision, the Federal Circuit declined to review the board’s refusal to honor the arbitration agreement, pointing to that reviewability bar. The majority said mandamus also wasn’t appropriate because the board isn’t bound by a private contract between the parties.

Judge Kathleen M. O’Malley dissented in part, arguing the court should have granted mandamus to consider the issue of whether the board must honor the arbitration agreement. O’Malley said the Federal Circuit should have granted mandamus because it hadn’t considered the issue before.

“The majority’s denial of a writ of mandamus in this case allows the Patent Trial and Appeal Board to add a new caveat to Congress’s clear instruction that agreements to arbitrate patent validity shall be ‘valid, irrevocable, and enforceable'—i.e., except during inter partes review,” O’Malley said.

University of Richmond School of Law professor Kristen Osenga shares O’Malley’s concern. One side is going to get a windfall if it agreed to a specific forum—paying less for the license in exchange—and then brings a challenge somewhere else, she said.

“If we can have a decision that honors both patent law and contract law that would be way better than a decision that puts one over the other,” Osenga said.

The court also avoided an argument that a forum selection clause made PTAB review inappropriate in New Vision Gaming v. SG Gaming, issued May 13, by ruling on other grounds.

Judge Pauline Newman dissented in part, arguing that before the court remanded the case it should have decided the jurisdiction issue. “It is both inefficient and unnecessary to require replacement PTAB proceedings if the new PTAB does not have jurisdiction to proceed,” she said.

Going to Court

Going through federal district court seems to be a better bet than trying to appeal PTAB institution orders directly.

In the 2019 Federal Circuit case Dodocase VR v. Merchsource, a patent owner convinced a district court to order an accused infringer to withdraw PTAB challenges based on a forum selection clause. The Federal Circuit blessed the trial court’s preliminary injunction, holding that the clause covered PTAB proceedings because they are disputes “arising out of” patent license agreements.

The Ninth Circuit also ruled on the issue recently because the case was framed as arising out of contract law, and therefore not under the Federal Circuit’s jurisdiction over all cases arising out of patent law. In Nomadix v. Guest-Tek, the Ninth Circuit Sept. 3 upheld a preliminary injunction barring an accused infringer from filing IPRs after finding it breached the forum selection clause in the parties’ license agreement.

Osenga said the cases raise policy concerns. “I really think that if they start dishonoring forum selection clauses in this way, it’s going to create some chaos,” she said. “These are contracts, in general, signed between two companies who have lawyers and know what they’re doing. None of these clauses ended up in the contract by accident or get stuck in as a surprise Easter egg.”

But invalid patents shouldn’t be enforced, Bock said. The IPR system was set up so that the party in the best position to challenge an invalid patent—one accused of infringement—is able to do so, he said.

The Dodocase and Nomadix rulings are both nonprecedential and can’t be cited as binding authority. Until the Federal Circuit rules in a precedential opinion, parties only may look to them for guidance.

Pending Cases

The Federal Circuit has two upcoming opportunities to making binding rulings on the effect of forum selection clauses.

A case argued in July, Kannuu v. Samsung Electronics, presents the issue in a slightly different context: The contract between the parties is a nondisclosure agreement signed during failed licensing negotiations.

Judges Sharon Prost and Raymond T. Chen were both troubled by the distinction at oral argument. Whether Samsung used Kannuu’s technology without permission relates to the NDA, Prost said.

“What does that have to do with the IPR and why that’s covered by the forum selection clause?” Prost asked. Newman was the only judge who seemed sympathetic to the patent owner’s arguments.

The case drew competing amicus briefs from professors. Osenga signed on to a brief supporting the patent owner, and Bock signed onto one in support of Samsung.

If the court relies on the differences between license agreements and NDAs, it may rule similarly in another case currently on appeal, NuCurrent v. Samsung, which also arises from an NDA.

Until the Federal Circuit provides more guidance, parties and their attorneys should draft new contracts very carefully. Parties can spell out that the remedy for breaching a forum selection clause by filing a PTAB petition would be an injunction, Degnan said. “You can paper up in the agreement that the harm is irreparable, and you’re allowed to go to district court to secure an injunction should that happen,” she said.

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bloomberglaw.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Keith Perine at kperine@bloomberglaw.com

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