A recent Federal Circuit decision provides an important lesson for patent owners: forum selection clauses may bar an accused infringer from petitioning the Patent Trial and Appeal Board (PTAB) to review a patent’s validity under the America Invents Act.
Dodocase Vr, Inc. v. Merchsource, LLC (Fed. Cir. 2019) affirmed an injunction granted by a district court requiring the defendant to withdraw three petitions for review it had filed with the PTAB, based on a forum-selection clause between the parties.
The case was a dispute between a patent owner and its licensee (who had stopped making royalty payments and claimed the patents were invalid).
But the parties’ license agreement contained a forum-selection clause that required all disputes to be resolved in a court located in certain counties in California. That meant that the claims of invalidity had to be raised in one of those courts, not the PTAB.
PTAB reviews are generally considered to be disadvantageous to patent owners, both for procedural and substantive reasons.
Given the Dodocase Vr decision, patent owners are well advised to include forum-selection clauses in any agreements concerning their patents.
And, if a petition for review is filed by a party with whom the patent owner had some sort of contractual relationship, review the contract terms closely to determine whether a forum selection clause might not be applicable.
PTAB Review – A Weapon for Accused Infringers
The America Invents Act of 2011 introduced two new procedures to challenge patent validity: Post-Grant Reviews (PGRs) and inter partes reviews, or IPRs. Parties accused of infringement (or having an interest in a patent’s validity), can petition the Patent Trial and Appeal Board to institute, and then try, issues of patent validity.
The two procedures differ in their timing and scope of possible challenges. PGRs can only be instituted within the first nine months after issue and can challenge any aspect of patent validity apart from enablement. IPRs can only be filed after the nine months, and the validity issues that can be raised are limited to novelty and non-obviousness under Sections 102 and 103 of the Patent Act. Both procedures, however, are designed for a party to challenge a patent’s validity in an administrative procedure before the PTAB.
These procedures have proven to be very powerful procedural weapons for those accused of infringement. For relatively minimal cost, such a party can file a petition, and if that is granted, the PTAB will then institute an administrative trial to review the patent’s validity.
There are several advantages to an accused infringer of a PGR or IPR (with a concomitant disadvantage to the patent owner):
(1) PGRS and IPRs are generally much less expensive than litigation in court.
(2) The sole focus of these procedures is the patent’s validity. The accused party is spared the expense and burden of discovery into its accused product(s).
(3) Most district courts will stay discovery of a pending infringement case until resolution when an such petitions are instituted. So, the burdens of litigation can often be put off.
(4) While many petitions are rejected (and thus no trial on the merits occurs), where a petition is granted, it often results in invalidation of all or part of the patent.
(5) The former Chief Judge of the Federal Circuit characterized PTAB panels as “patent death squads.”
Not surprisingly, patent owners loath PGRs and IPRs, while accused infringers love them.
Now, however, an obscure contract term, forum-selection clause, might save some patents from the “death squad.”
Dodocase owns three patents directed at virtual reality headset technology. Merchsource is a distributor who entered into a license agreement with Dodocase.
The agreement contained a forum selection clause:
The laws of the State of California shall govern any dispute arising out of or under this Agreement, notwithstanding the conflict of laws principles of the State of California . . . THE PARTIES AGREE THAT THE SUBJECT MATTER AND PERSONAL JURISDICTION ARE PROPER IN THE COURTS LOCATED IN SAN FRANCISCO COUNTY OR ORANGE COUNTY, CALIFORNIA AND THAT DISPUTES SHALL BE LITIGATED BEFORE THE COURTS IN SAN FRANCISCO COUNTY OR ORANGE COUNTY, CALIFORNIA.
Merchsource later informed the patent owner that it would cease paying royalties, as it considered the patents invalid. Dodocase filed a civil action seeking to enjoin this breach in the Northern District of California. When Merchsource instituted one IPR and two PGR petitions, the district court ordered it to withdraw them, since they violated the forum selection clause.
The Federal Circuit affirmed. The key point being that the pertinent language “arising out of or under this Agreement” included disputes over patent validity, since those are often intertwined with issues under a license, such as whether certain goods are covered by the patents, or whether they are even valid.
It also affirmed a finding of irreparable harm, since allowing the PGR and IPR procedures to proceed would deprive the patent owner of the benefits of the forum selection clause, forcing it to litigate on multiple fronts.
The lessons for patent owners are clear: (1) make sure to include a forum selection clause in any agreement concerning the patents, one that would cover patent validity challenges and (2) if an IPR is instituted by a party with whom one has some kind of contractual relationship, carefully review the contract to ascertain whether the IPR can be derailed based on a forum selection clause.