Common Forum Selection Clause in License Agreement Prevents Patent Validity Challenge at PTAB

| John Sganga

On April 18, 2019, the Federal Circuit issued a non-precedential opinion that is making stakeholders in the patent licensing community sit up and take note.  The case was Dodocase VR, Inc. v. MerchSource, LLC, holding that a boilerplate forum selection clause in a licensing agreement can prevent a validity challenge at the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB), even though the clause makes no mention of PTAB proceedings.

The parties had a patent license agreement with a common forum selection clause requiring that “any dispute arising out of or under” the license agreement be litigated in certain California courts.  The license agreement did not specifically mention validity challenges at the Patent Office.   After a dispute arose, MerchSource announced it would stop paying royalties.  Dodocase sued to enjoin MerchSource from breaching the license agreement.  MerchSource then petitioned for inter partes review (IPR) before the PTAB challenging the patentability of the licensed patents.  Alleging that MerchSource had thereby breached the forum selection clause, Dodocase moved for a temporary restraining order and preliminary injunction requiring MerchSource to withdraw the IPR petitions.  The district court agreed that MerchSource likely breached the forum selection clause and granted the motion, ordering MerchSource to withdraw its IPR petitions.

On appeal of the preliminary injunction order, the Federal Circuit addressed whether the forum selection clause extends to PTAB proceedings and affirmed.  The Federal Circuit analyzed the relationship of the IPR proceedings to the dispute under the license agreement and agreed that IPR petitions in the PTAB constituted disputes “arising out of or under this Agreement” subject to the forum selection clause. The Federal Circuit concluded the district court did not abuse its discretion in granting the preliminary injunction and therefore affirmed.

While awaiting the Federal Circuit’s decision, MerchSource’s IPRs were instituted.  Accordingly, the next issue facing the parties will be termination of the pending IPRs following the district court’s order.

The decision potentially has significant implications, as the PTAB has become increasingly popular as a forum in which to challenge patent validity.  The number of IPR proceedings has grown exponentially.  In fiscal year (FY) 2012, there were 50 petitions for review filed in the PTAB.  In FY 2018, 1,613 petitions were filed.  To date, over 9,984 petitions have been filed in the PTAB.  Many parties to patent license and settlement agreements may not have appreciated how a forum selection clause may have limited their ability to pursue PTAB challenges.

To avoid confusion over whether a forum selection clause allows or precludes proceedings in the PTAB or similar agency forums, parties to a license agreement may move away from more commonplace forum selection clauses and seek to negotiate language expressly tailored to their respective objectives.  Speak with an attorney at Knobbe Martens to discuss the impact of forum selection clauses on intellectual property claims.