Forum-Selection Clause in Patent License May Thwart Licensee’s Efforts to Seek PTAB Review of Licensed Patents

April 18th, 2018

In Dodocase VR, Inc. v. MerchSource, LLC, No. 17-cv-07088, 2018 U.S. Dist. LEXIS 48654 (N.D. Cal. Mar. 23, 2018), the U.S. District Court for the Northern District of California recently ordered a licensee withdraw petitions filed with the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office (PTO) to challenge the validity of licensed patents. Id. at *2.  In its order, the court held it was likely the patentee would succeed on its claim that a forum-selection clause of the license agreement precluded the licensee from challenging the validity of the licensed patents before the PTAB. Id. at *33.

In Dodocase, the patentee and licensee had entered into a license agreement that included a forum-selection clause stipulating that the parties agreed disputes would be litigated before San Francisco County or Orange County, California courts. Id. at *4-5.  After the patentee filed a complaint seeking to enjoin the licensee from breaching the license agreement, the licensee filed petitions challenging the validity of the patents with the PTAB, answered the complaint, and counterclaimed, seeking a declaration from the court that the patents were invalid for the reasons set forth in the PTAB petitions. Id. at *7-8.  Arguing that the PTAB petitions violated the forum-selection clause of the license agreement, the patentee sought a preliminary injunction from the court, requesting the court order the licensee withdraw the PTAB petitions. Id. at *8-9.

The Dodocase court began by noting that, among other requirements, “[a] plaintiff seeking a preliminary injunction must establish that it is likely to succeed on the merits . . . .” Id. at *11 (citing Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008)).

The court began its analysis of whether the patentee was likely to succeed on the merits of its claim by first distinguishing the license agreement’s mandatory forum-selection clause from the permissive variety of such clauses that specify parties submit to a particular jurisdiction (or agree particular courts shall have jurisdiction) but fail to make the stated jurisdiction exclusive. Id. at *15-19.

The court then sought to determine whether the scope of the license agreement’s forum-selection clause extended to PTAB proceedings. Id. at *19.  Quoting the clause’s language, the court framed the issue as “whether the PTAB Petitions constitute a ‘dispute’ that ‘aris[es] out of or under’ the” license agreement. Id. at *21 (alteration in original).  After reviewing courts’ interpretations of similar language in arbitration clauses, the court concluded the clause covered PTAB proceedings. Id. at *21-22.

In support of its finding that the forum-selection clause in the license agreement extended to PTAB proceedings, the court noted that the licensee’s counterclaim alleged invalidity for the same reasons alleged in the PTAB petitions, and thus the court found “[t]he claim of invalidity [was] impossible to disentangle from the question of whether [the licensee] may be liable in [the] case” before the court. Id. at *23-24.

Notably, the licensee argued that if the forum-selection clause in the license agreement extended to PTAB proceedings, it was unenforceable based on strong policy interests. Id. at *24-31.  The court was not persuaded. Id.

For example, the licensee argued that to the extent the forum-selection clause precluded the licensee from seeking PTAB review, it should be held unenforceable in light of “the strong policy of permitting the [PTO] to correct its mistakes.” Id. at *24-25.  Citing “the public policy generally favoring enforcement of [forum-selection] clauses,” the court concluded the public’s interest in permitting PTO error-correction was preserved by the ability of other parties to initiate PTAB proceedings challenging the subject patents, despite the fact that the licensee had “bargained away [its] opportunity to do so.” Id. at *30-31.

The licensee pointed to a case for the proposition that contracts prohibiting reexamination of patents were against public policy. Id. at *28 (citing Callaway Golf Co. v. Kappos, 802 F. Supp. 2d 678 (E.D. Va. 2011)).  The court did not find such case, which “accepted the PTO’s position that a contract that prohibited reexamination was contrary to public policy,” prevented enforcement of the forum-selection clause, pointing out that the forum-selection clause at issue in that case was ruled to have been breached by “the party which sought the reexamination.” Id. at *28-29 (citing Callaway Golf Co., 802 F. Supp. 2d at 686).  More specifically, the court reasoned that while the PTO’s position may prevent it from abandoning a reexamination that is already underway despite the reexamination having resulted from breach of a private agreement, that position was inapplicable to the requested relief, which sought to prevent “proceedings before the PTAB . . ., which [had] not yet determined if it [would] even review the [subject patents].” Id. at *29-30.

The licensee further argued it would be harmed by enforcement of the forum-selection clause, as the PTAB affords advantages over courts in establishing invalidity. Id. at *31-32.  The court characterized this argument as a “belated attempt at forum shopping.” Id. at *32.  Observing that the AIA “preserved the ability to bring parallel proceedings and did not require district courts to stay their cases but left it to their sound discretion,” the court concluded “[t]he loss of the ability to bring a case in a different forum where the party is advantaged by its procedural rules is not, on its own, a sufficiently compelling reason to disregard the parties’ agreed-upon choice of forum,” noting the licensee “was aware of the availability of PTAB proceedings when it entered into the [license agreement].” Id.

It should be noted, however, that following the court’s order, the licensee appealed, requesting the order be stayed pending appeal, and the U.S. Court of Appeals for the Federal Circuit temporarily stayed the order, pending its consideration of the parties’ expedited briefing. Dodocase VR, Inc. v. MerchSource, LLC, No. 2018-1724 (Fed. Cir. Mar. 28, 2018) (order temporarily staying preliminary injunction).  Accordingly, the Federal Circuit may soon clarify whether and under what circumstances a forum-selection clause can limit a licensee’s ability to challenge validity before the PTAB.

Takeaway:  At least one court has suggested a forum-selection clause stipulating an agreement to litigate disputes before a specific court or courts may preclude a licensee from challenging validity of licensed patents before the PTAB, particularly when the license was executed with knowledge of the availability of the option to challenge validity before the PTAB and injunctive relief is requested before the PTAB decides whether to review the patents.