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Forum selection clauses, which designate the court and location where parties agree to have a legal dispute regarding a contract decided, are standard in most contractual agreements.

A recent case from the Court of Appeals for the Federal Circuit suggests that a seemingly standard forum selection clause could have an unintended effect on a patent licensee's ability to challenge a licensed patent in a post grant patentability challenge in the United States Patent and Trademark Office.

The Leahy-Smith America Invents Act (AIA), which went into effect in September 2012, provides various options to challenge issued patents before the Patent Trial and Appeal Board (PTAB) in the United States Patent and Trademark Office (PTO). Such options include inter-partes review (IPR) and post-grant review (PGR).

Challenges under these new proceedings have become standard practice in patent disputes because they provide a more focused and streamlined approach to patent challenges as compared to patent challenges in Federal District Court. However, a recent opinion of the Court of Appeals for the Federal Circuit may restrict access to these proceedings as an unintended consequence of a seemingly standard forum selection clause.

In Dodocase VR v. MerchSource, 767 Fed. Appx. 930 (Fed. Cir. April 18, 2019), the Court of Appeals for the Federal Circuit affirmed the Northern District of California's grant of a preliminary injunction requiring MerchSource to withdraw its PTAB petitions challenging Dodocase's patents as a result of a forum selection clause in an agreement between Dodocase and MerchSource.

Dodocase is the owner of three patents generally related to virtual reality headsets, and MerchSource is a distributor of consumer products including virtual reality headsets. Dodocase and MerchSource entered into a master license agreement (MLA) in which MerchSource licensed the three VR headset patents from Dodocase. The MLA included a no-challenge clause and a forum selection clause.

The no-challenge clause prohibited MerchSource from challenging the validity or enforceability of the licensed patents. The forum selection clause identified California law as controlling and designated the courts located in San Francisco County or Orange County California as having jurisdiction.

In October 2017, MerchSource informed Dodocase that it would no longer pay royalties under the MLA because it believed that the three patents were invalid. In response, Dodocase filed a complaint against MerchSource in the Northern District of California seeking an injunction to prevent MerchSource from breaching the MLA and infringing the patents. MerchSource then filed petitions requesting IPR of one of the Dodocase patents and PGR of the two other Dodocase patents.

Dodocase argued that MerchSource was not allowed to challenge the three patents based on the no-challenge clause in spite of the precedent set forth in Lear v. Adkins, 395 U.S. 653 (1969). Prior to Lear, the doctrine of patent licensee estoppel prevented a licensee from challenging the validity of a licensed patent. The court in Lear rejected patent licensee estoppel and held that a licensee who repudiates a patent license agreement can challenge the validity of a licensed patent thereby rendering "no-challenge" clauses unenforceable. Dodocase argued that Lear was not applicable because Lear required MerchSource to publicly challenge the licensed patents and MerchSource's challenge was not public because they attempted to obtain a confidential settlement. The district court rejected this argument because MerchSource ultimately did publicly challenge Dodocase's patents by filing the PTAB petitions.

Dodocase did not raise the "no-challenge" issue on appeal to the Court of Appeals for the Federal Circuit, which is not surprising in view of Lear and the relative weakness of this argument.

Dodocase also argued that MerchSource breached the MLA's forum selection clause by filing petitions with the PTAB. The district court considered both the exclusivity and scope of the forum selection clause. With respect to exclusivity, the district court determined if the forum selection clause at issue was mandatory or permissive, i.e., whether the forum selection clause identified the courts of San Francisco and Orange Counties as the only venues to litigate disputes or merely indicated that the parties would not contest jurisdiction of those courts if a dispute was filed there. The district court found that the ordinary meaning of the forum selection clause, which stated that disputes "shall be litigated" in those courts, was clear. This was a mandatory forum selection clause and therefore any dispute must be litigated in one of the courts identified in the MLA.

The district court then considered the scope of the forum selection clause, focusing on the "arising out of or under" language of the MLA. The district court considered the relevant question to be whether the PTAB petitions constituted a dispute that "arises out of or under" the MLA. With no other cases interpreting the specific language of the MLA with respect to PTAB petitions to use as guidance, the district court concluded that the PTAB petitions do in fact arise out of or under the MLA because the petitions challenge the validity of Dodocase's patents. The district court reasoned that the claim of invalidity is impossible to disentangle from the question of whether MerchSource may be liable for a breach of its obligations under the terms of the MLA. As such, the district court found that PTAB proceedings fall within the scope of the forum selection clause in the MLA. Since the forum selection clause was found to be mandatory, and PTAB proceedings were within the scope of the forum selection clause, MerchSource was thus prevented from petitioning the PTAB for invalidation proceedings of the licensed patents. MerchSource would have to raise any invalidity challenge in the federal district courts identified in the forum selection clause of the MLA.

On appeal, the Court of Appeals for the Federal Circuit rejected MerchSource's argument that PTAB challenges do not "arise out of or under" the MLA, and found that the district court did not err in finding that MerchSource could not challenge the validity of Dodocase's patents via the PTAB. The Court of Appeals found Texas Instruments v. Tessera, 231 F.3d 1325 (Fed. Cir. 2000), analogous, which held that the International Trade Commission was not an available forum to a party in that dispute because of a forum selection clause reciting the language "arising from, under, out of or in connection with this Agreement." The Court of Appeals reasoned that the MLA of the present case used similar language and, as such, that language similarly prevented MerchSource from challenging the validity of Dodocase's patents in a forum other than the courts identified in the forum selection clause.

MerchSource's petition for en banc rehearing has been denied, despite multiple amicus curiae briefs submitted by law professors and industry leaders.

Dodocase is designated as a non-precedential decision and is therefore not binding law. The decision by the Court of Appeals, although non-precedential, may still have some bearing on future courts faced with this issue. For example, under Rule 32.1 of the Federal Rules of Appellate Procedure, this case, although non-precedential, may nonetheless be cited in court papers.

As established by Dodocase, a seemingly innocuous forum selection clause can prevent a licensee from petitioning the PTAB in order to challenge the validity of licensed patents. As a result, forum selection clauses in patent license agreements should be carefully considered and carefully drafted in order to preserve a licensee's rights to challenge the licensed patents utilizing the focused and streamlined PTAB procedures provided by the AIA.

Jeffrey M. Weinick is a member with Chiesa Shahinian & Giantomasi in West Orange, and serves as co-chair of the firm's Intellectual Property Group. Joseph G. Fenske is counsel with CSG's Intellectual Property Group. Both are registered patent attorneys.