Forum Selection Clause Excludes IPRs—Non Conveniens Becomes Impossibilis | McNees Wallace & Nurick LLC
Forum selection provisions appear (or at least are proposed) in all types of agreements and often cause disagreements in negotiations because of the potential for real or perceived strategic advantage to a court or a particular geography. A recent Federal Circuit decision (Nippon Shinyaku versus Sarepta Therapeutics, 25 F.4th 998 (Fed. Cir. 2022)), however, overturned what one party probably originally expected to be a great achievement at the time of the agreement, finding that the wording of one of these clauses also limited that party’s ability to subsequently challenge another’s patents in the United States Patent Office.
The case stems from a confidentiality agreement, an agreement familiar to all areas of law and which does not always even mention the need for an intellectual property attorney. Nippon Shinyaku provides a cautionary tale demonstrating the importance of language that could in some cases be considered boilerplate (even if the terms themselves are negotiated) when patent issues underlie the trade deal.
Nippon Shinyaku and Sarepta entered into a mutual confidentiality agreement in June 2020 with the aim of allowing the parties to more freely discuss a possible commercial relationship for therapies used in the treatment of muscular dystrophy. Slightly more complex than most standard nondisclosure agreements, one section provided that during the term of the agreement (and shortly thereafter), each party would grant the other a covenant not to sue with respect to any intellectual property claims in the field of muscular dystrophy therapies. The covenant not to sue made explicit reference to validity challenges at the United States Patent and Trademark Office (USPTO).
The parties’ confidentiality agreement also separately included a choice of court clause stating that all “potential actions” relating to infringement or validity filed within two years of the expiration of the covenant not to sue could only be filed in the US District Court in Delaware. Unlike the covenant not to sue, no explicit reference was made to the USPTO, although the definition of “potential actions” refers to litigation filed with a court or administrative agency. With both parties agreeing to personal jurisdiction in Delaware and waiving any improper venue defense based on forum non conveniens, Sarepta probably viewed this provision as a significant achievement at the time: forcing a foreign company to travel across from the world to Delaware could be expected to discourage any adverse filing.
The day after the covenant not to sue ended, Sarepta filed seven motions for inter partes review (IPR) with the Patent Trial and Appeals Board of the US Patent & Trademark Office (PTAB) seeking to invalidate Nippon Shinyaku’s patents. . Intellectual property rights are administrative procedures initiated by a request asking the PTAB to review the validity of a granted patent. If the PTAB grants the request, a lawsuit is instituted on the sole question of the validity of the patent. IPR proceedings are often considered desirable by patent opponents because of their speed and the fact that the threshold for the burden of proof of invalidity is lower.
Three weeks after Sarepta’s petitions, Nippon Shinyaku filed a lawsuit against Sarepta in Delaware alleging patent infringement as well as breach of contract due to Sarepta’s IPR filings. Nippon Shinyaku also filed a motion for a preliminary injunction asking the court to ban IPRs.
Before Judge Leonard Stark, an experienced patent judge and now recently confirmed to the Federal Circuit, the district court denied the preliminary injunction. The court concluded that the forum selection clause, read in context, applied only to other federal court proceedings and that the parties likely would not have expressly prevented the filing of an IPR during the term of the agreement if they expected that the forum selection clause would implicitly delay such filings for an additional two years. Moreover, since the Patent Act prohibits filing an IPR more than one year after a defendant has been served with an infringement action, the court explained that the parties did not intend to completely bar an IPR if an infringement action had been filed during the first year of the forum selection clause window.
On appeal, however, the federal circuit reversed. The Federal Circuit held that the plain language of the forum selection clause actually explicitly contemplated the proceedings of the PTAB because a filing with an “administrative body” was included in the definition of a potential action. He further rejected the idea of a tension between the covenant not to sue and the choice of court clause because the restrictions applied at different times. Finally, he determined that the impact of a possible statute of limitations was not sufficient to suggest that the parties did not intend to negotiate the ability to file an IPR – the parties disagreed on the fact that the validity of a patent could not be challenged, only on the way in which this challenge could materialize in certain circumstances. Validity remains a defense in the district court even in the absence of a DPI, but with a different standard of proof.
Finding a likelihood of success on the merits, the Federal Circuit determined that the remaining preliminary injunction factors also favored Nippon Shinyaku. In reversing the denial of a preliminary injunction, the Federal Circuit went further and ordered the district court to enter the preliminary injunction.
In the meantime, the PTAB had already granted all of Sarepta’s motions, agreeing that there was a reasonable likelihood that the patents at issue were invalid and instituting a formal administrative lawsuit to resolve the issue in response to each of the seven motions. The proceedings have all been suspended pending the appeal and remain so until the end of April. A petition en banc remains pending at the time of this writing.
At first glance, the impact may seem insignificant – the two-hour drive between Wilmington, Delaware, where the District Court sits, and Alexandria, Virginia, where the PTAB sits, is hardly an inconvenience worth having. fought. But IPRs are often seen as a preferred mechanism for challenging the validity of patents. It is important to note that patents are presumed valid in proceedings in federal courts and must be declared invalid by clear and convincing evidence. Conversely, patents are not presumed valid within the Patent Office, and the challenger need only show a preponderance of the evidence to show invalidity. In addition, the time between the institution of a trial and a final decision is one year according to the law, which is generally faster than litigation. Thus, Sarepta’s IPR ban and its loss of this ability to challenge could have a significant impact on the ultimate outcome of Nippon Shinyaku’s patent survival, as well as the time it takes to know the outcome.
Regardless of the end result of Sarepta Following any action on the request for rehearing en banc, the case provides an important cautionary tale. Confidentiality agreements are often prepared and negotiated in many circumstances where intellectual property assets are not specifically contemplated as part of the agreement, but may nevertheless underlie the reason for the business relationship. The concern is not limited to patents alone; trademarks and other forms of registered intellectual property also have analogues in which validity can be challenged before other administrative bodies, such as opposition and cancellation proceedings before the Trademark Trial and Appeal Board . As this case shows, even when patents were being considered, the impact of express versus implied limits on business can lead to a negative outcome.
Particularly where it is unclear at the time of writing whether patents, trademarks or other specific intellectual property rights will ultimately be relevant, lawyers should consider choice of court clauses that exclude courts alternatives, but not other forms of administrative procedures. Of course, this consideration carries its own risks: as with all terms of a mutual agreement, as most confidentiality agreements are, the benefit of preserving a right to another administrative avenue of review will not necessarily be known. in advance and will likely depend on whether it is your patents or those of another party in dispute.