By way of background, Dodocase is the owner of three patents related to virtual reality headsets: U.S. Patent Nos. 9,420,075 (“the ’075 patent”); 9,723,117 (“the ’117 patent”); and 9,811,184 (“the ’184 patent”). MerchSource is a distributor of consumer products. Dodocase and MerchSource entered into a Master License Agreement (“MLA”) covering the three patents. The MLA included a forum selection clause and choice of law provision stating “[t]he laws of the State of California shall govern any dispute arising out of or under this Agreement . . . . [T]he parties agree that disputes shall be litigated before the courts in San Francisco County or Orange County, California.”
A year later, MerchSource informed Dodocase that MerchSource would no longer pay royalties because it believed that all the relevant patent claims were invalid. 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 as well as a declaratory judgment that the patents were valid and enforceable. MerchSource then filed petitions requesting inter partes review (“IPR”) of the ’075 patent and post grant review (“PGR”) of the ’117 and ’184 patents (collectively, “the PTAB petitions”). In response, Dodocase filed a motion for a temporary restraining order and preliminary injunction requesting that the District Court order MerchSource to withdraw the PTAB petitions.
The District Court granted Dodocase’s motion for preliminary injunction and ordered MerchSource to withdraw the PTAB petitions. The District Court found that Dodocase was likely to succeed on the merits of its claim because the forum selection clause mandated that disputes “shall be litigated” in the California courts and PTAB proceedings fell within the scope of the clause. Consequently, Dodocase was likely to succeed in showing that MerchSource breached the forum selection clause by filing its PTAB petitions.
MerchSource appealed arguing, among other things, the District Court erred in finding likelihood of success because the PTAB petitions did not “arise out of” the MLA. The Federal Circuit rejected MerchSource’s argument and found no error in the District Court’s decision. In a prior case, Texas Instruments Inc. v. Tessera, Inc., 231 F.3d 1325 (Fed. Cir. 2000), the Federal Circuit found that a California forum selection clause using the language “arise from, under, out of or in connection with this Agreement,” encompassed International Trade Commission (ITC) proceedings initiated after the license agreement was executed. The court in Texas Instruments Inc. v. Tessera, Inc., explained when the parties negotiated the terms of their licensing agreement, they possessed adequate knowledge of the basic patent law actions and remedies available to litigants, including the available forums and venues. The parties agreed only to California as the forum to resolve disputes. Since ITC actions cannot be brought in California, it followed that the parties did not agree to the ITC as a forum for litigation. “Thus, the governing law clause in [Texas Instruments Inc. v. Tessera, Inc.], as in any patent license agreement, necessarily covers disputes concerning patent issues.”
In affirming the District Court, the Federal Circuit extended the analysis of Texas Instruments Inc. v. Tessera, Inc., to PTAB proceedings. The PTAB proceedings challenging the patentability of the licensed patents after Dodocase sought to enforce the license fell within the scope of the forum selection clause because they “aris[e] out of or under” the terms and performance of the contract. Consequently, forum selection clauses can bar PTAB proceedings in certain circumstances.
But the relief such a forum selection clause provides may be bitter sweet for the patent owner. To date, the PTAB has not recognized forum selection provisions as a defense. And in Dodocase, the remedy is only that MerchSource request termination. There is no requirement that the PTAB actually terminate the proceedings. Given the stage of the proceedings, with Final Written Decisions expected in August 2019, it will be interesting to see how the PTAB reacts to MerchSource’s request.
If the PTAB refuses to terminate the proceedings and finds the claims unpatentable, aside from an appeal on the merits, it appears that Dodocase’s remedy may be limited to MerchSource’s apparent breach of contract. While proving a breach and recovering damages may be of some solace, the prospect of losing the three patents still exists.
In light of this decision, parties should carefully consider using a forum selection clause to prohibit litigation before the PTAB. A broadly drafted forum selection clause in a licensing agreement could summarily dispose of post-grant petitions. However, a patent owner should move quickly when this situation arises given that if the PTAB proceedings advance too far there is no guarantee that the PTAB will terminate them. Parties should also track this case to see how the PTAB reacts and how the Federal Circuit views that reaction should one or more of the PTAB judgments be appealed.