Contracting Around AIA Trials

by Dennis Crouch

Dodocase Vr, Inc. v. Merchsource, LLC (Fed. Cir. 2019) [Non Precedential Decision] [En Banc Petition]

As part of a licensing agreement, MerchSource agreed as follows:

6.4 MerchSource shall not (a) attempt to challenge the validity or enforceability of the Licensed IP; or (b) directly or indirectly, knowingly assist any Third Party in an attempt to challenge the validity or enforceability of the Licensed IP except to comply with any court order or subpoena.

The agreement also includes a forum selection clause — seemingly relegating any disputes to courts located in California:

THE PARTIES AGREE THAT … DISPUTES SHALL BE LITIGATED BEFORE THE COURTS IN SAN FRANCISCO COUNTY OR ORANGE COUNTY, CALIFORNIA.

Later, MerchSource stopped paying the agreed-upon royalties (arguing that the patents are invalid and so no money need be paid); Dodocase subsequently sued for infringement and breach in N.D.Cal. Federal Court.  MerchSource then filed for inter partes review (IPR) and post grant review (PGR) of the patents at issue.  Those proceedings are still pending before the PTAB as is the District Court case.

In response to the IPR/PRG filings, the district court issued a preliminary injunction ordering MerchSource to withdraw the PTAB petitions.  MerchSource did not do that, but rather appealed to the Federal Circuit who affirmed.

A particular question on appeal was whether the forum selection clause applied in this case because it was limited to disputes ” arising out of or under this Agreement.”  On appeal, the Federal Circuit agreed that the invalidity contentions did indeed arise from the contract. Quoting its prior Texas Instruments decision, the court explained: “There may be an issue, as here, of whether … the licensee may elect to challenge the validity of the licensed patents. . . . Thus, the governing law clause in the present case, as in any patent license agreement, necessarily covers disputes concerning patent issues.” Texas Instruments Inc. v. Tessera, Inc., 231 F.3d 1325 (Fed. Cir. 2000).

The decision here by the court is non-precedential and essentially quotes Texas Instruments for its holding. However, the case involves two important transformations of that prior case.  First, as reiterated here, the Federal Circuit appears to make it almost a rule-of-law that validity challenges will be covered by a standard contractual forum selection clause.  Second, and importantly, the cicumstances in the present case are different because of the advent of AIA proceedings.  In TI, a party was prevented from litigating its infringement case in the USITC — here the question is whether the forum selection clause keeps the case out of the PTAB.

Meanwhile, MerchSource has now petitioned for rehearing en banc asking two questions:

1. Are contractual forum selection clauses interpreted under regional circuit law as according to precedent, or are AIA proceedings to review the validity of patents necessarily covered by the forum clause in any patent license agreement regardless of the clause language?

2. Can the Supreme Court’s ruling in Lear, prohibiting contractual obstacles to validity challenges, be overcome in the absence of the countervailing public policy set forth in Flex-Foot? . . . .

The first question is a bit hyperbolic and presents a false dichotomy – but that is now a standard approach for en banc and certiorari petitions.  In any event, the Federal Circuit stated that it was applying California law to the contract interpretation; but then appeared to actually apply its own Federal Circuit law; and petitioner argues that 9th Circuit law should apply here (as it does in diversity cases).

The second question raises two important cases:

  • Lear, Inc. v. Adkins, 395 U.S. 653 (1969) — finding contractual restrictions to validity challenges void on policy grounds that favor challenges to validity.
  • Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001) — applying regional circuit law, not Federal Circuit or California law, to interpretation of settlement agreement; and identifying res judicata as an exception to Lear.

Although the court and parties are circling around various legal issues, the baseline questions are (a) can someone contractually waive their right to file an IPR petition; and (b) if so, under what circumstances; and (c) if so, what contractual language will be sufficient?

= = =

Here, the patents at issue cover a VR headset.  U.S. Patents 9,420,075; 9,723,117; and 9,811,184.

49 thoughts on “Contracting Around AIA Trials

  1. 4

    Greg’s link. Obama CAFC judge: “How does it improves the computer?” Attorney explains improvement to GUI for trading. “But doesn’t do anything to the computer. The computer is there. It has been built with a certain capacity…speed. It is just a question of how you tell it to do it. That’s not improving the computer. And it has a capacity that when it is reached then you go to a supercomputer. But this software doesn’t do anything to improve the computer. It just uses it as it sits there and is ready to be used.”

    Wow. The only solution is to disband the CAFC to get rid of the Obama judges.

    1. 4.1

      Basically, they are requiring arguments like the EPO requires for a technical effect.

      1. 4.1.1

        It’s actually worse than that. The EPO technical effect is not required to BE the inventive aspect (simply being “A” technical effect is sufficient).

      2. 4.1.2

        Night, your reference to the EPO assessment of eligibility/patentability puzzles me. Since when has the EPO been asking “How does it improve the computer?”?

        But that said, I imagine that it might be possible to discern that EPO thinking on eligibility/patentability has at last begun to infect thinking within the Federal Circuit. Randall Rader, for example, was frequently over here in Europe, years ago now, debating the issues.

        To remind readers: at the EPO, patentability is confined to subject matter which can be defined in a claim that recites a combination of technical features. Non-obviousness is assessed by asking whether the feature combination in the claim solves an objective technical problem (emphasis on “technical”). Trading, as such, is not technical.

        1. 4.1.2.1

          Max not sure why you are puzzled. Technical eligibility at the EPO can include software that improves the functioning of the computer. I took the CAFC judge above asking the question –like at the EPO–how the software is improving the actual functioning of the computer, e.g., access to memory, speed of CPU, etc.

          1. 4.1.2.1.1

            OK, Night. Not so “puzzled” now. Yes, software that solves in a non-obvious way an objective technical problem can be recognised as patentable. The EPO’s enquiry into “technical effect” is part of the obviousness enquiry rather than eligibility. The presentation of information is not technical.

            Does anybody at the EPO ever put explicitly to the Applicant the question “How does the claimed subject matter improve the computer”? I doubt it. All too vague and airy-fairy, it seems to me. More likely they would enquire, what precisely is the technical problem that the claimed subject matter is alleged to solve?

            1. 4.1.2.1.1.1

              I think that you try to say too much with: “The presentation of information is not technical.

              Let’s look again at the blue racquetball.

              Analogize the choice of the color blue with the presentation of information (in the form of color).

              It is not merely whether or not “information is presented” that dictates whether or not a technical effect has been achieved.

              Sometimes the “what,” and sometimes the “how” may well dictate whether or not “technical effect” is reached.

              1. 4.1.2.1.1.1.1

                Link below, to EPC Article 52(2)(d) “presentations of information”. But construe narrowly the statutory exclusion of eligibility, ie narrow it down to “as such”.

                BTW, the blue squash ball is not a real granted EPO patent, just a hypo.

                But a squash ball coloured blue is more than a presentation of information, as such.

                Here is another example for you. Recall the stripy plastic tape that police use at the scene of a crime. Now think of the following as an invention: similar tape, striped yellow and black, for corralling bovine animals.

                For the sake of argument, assume it’s novel. Be aware that cows are intuitively terrified of snakes, and yellow and black striped tape is, to them, very like a snake. Presentation of information? Hardly.

                1. Ah yes, the typical “per se” and “as such”….

                  Does not those caveats FIT what I am saying?

                  As I said: “presentation of information” very much may depend on the “how” and the “what” and can easily reach that technical aspect.

                  You say “Hardly.”
                  I say that you overstate the proposition.

                  I am very much MUCH closer to the mark (thanks at least to those “per se” and “as such” caveats).

        2. 4.1.2.2

          You see what Mayer is saying is that a computer + software isn’t a new machine (we have a case that is still good law that says it is.) What is the name of that case?

          But Mayer is trying to say that an interface is not eligible as it fits into some broad category of well-known things like organizing and presenting information. This is an outrageous view. Anything could be removed from eligibility with such a broad categorization and then some reference to the pharos.

          1. 4.1.2.2.1

            The key to understanding what is going on here is that information processing is something in and of itself. It is just like processing the grain in Deener. Information processing takes time, energy, and space. And the computer is merely a tool (like the blower in Deener) to accomplish the information processing task.

            This is the key and this is also indisputable. The conservation of information is one of if not the most important law of physics.

            1. 4.1.2.2.1.1

              In Deener, the courts said that every process must have a result, contrary to anon’s nonsen$e that processes and results have no relationship.

              Information used by machines is intangible, but it cannot be abstract, because only a human mind can host an abstraction.

              A stock trade is an abstraction. Information about a stock trade is an abstraction. Information used to process a trade, when consumed by machines, is a machine component.

              PS, the “new computer” argument is as dead as fried chicken and if you are thinking Alappat is good law on that…..well you won’t win any cases at the CAFC or Supreme Court. That sophistry has been done away with.

              1. 4.1.2.2.1.1.1

                contrary to anon’s nonsen$e that processes and results have no relationship.

                Wow – you got that wrong as well. NOWHERE do I say that the two have no relationship.

                I actually say something quite different. In fact, in the patent sense of what utility entails, ALL processes necessarily include aspects that have results that are to be consumed by humans.

                As to “sophistry” and Alappat, you are – yet again – absolutely wrong.

                There, you are wrong in both fact and law.

          2. 4.1.2.2.2

            The historical case that you may be thinking of, Night Writer, is In re Alappat.

            Of course, there are a handful of recent cases post-Alice that provide for innovation protection of software at both Step 1 and at Step 2 of the Supreme Court scrivined Alice/Mayo two step.

            1. 4.1.2.2.2.1

              Ah yes, In re Alappat. For reason I can never recall that name.

              That case is really at the heart of these issues as Rader has pointed out.

          3. 4.1.2.2.3

            The overriding thought experiment that is applicable here is the Grand Hall experiment.

            Any naysayer first must be able to account for that thought experiment.

            To date, not a single naysayer has been able to do so (Malcolm has not even bothered to try).

        3. 4.1.2.3

          The lovely caveats of “as such” and “per se” can be emphasized as putting the opposite take-away that MaxDrei appears to want to impart.

          For example, while “trading” AS SUCH is not technical, MaxDrei, would the aspects of the subject claims be driven at that AS SUCH item, or would they be driven at ‘technicalities’ involved with implementing the AS SUCH item? There is no “I claim ‘trading’ AS SUCH” in the subject claims, now is there? – rather, the claims address the technical aspects of a device for improved speed and efficiency of any underlying trades. With the improvement being in the “technical effects,” would not the EPO come to a different conclusion here than our court has?

      3. 4.1.3

        It is interesting too that the non-precedential opinion for TT said expressly that Alice did not apply since the trading interface was new and could not be old and well-known.

        I think that Mayer is just making up this law (and using some other made-up CAFC recent case law.) Mayer’s analysis has no basis and would render the claims in Deener ineligible as the grain process is not using any of the machines differently than they were built to be used.

    2. 4.2

      The judge you are quoting there is Robert Haldane Mayer—a Reagan appointee. Why, however, let facts get in the way of a good anti-Obama rant?

      1. 4.2.1

        Would you believe, ladies & gents, that #4 above is what the work of an educated patent attorney looks like?

        1. 4.2.1.1

          Yes Greg there are some bad apples pre-Obama, but –in reality– there is no question that the Obama appointees (what is it 6?) dominate the thinking on the CAFC. They have turned it into a place where there is no need to worry about science or the law. Just make some stuff up that the person on the street would buy and go with it.

      2. 4.2.2

        Haldane Robert Mayer. But his name should have been like you say.

        One tends to listen to a no-nonsense ex-army ranger like Judge Mayer.

        1. 4.2.2.1

          Haldane Robert Mayer. But his name should have been like you say.

          Of course you are right, on both counts.

    3. 4.3

      Mayer: It is just a question of how you tell [the computer] to do it.

      And for those folks just tuning in, “telling a computer how to do it” is not eligible subject matter. Instructing a person with language isn’t eligible subject matter. Instructing a horse with language isn’t eligible subject matter. Instructing a robot with language isn’t eligible subject matter. Instructing by typing on a keyboard using a language isn’t eligible subject matter.

      And it doesn’t matter what language you are using. Languages aren’t eligible subject matter, either.

    1. 3.1

      I would not be surprised if the attorney for Trading Tech had to be taken to the hospital to stitch up the disenboweling that he suffered from Judge Chen.

      1. 3.1.1

        Judge Chen is a key part of Barack Obama’s masterfully devious plan to destroy the patent system.

        LOL

        1. 3.1.1.1

          That was not Judge Chen. It was Judge Hughes.

      2. 3.1.2

        I would not be surprised if the attorney for Trading Tech had to be taken to the hospital

        I can hear him now, crying out “bundle of sticks! bundle of sticks!” all the way to the ambulance.

      3. 3.1.3

        Judge Chen was not on the panel. Judge Hughes was the disemboweler.

        1. 3.1.3.1

          Thanks for the correction. I have a hard time telling Chen’s and Hughes’ voices apart in the MP3 files. Same problem between Judges Moore and O’Malley.

          1. 3.1.3.1.1

            “Same problem between Judges Moore and O’Malley.”

            Listen to the content. If she don’t talk about her children or her clerks it’s O’Malley.

        2. 3.1.3.2

          Hughes is also an Obama puppet!!! The voice similarity is NOT a coincidence!!!!

        3. 3.1.3.3

          Hughes is also an Obama puppet!

          The voice similarity is NOT a coincidence, my friends, and the confusion is critical to the plan.

    2. 3.2

      The creation of the Federal Circuit was the biggest taking in U.S. history.

    3. 3.3

      frivolous, whew lads! Not a defense to agency action! Have to go to the court of claims lolol!

      1. 3.3.1

        I know, right? Those oral arguments were a hoot!

        1. 3.3.1.1

          Note to self. When the judge tells you to argue the merits and not rely on some non-precedential hot mess, argue the merits. At the least, try to distinguish the precedents.

          1. 3.3.1.1.1

            Yeah really. That was really bad. The judges tell you to stop citing non-precedential opinions and you keep doing it over and over again.

            1. 3.3.1.1.1.1

              That part also made me lol. Though I think he didn’t mean to be formally citing them, he was just trying to explain his logic of how his point was being made and just noted that he though the same logic was used in those other cases, without them being any authority, in his statement.

    4. 3.4

      Brutal.

      To be fair, it seemed to be the takings argument TT was making that did not hold up well. Hughes (correctly) said you need to bring it at the CFC and seek compensation, not use it to try to nullify the PTAB decision.

      1. 3.4.1

        To be fair, it seemed to be the takings argument TT was making that did not hold up well.

        Sure, but that argument is the only one about which these folks care. The people advancing this argument want AIA trials to be declared unconstitutional—full stop. They do not really want an opportunity to seek damages in the Court of Federal Claims (where few to none of them would actually prevail).

        1. 3.4.1.1

          There is a difference between a Takings (which may then be pursued in the Court of Claims for proper recompense) and an improper Takings.

          Have not yet listened to the oral argument, so I cannot opine on whether (or which) party got things wrong here.

          1. 3.4.1.1.1

            “There is a difference between a Takings (which may then be pursued in the Court of Claims for proper recompense) and an improper Takings.”

            Yeah the main difference is whether just compensation is paid if I understand correctly. Tho imo we need stronger protections on the takings or property that is for sure.

            1. 3.4.1.1.1.1

              Nope – not the main difference (albeit, that is one of the differences).

    5. 3.5

      Egads, there are four listed oral arguments, and the dialogue is mindnumbingly droning.

      Any “pin cites” as to the specific oral argument (which of the four and at what time stamp) that one can zero in on? Not just for any beat-down, but also to see how counsel is even approaching the Takings argument?

  2. 2

    How does Flex-Foot apply here? Has there been a final decision on the merits?

  3. 1

    This may be an interesting test to the doctrine of freedom to contract.

    Given that no “contract of adhesion” charges appear, each party signing up should be held to what they voluntarily agreed to.

    1. 1.1

      Back to the actual topic of the thread, I amend slightly my view here.

      Even contacts that are not of the adhesion variety may well have clauses that will be stricken on public policy grounds.

      Lear would seem to indicate such conditions, and I would be curious as to how the lower court case of Flex-foot carves out an exception to the Supreme Court Case (under any of regional, Federal, or California principles).

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