Arbitration Agreement Does Not Control Inter Partes Review Proceedings

by Dennis Crouch

The Supreme Court has strongly supported arbitration as an alternative dispute resolution mechanism.  The Federal Arbitration Act (FAA) codifies this “liberal federal policy favoring arbitration agreements.”  Quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).  Although the right to arbitrate patent cases is seemingly clear from the FAA, Congress went further in its 1982 PTO appropriations bill to expressly codify the enforcement of arbitration agreements for “any dispute relating to patent validity or infringement.”  35 U.S.C. 294.  Sometimes a party subject to arbitration will still file their dispute in court. At that point, the opposing side will move to stay or dismiss the case and compel arbitration.

The core question in MaxPower Semiconductor (Fed. Cir. Sept 8, 2021), is whether the arbitration agreement can be used to cut-short an inter partes review (IPR) proceeding.  Here, the Federal Circuit effectively sided with the PTO and the patent challenger and refused to compel arbitration. The majority opinion is by Judge Reyna and joined by Judge Chen. Judge O’Malley dissented — arguing that the court failed to live up to the statute:

The majority’s denial of a writ of mandamus in this case allows the Patent Trial and Appeal Board to add a new caveat to Congress’s clear instruction that agreements to arbitrate patent validity shall be “valid, irrevocable, and enforceable”—i.e., except during inter partes review.

O’Malley in Dissent.

Background: MaxPower worked for several years with Rohm Semiconductor to develop RFP power transistor technology. MaxPower obtained the patents and licensed those to ROHM with an ongoing running royalty.  The license included an arbitration agreement.   Money flowed for several years.  Rohm eventually developed a new silicon carbide transistor and privately suggested new product was not covered by the agreement.   At that point, MaxPower provided notice that it was planning to initiate arbitration in 30 days.  ROHM acted first — filing the IPR petition at issue here as well as a lawsuit in N.D. Cal. seeking a declaration of non-infringement of the same patents.  The N.D. Cal. Judge granted MaxPower’s petition to compel arbitration, and the appeal of that determination is separately pending before the Federal Circuit.

The PTAB instituted the IPR — holding that it was not bound by the Federal Arbitration Act or Section 294 of the Patent Act. According to the PTAB, those provisions are tied to civil litigation, not USPTO proceedings.  PTAB explained:

After careful consideration of this issue, we conclude that the arbitration clause is not a reason to decline institution. Even if Patent Owner’s recitation of the facts is true, and even if the question of whether patentability falls within the scope of the agreement to arbitrate is committed to the arbiter, we nevertheless do not find a statute, rule, or policy that would preclude the Office from acting on the Petition.

Institution Decision. MaxPower immediately appealed.

NonAppealable: The first problem with MaxPower’s appeal is the statutory rule that institution decisions are nonappealable.  35 U.S.C. § 314(d). The court also ruled that mandamus  was not appropriate here because it was being used as a “means of avoiding the statutory prohibition on appellate review of agency institution decisions.” In re Power Integrations, Inc., 899 F.3d 1316 (Fed. Cir. 2018). Another way to get to appeal is via the collateral order doctrine, but, according to the court, that doctrine also requires an issue of rights that “will be irretrievably lost in the absence of an immediate appeal.” Apple Inc. v. Samsung Elecs. Co., 727 F.3d 1214 (Fed. Cir. 2013).

The FAA itself also creates a right of appeal for refusing to stay any action subject to arbitration.  However, the right to stay under the FAA is limited to stays of proceedings in Federal Court. As such, that provision also does not apply.

In the end, the Federal Circuit found no authority to hear the appeal, and thus dismissed the appeal and denied the mandamus petition.  The court suggested that it might be able to do something once the IPR concludes and a right to appeal attaches. However, the court also noted that the questions here might all be wrapped-up in non-appealable initiation questions. “If MaxPower is truly not raising matters that are absolutely barred from appellate review under section 314(d) (an issue we need not decide here), then MaxPower can meaningfully raise its arbitration-related challenges after the Board’s final written decisions.”

In dissent, Judge O’Malley would have heard the case on mandamus.  The court’s failure to hear the case “cast[s] a shadow over all agreements to arbitrate patent validity, which, after today, apply only in district courts and not in inter partes review proceedings.”

= = = =

I have not seen the arbitration agreement in this case. But there is usually a big question about whether patent validity and/or infringement are covered by the agreement that is particularly focused on licensing.   The district court’s parallel decision staying its case to await the arbitration outcome is set for Oral arguments in October.  The Judge did not actually determine the question of arbitrability, but rather found that issue was for the arbitrator to resolve.


11 thoughts on “Arbitration Agreement Does Not Control Inter Partes Review Proceedings

  1. 5

    If Reyna’s in the majority and O’Malley’s not, the decision is probably wrong. Unfortunately she’ll be retired by the time the en banc case is heard (if the en banc petition is even granted).

  2. 4

    I think we need to know more about how arbitration agreements were resolved in view of the administrative law.

    Other examples of when an administrative agency went about its business despite an arbitration agreement.

    I tend to agree with the majority that there is something a bit different about the way IPRs are set up. Has this come up with ex parte PGRs?

    1. 4.1

      These are important thoughts.

      I found a 2011 (pre-AIA unfortunately) Oblon Spivak article that addresses these points fairly well. The relevant section is III.C; it discusses stays of proceedings at the PTO and at the ITC. Notably, the article cites a 1991 case (Farrel) where CAFC held that the ITC could not stay (or rather, terminate) an investigation in favor of arbitration because the ITC lacked statutory authorization to do so. Congress then had to amend Section 337 to provide that specific authorization. The article ultimately concludes that agencies would generally grant stays, but the reasoning’s not exactly airtight (the writing is a little sloppy too; for example, Section 337 is misspelled as “377” in places) and I don’t really agree.

      link to

      Given the above, Farrel would seem to be pretty good authority for disregarding arbitration in this case, because the IPR statutes weren’t amended in the same way as Section 337 was. But strangely, CAFC didn’t even mention the case. Go figure.

      Regardless, I also tend to agree with the majority on the substantive point—that is, putting aside most of the discussion, which focused on appellate jurisdiction—but the reasoning on that aspect didn’t even take up an entire paragraph. So, I’d like to see a more in-depth consideration of the issue.

      One thing I do believe strongly is that mandamus isn’t the appropriate posture for deciding this substantive question. At the very end of the decision, the majority even hinted at a better way. It noted that, as in the cited case Preston, it’s a court with jurisdiction over the parties that can mandate arbitration. So, in addition to moving the NDCal court for arbitration on the noninfringement issue, MaxPower should have been able to do the same for validity. Presumably the court would have been able to force ROHM to withdraw the IPR petition.

  3. 2

    Is one issue that IPR is an in rem proceeding with a final claim invalidity decision affecting everyone, yet 35 U.S.C. 294(c) says that: “An award by an arbitrator shall be final and binding between the parties to the arbitration but shall have no force or effect on any other person.” [That would include no effect on the PTO?]

    1. 2.1

      Although 294(c) above is apparently not cited in the decision, the decision notes that:
      “..the arguments raised by MaxPower do not show, under the demanding standards for mandamus, that the Board has clearly and indisputably exceeded its authority. The Board is not bound by the private contract between MaxPower and ROHM. And MaxPower fails to explain why 35 U.S.C. § 294 clearly deprives the Board of authority to institute inter partes review when the statute does not by its terms task the agency with enforcing private arbitration agreements.”
      [The present Sup. Ct. might not agree with this decision, but there seems to be an additional noted finality issue for getting cert at this point, given a possible regular appeal after the PTAB decision.]

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