Avoiding IPR via Contract

by Dennis Crouch

Kannuu Pty. LTD v. Samsung Electronics Co., LTD (Fed. Cir. 2021)(KannuuSamsungDecision)

US Courts typically enforce choice-of-forum provisions found within contracts between two business entities.  Here, Kannuu and Samsung entered into a non-disclosure agreement as part of a potential deal, and the contract included a choice-of-forum provision that directed “any legal action” stemming from the agreement to courts located in New York City “and no other jurisdiction.”  The potential deal fell apart and Kannuu eventually sued Samsung for patent infringement.  Samsung responded with an inter partes review (IPR) petition. Kannuu then asked the USPTO to drop the petition based upon the forum-selection-clause and, failing that, also petitioned the district court for an order that Samsung drop the IPR.  The district court denied Kannuu’s motion for preliminary injunction and then appealed.

On appeal, the court centers-in on the issue:

The underlying question that this case presents is one of first impression: Does the forum selection clause in the non-disclosure agreement between the entities prohibit Samsung from petitioning for inter partes review of Kannuu’s patents at the Board?

Slip Op. Apart from the general legal question of whether such a clause can operate to keep the case out of IPR, Kannuu’s case has a more fundamental problem identified by the district court — “the plain meaning of the forum selection clause in the NDA [does] not encompass the inter partes review proceedings.” Slip Op.

The district court case is only at the preliminary injunction stage, and the appellate panel found no abuse of discretion in the district court’s finding that the IPR proceedings are not covered by the agreement since the agreement focuses on confidentiality rather than intellectual property rights.

On the bigger question of whether such a contract, if properly drafted, might be enforceable, the court explains that it “might” work:

Had Kannuu and Samsung entered a contract which applied to inter partes review proceedings, a forum selection clause in that hypothetical contract might permit Kannuu to avoid inter partes review and its inherent features. But, they did not enter such a contract.

Id.  The court has previously found such a clause enforceable to prevent a post-grant-review proceeding, but only in a non-precedential opinion. Dodocase VR, Inc. v. MerchSource, LLC, 767 F. App’x 930 (Fed. Cir. 2019).

The majority opinion was written by Judge Chen and joined by Judge Prost.

Writing in dissent, Judge Newman argued that “the forum selection clause is clear and unambiguous, and law and precedent require that it be respected and enforced.”

= = =

I should note that the patent at issue here has the auspicious title of “Process and apparatus for selecting an item from a database.” [Link]

24 thoughts on “Avoiding IPR via Contract

  1. 6

    Why is this in the Fed Circuit by the way? It is not an appeal of an IPR institution. It is a request for an injunction to prohibit samsung from taking certain action based on contract. It does not arise under patent laws, but under contract law. Unless there was a counterclaim arising under patent law, seems like fed cir may lack smj.

    1. 6.1

      Dennis indicates “Kannuu eventually sued Samsung for patent infringement” and it is in this patent case that the forum selection clause was asserted.

    2. 6.2

      Good point.

  2. 5

    1. Why not just put a clause specifying “No IPR challenges allowed” in the contract?

    2. Given that clauses specifying “no challenges to patent validity allowed” are invalid as against public interest, why would a clause specifying “no IPR challenges” be valid?

    3. If a clause unamibigously stating “no IPR challenges” is invalid, then certainly trying to get the same effect through forum selection clause is also invalid.

    Also, given the narrowing of assignor estoppel (and the fact that it doesnt apply at all to IPRs), any assignment these days should probably have a no IPR clause and forum selection clause.

    1. 5.1

      Re: “If a clause unambiguously stating “no IPR challenges” is invalid, then certainly trying to get the same effect through forum selection clause is also invalid.”
      Yes, that is another, public policy, argument against enforcing it.

    2. 5.2

      Your point 2 is what I had in mind below.

  3. 4

    As always, Judge Newman’s opinion is a must-read.

    1. 4.1

      +1

  4. 3

    It’s an interesting question. An IPR is not a typical civil action merely between two parties: the public has a stake because subject matter may rightfully belong to the public and could be returned to the public. Since the public is not party to the contract, the contract should not bind the public’s interest, as represented by the IPR filer and in accordance with the intent of the drafters of the IPR statue.

    1. 3.1

      Yes, but there is the separate issue here of the validity of a personal injunction against one party in a lawsuit between the contract-signing parties.

    2. 3.2

      I was thinking as well as there being a public interest angle, but I think that you suffer a small trip in logic with your statement of:

      the contract should not bind the public’s interest, as represented by the IPR filer

      The facts here is that the IPR filer is NOT representing the public’s interest, and — perfectly in line with the drafted IPR statute, any one ELSE (and that is literally anyone, as standing is not required in the first phase of the [potential] two-phase IPR process.

      The contracted party could literally hand the details (and cash – wink wink) to the homeless guy on the street and that guy could file the IPR.

      1. 3.2.1

        “The contracted party could literally hand the details (and cash – wink wink) to the homeless guy on the street and that guy could file the IPR.”

        This is essentially what the patent defense groups were doing, and IIRC the fed circuit starting cracking down on them, at least a little.

        1. 3.2.1.1

          I believe that any such crackdown is a bit different – and one merely of not permitting surreptitious hiding of relationships.

          It is not an altogether ban of such activity.

          Plus, the homeless guy has not set up a business making routine mockery with such shadow work.

    3. 3.3

      Clauses saying “no patent validity challenges allowed (in district court)” are invalid for similar reasons.

  5. 2

    Since this is the latest legal attempt to avoid IPRs, I had already made this comment on the Patently-O bog of cert lists on September 22, 2021: “Dennis, if I had to try to predict what current patent law issue is most highly likely to eventually obtain cert to the Sup. Ct., it would be judicial decisions holding that any private contract involving a patent containing a designation of any specific legal forum anywhere can deprive parties of any right to any AIA or any other post-grant in rem PTO Administrative Proceeding.”
    [In spite of the special venue statue for patent suits, and irrespective of whether or not that locale and/or court has any patent validity adjudication experience or competence, or the expressed intent of Congress in setting up interferences, reexaminations, and then all the AIA post-grant in rem PTO Administrative Proceedings.]

  6. 1

    Why does Samsung oppose bringing their invalidatity challenge in New York City? Seems like they are wasting a lot of money arguing over geography.

    1. 1.1

      Nowadays, most patent litigators believe that the outcome of their lawsuit will largely depend on which forum it’s tried in (as opposed to the facts and the law). Effectively, we’ve devolved back to a pre-“Federal Circuit” legal environment.

    2. 1.2

      This is not a geography argument. As often noted, if a defendant has found actual claim killer prior art, the difference is between a few hundred thousand dollars or less, and slightly more than a year, for an IPR limited to that one relatively simple issue. In contrast to an average of two million dollars or more and two, three, or far more years time, for discovery and a jury trial and appeal, and is normally on multiple defense and infringement issues.

      1. 1.2.1

        That is not correct.

        Samsung always filed IPRs and often reexams as well. Such proceedings rarely result in all the claims being invalidated, which means that the PTAB increases overall cost of litigation. On net it ADDS expense.

        I don’t see how Samsung financial team can conclude that the litigation expense is reduced by PTAB. The accounting doesn’t add up.

        It must be the geography or some other explanation.

        1. 1.2.1.1

          Re: “Such proceedings [IPRs] rarely result in all the claims being invalidated.”
          “Rarely” is the opposite of what most IPR complainers complain about here, and is refuted by published statistics. Is Samsung that abnormal for some reason? Or, are you counting uninfringed claims which were not challenged in the IPR petitions?
          Furthermore, in a mixed IPR decision it is almost always the broadest claims that are removed and the narrower claims, if any, that survive. Those claims are generally somewhat less likely to be infringed.

          1. 1.2.1.1.1

            If the PTAB will invalidate all the claims, then that is the reason Samsung prefers the PTAB, not because it is faster or cheaper.

            If the PTAB will invalidate most of the claims, then that is the reason Samsung prefers the PTAB, not because it is faster or cheaper.

            If the PTAB will invalidate the same number of claims as the SDNY, then Samsung chooses the PTAB because it is more expensive and slower than proceeding exclusively in SDNY.

            Or Samsung just doesn’t like NYC.

            1. 1.2.1.1.1.1

              “If the PTAB will invalidate the same number of claims as the SDNY, then Samsung chooses the PTAB because it is more expensive and slower than proceeding exclusively in SDNY”
              That is a laughable fabrication to anyone familiar with the SDNY and IPRs.

              1. 1.2.1.1.1.1.1

                Paul you miss the point. The PTAB is additive in terms of cost and time. Samsung will endure the cost and duration of SDNY plus 3 years and $450,000 per IPR.

      2. 1.2.2

        OTOH, the defendant is now spending hundreds of thousands of dollars litigating + appealing venue motions, etc., which of course, take years to work through the system.

        The fact that litigants routinely spend money fighting these kinds of things is a sign of an unhealthy legal system.

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