by Dennis Crouch
For several years we have been tossing around the question of whether no-IPR contracts are enforceable. In Nippon Shinyaku v. Sarepta Therapeutics (Fed. Cir. 2022), the court says “YES THEY ARE” (at least when an alternate forum is provided). Although the court did not enter into any serious policy analysis or consideration of Supreme Court precedent promoting patent challenges such as Lear, Inc. v. Adkins, 395 U.S. 653 (1969); & MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 124 (2007).
As part of a potential cooperative agreement, the parties mutually agreed to a temporary covenant-not-to-sue on IP issues related to Duchenne Muscular Dystrophy research and technology. The covenant included both in court litigation and also validity challenges before the USPTO. The agreement also included forum-selection-clause that kicked-in once the no-suit covenant expired.
[T]he Parties agree that all Potential Actions arising under U.S. law relating to patent infringement or invalidity, and filed within two (2) years of the end of the Covenant Term, shall be filed in the United States District Court for the District of Delaware.
Agreement as reproduced in the Slip Op.
On the day the covenant-not-to-sue expired, Sarepta filed seven inter partes review petitions with the USPTO. All seven petitions have now been granted and are proceedings. Meanwhile Nippon Shinyaku quickly sued in D.Del. asserting breach of contract and also that Sarepta’s patents are invalid.
The appeal here focuses on Nippon Shinyaku’s request to D.Del. Judge Stark for a preliminary injunction that would force Sarepta to withdraw its IPR petitions. The district court denied motion for the preliminary relief. On appeal, the Federal Circuit has reversed and remanded with an order that the district court enter an injunction.
Preliminary injunctions are typically issued early in a lawsuit and are designed to preserve rights as the case moves forward to final judgment. Courts traditionally follow a four-factor test similar that announced in eBay.
(1) whether the moving party has shown a reasonable likelihood of success on the merits;
(2) whether the moving party will suffer irreparable harm in the absence of a preliminary injunction;
(3) whether the balance of hardships tips in the moving party’s favor; and
(4) the impact of a preliminary injunction on the public interest.
Unlike end-of-case permanent injunctions, preliminary injunctions are decided early on before the court has anointed the ultimate winners and losers. Thus, preliminary injunctions include an additional factor focusing on the likelihood of success — a preliminary injunction should only be issued if the moving party shows that they will likely succeed on the merits. You’ll note that this four-factor test does not include a question as to whether there exists a “remedy available at law.” That factor from eBay is generally thought to be subsumed within the irreparable harm requirement.
In determining likelihood of success, the appellate court simply interpreted the contract and came to the conclusion that the forum selection clause barred filing of IPRs.
The court entered into a small bit of policy analysis when it discussed the public interest:
[W]e reject the notion that there is anything unfair about holding Sarepta to its bargain. While it is certainly true that Congress desired to serve the public interest by creating IPRs to allow parties to quickly and efficiently challenge patents, it does not follow that it is necessarily against the public interest for an individual party to bargain away its opportunity to do so.
Slip Op.
In Lear, Inc. v. Adkins, 395 U.S. 653 (1969), the Supreme Court eliminated the doctrine of licensee estoppel based upon the notion that invalidating wrongly issued patents is a valuable social good, and licensees are the most likely to have an incentive to take-on those challenges. See also Pope Manufacturing Co. v. Gormully, 144 U.S. 224 (1892) (“It is as important to the public that competition should not be repressed by worthless patents, as that the patentee of a really valuable invention should be protected in his monopoly”). The Federal Circuit almost-never favorably cites Lear, but has instead repeatedly shot-down attempts to extend the doctrine. An interesting 2nd Circuit trademark case suggested that any attempts to contractually restrict IP validity challenges require policy analysis before enforcement. In particular, the a court should “weigh the federal policy embodied in the law of intellectual property against even explicit contractual provisions and render unenforceable those provisions that would undermine the public interest.” Idaho Potato Comm’n v. M & M Produce Farm & Sales, 335 F.3d 130 (2d Cir. 2003). See also, Massillion-Cleveland-Akron Sign Co. v. Golden State Advert. Co., 444 F.2d 425 (9th Cir. 1971). Of course, the contract here does not foreclose challenge to the patents, but rather shifts forum to D.Del that is also capable of conducting the validity challenge.
I expect that the challenger here will seek review, and it will be interesting to see whether that additional timing will run-out the clock. While the appeal was pending the PTO granted all seven of the IPR petitions and an en banc petition followed by a petition for certiorari will easily eat-up that timeline. Note also here that the contract and injunction would not be binding on the USPTO — that means that the USPTO could continue the IPR to its conclusion even if the petitioner withdraws.
Is it a given that an IPR exists as a “Potential Action” subject to a forum selection clause?
As there is only one possible forum for an IPR, no selection clause could be meaningful as no selection is possible.
Has it been held in other contexts that non Article III administrative proceedings are in fact judicial “Actions” rather than executive enforcement powers?
Please do not be so wooden and colloquial.
(ask your attorney to explain, seeing as you won’t take my word for anything)
The patent owner here specifically argued the forum selection clause in its pre-institution response to the PTAB, and urged the PTAB to deny institution on that basis. The PTAB rejected those arguments and instituted IPR in January 2022. The end result, whether intended or not, is that the panel here has endorsed the use of preliminary injunctions by district courts to undermine rulings by an administrative agency in ongoing parallel proceedings.
I suppose the outcome here might have been motivated, at least in part, by the fact that the Federal Circuit would have had no jurisdiction to review (let alone reverse) the PTAB’s forum selection clause ruling, because it was part-and-parcel of its institution decision. If the law allowed the patent owner to challenge the PTAB’s forum selection clause ruling in a direct appeal of the PTAB final written decision, it would have been much harder to justify this type of judicial interference.
An interesting point to present LR.
And at first blush, attacking ANY point of an Institution Decision does in fact seem to be an instant non-starter.
But I would not agree that THAT means that it cannot legitimately be challenged as was done here, so I would not label this as judicial interference.
No one coerced the parties to the agreement that putatively, both parties entered into with eyes wide open.
Fed cir hearing appeals of non-patent issues just because there is a separate patent issue in the same case probably should be rethought.
Hmm, that wasn’t my takeway. It was “more evidence that the IPR reform failed. Sophisticated parties prefer Article III courts.” And do so even though Article III courts have higher transaction costs.
That’s not my takeaway either – as the issue is LESS which has higher costs, and MORE “one or the other, but not both.”
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