April 2, 2018

District Court Orders Petitioner to Seek Termination of IPR based on Forum Selection Clause

A recent case from California reminds patent owners that forum selection clauses can be an important anecdote for PTAB proceedings.  In Dodocase VR, Inc. v. MechSource, LLC, 3:17-cv-07088-EDL (N.D. Ca.), the district court ordered defendant/IPR Petitioner to seek termination of an IPR proceeding based on a license agreement entered into between patent owner and defendant.

More specifically, Dodocase VR sued MerchSource for patent infringement.  The parties had previously executed a “Master License Agreement” that contained a no-challenge clause and a forum selection clause.  The no-challenge clause required that “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 forum selection clause stated “The parties agree … that disputes shall be litigated in the courts in San Francisco County or Orange County, California.”

After unsuccessful settlement discussions, defendant MerchSource filed IPR petitions regarding the asserted patents.  Patent Owner Dodocase then moved for a preliminary injunction to stop the IPRs, based on both the license’s no-challenge clause and the forum selection clause.

The Court declined to enforce the no-challenge clause, based on Lear v. Adkins, 395 U.S. 653 (1969) and on principles of equity.

The Court did, however, find the forum selection clause applied, and granted the injunction on that basis.  Addressing the controlling factors under Ninth Circuit law, the Court determined the forum selection clause was enforceable and that its scope included PTAB proceedings, and thus that Plaintiff was likely to succeed on the merits of the contract issue.  The Court found Plaintiff would be irreparably harmed by having to fight validity on two fronts, and that the equities favored Plaintiff.

To this last point, the Court rejected Defendant’s argument that an injunction would forever preclude its ability to pursue an IPR (given the one-year bar), because, under applicable law, Defendants “should not be heard to argue that the enforcement of the contract into which it freely entered would cause hardship.”  Finally, the Court found the public interest favored enforcement of the contract.

As to relief, the Court recognized the practicalities of dismissing an IPR.  The Court required the Defendant to first email the PTAB to seek permission to move to withdraw, and then by a date certain file a motion upon receiving such permission.  The Court also included relatively detailed instructions as to how the Defendant could characterize the Court’s order to the PTAB (i.e., Defendant could say the injunction was granted over its objection, that it plans to appeal, and that it is moving to withdraw only to comply with the Court’s order, but Defendant could not say the Court entered a “partial stay” or that it was moving to withdraw “under protest”).

Defendant quickly filed an appeal to the Federal Circuit, so stay tuned for further developments.