Be Careful Not to Unintentionally Bargain Away the Right to File IPRs
Published: March 17, 2022
When entering into contracts, parties commonly include forum selection clauses to govern future litigation between the parties. When doing so, parties need to actively consider whether they intend that forum selection clause to prohibit filing petitions, such as petitions for inter partes review of patents, with the United States Patent and Trademark Office’s Patent Trial and Appeal Board (“PTAB”). The Court of Appeals for the Federal Circuit has generally recognized that parties can bargain away these rights, including through forum selection clauses in contracts. This issue recently arose in Nippon Shinyaku v. Sarepta.
Nippon Shinyaku and Sarepta entered into a Mutual Confidentiality Agreement (“MCA”) to for the purpose of discussing a proposed transaction. The MCA defined the proposed transaction as “a potential business relationship relating to therapies for the treatment of Duchenne Muscular Dystrophy.” The MCA included a covenant not to sue during the Covenant Term stating that a party:
- shall not directly or indirectly assert or file any legal or equitable cause of action, suit or claim or otherwise initiate any litigation or other form of legal or administrative proceeding against the other Party … in any jurisdiction in the United States or Japan of or concerning intellectual property in the field of Duchenne Muscular Dystrophy.
- For clarity, this covenant not to sue includes, but is not limited to, patent infringement litigations, declaratory judgment actions, patent validity challenges before the U.S. Patent and Trademark Office or Japanese Patent Office, and reexamination proceedings before the U.S. Patent and Trademark Office ….
To govern certain disputes after the expiration of the Covenant Term, the MCA further stated:[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 …
(emphasis added). The MCA defined “Potential Actions” to include any patent or other intellectual property disputes, other than the EP Oppositions or JP Actions, filed with a court or administrative agency “in connection with the Parties’ development and commercialization of therapies for Duchenne Muscular Dystrophy.”
The Covenant Term expired on June 21, 2021, triggering the start of the two-year forum selection clause. That same day, Sarepta filed seven petitions for inter partes review (“IPR”) of Nippon Shinyaku patents at the PTAB. Nippon Shinyaku then sued Sarepta in Delaware for breach of contract, alleging Sarepta’s IPRs “directly contravene the MCA’s forum selection clause, which requires that Sarepta and Nippon Shinyaku bring any such patent challenges in the United States District Court for the District of Delaware.” Nippon Shinyaku also sought a preliminary injunction to stop Sarepta from proceeding with the IPRs.
The district court denied the motion for a preliminary injunction, and Nippon Shinyaku appealed to the Federal Circuit.
When determining whether to grant a preliminary injunction, generally district courts consider four factors:
- whether the moving party has shown a reasonable likelihood of success on the merits;
- whether the moving party will suffer irreparable harm in the absence of a preliminary injunction;
- whether the balance of hardships tips in the moving party’s favor; and
- the impact of a preliminary injunction on the public interest.
Under the applicable federal and state law in this case, the first factor is a necessary factor for issuance of a preliminary injunction. In finding that Nippon Shinyaku was unlikely to succeed on the merits, the district court’s decision “turned entirely on the court’s interpretation of the MCA,” which the parties agreed “shall be governed by and interpreted in accordance with the laws of the State of Delaware.” The Federal Circuit reviews such questions de novo.
The Federal Circuit stated that “when the contract is clear and unambiguous, we will give effect to the plain meaning of the contract’s terms and provisions,” and in this case, the plain language of the MCA’s forum selection clause “resolves the dispute.” The MCA “states clearly 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.’” Further, “[t]he express definition of ‘Potential Actions’ includes ‘patent or other intellectual property disputes …, filed with a court or administrative agency.’” Therefore, “under the plain language , Sarepta was required to bring all disputes regarding the invalidity of Nippon Shinyaku’s patents … in the District of Delaware” rather than as IPR petitions before the PTAB. As a result, the Federal Circuit “conclude[d] as a matter of law that the forum selection clause  of the MCA precludes the filing of IPR petitions during the two-year period following the expiration of the Covenant Term,” so “Nippon Shinyaku is likely to succeed on the merits of its claim for breach of contract.”
Further, the district court found that Nippon Shinyaku’s arguments as to the remaining three factors “rose and fell with its arguments regarding likelihood of success on the merits.” Therefore, the Federal Circuit found that having satisfied the first factor, Nippon Shinyaku also satisfied the remaining three factors as a matter of law. Having found that all four preliminary injunction factors favor Nippon Shinyaku, the Federal Circuit remanded the case for entry of a preliminary injunction.
Sarepta, however, has petitioned for rehearing, asking the full Federal Circuit to review the three-judge panel’s decision. Among its arguments for rehearing, Sarepta argues there was no “clearly and affirmatively expressed” waiver of its statutory right to file IPR petitions as would be required under applicable Delaware contract law. We await the decision as to whether the petition for rehearing will be granted.
Regardless of the ultimate outcome in Nippon Shinyaku, the case serves as a reminder that forum selection clauses can have broad effects, including the bargaining away statutory rights. Therefore, such clauses should be clearly and carefully drafted to prevent unintentional waivers while including bargained-for terms.