Parties to exploratory agreements beware: Contractual restrictions on IPR patent challenges are enforceable!
On February 8, 2022, the U.S. Court of Appeals for the Federal Circuit determined that certain restrictions on the ability to challenge the validity of patents are enforceable. Without such restrictions, companies that are being targeted by patent owners do not have any restrictions on the various methods of how they can challenge the patents that may later be asserted against them. Keeping all options open on the ability to challenge later asserted patents can be strategically very important within approaches to technology sharing and other discussions. Such patent validity challenges can include the ability to file an Inter Partes Review (IPR) proceeding before Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office (USPTO) and/or filing a Declaratory Judgment (DJ) jurisdiction action in an appropriate federal district court, among other options. Prior to the court’s decision, there was speculation about the enforceability of certain contractual restrictions precluding patent validity challenges all together and/or limiting such challenges to only certain forums. The court has now put that speculation to rest, and parties to technology agreements should be careful not to too easily bargain away their full set of strategic legal options to later defend against patents owned by the opposing contracting party.
Specifically, in Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc., No. 2021-2369 (Fed. Cir. 2022), the parties had entered into a Mutual Confidentiality Agreement (MCA) for the purpose of discussing a potential business relationship relating to therapies for the treatment of Duchenne Muscular Dystrophy. The MCA included a covenant not to sue, wherein during the Term each party agreed it:
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.
The parties also agreed that:
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 reexaminations before the U.S. Patent and Trademark Office . . .
(emphasis added). The parties further agreed to a forum selection clause, which included 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 and that neither Party will contest personal jurisdiction or venue in the District of Delaware and that neither Party will seek to transfer the Potential Actions on the ground of forum non conviens.
(emphasis added). The parties also agreed that “Potential Actions” is defined as “any patent or other intellectual property disputes . . . filed with a court or administrative agency . . .”
About one month after the Term ended, Nippon filed a complaint and a motion for a preliminary injunction in the U.S. District Court for the District of Delaware alleging breach of the MCA and seeking to enjoin Sarepta from proceeding with seven (7) IPR petitions that it had filed with the U.S. Patent and Trademark Office. Sarepta’s IPR petitions attempted to invalidate many of Nippon’s patents relating to treatments for Duchenne Muscular Dystrophy. The District Court denied Nippon’s motion for a preliminary injunction, and Nippon appealed.
The U.S. Court of Appeals for the Federal Circuit disagreed and reversed the District Court’s denial of the motion for a preliminary injunction. Within the court’s review of the four factors used in deciding preliminary injunction motions, the court first determined that the plain meaning of the forum selection clause was clear and resolves the dispute: “Sarepta was required to bring all disputes regarding the invalidity of Nippon Shinyaku’s patents – including the allegations and contentions contained in Sarepta’s IPR petitions – in the District of Delaware. Sarepta instead brought those disputes in the form of IPR petitions at the Board, which contravened the plain language of the forum selection clause in Section 10 of the MCA.”
The court also addressed Sarepta’s argument that the language of the MCA would require it to file the IPRs in the District of Delaware - something Sarepta cannot do, by reasoning that the definition of “Potential Actions” made it clear that IPR filings are precluded. In response to another of Sarepta’s arguments, the Court further stated that “as a general principle, this court has recognized that parties are entitled to bargain away their rights to file IPR petitions, including through the use of forum selection clauses,” and in this case the court determined that the forum selection clause “literally encompasses IPRs.” The court rejected several other of Sarepta’s arguments, and ultimately concluded that the District Court should have granted the motion for a preliminary injunction preventing Sarepta from proceeding with its IPR petitions. Thus, the Court made it clear that parties can agree to be precluded from filing IPR patent challenges before the U.S. Patent and Trademark Office.
As a result of this and related decisions from the court, the following are some guidelines to use when attempting to contractually preclude a potential patent challenger from using IPR proceedings against your patents.
- Select a forum of choice for any litigation related to the agreement and specifically preclude actions outside of that forum.
- Include a covenant not to sue, specifically including challenges to the validity of your intellectual property, including patent validity challenges at the USPTO as actions included in the covenant not to sue.
- Select an agreement term that you are comfortable with and be sure that the applicable clauses extend beyond the term of the agreement to provide protection against any post-term validity challenges.
Should you have any questions concerning your patent or other intellectual property matters, do not hesitate to contact the attorneys listed below or any member of the McDonald Hopkins Intellectual Property Department.