A Business Deal Could Kill Your Right to Challenge a Patent’s Validity

Last week, the Federal Circuit issued a decision holding that parties can contractually bargain away their rights to file petitions for Inter Partes Review (“IPR”) at the Patent Trial and Appeals Board (“the Board”).  This precedential case is the first to hold that a forum selection clause can forfeit the right to challenge a patent’s validity by IPR.

Nippon Shinyaku Co., Ltd. (“Nippon”) and Sarepta Therapeutics, Inc. (“Sarepta”) entered into a Mutual Confidentiality Agreement (“MCA”).  The purposes of the MCA was for the parties to enter into discussions concerning “a potential business relationship relating to therapies for the treatment of Duchenne Muscular Dystrophy.”  The MCA included two important provisions: (1) a mutual covenant not to sue over a limited covenant term; and (2) a forum selection clause that ran for two years from the date the covenant term ended.

The covenant not to sue, defined by Section 6 of the MCA, provided that neither party would file suit against the other in any jurisdiction in the United States or Japan over intellectual property rights in the field of Duchenne Muscular Dystrophy for a limited period of time.  The covenant not to sue also included a prohibition on patent validity challenges before the U.S. Patent and Trademark Office.  In addition, the MCA contained a forum selection clause defined by Section 10 of the MCA, that ran for two years from the end of the covenant term and provided that all potential actions arising under U.S. law relating to patent infringement or validity shall be filed in the United States District Court for the District of Delaware and that neither party would contest personal jurisdiction or venue in Delaware or seek to transfer a potential action on the ground of forum non conveniens.

On the day the covenant not to sue expired, Sarepta filed seven IPR petitions challenging Nippon’s patents.  Nippon countered by filing a patent infringement lawsuit against Sarepta in the District of Delaware, and included claims for breach of contract for violations of the MCA based on Sarepta’s IPR filings.  Nippon also moved for a preliminary injunction in order to require Sarepta to withdraw its IPR petitions. 

The district court denied Nippon’s preliminary injunction motion for three reasons, all of which turned on a perceived tension between the covenant not to sue and the forum selection clause.  First, the court stated that “[t]he best reading of Section 6 is that the parties intended to allow IPRs to proceed after the Covenant Term expired.”  Second, while the court acknowledged that Section 10 of the MCA “obliquely refers to IPR proceedings through its mention of ‘Potential Actions,’ which is defined to include proceedings before administrative agencies such as the PTAB,” the court reasoned that the MCA’s “discussion of patent infringement disputes, venue transfers on the basis of forum non conveniens, and contesting of venue and personal jurisdiction” all relate to federal district court litigation and are inapplicable to IPR proceedings.  The court’s third reason was directed to the forum selection clause which, if intended to include IPRs, would have time-barred Sarepta under 35 U.S.C. § 315(b).  The court concluded that the MCA “as a whole does not evince a shared expectation and intent that Sarepta was waiving its right to file IPR petitions.”

The Federal Circuit reversed and remanded, holding that Sarepta forfeited its right to file IPRs pursuant to the MCA.  Finding no perceived tension between Sections 6 and 10, the Court concluded that the plain language of the MCA resolves the dispute.  The Court noted that “Section 10 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 District of Delaware.’”  The Court further emphasized that “Potential Actions” includes “patent or other intellectual property disputes…filed with a court or administrative agency,” and that the definition of “Potential Actions” in Section 1 of the MCA literally encompasses IPRs. The Court also rejected Sarepta’s argument that the Court’s reading of Section 10 would require Sarepta to file IPR petitions at the federal district court in Delaware, calling that a nonsensical reading that would not fall within what an “objective, reasonable third party” would have understood. Rather, the Court determined that Sarepta had contracted away the ability to request IPRs and that “[a]s 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.” The Court then considered the factors relevant to a preliminary injunction and concluded that that Nippon had demonstrated a likelihood of success and that irreparable harm would result where “Sarepta will potentially get multiple bites at the invalidity apple, including in a forum it bargained away.” The Court also held that “[t]here is no public interest served by excusing a party’s violation of its previously negotiated contractual undertaking to litigate in a particular forum,” and remanded to the district court for the entry of a preliminary injunction.

The takeaway from this case is that when entering into any type of patent related agreement, be careful to ensure that your right to file IPR petitions is not stripped away, particularly by way of a forum selection clause which is “prima facie valid and should be enforced” in the words of the Federal Circuit.

To learn more from the Mintz IP team, follow us on LinkedIn and check out our Exclusive Rights podcast.

Subscribe To Viewpoints