In a decision issued on February 8, 2022, the Federal Circuit held that forum selection clauses may bar a party from filing petitions for inter partes review (“IPR”) at the Patent Trial and Appeal Board (“PTAB”). Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc., No. 2021-02369 (Fed. Cir. Feb. 8, 2022). In its decision, the appellate court reversed the lower court decision by Judge Leonard Stark of the District Court for the District of Delaware, who was just confirmed to the Federal Circuit earlier this week. In the wake of this holding, parties to any agreement involving intellectual property rights should carefully consider how the inclusion of a forum selection clause will impact their rights to challenge a patent’s validity.
The parties to this case entered into a nondisclosure agreement (“NDA”) related to certain muscular dystrophy technology. The NDA included a forum selection clause stating 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.”
Nippon Shinyaku sued Sarepta in the District Court for the District of Delaware for breach of contract and a declaratory judgment for invalidity and noninfringement. Nippon specifically sought a preliminary injunction asking the court to enjoin Sarepta from proceeding with several IPR petitions and to require that Sarepta withdraw the petitions. The district court denied Nippon’s request for a preliminary injunction, focusing on its finding that Nippon had not shown a likelihood of success on the merits of its breach of contract claim based on the court’s interpretation that the NDA did not bar PTAB challenges.
Nippon appealed the denial of the preliminary injunction to the Federal Circuit, arguing that the forum selection clause barred Sarepta’s petitions because they were within the two-year period in which any potential action must be filed in Delaware district court. On appeal, the Federal Circuit agreed with Nippon, finding that the express language of the NDA prohibited the filing of any validity challenges at the PTAB (including IPRs) during the two years following the expiration of the NDA term. As such, the appeals court reversed and remanded with instructions to the lower court to enter the preliminary injunction.
The Federal Circuit reasoned that the parties expressly defined “Potential Action” to include “patent or other intellectual property disputes . . . filed with a court or administrative agency,” which literally encompassed IPRs. Thus, according to the court, the language of the NDA was unambiguous, and filing IPRs within two years of the NDA term would be a breach.
In its analysis, the Federal Circuit rejected the notion that a contract prohibiting a party from filing IPRs is against public policy underlying IPRs. “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.”
This decision, in light of the Federal Circuit’s prior decisions on the effect of forum selection clauses on PTAB proceedings, means that a well-crafted forum selection clause can effectively bar the filing of IPRs and other PTAB proceedings. It is best practice for the scope of the forum selection clause to be extremely clear and specific as to which tribunals and proceedings it is intended to apply. Forum selection clauses should always be carefully evaluated as part of any agreement affecting intellectual property and patent rights.