Forum Selection Clause Can Prevent IPR Fights
| March 25, 2022
Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc.
Decided on February 8, 2022
Lourie (author), Newman, and Stoll
Summary:
The Federal Circuit reversed the district decision’s denial of a preliminary injunction for Nippon Shinyaku because its agreement with Sarepta was clear to exclude filing IPR petitions, and Sarepta’s filing of IPR petitions clearly breached the agreement with Nippon Shinyaku.
Details:
On June 1, 2020, Nippon Shinyaku and Sarepta Therapeutics, Inc. (“Sarepta”) executed a Mutual Confidentiality Agreement (“MCA”) to enter into discussions for a potential business relationship relating to therapies for the treatment of Duchenne Muscular Dystrophy (“DMD”).
Section 6 of the MCA included a mutual covenant not to sue during the Covenant Term[1]:
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.
Section 6 further stated:
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 . . . .
After the expiration of the Covenant Term, the forum selection clause in Section 10 of the MCA is applied:
[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 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 conveniens.
Here, “Potential Actions” is defined as “any patent or other intellectual property disputes between [Nippon Shinyaku] and Sarepta, or their Affiliates, other than the EP Oppositions or JP Actions, filed with a court or administrative agency prior to or after the Effective Date in the United States, Europe, Japan or other countries in connection with the Parties’ development and commercialization of therapies for Duchenne Muscular Dystrophy.”
The Covenant Term ended on June 21, 2021, at which point the two-year forum selection took effect. On June 21, 2021, Sarepta filed seven petitions for IPR.
District Court
On July 13, 2021, Nippon Shinyaku filed a complaint in the U.S. District Court for the District of Delaware asserting claims against Sarepta for breach of contract, among other things. Nippon Shinyaku alleged that Sarepta breached the MCA by filing seven IPR petitions. Nippon Shinyaku filed a motion for a preliminary injunction to enjoin Sarepta from proceeding with IPR petitions.
On September 24, 2021, the district court denied Nippon Shinyaku’s motion for a preliminary injunction and issued its memorandum order with the following reasons:
- There would be a “tension” that would exist between Sections 6 and 10 if the forum selection clauses were interpreted to exclude IPRs.
- Section 10 applies only to cases filed in federal court.
- Practical effects of interpreting Section 10 as excluding IPRs for two years following the Covent Term.
- Finally, Nippon Shinyaku did not meet its burden on second (suffer irreparable harm), third (balance of hardship), fourth (public interest) PI factors in order to obtain a preliminary injunction.
Federal Circuit
The CAFC reviewed a denial of a preliminary injunction using the law of the regional circuit (Third Circuit) for abuse of discretion.
The CAFC focused on the court’s interpretation of the MCA.
Based on the plain language of the forum selection clause in Section 10 of the MCA, the CAFC held that the forum selection clause is unambiguous because the definition of “Potential Actions” includes “patent or other intellectual property disputes… filed with a court or administrative agency,” and the district court acknowledged that the definition of Potential Actions literally encompasses IPRs.
The CAFC held that under the plain language of Section 10, Sarepta should have brought all disputes regarding the invalidity of Nippon Shinyaku’s patents in the District of Delaware.
The CAFC rejected Sarepta’s argument that IPR petitions must be filed in the federal district court in Delaware. Also, the CAFC held that there is no conflict or tension between Sections 6 and 10. The CAFC noted that this reflects harmony, not tension between two sections and this framework is “entirely consistent with our interpretation of the plain meaning of the forum selection clause.”
Finally, the CAFC noted that other factors of a preliminary injunction favored Nippon Shinyaku. As for irreparable harm, the CAFC agreed with Nippon Shinyaku’s argument that they would be “deprived of its bargained-for choice of forum and forced to litigate its patent rights in multiple jurisdictions.” As for balance of hardships, Nippon Shinyaku would suffer the irreparable harm, and Sarepta would potentially get multiple chances at a forum it bargained away. As for public interest, the CAFC rejected any notion that there is “anything unfair about holding Sarepta to its bargain.”
Therefore, the CAFC reversed the decision of the district court and remanded for entry of a preliminary injunction.
Takeaway:
- Companies will need to be extra careful when drafting nondisclosure and joint development agreements now that the CAFC held that clauses in those agreements can give up right to file challenges at the PTAB.
- Contracts can be used to waive the right to AIA review.
- This is a cautionary tale for attorneys to start paying attention to boilerplate parts of contracts.
- This is the first time that the CAFC held that it is not again the public interest to have forum selection clauses that exclude PTAB proceedings.
[1] Covenant Term is defined as “the time period commencing on the Effective Date and ending upon twenty (20) days after the earlier of: (i) the expiration of the Term, or (ii) the effective date of termination.”
Tags: contract > IPR > Patent Trial and Appeal Board (PTAB) > preliminary injunction
