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
The Federal Circuit Holds that an “Agreement to Agree” to License Does Not Establish an Enforceable License Right
| October 26, 2020
Phytelligence v. Washington State University
August 27, 2020
PROST, REYNA, and STOLL, Precedential opinion by Reyna
Summary
Appellant, Phytelligence, Inc. (Phytelligence) is an agricultural biotechnology company that uses tissue culture to grow trees for sale to nurseries and growers. Phytelligence entered into a Propagation Agreement with Washington State University (WSU) regarding growing of “W38” apple trees developed and patented by WSU. The Propagation Agreement was focused on research and development, but included a clause indicating that Phytelligence is “granted an option to participate” as a seller in the future upon signing “a separate contract.” Phytelligence did not execute a later contract with WSU, but later brought a legal action against WSU asserting that the Propagation Agreement granted Phytelligence a right to license. The district court affirmed WSU’s motion for summary judgment dismissing Phytelligence’s claim on the basis that the contract was an unenforceable “agreement to agree.” On appeal, the Federal Circuit affirmed the district court’s decision.
Background
Appellant, Phytelligence, Inc. (Phytelligence) is an agricultural biotechnology company that uses tissue culture to grow trees for sale to nurseries and growers.
Phytelligence engaged in discussions with Washington State University (WSU) regarding growing of “W38” apple trees developed and patented by WSU.
The parties entered into a Propagation Agreement under which Phytelligence could propagate the W38 apple trees and experiment with propagation techniques for research and development purposes. However, the agreement did not provide a right for Phytelligence to sell the W38 trees. Under the agreement, Section 4 included the following clause:
If [Phytelligence] is an authorized provider in good standing . . . by signing this Agreement, [Phytelligence] is hereby granted an option to participate as a provider and/or seller of Plant Materials listed in Exhibit A, if the Cultivar is officially released by WSU and becomes available for licensing by [WSU] . . . . [Phytelligence] will need to sign a separate contract with [WSU], or an agent of [WSU], to exercise this option.
Phytelligence emailed WSU “to clarify” that to exercise its option under Section 4, WSU would need to “grant it a separate license for the purpose of selling,” and WSU emailed “yes” in reply. Phytelligence emailed again indicating that the agreement had a “wispy forward commitment,” but then emailed stating “since this agreement is a precursor to any other, we suppose there’s no harm in going ahead and executing it. Then at least we will have the pieces in place when we are all ready to go beyond R&D mode. With that context, the agreement is fine as it is.”
In March 2013, WSU issued request for proposals seeking an exclusive licensee to manage the commercialization of WA38 and awarded an exclusive license to Proprietary Variety Management (PVM). PVM provided nonexclusive sublicenses to companies provided that such companies become Northwest Nursery Improvement Institute (NNII) member nurseries.
On May 18, 2017, Phytelligence informed WSU that it desired to proceed under Section 4 of the agreement. WSU indicated that the Propagation Agreement required a separate contract with PVM. Phytelligence approached PVM, but refused to become such a member nursery, and rejected that requirement and did not enter an agreement with PVM.
On September 15, 2017, WSU presented Phytelligence with three other options for propagating and selling WA 38, including two options that did not require NNII membership. Phytelligence rejected the three options.
On January 16, 2018, WSU terminated the Propagation Agreement with Phytelligence on the basis that Phytelligence had sold and delivered WA 38 without a license.
On February 26, 2018, Phytelligence sued WSU in state court for breach of the Propagation Agreement. WSU then asserted patent and trademark infringement counterclaims and removed the case to federal district court. WSU moved for summary judgment, arguing that Section 4 was an unenforceable “agreement to agree” under Washington state law.
The district court granted the motion for summary judgment. And, Phytelligence appealed.
The Federal Circuit’s Decision
Legal Issue
The question on appeal is whether Section 4 of the Propagation Agreement granted Phytelligence a license right as being an enforceable agreement with open terms rather than an unenforceable “agreement to agree.”
Standard of Review
The Federal Circuit reviews a grant of summary judgment under the law of the regional circuit, and, thus, de novo in this case.
Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
Discussion
The Federal Circuit explained that this legal issue is a matter of contract interpretation, which is determined under state law. Under Washington state law, an “objective manifestation” standard is employed, wherein a court looks to the reasonable meaning of the contract language to determine the parties’ intent.
Agreement to Agree vs. Agreement with Open Terms
The Federal Circuit noted that an “agreement to agree” is unenforceable, explaining that “[a]n agreement to agree is an agreement to do something which requires a further meeting of the minds of the parties and without which it would not be complete.” The court explained that an “agreement with open terms” differs in that “the parties intend to be bound by … key points agreed upon with the remaining terms supplied by a court or another authoritative source, such as the Uniform Commercial Code” such that “[a]ny missing or open terms can therefore be ‘easily’ discerned by a court.” The court also explained that open terms can also be appropriate when they are based on an objective formula or method contained within the contract itself.
However, the Federal Circuit noted that Section 4 of the Propagation Agreement “provides the court with no objective method for determining the terms of the separate contract” between WSU or (or its agent).” Thus, the Federal Circuit affirmed that the Section 4 of the Propagation Agreement is merely an unenforceable agreement to agree.
Extrinsic Evidence
Phytelligence argued that the extrinsic evidence established that Section 4 was an enforceable contract with open terms. The Federal Circuit explained that under Washington law, to assist in determining the meaning of contract language, a “context rule” is also applied that includes “examination of the context surrounding a contract’s execution, including the consideration of extrinsic evidence.” However, the court explained that extrinsic evidence is to only be used “to determine the meaning of specific words and terms used and not to show an intention independent of the instrument …”
Moreover, the Federal Circuit explained that extrinsic evidence revealed that no agreement was reached and pointed out that in emails to WSU, Phytelligence actually acknowledged that Section 4 contained a “wispy forward commitment” and that there was “no harm” to sign the agreement because the agreement “is a precursor to any other.” The Federal Circuit noted that “[o]n these undisputed material facts, no reasonable fact finder could conclude that at the time of execution, Phytelligence and WSU agreed” that Section 4 would contain the terms of the later PVM form license, but rather that WSU did not commit to any definite terms of a future license.
Phytelligence also argued that a declaration of the CEO of Phytelligence supported that there was a material dispute because the CEO had declared “My understanding … was that … Phytelligence would have the option to acquire a license on the standard terms.” However, the court expressed that “mere allegation and speculation do not create a factual dispute for purposes of summary judgment.”
Phytelligence also argued that the parties’ conduct after the execution of the Propagation Agreement also created a factual dispute. However, the court rejected that argument and noted that WSU had offered Phytelligence three different licensing options, including two that didn’t require joining of NNII, which were all rejected by Phytelligence. The court explained that “[b]ased on this evidence, no reasonable fact finder could conclude that, at the time of execution, the parties understood that there was nothing left for future negotiation regarding the terms of Phytelligence’s separate contact under Section 4.”
Accordingly, the Federal Circuit affirmed the district court’s decision.
Takeaways
- In drafting agreements, it is important to keep in mind that an “agreement to agree” at some later date regarding any terms of the agreement is not enforceable. Accordingly, one should exercise care to avoid development of contract terms of this nature.
- In drafting agreements, it is also important to appreciate that some contract terms can be drafted as “open terms” that may still be enforceable, but that for such “open terms” to be enforceable, such “open terms” must be defined in the contract in a manner to be supplied by a court or another authoritative source or based on some objective formula or method set forth in the contract itself.
- In collaborative relationships, it is also important to carefully plan for future circumstances. In this case, Phytelligence’s emails prior to signing of the Propagation Agreement reflected a concern that there was no agreement for future sale of the product. However, rather than effectively addressing the issue at that time, Phytelligence moved forward with the relationship regarding research and development without sufficiently securing its future ability to engage in sale of the product.
Tags: Agreement to Agreement > contract > Intent of Parties > interpretation > license
A Federal Circuit Lesson on the Structuring of Employment Agreements to Ensure That a Company Owns Its Employees’ Inventions
| July 25, 2012
Preston v. Marathon Oil Company and Thomas Smith
July 10, 2012
Panel: Bryson, Dyk and O’Malley. Opinion by O’Malley.
Summary
In this case, an employee, Yale Preston (“Preston”), executed an employment agreement about one month after starting to work as an employee for Marathon Oil Company (“Marathon”). Whether or not the execution of an agreement after starting employment requires further consideration beyond “continued employment” varies based on state law. Here, the Federal Circuit held that no further consideration was required under Wyoming state law and that the employer, Marathon, owned the invention at issue by virtue of the employment agreement. The Federal Circuit further held that Preston did not breach the employment agreement by failing to later sign a subsequent assignment because the employment agreement included the language “does hereby assign” in relation to future inventions, whereby the invention at issue was assigned to Marathon by the employment agreement regardless of whether the invention was after the execution of the employment agreement.
Tags: assignment > contract > employee > employment contract > ownership
