Northern District of California Enforces Forum Selection Clause in License Agreement and Orders Licensee to Withdraw IPR Petitions
by Ryan Stronczer, Matthew George Hartman & Rubén H. Muñoz, Akin Gump
On March 23, 2018, a district court judge issued a preliminary injunction requiring the defendants to withdraw their petitions for inter partes review (IPR) before the Patent Trial and Appeal Board (PTAB). The court granted plaintiff’s motion for an injunction based on its finding that the terms of the parties’ license agreement require that any challenges to the validity of the licensed patents be litigated in either San Francisco or Orange County, California.
Plaintiff manufactures accessories for mobile devices and is the owner of the three patents at issue in this case (collectively, the “Patents-at-Issue”). Defendants sell, manufacture, design and/or import certain products that plaintiff alleges infringe (or threaten to infringe) the Patents-at-Issue. In October 2016, the parties entered into a Master License Agreement (MLA) regarding the Patents-at-Issue, granting defendants the right to manufacture and sell certain virtual-reality accessories for mobile devices. Among other provisions, the MLA contained a choice-of-law provision stating that “the laws of California shall govern any dispute arising out of or under this Agreement” and a Forum Selection clause stating that “THE PARTIES AGREE … THAT DISPUTES SHALL BE LITIGATED BEFORE THE COURTS IN SAN FRANCISCO OR ORANGE COUNTY, CALIFORNIA” (emphasis in original).
Beginning in June 2017, defendants began to express dissatisfaction with both the terms of the MLA and plaintiff’s alleged failure to enforce its intellectual property rights against non-licensed third parties. Defendants informed plaintiff that they believed the allowed claims of the Patents-at-Issue were invalid and stated that they would not pay royalties on products covered by the patents.
Plaintiff filed suit against defendants, seeking both injunctive relief enforcing the MLA and declaratory judgment of the validity of the Patents-at-Issue. After attempts to resolve the dispute were unsuccessful, defendants filed three separate PTAB petitions challenging the validity of the Patents-at-Issue.
Plaintiff terminated the MLA on February 14, 2018, and filed an amended complaint alleging, in relevant part, that defendants’ PTAB petitions constituted a breach of the Forum Selection clause of the MLA, and seeking injunctive relief against defendants’ attempt to challenge the Patents-at-Issue before the PTAB. Plaintiff argued that defendants could not challenge the Patents-at-Issue in the PTAB because the Forum Selection clause of the MLA explicitly requires that all disputes be litigated in either the Northern or Central District of California.
The court applied the four-prong test set out in Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 22 (2008) to evaluate plaintiff’s request for a preliminary injunction. The four Winter factors are (1) likelihood of success on the merits, (2) likelihood of irreparable harm, (3) whether the balance of equities favors an injunction and (4) whether an injunction is in the public interest.
The court found that all four Winter factors favor granting a preliminary injunction against the IPR petitions. First, in finding that plaintiff demonstrated a “likelihood of success” on its breach of contract claim, the court determined that the terms of the MLA required the parties to exclusively litigate all disputes in California under California law and that defendants’ IPR petitions were disputes “arising out of or under” the MLA. Further, the court found that there was no reason to find the Forum Selection clause unenforceable, since patent validity can be fairly adjudicated by the district courts. The court also found that plaintiff would be irreparably harmed without an injunction because it would be forced to “simultaneously litigate on two fronts with different attorneys and under different rules” instead of obtaining the benefit of its bargained-for forum. Finally, the court held that granting the injunction was in the public interest because it “protects the right of parties to freely contract for a chosen forum” and, further, “nothing prevents an independent third party from initiating separate PTAB proceedings.”
In issuing its decision, the court ordered defendants to commence the process of withdrawing their IPR petitions which, as a first step, included sending an email to the PTAB to set up a conference call to discuss withdrawal of the petitions. Defendants appealed the district court’s order to the Court of Appeals for the Federal Circuit and filed an emergency motion for the injunction to be stayed pending appeal. The Federal Circuit appeal is docketed as Dodocase VR, Inc. f/k/a Dodocase, Inc. v. MerchSource, LLC d/b/a Sharper Image et al., Case No. 18-1724 (Fed. Cir.). On March 28, 2018, the Federal Circuit issued an order temporarily staying the injunction while the court considers defendants’ motion. Dkt. No. 6.
Dodocase VR, Inc. f/k/a Dodocase, Inc. v. MerchSource, LLC d/b/a Sharper Image et al., 3-17-cv-07088-EDL (CAND, March 23, 2018).
Accused Infringer Estopped from Asserting Prior Art Disclosed in Invalidity Contentions
by Taehee R. Han, John Wittenzellner & Rubén H. Muñoz, Akin Gump
In an order issued on April 4, 2018, Judge Lynn granted plaintiff ZitoVault’s motion for summary judgment under 35 U.S.C. 315(e)(2), holding that defendant IBM is estopped from asserting invalidity defenses based on prior art known to IBM when it filed its first petition for inter partes review.
ZitoVault sued IBM and Softlayer Technologies, Inc. (“Softlayer”) (collectively, “Defendants”) for alleged infringement of U.S. Patent No. 6,484,257 (the “’257 Patent”). Soon after, the Defendants petitioned the Patent Trial and Appeal Board (PTAB) for inter partes review (IPR) of the ’257 Patent (“First Petition”) and requested to join a pending IPR on the same patent, filed earlier by Amazon.com, Inc. The Defendants submitted a nearly identical IPR petition as the one filed by Amazon. The PTAB granted joinder and issued a final written decision on April 11, 2017, holding that the challenged claims were patentable.
During the pendency of the First Petition, the Defendants filed a separate IPR petition (“Second Petition”) based on different prior art references. The PTAB denied institution of the Second Petition. Afterwards, plaintiff moved for summary judgment under 35 U.S.C. § 315(e)(2) asserting that statutory estoppel precluded IBM from arguing that the ’257 Patent is invalid as anticipated or obvious.
35 U.S.C. 315(e)(2) states that “[t]he petitioner in an inter partes review of a claim in a patent . . . that results in a final written decision . . . may not assert . . . in a civil action that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” 35 U.S.C. 315(e)(2) (emphasis added). The First Petition did not raise any prior art references that were already identified in their invalidity contentions in district court. The Defendants essentially argued that estoppel does not apply based on the First Petition because they could not have raised additional prior art when seeking joinder because “[the] PTAB routinely denies joinder if a second-filed petition might introduce new arguments or grounds into a pending IPR.” Judge Lynn disagreed, however, stating that the PTAB does not require a “mirror image” rule to allow joinder and that joinder is discretionary, and whether the petition asserts new grounds is just one of the factors considered. Because the Defendants could have sought, but did not seek, to raise the prior art patents and publications discussed in their invalidity contentions, allowing the Defendants to raise arguments that they elected not to raise during the First IPR would provide them with “a second bite at the apple.” Therefore, Judge Lynn held that the Defendants IBM and Softlayer are estopped from arguing anticipation or obviousness in light of prior art references discussed in their invalidity contentions, but they can rely on prior art systems from their invalidity contentions.
ZitoVault LLC v. International Business Machines Corporation et al., 3-16-cv-00962 (TXND April 4, 2018, Order) (Lynn, USDJ)
PTAB Institutes IPR Despite Petitioner’s Prior Invalidity Challenge in Declaratory Judgment Action, Citing “Unambiguous Language” of 35 U.S.C. § 315
by Thomas W. Landers IV, Matthew George Hartman & Daniel L. Moffett, Akin Gump
On August 1, 2016, Canfield Scientific, Inc. filed a civil action in the District of New Jersey against Melanoscan, LLC, seeking a declaratory judgment of non-infringement of U.S. Patent No. 7,359,748 (“the ’748 Patent”). In response, Melanoscan asserted multiple claims of the ’748 Patent in a counterclaim for infringement. In reply, on June 30, 2017, Canfield filed an “Answer and Counterclaim,” in which it sought to invalidate the asserted claims. Nearly three months later, on September 21, 2017, Canfield additionally filed a petition for inter partes review (IPR) with the Patent Trial and Appeal Board (“the Board”) challenging the validity of the same claims. Before reaching the merits, the Board addressed whether institution of Canfield’s IPR was barred under 35 U.S.C. § 315—which governs the relationship of IPRs to other proceedings or actions—due to Canfield’s prior invalidity challenge in its declaratory judgment action.
IPRs related to an “Infringer’s Civil Action” are governed by 35 U.S.C. § 315(a). Under § 315(a)(1), “[a]n inter partes review may not be instituted if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent.” But § 315(a)(3) clarifies that “[a] counterclaim challenging the validity of a claim of a patent does not constitute a civil action challenging the validity of a claim of a patent for purposes of this subsection.” In a typical scenario, the Board must deny institution when a petitioner has filed an earlier declaratory judgment action seeking invalidity. Here, however, Canfield did not seek an invalidity declaration until its “Answer and Counterclaim” in reply to Melanoscan’s infringement counterclaim. The question for the Board, therefore, was whether this invalidity challenge was truly a “counterclaim” under § 315(a)(3), or whether it was a “civil action” under § 315(a)(1). The Board held that it was a counterclaim, and the Petition was not barred.
In reaching this conclusion, the Board relied on the express language of the statute. In particular, the Board explained that “the language of 35 U.S.C. § 315(a)(3) . . . uses the term ‘counterclaim’” and “affirmatively states that a ‘counterclaim’ for invalidity filed by an accused infringer does not constitute the filing of a civil action asserting invalidity.” And because the statute does not distinguish “counterclaims-in-reply”—i.e., counterclaims by plaintiffs—from “ordinary” counterclaims, the Board rejected Melanoscan’s argument that § 315(a)(3) relates only to “a claim made by a defendant against a plaintiff.”
The Board also rejected Melanoscan’s argument that § 315(a)(3) relates only to an “accused infringer who has been sued and is asserting invalidity in a counterclaim” because all sub-parts under § 315(a) “relate to, by explicit language, ‘[i]nfringer’s civil action.’” The Board cited the structure of the statute, which explicitly addresses “[p]atent owner’s action” in § 315(b) for further support. In sum, the Board concluded that “counterclaim” in § 315(a)(3) relates to counterclaims in actions brought by the infringer, as was the case here.
Before proceeding to the merits, the Board acknowledged that, as a policy matter, “interpreting the statute in this manner . . . effectively allow[s] a Petitioner to initiate a civil action concerning a patent, but also later file a petition seeking inter partes review, frustrating one of the goals of these proceedings as being an alternate to district court proceedings.” Nonetheless, “Congress has spoken,” and these “policy considerations do not override the unambiguous statutory language.”
Canfield Scientific, Inc. v. Melanoscan, LLC, IPR2017-02125, Paper No. 15 (PTAB Mar. 30, 2018)
In Rare Decision, PTAB Grants Request for Rehearing, Reverses its Prior Decision, and Institutes IPR
by Romeao Jon Jennings, Matthew George Hartman & Rubén H. Muñoz, Akin Gump
Requests for rehearing at the Patent Trial and Appeal Board (the “Board”) are not uncommon; however, the Board rarely grants them. One reason for this result is the high standard applied to reverse a prior decision—abuse of discretion. In this case, however, the petitioner, met its burden by arguing that the Board, “led to error by [the] Patent Owner,” based its decision on an erroneous interpretation of the law. The Board granted rehearing, and instituted inter partes review on one of the three grounds in the petition.
On April 7, 2017, Incyte Corporation (“Incyte”) filed a petition requesting an inter partes review of U.S. Patent No. 9,249,149 (the “’149 Patent”). The ’149 Patent is generally directed to modifications of ruxolitinib, an FDA-approved drug for treating patients with intermediate-or high-risk myelofibrosis. The claimed modifications improve the drug’s metabolic properties by swapping one or more hydrogen atoms with deuterium. On October 19, 2017, the Board denied the petition on all three grounds, finding among other things that the prior art did not disclose the claimed compounds sufficiently narrowly. Instead, the references disclosed large genera of potential compounds, without focusing on the ones in the claims.
Shortly thereafter, Incyte requested rehearing on two of the three obviousness grounds. In its request for rehearing, Incyte argued that the Board applied an overly restrictive view of the legal standard for finding “structural obviousness” with respect to the claimed compounds. Specifically, Incyte argued that the Board committed legal error by requiring Incyte to show that a person of ordinary skill would have chosen ruxolitinib as the lead compound over any other compound with clinical efficacy. The relevant inquiry, Incyte argued, is “whether [ruxolitinib] would have been selected as ‘promising’ to modify, not that it would have been superior to all compounds in the universe with FDA approved clinical efficacy.” Incyte also argued that the Board applied an improper standard for motivation to modify ruxolitinub which required Incyte to show there was a need to improve the compound. In support of its argument, Incyte cited to Federal Circuit precedent explaining that a motivation to modify can arise from an expectation to obtain “similar properties.” The Board was persuaded by Incyte’s arguments, granted rehearing, and instituted on the first of the two grounds under review. The Board denied institution on the second ground, finding that one of the references did not qualify as a printed publication.
Incyte Corp. v. Concert Pharmaceuticals, Inc., 2017IPR-01256 (PTAB Apr. 9, 2018).
Swapping Order of References in Non-Instituted Obviousness Combination Does Not Alter Scope of IPR Estoppel
by Michael N. Petegorsky, Matthew George Hartman & Rubén H. Muñoz, Akin Gump
In an April 12, 2018 decision, the District Court for the District of Delaware held that a change in the primary reference of an obviousness combination that was denied institution by the Patent Trial and Appeal Board (PTAB) did not alter the scope of inter partes review (IPR) estoppel. 35 U.S.C. § 315(e)(2) provides that the petitioner in an IPR is estopped from raising in another proceeding any ground for invalidity that it raised, or reasonably could have raised, during the IPR. Although there is disagreement among district courts about the scope of estoppel, there is general agreement that a party is not estopped from raising grounds that were set forth in its petition, but not instituted for trial by the PTAB (i.e., non-instituted grounds). Some courts have limited the scope of estoppel to non-instituted grounds; others have gone further and applied IPR estoppel even to grounds that were not raised—but could have been raised—in the petition (i.e., non-petitioned grounds).
In Nox Medical EHF v. Natus Neurology Inc., defendant Natus had raised in an IPR petition certain obviousness combinations in the form of “A in view of B,” and the PTAB declined to institute those claims for review. Natus raised some of those same combinations before the district court, but changed which reference in the combination was “primary” and which was “secondary”—i.e., raising “B in view of A” before the district court when it had raised “A in view of B” in its IPR petition. Plaintiff Nox Medical moved in limine for an order barring Natus from raising these combinations as estopped under § 315(e)(2).
Judge Richard Andrews held that, “for the combinations that Defendant tried to raise in the IPR, but which the PTAB did not institute, Defendant may pursue the combinations at trial. For those combinations ‘A in view of B’ on which the PTAB did not institute, I would regard that as reasonably raising ‘B in view of A’ also, and thus I reject Plaintiff’s assertions to the contrary.” Order at 2-3. In other words, under the court’s ruling, the ordering of references in an identical prior art combination is immaterial for purposes of estoppel under § 315(e)(2).
Nox Medical EHF v. Natus Neurology Inc., 1-15-cv-00709, Order (D. Del. April 12, 2018) (Andrews, J.)
California Court Halts Chinese-Issued Injunction Against Samsung
by Michael Francis Reeder II, John Wittenzellner & Rubén H. Muñoz, Akin Gump
After nearly two years of patent litigation in dozens of cases in the United States and China, a Chinese trial court issued an injunction against Samsung, barring it from making or selling its 4G LTE smartphones in China—an order that the Northern District of California has now temporarily halted by anti-suit injunction.
Huawei sued Samsung in 2016 after years of unsuccessful negotiations to cross-license their respective standard essential patents (SEPs) covering 3G and 4G LTE cell phone technology. Huawei filed one case in the Northern District of California alleging that Samsung infringed 11 of its SEPs and that Samsung breached its commitment to cross-license on fair, reasonable and nondiscriminatory (FRAND) terms. The next day, Huawei filed nearly a dozen more actions in China alleging similar claims on the Chinese counterparts to the U.S. patents. Samsung filed similar countersuits in both jurisdictions as well. The Chinese actions advanced faster than the California case, and the Chinese court held a trial on two of Huawei’s SEPs. Subsequently, in January 2018, the Chinese court issued an order finding that Samsung infringed Huawei’s patents and that Samsung’s behavior had not complied with FRAND principles, and it enjoined Samsung from making or selling its 4G LTE smartphones in China.
Requesting what is known as an “anti-suit injunction,” Samsung sought to have the California court enjoin the Chinese injunction (which Samsung is also appealing in China). An anti-suit injunction refers to an extraordinary procedure where a domestic court issues an order to stop the outcome of proceedings in a second jurisdiction. The three-part test for determining whether to issue an anti-suit injunction is described in E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 990 (9th Cir. 2006)(“Gallo”), which states that courts should consider: (1) whether the parties and the issues in both the domestic and foreign actions are the same (i.e., whether the first action is dispositive of the second); (2) whether the foreign litigation is vexatious or frustrates the policy, jurisdiction or equitable considerations of the domestic court; and (3) whether the injunction’s impact on comity is tolerable. These injunctions can be used to prevent forum-shopping to “get around” an adverse ruling in the original jurisdiction. Samsung argued that the Chinese injunction would force it to close its Chinese factories and to enter into negotiations with Huawei at an extreme disadvantage before the California court has an opportunity to decide the breach of FRAND obligations and patent infringement claims before it.
Anti-suit injunctions have been issued in recent years, such as in Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012), where the 9th Circuit affirmed the issuance of an anti-suit injunction against a parallel German proceeding that was filed months after the original U.S. proceedings. Here, the California court raised similar concerns that were addressed in Microsoft. First, the parties and issues before it and the Chinese court were largely the same, and resolution of FRAND issues in California would subsume the analysis of the Chinese case that involved related patents. Second, the California court held that, while the Chinese actions were not vexatious or oppressive on Huawei’s part, the Chinese injunction would compromise the California court’s ability to reach a just result free from external pressure that could impact Samsung’s business around the world. Third, the California court recognized that comity requires that independent countries have the ability to issue judicial orders within their territories, but decided that, since the U.S. action was filed first (even though only by one day), it should have an opportunity to decide the issues before it. The California court stated that the “scope of this anti-suit injunction, limited to a particular order dealing with two patents, a specific form of relief, and estimated to last less than six months, presents a negligible impact on comity.”
Ultimately, the California court decided that the appropriate remedy “may very well be the injunctive relief issued by the [Chinese] court,” but the court “must have the opportunity to adjudicate that claim without Samsung facing the threat of the [Chinese] court injunctions.”
Huawei Technologies Co., Ltd v. Samsung Electronics Co., Ltd, C.A. No. 3:16-cv-02787 (N.D. Cal. issued April 13, 2018)
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