March 2, 2022
The Federal Circuit recently reversed the district court and remanded for entry of a preliminary injunction enjoining defendant Sarepta Therapeutics, Inc. from proceeding with inter partes review (IPR) petitions at the Patent Trial and Appeal Board (PTAB). The case, Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc., serves to emphasize the importance and utility of forum selection clauses. Furthermore, the case makes clear that the effect of forum selection clauses is not limited to court proceedings and, as in Sarepta, may extend to patent office proceedings as well. The Federal Circuit declined to construe the forum selection clause in that case as limited to federal district court actions where the plain language of the clause was not so limited.
Nippon Shinyaku and Sarepta Therapeutics entered into a Mutual Confidentiality Agreement (MCA) for the purpose of discussing a potential business relationship. The MCA established a Covenant Term, defined as “the time period commencing on the Effective Date and ending twenty (20) days after the earlier of: (i) the expiration of the Term, or (ii) the effective date of termination.” The MCA contained a mutual covenant not to sue, whereby each party agreed that during the Covenant Term it:
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.
Importantly, the covenant not to sue applied only during the Covenant Term. The MCA further provided:
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 . . . .
The MCA also contained a forum selection clause, which provided in relevant part:
[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.
The MCA defined Potential Actions 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 Unites States, Europe, Japan or other countries in connection with the Parties’ development and commercialization of therapies for Duchenne Muscular Dystrophy.”
On the same day the Covenant Term ended, Sarepta filed seven IPR petitions at the PTAB. Shortly thereafter, Nippon Shinyaku sued Sarepta for breach of contract in the U.S. District Court for the District of Delaware. Nippon Shinyaku alleged that Sarepta breached the MCA’s forum selection clause by filing the IPR petitions and moved for a preliminary injunction enjoining Sarepta from proceeding with its IPR petitions and requiring Sarepta to withdraw them.
The district court denied Nippon Shinyaku’s motion for a preliminary injunction and stated:
Nippon Shinyaku has failed to persuade the Court that it is likely to succeed on the merits, that it will suffer cognizable irreparable harm in the absence of extraordinary relief, that the balance of harms tips in its favor, or that the public interest warrants the relief it seeks.
The district court focused on the first preliminary injunction factor, that Nippon Shinyaku had not shown a reasonable probability that Sarepta breached the MCA. The district court reasoned that, although the covenant not to sue and the forum selection clause implicate different time periods (i.e., during the Covenant Term and the two years after the Covenant Term, respectively), it would be odd if the covenant not to sue expressly deferred filing IPR petitions for one year and twenty days only for them to be impliedly delayed for two additional years, likely making them time-barred and never available. Thus, the district court read the covenant not to sue to allow IPRs after the Covenant Term ended and during the two-year period of the forum selection clause.
Additionally, the district court found the forum selection clause did not support Nippon Shinyaku’s breach of contract claim. The district court acknowledged that the forum selection clause “obliquely refers to IPR proceedings through its mention of ‘Potential Actions,’ which is defined to include proceedings before administrative agencies such as the PTAB.” But the district court reasoned that “[r]ead in full context, however, [the forum selection clause] applies only to cases filed in federal court.” The district court concluded that, “while the definition of ‘Potential Actions’ in [the forum selection clause] literally encompasses IPRs, the use of that term in [the forum selection clause] is best understood as limited to cases in federal district court.”
Finally, the district court found that, in light of the timing of Nippon Shinyaku’s complaint for patent infringement, if Sarepta were forced to wait two years after the Covenant Term to file its IPR petitions, they would be time-barred under 35 U.S.C. § 315(b) (“An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent”). The district court found 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 district court found that Nippon Shinyaku failed to establish the other three preliminary injunction factors—irreparable harm, the balance of hardships, and the public interest—on the ground that Nippon Shinyaku did not have a reasonable probability of success on its breach of contract claim.
Nippon Shinyaku filed an appeal from the district court’s order. While the appeal was pending, the PTAB granted institution in all of Sarepta’s IPR petitions at issue.
The Federal Circuit said that the appeal presented “a question of contract interpretation under Delaware law,” which requires that “a contact’s construction should be that which would be understood by an objective, reasonable third party.” According to the Federal Circuit, the plain language of the forum selection clause resolves the dispute. As the Federal Circuit noted, the forum selection clause expressly provides 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.” “Potential Actions” was defined to include “patent or other intellectual property disputes . . . filed with a court or administrative agency.” Thus, the definition of “Potential Actions” literally encompasses IPRs, which cannot be filed in a district court.
The Federal Circuit rejected Sarepta’s “nonsensical” suggestion that including IPRs in the forum selection clause would require IPRs to be filed in district court. Importantly, the court stated 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.” In this case, Sarepta’s IPRs would be time-barred by 35 U.S.C. § 315(b) as a result of Nippon Shinyaku filing a patent infringement complaint, not from the parties’ entry into the MCA. Accordingly, the court found that Nippon Shinyaku is likely to succeed on the merits of its claim for breach of contract. The court then found that the other three factors relevant to the preliminary injunction analysis were also met. Being deprived of its bargained-for choice of forum constitutes irreparable harm to Nippon Shinyaku. The balance of hardships also tips in favor of Nippon Shinyaku because of the irreparable harm it will suffer without the preliminary injunction and Sarepta will potentially get multiple bites at the invalidity apple. The public interest does not excuse a party’s violation of a forum selection clause.
In conclusion, parties should recognize that forum selection clauses may be used to limit the bringing of IRP petitions and may be of limited duration.
For more information on this topic, please contact Fitch Even partner Stanley A. Schlitter, author of this alert.
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