For the second time in four months, the U.S. Court of Appeals for the Federal Circuit has issued a precedential opinion about forum selection clauses (FSC) in confidentiality agreements. On October 7, 2021, the Federal Circuit issued a precedential opinion in Kannuu Pty Ltd. v. Samsung Electronics Ltd. et al., holding that, in a non-disclosure agreement (NDA) that expressly excludes a license grant, a FSC does not prohibit a patent infringement defendant from filing inter partes review (IPR) petitions. On February 8, 2022, the Federal Circuit issued a precedential opinion in Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc., holding on different facts that a party can bargain away its IPR rights. Here, we contrast the facts in Kannuu with those in Nippon Shinyaku, and offer practice tips for structuring FSCs to prohibit or permit IPR petitions.
Forum Selection Clause Impact on Filing IPRs
In the first case, Kannuu and Samsung entered into an NDA “to further a business relationship between the parties” and to protect confidential information. The NDA included a FSC limiting the institution of any “legal action, suit, or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby” to courts in New York City, and nowhere else. The NDA had a two-year duration and stated, among other things, “Nothing in this Agreement shall be deemed to grant to either party a license under the other party’s copyrights, patents, trade secrets, trademarks or other intellectual property rights.” The discussions ended without Samsung and Kannuu doing business. Six years later, Kannuu sued Samsung in the Southern District of New York, alleging patent infringement and breach of the NDA. Samsung filed IPR petitions against the asserted patents. Kannuu filed a preliminary injunction motion to compel Samsung to dismiss the IPR proceedings. The district court denied the motion. The Federal Circuit affirmed, holding that the NDA was directed to maintaining the confidentiality of certain disclosed information, and not related to patent rights. Consequently, the NDA did not prohibit Samsung from filing the IPR petitions.
In the second case, Nippon Shinyaku and Sarepta Therapeutics, Inc. entered into a Mutual Confidentiality Agreement (“MCA”) whose purpose was for the parties to enter into discussions concerning “a potential business relationship relating to therapies for the treatment of Duchenne Muscular Dystrophy”. Section 6 of the MCA included a mutual covenant not to file suit “concerning intellectual property in the field of Duchenne Muscular Dystrophy” for a period of time (a “Covenant Term”). MCA Section 6 went on to specify that the covenant not to sue included, among other things, patent validity challenges before the U.S. Patent and Trademark Office. MCA Section 10 included a FSC which stated that any patent or other intellectual property dispute (other than ongoing proceedings in Europe and Japan), filed with a court or administrative agency within two years of the expiration of the Covenant Term, and relating to Duchenne Muscular Dystrophy, shall be filed in the U.S. District Court for the District of Delaware. The same day that the Covenant Term ended, Sarepta filed seven IPR petitions. Nippon Shinyaku then sued in U.S. District Court in Delaware for, among other things, breach of the MCA, and moved for a preliminary injunction to enjoin Sarepta from proceeding with its IPR petitions. The district court denied the motion. The Federal Circuit (interpreting the MCA under Delaware law), held that the plain language of Section 10 clearly stated that all disputes relating to patent infringement or invalidity — including the subject matter of Sarepta’s IPR petitions — had to be filed in the District of Delaware. The Federal Circuit referred to its precedent, recognizing that “parties are entitled to bargain away their rights to file IPR petitions, including through the use of forum selection clauses. The Federal Circuit said that its decision in Kannuu was based on the specific language of the FSC at issue there, stating further, “[i]nherent in our holding in Kannuu was an understanding that a differently worded forum selection clause would preclude the filing of IPR petitions.”
Kannuu and Nippon Shinyaku appear to be polar opposites in terms of their fact patterns. The NDA in Kannuu was silent regarding intellectual property, other than expressly stating that the NDA did not grant any license rights under any intellectual property. There was no mention of where intellectual property suits could be filed. In contrast, the MCA in Nippon Shinyaku specifically referred to intellectual property disputes; contained a covenant not to sue on intellectual property for a period of time; and specifically limited where intellectual property suits could be filed for two years after the MCA expired. The MCA specifically referred to civil and administrative proceedings (an IPR being an administrative proceeding).
Going forward, patent holders will want to avoid Kannuu type language. Potential patent infringement defendants will want to avoid Nippon Shinyaku type language. We can expect future NDAs and MSCs to fall somewhere in the middle. It will be interesting to see how the Federal Circuit will address those situations. Also, while the issue did not arise in either of these cases, it will be interesting to see if a party will try to argue lack of bargaining power as part of its attempt to interpret a FSC in a particular way.