Contracting Out of an IPR Proceeding

Potentially good news has come for patentees in light of a recent federal circuit decision affirming a lower court’s ruling that patent license forum selection clauses can bar challenges at the PTAB. The court ruled that the parent company to the Sharper Image, MerchSource LLC, must withdraw IPR challenges to three virtual reality patents it had licensed due to a forum selection clause in the agreement which required that all litigation must take place in California—thus preventing the PTAB proceedings.

The ruling initially appears to benefit all patentees, but this change is not necessarily here to stay—the PTAB could disagree with the appeals court and hold that forum selection clauses do not apply at the board. In any event, the ruling does not mean that MerchSouce’s journey is at an end as they may need to prepare an appellate argument taking the position that the reviews never should have been instituted in the first place. Further, the Federal Circuit’s ruling specified only that the review must be withdrawn, but it did not order the PTAB to take any action—how the board will respond is up in the air.

Any decision by the PTAB contrary to the Federal Circuit’s holding could open the door for a breach of contact claim to be brought against MerchSource, as reviewing their licensed patents at the PTAB is expressly prohibited according to the licensing agreement. Further, the case may return to the Federal circuit for review from a different standpoint—on appeal from the PTAB rather than a view giving deferential review to the judge’s withdrawal order.

The future effects of forum selection clause on licensing agreement as it pertains to review at the board is unclear, but patentees seeking to avoid IPR proceedings should include such clauses in their licensing agreements as they could prove useful pending further litigation.

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