It’s easier than you might think to bargain away the right to challenge patent validity at the U.S. Patent and Trademark Office.
The U.S. Court of Appeals for the Federal Circuit on Thursday upheld San Francisco U.S. Magistrate Judge Elizabeth Laporte’s order last year compelling MerchSource LLC, also known as Sharper Image, to withdraw its administrative challenges to three patents on virtual reality headsets.
Dodocase VR had licensed the patents to MerchSource, with the two agreeing that “any dispute arising out of or under this agreement” would be resolved in California courts. A year later MerchSource stopped paying royalties and Dodocase sued for infringement.
MerchSource then petitioned for inter partes review and post-grant review of the patents at the PTO’s Patent Trial and Appeal Board (PTAB). But Laporte ruled that doing so violated the license agreement, and ordered MerchSource to contact the PTAB and withdraw its petitions. MerchSource argued that its PTAB actions didn’t “arise out of” the agreement, and that blocking them would frustrate the public policy in favor of letting the PTO correct mistakenly granted patents.
A Federal Circuit panel led by Chief Judge Sharon Prost noted Thursday that the appellate court has previously blocked International Trade Commission actions based on similar forum selection provisions. Laporte did not abuse her discretion by extending the rationale to the PTAB, Prost wrote in Dodocase v. MerchSource.
As for the public interest, Laporte correctly observed that MerchSource would be free to challenge validity in the district court action, and that “independent third parties could initiate separate PTAB proceedings,” Prost wrote.
Gabriel Opatken of Noble IP had the winning argument for Dodocase. Renner Otto partner Kyle Fleming represented MerchSource. Neither Opatken nor Fleming immediately responded to messages Friday.
Ropes & Gray partner Matthew Rizzolo, who’s not involved in the case, said it probably won’t be the last time we see the issue. “Given how common this type of language is in existing license agreements, we may see more patent owners faced with PTAB challenges try to use these forum selection clauses to insulate their patents from PTAB review,” he said.