March 29, 2018
On March 26, 2018, in Dodocase VR, Inc. v. MerchSource, LLC, the U.S. District Court of the Northern District of California granted Dodocase VR’s motion for an injunction requiring MerchSource to withdraw its pending petitions for inter partes review (IPR) before the Patent Trial and Appeal Board (PTAB). The court held that a forum selection clause contained within a license agreement between the parties was breached by the filing of the petitions.
The dispute stemmed from a license agreement granting MerchSource rights under three patents related to virtual reality accessories. The agreement included a forum selection clause providing “the laws of the State of California shall govern any dispute arising out of or under this Agreement,” which “disputes shall be litigated before the courts in San Francisco County or Orange County, California.”
After execution of the agreement, MerchSource informed Dodocase that it would cease paying royalties on MerchSource’s sale of products practicing the patented technology. Dodocase eventually responded by filing suit, asserting breach of contract and seeking a declaration of validity and enforceability of the patents.
MerchSource then filed petitions for IPR of Dodocase’s patents. MerchSource later answered Dodocase’s complaint and counterclaimed for costs and fees associated with the IPRs under a clause in the license agreement. Dodocase then moved to enjoin MerchSource from continuing the IPR proceedings, alleging that these violated the forum selection clause.
The court held that the forum selection clause of the license agreement was breached by Dodocase’s filing of its petitions. It held that the language “the laws of the State of California shall govern any dispute arising out of or under this Agreement” encompassed all disputes stemming from the agreement. Because the original complaint arose out of a breach of the license agreement, MerchSource was bound by the forum selection clause. Rejecting arguments based on the Supreme Court’s Lear v. Adkins decision, the court held that the agreement trumped the ability of MerchSource to seek IPR at the USPTO. The court further latched on to the fact that MerchSource requested an award of costs, expenses, and fees owed pursuant to the license agreement in its answer and counterclaim, reasoning that this counterclaim confirmed that the dispute was governed by the parties’ prior agreement.
The court distinguished the present case from prior cases that held that a contractual provision that would prohibit patent reexamination is contrary to public policy. In the prior cases, unlike this case, the reexaminations were already instituted when the patent owner sought to vacate the proceedings, a factor that the court deemed significant.
Interestingly, the court found that Dodocase would be irreparably harmed by being forced to litigate validity in both the district court and the PTAB, a common issue among patent owners subject to IPR proceedings.
In addition, the court’s order specifically instructed MerchSource not to indicate to the PTAB that it was withdrawing under protest, an issue that will likely draw scrutiny in MerchSource’s currently pending appeal to the Ninth Circuit Court of Appeals. Fitch Even attorneys are monitoring the progress of this case and will report on any future proceedings in a subsequent alert.
For more information on this ruling, please contact Fitch Even partner Paul B. Henkelmann, author of this alert.
Fitch Even associate Andrew C. Wood and law clerk Zachary Van Engen contributed to this alert.
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