In September 2012, inter partes review (IPR) replaced inter partes reexamination, allowing any third party to petition the Patent Trial and Appeal Board (PTAB) for review of any patent’s validity under the novelty or nonobviousness criteria. Since its inception, IPR has become a powerful weapon for accused infringers. Accused infringers are faced with a much lower burden of proof to invalidate patents in IPR than in district court and, even if they are unsuccessful, they can delay district court proceedings by over two-and-a-half years. With 2023 institution rates at 68% – the highest since 2015 – and a 71.49% invalidation rate for instituted claims as of September 2022, it is clear that IPR is an integral part of patent litigation today.
In response to this trend, patent lawyers have devised several methods for patent holders to avoid – or at least minimize the effects of – IPR. A substantial development came in February 2022, when the Federal Circuit issued its first precedential opinion holding that forum selection clauses may preclude petitions for IPR in Nippon Shinyaku Co. v. Sarepta Therapeutics. The Court relied on the exact language of the forum selection clause, which specifically included all actions “relating to patent infringement or invalidity … filed with a court or administrative agency,” to distinguish the case from the 2021 Kannuu PTY Ltd. v. Samsung Elecs. Co. decision. In Kannuu, the Court held that Samsung had not waived its right to petition for IPR by agreeing to an NDA to facilitate patent licensing negotiations that included a forum selection clause covering any actions “arising out of or relating to this Agreement.” Clearly, patent holders must choose their words wisely if they wish to avoid IPR.
Interestingly, the Court in Nippon ended its discussion by highlighting the conflict between “Congress[’s] desire to serve the public interest by creating IPRs to allow parties to quickly and efficiently challenge patents,” versus precedent that “[t]here is no public interest served by excluding a party’s violation of its previously negotiated contractual undertaking to litigate in a particular forum.” This sentiment is not new within the Federal Circuit, as a separate panel reached the same conclusion in the non-precedential case Dodocase VR, Inc. v. MerchSource, specifically noting that parties who have waived IPR can still challenge validity in district courts in addition to the fact that third parties can always petition for IPR themselves.
Those in favor of a robust IPR process may argue that Congress’s decision to implement a cheaper and quicker way for challenging faulty patents should not be so easily waivable without more specific language. After all, a 20-year monopoly is no small grant, and there are several positive externalities each time a licensee invalidates a patent for removing knowledge from the public domain or representing a trivial scientific advance. Critics will surely argue that when patent holders are being forced to bear costs ten times more to defend than to initiate IPR, not to mention the threat of IPR “gang-tackling,” accused infringers will likely still be at an advantage even if forum selection clauses can waive IPR rights.
With Sarepta’s petition for a rehearing en banc being denied in May 2022, patent holders will certainly take advantage of this new shield from IPR going forward. It will be interesting to monitor how the Federal Circuit handles similar provisions in the future.