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Contracting Away the Right to File Inter Partes Review: Forum-Selection Clauses and the Federal Circuit's decision in Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc.

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The Court of Appeals for the Federal Circuit recently held in Nippon Shinyaku Co. v. Sarepta Therapeutics, Inc., 25 F.4th 998 (Fed. Cir. 2022), that a patent challenger could not proceed with petitions for Inter Partes Review (“IPR”) at the Patent Trial and Appeal Board (“PTAB”) on the basis of a forum-selection clause. Nippon is the first precedential decision from the Federal Circuit holding that a forum-selection clause precluded a patent challenger from engaging in IPR proceedings.1 Patent owners and challengers should consider whether any existing forum-selection clauses impact the availability of IPR proceedings and evaluate forum-selection clauses in future agreements for their impact on IPR proceedings.

I. The Federal Circuit’s application of the forum-selection clause in Nippon.

In Nippon the patent challenger and the patent owner had entered into a “Mutual Confidentiality Agreement”2 in 2020.3 The agreement included a forum-selection clause that: (1)stated that “all Potential Actions arising under U.S. law relating to patent infringement or invalidity . . . shall be filed in the United States District Court for the District of Delaware”; and (2) defined “Potential Actions” as including “any patent or other intellectual property disputes between [the parties] . . . filed with a court or administrative agency . . . in the United States . . . in connection with the Parties’ development and commercialization of [certain therapies].”4

The patent challenger filed seven IPR petitions, and the patent owner moved for a preliminary injunction to enjoin the patent challenger from proceeding with the IPRs.5 After the district court denied the preliminary injunction, the patent owner filed an interlocutory appeal.6 On appeal, the Federal Circuit issued a published, precedential decision reversing the district court.7 The Federal Circuit noted that, although both the Federal Circuit and the Third Circuit review a denial of a preliminary injunction for abuse of discretion, underlying questions of law—including questions of contract interpretation—are reviewed de novo.8 Additionally, the Federal Circuit noted that “under . . . Federal Circuit . . . precedent, [a substantial likelihood of success] is a necessary showing to establish entitlement to a preliminary injunction” and that the district court’s analysis of that factor turned entirely on its interpretation of the forum-selection clause.9

Pursuant to a choice-of-law clause, the Federal Circuit applied Delaware’s objective theory of contracts where “a contract’s construction should be that which would be understood by an objective, reasonable third party.” 10 The Federal Circuit found that, under Delaware law, “when the contract is clear and unambiguous, [courts] give effect to the plain-meaning of the contract’s terms and provisions.”11 The Federal Circuit concluded that “the plain language of the forum-selection clause . . . resolves the dispute” because it “clearly states that all Potential Actions arising under U.S. law relating to patent infringement or invalidity . . . shall be filed in the United States District Court of Delaware” and that the “express definition of ‘Potential Actions’ includes ‘patent or other intellectual property disputes . . . filed with a court or administrative agency.’”12

The Federal Circuit also explained that it has recognized that parties can bargain away their right to file IPR petitions,13 citing Dodocase VR, Inc. v. MerchSource, LLC (Dodocase II), 767 F. App’x 930 (Fed. Cir. 2019), and Kannuu Pty Ltd. v. Samsung Elecs. Co., 15 F.4th 1101 (Fed. Cir. 2021). In Dodocase II and Kannuu, the Federal Circuit interpreted the specific forum-selection clauses at issue in light of the applicable law and the facts leading up to the dispute and analyzed whether the text of those clauses prohibited the filing of IPR petitions.14 Therefore, Nippon, along with Dodocase II and Kannuu, indicates that the question of whether a forum-selection clause precludes IPR proceedings is a fact-specific inquiry that hinges on the language of the underlying agreements and the applicable state law. Nippon also indicates that the Federal Circuit will enforce post-AIA forum-selection clauses that preclude IPR proceedings before the PTAB.

II. Tension between Nippon and the Supreme Court’s decision in Lear, Inc. v. Adkins, 395 U.S. 653 (1959), which ended the doctrine of licensee estoppel based on “strong federal policy.”

Before Dodocase II, Kannuu, and Nippon, district courts considered the Supreme Court’s decision in Lear, Inc. v. Adkins when deciding whether to enforce forum-selection clauses precluding IPR proceedings.15 In Lear, the Supreme Court ended the doctrine of licensee estoppel, which prevented patent licensees from challenging the validity of licensed patents, citing “the general federal policy favoring free competition” and “the strong federal policy favoring the full and free use of ideas in the public domain.”16

Patent challengers may argue that, as in Lear, there is a “strong federal policy” (e.g., to settle patent validity disputes at the PTO) that outweighs the interest in enforcing forum-selection clauses prohibiting IPRs and renders those provisions unenforceable. In addressing the constitutionality of IPR proceedings in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015), the Federal Circuit recognized that “Congress created the PTO, an executive agency with specific authority and expertise in patent law, and saw powerful reasons to utilize the expertise of the PTO for an important public purpose—to correct the agency’s own errors in issuing patents in the first place” and that “Congress sought to provide a more efficient system for challenging patents that should not have issued and to establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs.”17 The Federal Circuit has not addressed Lear or “strong federal policy” arguments in addressing the impact of forum-selection clauses on IPRs.

In contrast, patent owners may rely on the AIA “Settlement” provision (35 U.S.C. § 317) and Nippon to counter “strong federal policy” arguments. In the AIA, Congress contemplated that a patent challenger and patent owner could contract away the patent challenger’s ability to proceed with an IPR in connection with settlements: “[a]ny agreement or understanding between the patent owner and a petitioner made in connection with, or in contemplation of, the termination of an inter partes review shall be in writing and a true copy of such agreement or understanding shall be filed in the Office ”18 Further, in Nippon, the Federal Circuit stated “we have held that ‘[t]here is no public interest served by excusing a party’s violation of its previously negotiated contractual undertaking to litigate in a particular forum’” when analyzing the public-interest preliminary-injunction factor.19 Thus, Nippon and the AIA “Settlement” provision provide arguments that strong federal policy favors enforcing forum-selection clauses prohibiting IPRs.

III. Exercise care in negotiating and applying forum-selection clauses.

Parties entering into agreements relating to patents should carefully consider the implications of forum-selection clauses on their or another party’s ability to file an IPR and consider whether to clarify that the forum-selection clauses are intended to apply to IPRs or not.

Additionally, Patent owners facing IPR petitions should evaluate whether there are any agreements with the patent challenger that have forum-selection clauses that could preclude the challenger from challenging validity at the PTAB.  If a patent challenger has violated a forum-selection clause in filing an IPR, patent owners should consider acting quickly to pursue an injunction and an interlocutory appeal if the injunction is denied.  Importantly, the AIA allows the PTAB to invalidate patents in IPR proceedings even if the petitioner withdraws (e.g., because of an injunction) if the PTAB has “decided the merits of the proceeding before the request for termination is filed,”20 and that decision cannot be revisited by a district court.21

Finally, Patent challengers facing arguments that they are precluded from pursuing an IPR due to a forum-selection clause should carefully evaluate the applicable agreements and controlling state law to identify arguments that the forum-selection clause does not apply to IPR proceedings. For example, the Federal Circuit found in Kannuu that a forum-selection clause of a confidentiality agreement did not preclude IPRs because the clause was limited to proceedings related to or arising out of the agreement and the connection between the IPRs and the agreement was too tenuous for the provision to apply to them. Accordingly, the decision of whether a forum-selection clause precludes IPR proceedings may turn on the facts, and patent challengers should consider using facts associated with their patent dispute to distinguish Nippon and Dodocase II.

1 See Kannuu Pty Ltd. v. Samsung Elecs. Co., 15 F.4th 1101, 1105 (Fed. Cir. 2021) (declining to hold that a patent challenger was barred from filing IPR petitions based on a forum-selection clause after holding that the text of the forum-selection clause did not bar IPR proceedings); Dodocase VR, Inc. v. MerchSource, LLC (Dodocase II), 767 F. App’x 930, 934–35 (Fed. Cir. 2019) (holding that a patent challenger was barred from filing IPR petitions based on a forum-selection clause in a non-precedential decision).
2 The “Mutual Confidentiality Agreement” was entered after the passage of the America Invents Act (“AIA”) in 2012 that created IPR proceedings. The Federal Circuit has not addressed whether pre-AIA forum-selection clauses could bar a patent challenger from pursuing IPR proceedings.
3 25 F.4th at 1002.
4 Id.
5 Id. at 1002–03.
6 Id. at 1003–04.
7 Id. at 1009.
8 Id. at 1005.
9 Id.
11 Id.
12 Id. at 1005–06.
13 Id. at 1007.
14 Dodocase II, 767 F. App’x at 934–35; Kannuu, 15 F.4th at 1106–10.
15 See, e.g., Ford Motor Co. v. Versata Software, Inc., No. 15-11624, 2016 WL 6650380, at *3 (E.D. Mich. Nov. 10, 2016); Dodocase VR, Inc. v. MerchSource, LLC (Dodocase I), No. 17-CV-07088-EDL, 2018 WL 1475289, at *4 (N.D. Cal. Mar. 26, 2018), aff’d and remanded, 767 F. App’x 930 (Fed. Cir. 2019).
16 395 U.S. at 662, 674.
17 MCM Portfolio, 812 F.3d at 1920 (internal quotations omitted).
18 35 U.S.C. § 317(b)
19 45 F.4th at 1009 (quoting Gen. Protecht Grp., Inc. v. Leviton Mfg. Co., 651 F.3d 1355, 1366 (Fed. Cir. 2011)).
20 See 35 U.S.C. § 317(a).
21 See generally Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330, 1347 (Fed. Cir. 2013) (holding that an Inter Partes Reexamination decision invalidating patent claims removed any viable cause of action under those claims and therefore vacating a subsequent final district-court judgment that those claims were valid).

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