Agreements on a Forum for Resolving Patent Disputes Generally Waive the Ability to Later Object to That Forum

Abstract

A California district court found that a party who agreed to an enforceable forum selection clause waived its objection to improper venue and could not transfer the case to a more convenient forum.

Background

Sundesa, a Utah company, is the exclusive licensee of a design patent for shaker cups, commonly used to mix protein powder or other drinks on-the-go. IQ Formulations ("IQF"), a Florida company is a manufacturer and seller of nutritional supplements and fitness related products and accessories.

In 2013, Sundesa accused IQF of patent infringement and, in 2014, the parties entered into a confidential settlement agreement which included a forum selection clause identifying the Central District of California as the venue with exclusive jurisdiction "of any action regarding this [a]greement." In 2019, Sundesa accused IQF of infringing the same patent and subsequently filed a suit in the Central District of California, alleging breach of contract and patent infringement. In response, IQF claimed that venue in California was improper and asked the court to dismiss the case or transfer it to its home court the Southern District of Florida. Sundesa challenged this request, stating that the case should not be dismissed or transferred because the 2014 forum selection clause named the Central District of California as the proper venue for resolving disputes.

The Sundesa Decision

The court ruled that IQF waived their objection to improper venue when it agreed to the forum selection clause and public interest did not warrant a transfer.

Forum selection clauses are presumed to be valid, but the challenging party can show that enforcing the clause is unreasonable if (1) the clause was induced by fraud or overreaching; (2) enforcing the clause would deprive the challenging party of their day in court; or (3) enforcing the clause would go against a strong public policy of the forum where the suit is brought.

IQF, however, was unable to show any of the three circumstances to invalidate the forum selection clause. First, the clause was not overreaching because the forum selected in the clause was proper at the time of the 2014 settlement agreement.

Second, the parties would have their day in court. While the Central District of California was inconvenient, over 3,000 miles away from IQF's place of business in Florida, once a party enters into a forum selection agreement, they waive the right to challenge the inconvenience of the forum.

Third, public interest did not weigh against enforcement of the clause. IQF argued that venue is improper under the patent venue statute and Supreme Court decision TC Heartland. Under the patent statute and TC Heartland, "a patent infringement action 'may be brought in the judicial district where the defendant (1) resides, or (2) has committed acts of infringement and has a regular and established place of business.'" The court summarized IQF's argument as effectively arguing that "TC Heartland renders forum selection clauses 'illegal' for patent cases." The court explicitly rejected that proposition, finding that the forum selection clause supersedes the decision of TC Heartland.

The court also found that IQF waived its improper venue objection. Freedom of contract allows parties to create private agreements that have real effects on the arguments that they make in later actions. A forum selection clause waives an objection to improper venue because the objecting party agreed to litigate in that forum. Moreover, IQF had known that they could be subject to an action in the Central District of California since they agreed to that forum selection clause in 2014.

In addition to denying IQF's motion to dismiss, the court also denied IQF's motion to transfer. The court could use its discretion to decide whether to transfer a civil action to another district. When deciding whether to transfer, courts will consider public and private interest factors; however, public interest factors on their own will generally not defeat a motion to transfer. A forum selection clause is a private interest that generally controls unless the case is exceptional. Here, because there was an enforceable forum selection clause, the court found that the private interest factors weighed against transferring the case. And, since the court found that IQF had not proven that this was an exceptional case, transfer was not appropriate.

Strategy and Conclusion

Courts are likely to find that a forum selection clause is enforceable in a patent case, so long as the clause (1) was not induced by fraud, (2) does not deny the challenging party of their day in court, and (3) does not go against the public policy of the selected forum. When a forum selection clause is enforceable, courts are likely to find that the objecting party waived its right to an alternative forum and can deny the parties' motions to dismiss and transfer venue despite the patent venue statute and TC Heartland decision. Therefore, before agreeing to a forum selection clause, parties should consider whether they are prepared to litigate in the selected forum and whether it is possible to challenge or preempt challenges to the clause under the exceptions to the rule of requiring enforcement in the
selected forum.

Further Information

The Sundesa decision can be found here.