Choice of Forum Clause for Resolving Disputes Under a Non-Disclosure Agreement Did Not Prevent Patent Validity Challenges in the Patent Office

Abstract

A New York court held that patent validity challenges mounted through inter partes review (“IPRs”) proceedings at the U.S. Patent and Trademark Office were not prevented by a forum selection clause in a non-disclosure agreement. The clause applied to disputes relating to the agreement. And because nothing under the agreement granted a license to the IP rights, the IPR validity challenges did not relate to the agreement as required under the forum selection clause.

Background

Kannuu Pty Ltd., an Australia-based start-up company, developed technology relevant to navigation and search controls on media devices, such as Smart TVs. Samsung and Kannuu began discussing potential business deals regarding this technology, entering into a non-disclosure agreement (“NDA”) to protect their confidential information. The NDA also included a forum selection clause requiring that any legal action, suit, or proceeding arising out of or relating to the NDA be litigated in New York.

After years of presentations and receiving information from Kannuu on its technology, Samsung told Kannuu it was no longer interested. Years later, Kannuu sued Samsung, alleging patent infringement and breach of the parties’ NDA alleging Samsung impermissibly accessed Kannu’s proprietary technology under the NDA.

Samsung then challenged the validity of the patents by asking for inter partes review (“IPR”) at the Patent Trial and Appeal Board (“PTAB”). The PTAB instituted two of the five IPRs filed, and Samsung asked the district court to stay its proceedings pending resolution of the IPRs.

Kannuu asked the court to enjoining Samsung from prosecuting IPR petitions at the PTAB based on the forum selection clause in the parties’ NDA. Kannuu also asked to supplement its complaint to add a claim that Samsung breached the NDA’s forum selection clause.

This summary focuses on Kannu’s request that the court issue a preliminary injunction to prevent the validity challenges.

The Kannuu Decision

A party seeking a preliminary injunction must show: (1) a likelihood of success on the merits; (2) a likelihood of irreparable injury in the absence of an injunction; (3) that the balance of hardships tips in the plaintiff’s favor; and (4) that the public interest would not be disserved by the issuance of an injunction.

Regarding likelihood of success, the court explained that it could grant a preliminary injunction restraining a party from prosecuting a petition before the PTAB where the parties have a valid and enforceable forum selection clause foreclosing that forum. A three-pronged test governs the analysis: (1) whether the clause was reasonably communicated to the party resisting enforcement; (2) whether the clause is mandatory or permissible; and (3) whether the claims and parties involved in the suit are subject to the forum selection clause.

The first two prongs were not disputed by the parties. As to the third prong, the issue centered on whether the IPRs are related to the NDA or transactions contemplated under the NDA, as required under the forum selection clause. Because the NDA did not define “relating to,” the court was required to construe the term according to its plain meaning, i.e., “connected by reason of an established or discoverable relation.” Kannuu argued the IPRs related to the NDA because: Samsung used Kannuu’s confidential information to infringe its patents which led to the suit and the IPRs; the IPRs relate to the transactions contemplated under the NDA; and Samsung received information from Kannuu that may be relevant to the IPR proceedings. But the court disagreed.

The court determined that the IPRs did not relate to the NDA itself because they do not implicate any obligations under that agreement.  There was no license granted to the patents at issue in the IPRs and the outcomes of the IPRs would not affect whether Samsung impermissibly accessed or used Kannuu’s confidential information under the NDA. Finally, although information arising from discussions under the NDA may be relevant in the IPRs, the court found that does not mean the IPRs themselves are conceptually linked with transactions under the NDA.

Returning to the analysis for the preliminary injunction, as to irreparable harm, the court found Kannuu’s concerns of litigating validity in two different places and potentially inconsistent outcomes did not amount to irreparable harm. Regarding the balance of hardship, barring Samsung from petitioning for IPRs would foreclose a proceeding Congress explicitly permitted. In contrast, any hardship to Kannuu from having to litigate in two forums could be resolved by seeking a stay of one of the proceedings. As to public interest, the court recognized the importance of enforcing forum selection clauses.  But here, the forum clause in the NDA did not apply to the IPRs.

Ultimately, the court denied Kannuu’s motion for a preliminary injunction.

Strategy and Conclusion

Forum selection clauses can address where the parties will resolve a wide variety of disputes and what they can or cannot do in resolving those disputes. One such issue to consider, with the possibility of attacking patent validity in the courts and in the Patent Office is whether the issue of validity is to be confined to the courts. This and other cases reveal that parties to agreements may not consider this issue or be able to reach agreement on this issue.

The Kannuu decision can be found here.