United States: District Court Grants Preliminary Injunction Requiring Defendant To Stop Inter Partes Review At Patent Office Because Of Forum Selection Clause

Last Updated: April 11 2018
Article by Stanley M. Gibson

The plaintiff Dodocase VR, Inc. filed a motion for a temporary restraining order or preliminary injunction against Defendants MerchSource, LLC ("MerchSource") and ThreeSixty Brands Group LLC ("ThreeSixty") (together, "Defendants") requesting that the court order the Defendants to withdraw certain petitions filed with the Patent Trial and Appeal Board ("PTAB Petitions").

As explained by the district court, MerchSource designs, sources, and distributes a wide-range of consumer goods, including toys, electronics, and home decor, to large retailers. The plaintiff alleged that MerchSources sells, manufactures, designs, and/or imports certain products under the brand name "Sharper Image" that infringe the Dodocase Patents. In June 2016, MerchSource contacted the plaintiff to obtain a license to the '075 Patent, and in October 2016, MerchSource and the plaintiff entered into a Master License Agreement regarding the Dodocase Patents ("MLA"). In June 2017, MerchSource contacted the plaintiff to express dissatisfaction with the MLA and told the plaintiff that MerchSource would "have no choice but to impute a zero percent royalty rate under the [MLA] in order to be similarly advantaged." MerchSource also later told the plaintiff that it reviewed the claims in the patent application for what would later become the '184 Patent and determined that the relevant claims were invalid, so it would not pay any royalties on the products sold under that patent. The plaintiff responded that refusal to pay royalties despite its continued manufacture, use, sale, and/or offer for sale of products using the Dodocase Patents constituted a breach of the MLA.

Defendants then filed three separate PTAB Petitions, challenging each of the three Dodocase Patents, on January 15, 2018. Shortly thereafter, the defendants answered the complaint and filed a counterclaim that sought declaratory judgment that the patents-in-suit are invalid for the reasons set forth in the PTAB Petitions.

The plaintiff then filed the motion for a temporary restraining order and preliminary injunction seeking an order requiring the defendants to withdraw the three PTAB Petitions that they filed on January 15, 2018. The plaintiff contended that the PTAB Petitions were filed in violation of the "no-challenge" and "forum selection" clauses in the MLA.

Although the district court declined to issue the injunction for violation of the "no-challenge" clause because of Lear, Inc. v. Adkins, 395 U.S. 653 (1969), the district court did issue the preliminary injunction for violation of the "forum selection" clause. In reaching this conclusion on the forum selection clause, the district court found that the plaintiff was likely to succeed on the merits because the forum selection clause states that "disputes shall be litigated" (emphasis added) in those courts, mandatory language akin to an express statement of exclusivity. The forum selection clause provided: The forum selection clause provides: "THE PARTIES AGREE . . . THAT DISPUTES SHALL BE LITIGATED BEFORE THE COURTS IN SAN FRANCISCO COUNTY OR ORANGE COUNTY, CALIFORNIA." MLA, § 13.4 (emphasis in original). It also states that "The laws of the State of California shall govern any dispute arising out of or under this Agreement . . . "

Based on this language, the district court stated that "[c]onsidered as a whole, the Court concludes that the MLA's forum selection language stating not only that the parties agreed that subject matter and personal jurisdiction are proper in the courts in San Francisco and Orange Counties, but also that disputes 'shall be litigated' in those courts, make this a mandatory forum selection clause. Defendants did not argue otherwise."

The district court also determined that the forum selection clause extended to the PTAB proceedings because of the broad language in the clause. "The Court concludes that the PTAB proceedings challenging the validity of the licensed patents after Plaintiff sought to enforce the license in this forum fall within the scope of the forum selection clause as they "aris[e] out of or under" the terms and performance of the contract. Indeed, Defendants' own counterclaim demonstrates the close relationship between the PTAB Petitions and the MLA. In the counterclaim, Defendants seek a declaratory judgment that the Dodocase Patents are invalid on at least the same grounds as those included in their PTAB Petitions, and asks for an award of "all costs, expenses and attorneys' fees, including all fees, costs and expenses associated with [the PTAB Petitions], as the prevailing party pursuant to the MLA section 13.11."

Having concluded that the plaintiff was likely to succeed on the merits, the district court also found that the plaintiff would be irreparably harmed because of the disruption to the business and the financial harm from the PTAB proceedings in the form lost employee time and attorney's fees as well as the inability to effectively enforce its patent rights.

The district court also found that the balance of equities tipped in favor of the plaintiff because the defendants should not be heard to argue about the enforcement of a contract into which it freely entered. Finally, the district court also determined that the public interest supported entering the preliminary injunction because it would vindicate the parties' contractual rights and obligations.

As a result, the district court granted the injunction requiring the defendants to request the PTAB to dismiss the petitions for review of the patents-in-suit.

Dodocase VR, Inc. v. Merchsource, LLC, Case No. 17-cv-07088-EDI (N.D. Cal. March 23, 2018)

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