O’Malley Splits from Majority in CAFC Denial of Mandamus to Stop IPR Institution on Patents Subject to Arbitration

“The majority’s denial of a writ of mandamus in this case allows the Patent Trial and Appeal Board to add a new caveat to Congress’s clear instruction that agreements to arbitrate patent validity shall be ‘valid, irrevocable, and enforceable.’” – Judge Kathleen O’Malley

The U.S. Court of Appeals for the Federal Circuit (CAFC) today issued an order denying MaxPower Semiconductor, Inc.’s appeal and Petition for Writ of Mandamus with respect to the Patent Trial and Appeal Board’s (PTAB’s) decisions to institute ROHM Semiconductor USA, Inc.’s petitions for four inter partes review (IPR) proceedings of MaxPower patents. The five-page Order was authored by Judge Reyna over a 17-page partial dissent by Judge O’Malley.

Majority: It’s Plain

The majority first explained that a decision to institute IPR is non-appealable under 35 U.S.C. §314(d), which plainly “confirms the unavailability of jurisdiction” for the CAFC to hear the direct appeals. Section 314(d) also presents a challenge to the mandamus petition, said the court, because MaxPower did not meet the criteria necessary to invoke the “collateral order doctrine.”

The collateral order doctrine allows appeals from interlocutory rulings if they decide an issue “separate from the merits of the case” that would not be reviewable after final judgment. MaxPower argued that the institution decisions implicated whether the PTAB can institute proceedings that are subject to arbitration, but the court found that MaxPower could still raise its arbitration-related challenges after the PTAB’s final written decisions are issued.

The CAFC also rejected the arguments that the appeals were authorized under 9 U.S.C. § 16(a)(1) and further explained that MaxPower had failed to show that its mandamus petition was not “merely a ‘means of avoiding the statutory prohibition on appellate review of agency institution decisions,’” as outlined in In re Power Integrations, Inc., 899 F.3d 1316, 1321 (Fed. Cir. 2018). Since the PTAB is not bound by private contracts enforcing arbitration agreements between parties, MaxPower has not shown that the Board “clearly and indisputably exceeded its authority,” said the majority, adding: “MaxPower fails to explain why 35 U.S.C. § 294 clearly deprives the Board of authority to institute inter partes review when the statute does not by its terms task the agency with enforcing private arbitration agreements.”


Dissent: A Shadow is Cast

While Judge O’Malley concurred in dismissing the direct appeals, she strongly dissented to the denial of mandamus, stating up front that “[t]he majority’s denial of a writ of mandamus in this case allows the Patent Trial and Appeal Board to add a new caveat to Congress’s clear instruction that agreements to arbitrate patent validity shall be ‘valid, irrevocable, and enforceable’—i.e., except during inter partes review.” O’Malley said the majority’s decision “cast[s] a shadow over all agreements to arbitrate patent validity,” and is inconsistent with the statutory text as well as Supreme Court precedent.

Her dissent described the terms of MaxPower’s technology license agreement (TLA) with ROHM Japan, which included an agreement to arbitrate “[a]ny dispute, controversy, or claim arising out of or in relation to this Agreement or at law, or the breach, termination, or validity thereof . . . .” When a dispute arose in 2019-2020, MaxPower notified ROHM of its intent to initiate arbitration and ROHM responded by filing a complaint for declaratory judgment of noninfringement in the Northern District of California and, separately, the four IPRs with the PTAB. The district court quickly dismissed the case, explaining that “the TLA ‘unmistakably delegate[s] the question of arbitrability to the arbitrator,’” but the PTAB instituted all four petitions and said that the arbitration clause was not a reason to deny institution. The Board said that Section 294 does not apply to IPRs “because Chapter 31 of the U.S.C., which provides for those proceedings, is ‘an entirely different Chapter’ than the one under which § 294 falls.” O’Malley added that the Board compared the arbitration issue to cases in which the CAFC has found that state sovereign immunity and tribal immunity are “not implicated” in IPR proceedings.

In her discussion of the reasons she would grant the mandamus petition, O’Malley cited Mylan Lab’ys Ltd. v. Janssen Pharmaceutica, N.V., 989 F.3d 1375, 1379 (Fed. Cir. 2021), which acknowledged that “decisions granting institution are fundamentally different from denials because a patentee has much more to lose from a grant than a challenger may lose from a denial.” She added that the present case represented an “important issue of first impression” that “at the very least” warrants oral argument and stay of the IPRs pending the CAFC’s decision. She said that MaxPower has a “clear and indisputable legal right” to enforce the arbitration provision; that it has “no other avenue for adequate relief”; and that “permitting ROHM to avoid arbitration nearly vitiates any agreement to arbitrate disputes over patent validity.”

With respect to MaxPower’s legal right, O’Malley cited two key Supreme Court cases that she said show the Federal Arbitration Act (FAA), and, “therefore, 35 U.S.C. § 294, apply to prevent institution of agency proceedings initiated by a party to an arbitration agreement: EEOC v. Waffle House, Inc., 534 U.S. 279 (2002), and Preston v. Ferrer, 552 U.S. 346 (2008). Preston, in particular, “shows that § 294 prevents the Board’s consideration of patent validity in inter partes review proceedings, at least until after an arbitrator has determined that the issue is not one for arbitration,” said the dissent. In that case, the Supreme Court said that the validity of a contract between an actor and his former attorney “must be determined by an arbitrator pursuant to the contract’s arbitration agreement, despite a California law that vested original jurisdiction over the dispute with the California Labor Commissioner.”

O’Malley rejected the Board’s argument that 35 U.S.C. § 294 does not apply to IPR because the IPR statutes are in a different chapter than Section 294, stating that “[i]f Congress intended to limit § 294 to Chapter 29, it could have easily
done so by limiting its application to ‘this chapter’ as it has done in many other statutes.”

She also rejected the majority’s assertion that neither Section 294 nor Preston requires the Board to enforce the parties’ arbitration agreement, explaining that the Board wasn’t being asked to enforce the arbitration agreement, but to “defer to the arbitration agreement by staying or terminating its own proceedings until the arbitration issue is resolved.” Although the majority conceded that it is the parties who “cannot escape resolution” by arbitration under their contract, O’Malley noted that “the majority and the Board permit ROHM to do exactly that—escape resolution in an arbitral forum” by granting institution.

Ultimately, O’Malley said that the majority’s decision “is inconsistent with the text of § 294 and the Supreme Court’s repeated statements in favor of strong enforcement of arbitration agreements.” She concluded:

Both Congress and the Supreme Court have clearly voiced their support for the enforceability of such agreements. And, yet, MaxPower finds itself forced to argue, many times over, in at least three tribunals, for the enforcement of its arbitration agreement and the validity of its patents—issues which are properly within the jurisdiction of an arbitrator.




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Join the Discussion

6 comments so far.

  • [Avatar for B]
    September 9, 2021 12:17 pm

    @ Anon

    I assure you that I am no fan of arbitration given that (generally) private arbitration decisions can’t be reviewed for anything but due process issues that an appellate body is more than willing to ignore as the winner screams “sour grapes.” That said, people have a right to have a valid contract enforced.

  • [Avatar for B]
    September 9, 2021 12:06 pm

    I don’t know which I’d like less. The validity of my patent determined by the PTAB of the validity of my patent determined by a random schmo from any of the shady arbitration mills in the U.S..

    I am NO fan of arbitration, but my understanding of the Collateral Order Doctrine (COD) is that it traditionally applies to district court decisions that: (1) resolve questions separate from the merits, and, (2) renders said questions unreviewable on appeal.

    Undoubtedly, this is an issue separate from the merits and undoubtedly MaxPower’s rights right to arbitration will be irretrievably lost in the absence of an immediate appeal. The WHOLE POINT of arbitration is to avoid government courts in favor of a private arbiter.

    While Reyna asserts that MaxPower “can meaningfully raise its arbitration-related challenges after the Board’s final written decisions,” what a waste of time and money that is the whole point as to why parties enter into agreements for private arbitration.

    If the order at issue came from a district court, there would be no question that the CAFC would vacate the order. Apparently, Reyna is unwilling to expand the COD to the PTAB even thought the PTAB is a substitute for a district court.

    Reyna is a horrible judge. Chen is little better. I don’t always agree with O’Malley but she has the right of it in this case.

  • [Avatar for Anon]
    September 9, 2021 11:22 am

    Mr. Malone,

    You overemphasize that “enforcing of contracts” angle, given that the term “efficient breach” stems from contract law.

    And we both know that those in power would LOVE patent law to emulate contract law (and hence the term “efficient infringement”).

  • [Avatar for Josh Malone]
    Josh Malone
    September 9, 2021 08:15 am

    Disgusting. I am ashamed for my country where judges have no respect for the rule of law. Enforcing contracts is a core function of the judiciary in civil society. We don’t have that in the U.S. This is sad and terrifying.

  • [Avatar for Anon]
    September 8, 2021 07:18 pm

    At a (very) quick glance, O’Malley is just not correct here — but the blame belongs to Congress for its nigh unlimited provision of power to the Patent Office for the specific point of the institution decision.

    (as I have commented previously – and noting that those comments were contested, with — in my view — a conflation for procedural controls AFTER the institution decision point and that unlimited power TO the institution decision point)

    A further reminder on the power given by Congress at that institution decision point – such is a point of Constitutional weakness in that it is precisely at the institution decision point – and prior to any ensuing decision on the merits – that a taking of a (very valuable) stick in the bundle of property rights of a granted patent occurs: at the moment of that institution decision, the granted property is dragged back into the domain of the (political) Executive Branch administrative agency but has been stripped of the stick of the presence AND the level of the presumption of validity.

    This is a legislative taking with NO recompense to the property holder – violating the Takings provisions of the Constitution (and this applies no matter if one considers the patent property as a “Public Franchise” type of property).

  • [Avatar for Pro Say]
    Pro Say
    September 8, 2021 07:05 pm

    Judge O’Malley Got. This. Right.

    As she explained in great, fully-cited and completely-supported fine detail, it wasn’t a close call.

    Not. Even. Close.

    Why would the majority want to open up yet another can ‘o worms?

    Especially one that they’ll soon enough be eating from?

    Hopefully MaxPower continues their righteous fight for justice.

    They. Were. Robbed.