CAFC Says Forum Selection Clause in NDA Does Not Apply to Inter Partes Review

The U.S. Court of Appeals for the Federal Circuit (CAFC) today held in a precedential decision authored by Judge Chen that a non-disclosure agreement’s (NDA’s) forum selection clause barring lawsuits to be brought outside of the New York court system did not apply to inter partes review (IPR) proceedings at the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB). Judge Newman dissented.

Kannuu Pty Ltd. appealed to the CAFC asking that the court compel Samsung Electronics to seek dismissal of its instituted IPR proceedings at the PTAB seeking to invalidate Kannuu’s patents. Kannuu’s appeal was based on the terms of an NDA entered into between the companies during business negotiations in 2012. The NDA included a forum selection clause that read in part:

Any legal action, suit, or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby must be instituted exclusively in a court of competent jurisdiction, federal or state, located within the Borough of Manhattan, City of New York, State of New York and in no other jurisdiction.

No deal was ever struck, and in 2019, Kannuu sued Samsung for patent infringement and breach of the NDA. Samsung responded by filing IPRs asserting all claims of the asserted patents were unpatentable, and Kannuu argued that the IPRs should not be instituted because they violated the forum selection clause. However, the PTAB instituted review on two of the patents. Kannuu then filed a motion for preliminary injunction with the district court seeking to compel Samsung to request dismissal of the instituted IPRs, but the district court denied the motion.

CAFC: NDA Doesn’t Include Patent Rights

In finding that the district court did not abuse its discretion when it denied the motion, the CAFC explained that the proper interpretation of the NDA, under New York law, resulted in the conclusion that “the inter partes review proceedings ‘do not ‘relat[e] to’ the Agreement or transactions contemplated under it.’” As the district court explained, “the Agreement implicates confidentiality and not the intellectual property rights of the parties.”  The CAFC elaborated:

The connection between the two—the inter partes review proceedings and the NDA—is too tenuous for the inter partes review proceedings to be precluded by the forum selection clause in the NDA, which is a contract directed to maintaining the confidentiality of certain disclosed information, and not related to patent rights.

The CAFC dismissed Kannuu’s attempts to connect the NDA to the IPRs, including its attempt to use NuCurrent, Inc. v. Samsung Electronics Co. to preclude Samsung from arguing that the NDA clause should be read narrowly in this case. In NuCurrent, the district court transferred the case, at Samsung’s request, finding that the NDA’s forum selection clause applied to NuCurrent’s trade secret misappropriation and willful patent infringement claims. But the CAFC distinguished the case, explaining:

At the district court in NuCurrent, Samsung argued that the allegations of trade secret misappropriation and the willful nature of patent infringement were related to the NDA because they were premised on the disclosure of the confidential information covered by the NDA. See NuCurrent, 2018 WL 7821099, at *7. This position is not contrary to that which Samsung takes here, that is, that the NDA between itself and Kannuu is not related to patent validity disputes at the Board.

Kannuu’s final argument, that evidence in might present in the IPRs of Samsung’s copying means the IPRs must fall within the scope of the NDA, was also unpersuasive. “The connection here—namely the mere possibility of some factual relevancy between the allegations of breach of the NDA and potential evidence in the inter partes review—is too attenuated to place the inter partes review petitions within the scope of an agreement that was always about protecting confidential information and was never about patent rights,” said the court.

Newman: No Carve-Out for PTAB

Judge Pauline Newman dissented, arguing that “the forum selection clause is clear and unambiguous, and law and precedent require that it be respected and enforced.” Citing from the language of the NDA and the oral argument at the CAFC, Newman said that Samsung appears to agree that the patent issues are subject to the forum selection clause and that the majority’s reasoning that the Agreement must be a patent license to apply to claims of patent invalidity was not proposed by either party. She said that “Federal Circuit precedent has consistently enforced forum selection clauses on principles of contract law,” and that “[i]t cannot reasonably be argued that Kannuu and Samsung intended and agreed to carve-out the PTAB for determination of patent validity.”

Newman has dissented before on the topic of the relevance of forum selection clauses to the PTAB, and both the CAFC and other circuit courts of appeal have been grappling with the issue lately.

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