“[The Ninth Circuit found that] Guest-Tek voluntarily bargained away its right to have the USPTO adjudicate patent validity by agreeing to a forum selection clause that included no carveouts for other fora like the USPTO where certain disputes relating to the license agreement could be adjudicated.”
On September 3, the U.S. Court of Appeals for the Ninth Circuit issued a pair of decisions in Nomadix, Inc. v. Guest-Tek Interactive Entertainment Ltd. on appeal from a grant of permanent injunction entered by the Central District of California. In one decision, the Ninth Circuit affirmed injunctive relief preventing Guest-Tek from filing petitions for patent validity trials at the Patent Trial and Appeal Board (PTAB) in violation of a forum selection clause in Guest-Tek’s licensing agreement with Nomadix. In the other decision, the Ninth Circuit vacated portions of an attorneys’ fees award to Nomadix that covered the legal costs incurred by Nomadix during Guest-Tek’s PTAB petitions.
Permanent Injunction Secured Nomadix’s Whole Rights Under Forum Selection Clause
The present appeal stems from a lawsuit filed by Nomadix in Central California seeking injunctive relief against Guest-Tek preventing the company from challenging Nomadix patents at the PTAB. In a decision issued last April, U.S. District Judge André Birotte Jr. granted Nomadix’s motion for permanent injunction after a January ruling that found that Guest-Tek had violated a licensing agreement with Nomadix, which it entered into in 2010 to settle patent infringement claims filed by Nomadix at that time, by filing PTAB petitions for inter partes review (IPR) proceedings challenging Nomadix’s patents.
The 2010 licensing agreement included a forum selection clause providing that “all disputes arising out of or in connection with this Agreement shall be brought in the United States District Court for the Central District of California[.]” In determining that Nomadix demonstrated that money damages didn’t afford adequate relief, Judge Birotte Jr. noted that “[a]lthough money damages may compensate Nomadix for its litigation expenses in the PTAB, such damages would not secure to Nomadix its whole rights under the forum selection clause to litigate patent validity” in the Central District of California.
Patent Validity Disputes Have ‘Logical or Causal Connection’ to License Agreement
On appeal, the Ninth Circuit found particular significance in the portion of the forum selection clause stating that disputes “in connection with” the license agreement should be adjudicated in Central California. Citing its own precedent in Sun v. Advanced China Healthcare (2018), the Ninth Circuit noted that such language typically covers disputes that have some “logical or causal connection” to the agreement. The appellate court found such a causal connection between Guest-Tek’s PTAB petitions and the license agreement as any dispute on patent validity affects Guest-Tek’s obligation to pay royalties under the agreement.
Guest-Tek argued that the PTAB proceedings do not have a connection with the license agreement as contract analysis is outside of the purview of IPRs, which are limited to issues of patent validity. However, the Ninth Circuit found that this misconstrued the relevant question, which was whether a dispute on patent validity had a logical or causal connection to the agreement. The Ninth Circuit came to a similar conclusion on Guest-Tek’s contention that the PTAB proceedings had no causal connection to the present lawsuit and thus weren’t covered by the forum selection clause.
Intervening Enactment of AIA to Create PTAB Doesn’t Aid Guest-Tek’s Appeal
Guest-Tek had further argued in this appeal that the forum selection clause could not cover PTAB proceedings as the license agreement was entered into prior to enactment of the America Invents Act (AIA) of 2011, which established the PTAB and IPR proceedings. In dismissing these arguments, the Ninth Circuit noted that the U.S. Patent and Trademark Office did conduct other post-grant patent validity proceedings, such as inter partes reexamination. “If the parties had agreed, they could have carved out an exception preserving Guest-Tek’s right to challenge the validity of Nomadix’s patents before bodies like the PTO, but they did not,” the Ninth Circuit found. Even assuming that Congress intended that the USPTO have primacy over patent validity issues by passage of the AIA, Guest-Tek voluntarily bargained away its right to have the USPTO adjudicate patent validity by agreeing to a forum selection clause that included no carveouts for other fora like the USPTO where certain disputes relating to the license agreement could be adjudicated.
Guest-Tek’s appeal of the permanent injunction also raised an argument that Judge Birotte improperly applied California law on injunctive relief rather than federal law. However, the Ninth Circuit found that Nomadix satisfied either standard. First, Nomadix demonstrated actual success on the merits by showing that Guest-Tek’s PTAB proceedings violated the forum selection clause. Nomadix demonstrated irreparable injury and inadequate legal remedies as PTAB decisions on validity would have permanently deprived the company of the ability to defend patent validity in district court. The balance of hardships favored Nomadix as Guest-Tek remains able to pursue validity disputes in Central California. Finally, the public interest factor weighed in favor of Nomadix due to the strong federal policy in favor of enforcing forum-selection clauses. Analogous factors under California law, especially those regarding irreparable injury and inadequate legal remedies, meant that Nomadix rightly prevailed under Judge Birotte’s analysis as well.
In its second decision, the Ninth Circuit ended up trimming a $1 million attorneys’ fees award to Nomadix in large part because the attorney’s fees provision in the 2010 licensing agreement was limited to federal district court and state superior court proceedings. While Nomadix was the prevailing party in the breach of contract suit and was “entitled to reimbursement by the losing Party for any and all legal fees incurred” for that action, the PTAB proceedings were outside of the clear and explicit meaning of the attorneys’ fees provision. Although the Ninth Circuit did uphold the grant of attorneys’ fees to Nomadix for an earlier unsuccessful motion for preliminary injunction, as Nomadix was ultimately the prevailing party of the entire suit, the appellate court also undid portions of the award that covered time spent by Nomadix’s in-house counsel to act as “corporate liaison” as fees spent on in-house counsel are only recoverable when such counsel actively participates in the case. The Ninth Circuit then remanded the attorneys’ fees award to Central California for recalculation of the award in accordance with the ruling.