Do Private Arbitration Agreements Undermine Public Policy?

With Congress considering “encouraging” stays of patent litigation pending concurrent PTAB review, licensors may begin to look to contractual  mechanisms to avoid a PTAB filing altogether.  The strategy is not unprecedented, and may provide a way for district courts to enjoin the agency from moving forward with AIA trials.

But, should private agreements thwart mechanisms designed to remove improvidently granted patent monopolies?

Last month, the Federal Circuit explored the issue.

Over a partial dissent by Judge O’Malley, the Federal Circuit denied MaxPower Semiconductor, Inc.’s appeal and petition for writ of mandamus regarding the Patent Trial and Appeal Board’s (“PTAB’s”) decision to institute inter partes review (“IPR”).  The petitions, brought by ROHM Semiconductor USA, LLC, were directed to four of MaxPower’s patents despite a private agreement limiting potential forums to arbitration. (here)

Judge O’Malley concurred in the dismissal of MaxPower’s direct appeals of the IPRs because 35 U.S.C. § 314(d) makes the decision to institute an IPR final and nonappealable.  However, she strongly dissented from the majority’s denial of the mandamus petition.  Judge O’Malley described that denial as creating a “new caveat” to 35 U.S.C. § 294, “cast[ing] a shadow over all agreements to arbitrate patent validity,” and being “inconsistent with the statutory text and Supreme Court precedent,” on what she characterized as an “important issue of first impression.”

Judge O’Malley argued that mandamus was warranted because “[t]his case provides exactly the sort of extraordinary circumstances under which mandamus review is appropriate.” First, she argued that MaxPower had a “clear and indisputable legal right” to enforce the parties’ arbitration agreement.  As Judge O’Malley stated, 35 U.S.C. § 294(a) makes any agreement to arbitrate patent validity “valid, irrevocable, and enforceable.” Furthermore, the Supreme Court has repeatedly stated that federal policy under 9 U.S.C. § 2 (the Federal Arbitration Act or “FAA”) favors arbitration, and any doubts should be resolved in favor of arbitration.

Judge O’Malley also argued that MaxPower had “no other adequate method of obtaining relief” other than a writ of mandamus. First, Judge O’Malley stated that the majority’s assertion that MaxPower could seek a writ of mandamus after the Board’s final written decision was insufficient because that “would be too little, too late” since, “[a]t that point, the harm will have been done.” Second, the majority’s suggestion that MaxPower could seek an injunction to prevent the IPRs from proceeding was also unavailing because, among other reasons, there is no reason why a “district court overseeing an infringement case would have to compel the Board to halt its proceedings over MaxPower’s patents’ validity.”  Yet, history has shown that there are courts willing to enjoin the agency on such issues.

Finally, Judge O’Malley argued that “MaxPower has shown that a writ of mandamus is appropriate under the circumstances.” She stated that denying mandamus “vitiates” the parties’ arbitration agreement.   And holding that § 294 does not apply to IPR allows parties subject to arbitration agreements “to avoid their responsibilities under those agreements despite the strong federal policy of enforcing arbitration agreements.”  But the public policy of removing improvidently granted patents is just as important, and could be argued to trump private agreements that seek to shield patents from review by the expert agency.

Going forward—and in view of proposed legislation—licensors will certainly be looking to box out the PTAB by private agreement in the hopes that any petition filing can be enjoined.