Courts Will Enforce Agreements Not to Challenge Patents at the Patent Office

Wednesday, March 28, 2018

On March 23, 2018, a United States District Court enforced a “no-challenge” clause in a patent license agreement that prohibited the licensee from challenging the licensed patents at the U.S. Patent Office. The court ordered the licensee to file motions with the Patent Office withdrawing its petitions for inter partes review of the licensed patents, among other things.  Dodocase VR, Inc. v. MerchSource, LLC, No. 17-cv-07088-EDL (N.D. Cal. Mar. 23, 2018).

Historically, courts would not allow patent licensees to challenge a patent’s validity. They reasoned that licensees shouldn’t be able to challenge validity on the one hand, while simultaneously enjoying a patent license’s benefits on the other hand. Hence, licensee estoppel.

In 1969, however, the Supreme Court overruled the licensee-estoppel doctrine. Per the Court, public policy favored eliminating invalid patents from the patent rolls, and application of the licensee-estoppel doctrine would be inconsistent with that policy.

As a result, patent owners began including “no-challenge” clauses in their patent license agreements. Under typical no-challenge clauses, the licensee agrees not to challenge a patent’s validity through the courts or administrative agencies, such as the Patent Office.

Courts have generally enforced no-challenge clauses vis-à-vis court challenges, as long as the clauses are unambiguous, and entered into as part of an agreement to settle litigation.

But the Patent Office hasn’t been as receptive. To that end, on September 16, 2011, the America Invents Act became law. Under the AIA, anyone (except Patent Owners) can petition the Patent Office to review a patent’s validity via post-grant proceedings. But suppose a party seeking to challenge a patent through the Patent Office previously agreed it would not?

It seems the Patent Office will review a patent’s validity anyway. At least that’s what the Patent Office did in a 2015 decision. There, despite a patent-license agreement with a no-challenge clause, the Patent Office allowed the licensee to challenge the licensed patents via a petition for inter partes review. In granting the licensee’s petition, the Patent Office pointed out that Congress didn’t provide explicit statutory grounds for denying post-grant review on the basis of private contracts. Dot Hill Sys. Corp. v. Crossroads Sys., Inc., IPR2015-00922, No. 18 (P.T.A.B. Sep. 17, 2015).

The takeaway? Butzel clients looking to monetize their patents through licensing programs should always include a “no-challenge” clause in their license agreements. In addition, the license agreement should include a forum-selection clause that specifies a venue in which the parties must proceed if disagreements about the parties’ duties under the license agreement arise. Finally, if a patent licensee nevertheless attempts to challenge the licensed patents through the Patent Office, don’t rely on the Patent Office to enforce the no-challenge clause. Instead, we recommend filing a lawsuit in the pre-selected venue, and asking the Court to enjoin the licensee from proceeding at the Patent Office.

George Schooff

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