Contract Drafting
Mutual Confidentiality Agreement
Purpose of the Agreement Was for the Parties to Enter into Discussions
Covenant not to Sue
Forum Selection Clause to Govern Patent and Other Intellectual Property Disputes
Contract Interpretation
Delaware Law
Appeal from the United States District Court for the District of Delaware in No. 1:21-cv-01015-LPS
On June 1, 2020, Nippon Shinyaku and Sarepta Therapeutics, Inc. (“Sarepta”) executed a Mutual Confidentiality Agreement (“MCA”). J.A. 508–16. As stated in the MCA, the purpose of the agreement was for the parties “to enter into discussions concerning the Proposed Transaction,” which the MCA defined as “a potential business relationship relating to therapies for the treatment of Duchenne Muscular Dystrophy.” J.A. 508–09.
The MCA established a “Covenant Term,” which was “the time period commencing on the Effective Date and ending upon twenty (20) days after the earlier of: (i) the expiration of the Term, or (ii) the effective date of termination.” J.A. 509. Section 6 of the MCA contained a mutual covenant not to sue, whereby each party agreed that during the Covenant Term it:
shall not directly or indirectly assert or file any legal or equitable cause of action, suit or claim or otherwise initiate any litigation or other form of legal or administrative proceeding against the other Party . . . in any jurisdiction in the United States or Japan of or concerning intellectual property in the field of Duchenne Muscular Dystrophy. J.A. 512 (MCA § 6.1). Section 6 further stated:
For clarity, this covenant not to sue includes, but is not limited to, patent infringement litigations, declaratory judgment actions, patent validity challenges before the U.S. Patent and Trademark Office or Japanese Patent Office, and reexamination proceedings before the U.S. Patent and Trademark Office . . . . Id. (emphasis added).
As noted, the covenant not to sue was time limited and applied only during the Covenant Term. Id. Importantly, the MCA also included a forum selection clause to govern patent and other intellectual property disputes between the parties after the expiration of the Covenant Term. The forum selection clause in Section 10 of the MCA states in relevant part:
The Parties agree that all Potential Actions arising under U.S. law relating to patent infringement or invalidity, and filed within two (2) years of the end of the Covenant Term, shall be filed in the United States District Court for the District of Delaware and that neither Party will contest personal jurisdiction or venue in the District of Delaware and that neither Party will seek to transfer the Potential Actions on the ground of forum non conveniens. J.A. 513–14 (MCA § 10) (emphases added). “Potential Actions” is defined in Section 1 of the MCA as “any patent or other intellectual property disputes between Nippon Shinyaku and Sarepta, or their Affiliates, other than the EP Oppositions or JP Actions, filed with a court or administrative agency prior to or after the Effective Date in the United States, Europe, Japan or other countries in connection with the Parties’ development and commercialization of therapies for Duchenne Muscular Dystrophy.” J.A. 509 (MCA § 1) (emphases added).
The Covenant Term ended on June 21, 2021, at which point the two-year forum selection clause in Section 10 of the MCA took effect. Yet, on June 21, 2021—the same day the Covenant Term ended—Sarepta filed seven petitions for inter partes review (“IPR”) at the Patent Trial and Appeal Board (“the Board”).
We generally review a denial of a preliminary injunction using the law of the regional circuit, here the Third Circuit. See Murata Mach. USA v. Daifuku Co., 830 F.3d 1357, 1363 (Fed. Cir. 2016) (citing Trebro Mfg., Inc. v. Firefly Equip., LLC, 748 F.3d 1159, 1165 (Fed. Cir. 2014)). “However, the Federal Circuit has itself built a body of precedent applying the general preliminary injunction considerations to a large number of factually variant patent cases, and gives dominant effect to Federal Circuit precedent insofar as it reflects considerations specific to patent issues.” Id. (quoting Trebro, 748 F.3d at 1165). Both the Federal Circuit and the Third Circuit review a denial of a preliminary injunction for abuse of discretion. See id.; see also Adams v. Freedom Forge Corp., 204 F.3d 475, 484 (3d Cir. 2000). Under that standard, we review underlying questions of law de novo. Antares Pharma, Inc. v. Medac Pharma Inc., 771 F.3d 1354, 1357 (Fed. Cir. 2014).
(…) Here, the district court’s finding that Nippon Shinyaku did not show it was likely to succeed on the merits turned entirely on the court’s interpretation of the MCA. The parties agreed that the MCA “shall be governed by and interpreted in accordance with the laws of the State of Delaware.” J.A. 513 (MCA § 10). Therefore, this appeal presents “a question of contract interpretation under Delaware law, which we review de novo.” Studiengesellschaft Kohle, m.b.H. v. Hercules, Inc., 105 F.3d 629, 632 (Fed. Cir. 1997) (citing Cyrix Corp. v. Intel Corp., 77 F.3d 1381, 1384 (Fed. Cir. 1996)); see also Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 474 (1989) (“The interpretation of private contracts is ordinarily a question of state law . . . .”); Howmedica Osteonics Corp. v. Wright Med. Tech., Inc., 540 F.3d 1337, 1347 (Fed. Cir. 2008) (“Construction of a contract is an issue of law that we review without deference.” (citing Intel Corp. v. VIA Techs., Inc., 319 F.3d 1357, 1361 (Fed. Cir. 2003))).
In interpreting a contract, “Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract’s construction should be that which would be understood by an objective, reasonable third party.” Estate of Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting NBC Universal v. Paxson Commc’ns, No. 650-N, 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)). Under Delaware law, we must “read a contract as a whole” and “give each provision and term effect, so as not to render any part of the contract mere surplusage.” Id. (quoting Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396–97 (Del. 2010)). Importantly, “when the contract is clear and unambiguous, we will give effect to the plain-meaning of the contract’s terms and provisions.” Id. at 1159–60 (citing Rhone-Poulenc Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992)).
In this case, the plain language of the forum selection clause in Section 10 of the MCA resolves the dispute. Section 10 states clearly that “all Potential Actions arising under U.S. law relating to patent infringement or invalidity, and filed within two (2) years of the end of the Covenant Term, shall be filed in the United States District Court for the District of Delaware.” J.A. 513–14. The express definition of “Potential Actions” includes “patent or other intellectual property disputes . . . filed with a court or administrative agency,” J.A. 509 (emphasis added), and the district court acknowledged that the “definition of ‘Potential Actions’ in Section 1 literally encompasses IPRs.” Decision, 2021 WL 4989489, at *3. Sarepta does not contend otherwise. The MCA’s forum selection clause is thus unambiguous, and we must “give effect to the plain meaning of its terms.” Estate of Osborn, 991 A.2d at 1159–60.
Under the plain language of Section 10, Sarepta was required to bring all disputes regarding the invalidity of Nippon Shinyaku’s patents—including the allegations and contentions contained in Sarepta’s IPR petitions—in the District of Delaware. Sarepta instead brought those disputes in the form of IPR petitions at the Board, which contravened the plain language of the forum selection clause in Section 10 of the MCA.
We agree with Nippon Shinyaku that there is no conflict or tension between the two sections of the MCA. During the Covenant Term, Section 6 prohibited the parties from “directly or indirectly asserting or filing any legal or equitable cause of action, suit or claim or otherwise initiating any litigation or other form of legal or administrative proceeding . . . of or concerning intellectual property in the field of Duchenne Muscular Dystrophy.” J.A. 512 (MCA § 6.1). In essence, the covenant not to sue broadly prohibited the parties from litigating any issue relating to patents, regardless of the forum. See id. (expressly clarifying that the covenant not to sue includes “patent infringement litigations, declaratory judgment actions, and patent validity challenges before the U.S. Patent and Trademark Office”). Upon the expiration of the Covenant Term, however, Section 6’s covenant not to sue was no longer in effect, and the parties were thus no longer prohibited from asserting claims relating to patent infringement or invalidity. At that point, to the extent either party wished to assert or file any such claims, Section 10’s forum selection clause merely required that such claims “arising under U.S. law relating to patent infringement or invalidity” be filed in “the United States District Court for the District of Delaware.” J.A. 514 (MCA § 10). This framework— which reflects harmony, not tension, between Sections 6 and 10 of the MCA—is entirely consistent with our interpretation of the plain meaning of the forum selection clause, as set forth above.
Sarepta next defends the district court’s reasoning that other language in Section 10 indicates that the forum selection clause is best read as limited only to federal district court litigation. We disagree. To be sure, the district court was correct that issues of patent infringement, forum non conveniens, and jurisdiction challenges are inapplicable to IPR proceedings. See Decision, 2021 WL 4989489, at *3 (citing Sinochem Int’l Co. v. Malay. Int’l Shipping Corp., 549 U.S. 422, 430 (2007); AVX Corp. v. Presidio Components, Inc., 923 F.3d 1357, 1361 (Fed. Cir. 2019)). But it does not follow that the parties’ inclusion of those issues in the forum selection clause means that they intended to categorically exclude IPRs. We think the better reading of Section 10 recognizes the parties’ agreement that, after one party files an action relating to patent infringement or invalidity in the District of Delaware—as a filing party is required to do—the other party will not “contest personal jurisdiction or venue in the District of Delaware” or “seek to transfer . . . on the ground of forum non conveniens.” J.A. 514.
Finally, Sarepta argues that the district court correctly determined that neither party intended to bargain away its right to file IPR petitions, which, due to the time bar in 35 U.S.C. § 315(b), would be the practical effect of our reading of the forum selection clause. Again, we disagree with Sarepta and the district court. As a general principle, this court has recognized that parties are entitled to bargain away their rights to file IPR petitions, including through the use of forum selection clauses. For example, in Dodo- case VR, Inc. v. MerchSource, LLC, 767 F. App’x 930, 935 (Fed. Cir. 2019) (non-precedential), we affirmed a district court’s grant of a preliminary injunction on the basis that a defendant had likely violated a forum selection clause by filing IPR petitions, even though the forum selection clause did not explicitly mention IPRs. Even in Kannuu Pty Ltd. v. Samsung Electronics Co., 15 F.4th 1101, 1106–10 (Fed. Cir. 2021), where we determined that the parties’ forum selection clause did not extend to IPRs, that determination was based on the specific language in the forum selection clause at issue in that case. Inherent in our holding in Kannuu was an understanding that a differently worded forum selection clause would preclude the filing of IPR petitions. See id. In the case before us now, we have such a forum selection clause, which uses a defined term that the district court acknowledged “literally encompasses IPRs.” Decision, 2021 WL 4989489, at *3.
We conclude as a matter of law that the forum selection clause in Section 10 of the MCA precludes the filing of IPR petitions during the two-year period following the expiration of the Covenant Term on June 21, 2021. Because Sarepta filed IPR petitions during that time in violation of the forum selection clause in Section 10, Nippon Shinyaku is likely to succeed on the merits of its claim for breach of contract.
(U.S. Court of Appeals for the Federal Circuit, Feb. 8, 2022, Nippon Shinyaku Co., LTD. v. Sarepta Therapeutics, Inc., Docket No. 2021-2369, Circuit Judge Lourie)
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