Judge O’Malley Dissents from the Majority on the Enforceability of Arbitration Agreements in IPR Proceedings

Rothwell, Figg, Ernst & Manbeck, P.C.
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Last month, in the case In re: MaxPower Semiconductor, Inc., the Court of Appeals for the Federal Circuit (“the CAFC”) dismissed an appeal by MaxPower Semiconductor, Inc. (“MaxPower”) of four determinations to institute inter partes review (“IPR”) of four of MaxPower’s patents. The majority’s brief opinion states that a decision to institute an IPR is “nonappealable” under 35 U.S.C. 314(d) and rejects MaxPower’s invocation of the collateral order doctrine. The CAFC also denied MaxPower petition for a writ of mandamus because “MaxPower has not shown that the facts of this case support an exception to the nonappealability of institution decisions and unavailability of mandamus relief.” However, Judge O’Malley’s partial dissent raises questions of the enforceability of arbitration agreements before the Patent Trial and Appeal Board (“the Board”).

Background

In 2007, ROHM Japan and MaxPower entered a technology license agreement (“TLA”). The TLA was amended in 2011 to include an agreement to arbitrate “[a]ny dispute, controversy, or claim arising out of or in relation to this Agreement or at law, or the breach, termination, or validity thereof.” Following a dispute between the parties, MaxPower notified ROHM Japan of its intent to initiate arbitration. ROHM Semiconductor USA (“ROHM USA”), a wholly owned subsidiary of ROHM Japan, responded by filing a complaint in the Northern District of California for declaratory judgment of noninfringement of four MaxPower patents, and additionally filed four IPR petitions concerning those same patents.

The Northern District of California, in a one page order, dismissed the case and compelled ROHM USA to arbitrate. By contrast, the Board instituted the four IPR petitions, holding that “the arbitration clause is not a reason to decline institution.” MaxPower appealed and also sought a writ of mandamus, asking the CAFC to stay or terminate the IPR review without prejudice if an arbitrator determines that IPR proceedings are appropriate.

Judge O’Malley concurred with respect to the dismissal of the IPR appeals. However, on the issue of the writ of mandamus, she dissented.

Judge O’Malley’s Partial Dissent

A writ of mandamus requires MaxPower to:

  1. show it has a clear and indisputable legal right;
  2. show it does not have any other adequate method of obtaining relief; and
  3. convince the court that the writ is appropriate under the circumstances.

1) “A clear and indisputable legal right”

On this point, Judge O’Malley refers to 35 U.S.C. 294(a), which states that arbitration provisions relating to patent validity “shall be valid, irrevocable, and enforceable, except for any grounds that exist at law or in equity for revocation of a contract.” The partial dissent cites to the Supreme Court’s “repeated pronouncements” that favor a “liberal federal policy” on arbitration agreements under the Federal Arbitration Act (“the FAA”). Judge O’Malley notes that the Board resolved doubts about the applicability of arbitration provisions against arbitration, not in favor of it. While there are no cases addressing whether section 294 applies to IPRs, Judge O’Malley reasons that cases considering the FAA indicate section 294 should apply to IPR proceedings. She holds up two Supreme Court cases, EEOC v. Waffle House, Inc., 534 U.S. 279 (2002) and Preston v. Ferrer, 552 U.S. 3466 (2008) as indicating that the FAA (and therefore section 294) apply to prevent institution of agency proceedings initiated by a party to an arbitration agreement.

2) “No other avenue for adequate relief”

A writ of mandamus is “the only way to prevent reviews from proceeding” because the CAFC has determined that section 314(d) precludes an appeal of the Board’s grant of institution. Forcing MaxPower to defend its patents through multiple IPRs “denies MaxPower the benefit of any agreement to arbitrate validity.” While the arbitrator’s invalidity determinations bind only the parties to the arbitration, the Board’s finding of a claim’s invalidity cancels the claim for all parties. Judge O’Malley looks to Congress’s intent in enacting section 294, which was to assure contracting parties “that they could avail themselves of the numerous advantages of arbitration without the possibility of having to reargue the dispute in court.” While ROHM USA argues that MaxPower could still raise its arguments under section 294 after the IPR reviews, Judge O’Malley counters that the harm will already have been done by that point. “Any writ this court issued after a final decision would be too little, too late.”

3) “Mandamus is appropriate”

On the final point, Judge O’Malley states: “Permitting ROHM to avoid arbitration nearly vitiates any agreement to arbitrate disputes over patent validity.” The dissent further notes the strange case of a patent challenger being able to bring an IPR that raises the same validity issues a district court would dismiss in light of an arbitration clause.

The partial dissent concludes that the majority’s decision goes against what Congress and the Supreme Court have clearly voiced regarding the enforceability of arbitration agreements, and that the majority’s decision puts MaxPower in the position of having to argue for the enforcement of its arbitration agreement and the validity of its patents in multiple tribunals. While Judge O’Malley’s partial dissent did not sway the majority, both patentees and patent challengers should take notice of differing opinions at the CAFC on the enforceability of arbitration agreements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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