Dodocase Vr, Inc. v. Merchsource, LLC ( 2019 )

NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
DODOCASE VR, INC., FKA DODOCASE, INC., DDC
TECHNOLOGY, LLC,
Plaintiffs-Appellees
v.
MERCHSOURCE, LLC, DBA SHARPER IMAGE,
Defendant-Appellant
THREESIXTY BRANDS GROUP, LLC, DBA
SHARPER IMAGE,
Defendant
______________________
2018-1724
______________________
Appeal from the United States District Court for the
Northern District of California in No. 3:17-cv-07088-EDL,
Magistrate Judge Elizabeth D. Laporte.
______________________
Decided: April 18, 2019
______________________
GABRIEL I. OPATKEN, NOBLE IP LLC, Chicago, IL, ar-
gued for plaintiffs-appellees. Also represented by TIMOTHY
J. HALLER, Haller Law PLLC, Chicago, IL.
KYLE BRADFORD FLEMING, Renner Otto, Cleveland,
2 DODOCASE VR, INC. v. MERCHSOURCE, LLC
OH, argued for defendant-appellant. Also represented by
MARK JOHNSON.
_____________________
Before PROST, Chief Judge, REYNA and STOLL,
Circuit Judges.
PROST, Chief Judge.
MerchSource, LLC (“MerchSource”) appeals the
United States District Court for the Northern District of
California’s order granting Dodocase VR, Inc.’s (“Dodo-
case”) motion for preliminary injunction and ordering
MerchSource to attempt to withdraw three PTAB petitions
it filed and attempt to dismiss the PTAB proceedings. Hav-
ing considered the parties’ arguments, we affirm the dis-
trict court’s grant of the preliminary injunction. We
remand, however, for the district court to modify the pre-
liminary injunction order with new deadlines by which to
take the ordered actions.
I
Dodocase was the original owner of U.S. Patent Nos.
9,420,075 (“the ’075 patent”); 9,723,117 (“the ’117 patent”);
and 9,811,184 (“the ’184 patent”), generally related to vir-
tual reality headsets. MerchSource is a distributor of con-
sumer products, including virtual reality headsets. On
October 4, 2016, Dodocase and MerchSource entered into a
Master License Agreement (“MLA”) covering the ’075, ’117,
and ’184 patents. J.A. 430–36. The MLA included a no-
challenge clause and a forum selection clause, reproduced
below:
6.4 MerchSource shall not (a) attempt to challenge
the validity or enforceability of the Licensed IP; or
(b) directly or indirectly, knowingly assist any
Third Party in an attempt to challenge the validity
or enforceability of the Licensed IP except to com-
ply with any court order or subpoena.
DODOCASE VR, INC. v. MERCHSOURCE, LLC 3
....
13.4 The laws of the State of California shall
govern any dispute arising out of or under this
Agreement, notwithstanding the conflict of laws
principles of the State of California . . . THE
PARTIES AGREE THAT THE SUBJECT
MATTER AND PERSONAL JURISDICTION ARE
PROPER IN THE COURTS LOCATED IN SAN
FRANCISCO COUNTY OR ORANGE COUNTY,
CALIFORNIA AND THAT DISPUTES SHALL BE
LITIGATED BEFORE THE COURTS IN SAN
FRANCISCO COUNTY OR ORANGE COUNTY,
CALIFORNIA.
J.A. 432 § 6.4; J.A. 435 § 13.4.
On October 5, 2017, MerchSource informed Dodocase
that MerchSource would no longer pay royalties under the
MLA because it believed that all relevant patent claims
were invalid. On December 13, 2017, Dodocase filed a com-
plaint against MerchSource in the Northern District of Cal-
ifornia seeking an injunction to prevent MerchSource from
breaching the MLA and infringing the patents and a de-
claratory judgment that the patents were valid and en-
forceable. J.A. 65–84.
On January 15, 2018, MerchSource filed petitions re-
questing inter partes review (“IPR”) of the ’075 patent and
post grant review (“PGR”) of the ’117 and ’184 patents (col-
lectively, “the PTAB petitions”).
On February 14, 2018, Dodocase filed an amended com-
plaint adding supplemental allegations that MerchSource
further breached the MLA’s no-challenge and forum selec-
tion clauses by filing the PTAB petitions. Shortly thereaf-
ter, Dodocase filed a motion for a temporary restraining
order and preliminary injunction requesting that the dis-
trict court order MerchSource to withdraw the PTAB peti-
tions.
4 DODOCASE VR, INC. v. MERCHSOURCE, LLC
On March 23, 2018, the district court granted Dodo-
case’s motion for preliminary injunction. Dodocase VR,
Inc. v. MerchSource, LLC, No. 17-CV-07088-EDL, 2018 WL
1456718, at *14 (N.D. Cal. Mar. 23, 2018). 1 The district
court held that Dodocase was likely to succeed on the mer-
its of its claim that MerchSource breached the forum selec-
tion clause when it filed its PTAB petitions. Dodocase,
2018 WL 1475289, at *5–10. 2 The district court also held
that Dodocase established the other three requirements for
a preliminary injunction. Id. at *11–12. The preliminary
injunction ordered MerchSource to “(1) send the email to
the PTAB by Sunday March 25, 2018 requesting a confer-
ence call to facilitate the withdrawal of the PTAB Petitions,
and (2) if the PTAB grants permission to file motions to
dismiss the petitions, then file the motions by 12:00 p.m.
on April 3, 2018.” Id. at *14.
On March 26, 2018, MerchSource filed a notice of ap-
peal with this court. See ECF No. 1. The next day,
MerchSource filed an Emergency Motion for Stay, request-
ing a stay of the district court’s preliminary injunction or-
der instructing MerchSource to attempt to withdraw the
PTAB petitions pending this appeal. See ECF No. 4.
MerchSource’s Emergency Motion for Stay was temporar-
ily granted on March 28, 2018. ECF No. 6. After the
1 On March 26, 2018, the district court entered an
amended order on the preliminary injunction, which was
essentially identical to the March 23, 2018 order, except for
the location of a case citation. Dodocase VR, Inc. v.
MerchSource, LLC, No. 17-CV-07088-EDL, 2018 WL
1475289 (N.D. Cal. Mar. 26, 2018).
2 The district court rejected Dodocase’s argument
that it was likely to prevail on the merits of its claim that
MerchSource also breached the no-challenge clause, but
that is not at issue in this appeal. See id. at *4–5.
DODOCASE VR, INC. v. MERCHSOURCE, LLC 5
Emergency Motion for Stay was fully briefed, it was
granted on April 25, 2018. ECF No. 22.
With the district court’s preliminary injunction stayed,
the PTAB proceedings were allowed to continue. On Au-
gust 22, 2018, the PTAB instituted IPR of the ’075 patent
(IPR2018-00494) and PGR of the ’117 patent (PGR2018-
00019) and ’184 patent (PGR2018-00020). The PTAB pro-
ceedings have continued to progress, and the PTAB is ex-
pected to issue its final written decisions in August 2019.
On October 16, 2018, Dodocase sold and assigned the
three licensed patents to DDC Technology, LLC (“DDC”).
On March 7, 2019, MerchSource filed a Motion and Obser-
vation of Mootness, ECF No. 54 (“Motion”) in this court. In
it, MerchSource argues that because Dodocase assigned
the rights in the patent to DDC who became the patent
owner in the PTAB proceedings, the preliminary injunction
and the appeal of the preliminary injunction are moot. Mo-
tion at 5–6. On March 18, 2019, Dodocase filed its response
to MerchSource’s Motion, ECF No. 57 (“Response”), argu-
ing that the case was not moot because DDC “filled the
shoes of” Dodocase. Response at 4, 13–14. MerchSource
filed its reply on March 22, 2019, ECF Nos. 61, 62 (“Reply”).
We have jurisdiction pursuant to 28 U.S.C.
§§ 1292(c)(1) and 1295(a)(1).
II
We review a grant of a preliminary injunction for an
abuse of discretion. Abbott Labs. v. Sandoz, Inc., 544 F.3d
1341, 1345 (Fed. Cir. 2008) (citing Doran v. Salem Inn, Inc.,
422 U.S. 922, 931–32 (1975)).
“A plaintiff seeking a preliminary injunction must es-
tablish that he is likely to succeed on the merits, that he is
likely to suffer irreparable harm in the absence of prelimi-
nary relief, that the balance of equities tips in his favor,
and that an injunction is in the public interest.” Winter v.
Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008).
6 DODOCASE VR, INC. v. MERCHSOURCE, LLC
The district court’s order granting Dodocase’s motion
for preliminary injunction also presents an issue of inter-
preting the MLA. “General contract interpretation is not
within the exclusive jurisdiction of the Federal Circuit.”
Texas Instruments Inc. v. Tessera, Inc., 231 F.3d 1325, 1329
(Fed. Cir. 2000). The Supreme Court has held that “the
interpretation of private contracts is ordinarily a question
of state law.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland
Stanford Junior Univ., 489 U.S. 468, 474 (1989). Further-
more, the governing law clause states that “[t]he laws of
the State of California shall govern any dispute arising out
of or under this Agreement . . . .” J.A. 435 § 13.4. We there-
fore apply California state law to interpret the MLA. Un-
der California state law, contracts are interpreted without
deference on appeal. See Texas Instruments, 231 F.3d
at 1329.
III
We first address MerchSource’s appeal of the district
court’s grant of Dodocase’s motion for preliminary injunc-
tion.
As to the likelihood of success on the merits element,
the district court found that Dodocase was likely to succeed
on its claim that MerchSource filed the PTAB petitions in
violation of the forum selection clause of the MLA. Dodo-
case, 2018 WL 1475289, at *5–10. The key issue before the
district court and on appeal is whether the forum selection
clause extends to PTAB proceedings. The district court in-
terpreted the forum selection clause of the MLA to cover
PTAB proceedings. Id. at *7–8.
The forum selection clause of the MLA states that
“[t]he laws of the State of California shall govern any dis-
pute arising out of or under this Agreement.” J.A. 435
§ 13.4 (emphasis added). The district court identified the
relevant question as whether the PTAB petitions consti-
tute a “dispute” that “aris[es] out of or under” the MLA.
Dodocase, 2018 WL 1475289, at *7.
DODOCASE VR, INC. v. MERCHSOURCE, LLC 7
On appeal, MerchSource argues that PTAB challenges
do not “aris[e] out of or under” the MLA and that, therefore,
the forum selection clause does not cover PTAB proceed-
ings. Appellant’s Br. 12–21. Specifically, MerchSource ar-
gues that a PTAB challenge “does not arise from or out of
the MLA; does not depend on the MLA; does not require
any analysis, construction, interpretation or enforcement
of the MLA; and, simply stated, does not relate to the
MLA.” Id. at 12. MerchSource argues that Dodocase “dis-
tort[s] the inquiry” from the correct question of “whether
the dispute brought on by MerchSource—a dispute over the
validity of the DODOCASE Patents—arises out of or under
the MLA.” Appellee’s Br. 12; see also id. at 19.
We have previously interpreted a governing law clause
with similar language. See Texas Instruments, 231 F.3d
at 1331. The governing law clause in Texas Instruments
lists “disputes, controversies, claims or difference[s] which
may arise from, under, out of or in connection with this
Agreement.” Id. (emphasis added). In Texas Instruments,
we explained that:
the governing law clause of the license agreement
is not limited to license related issues such as the
amount of royalty due, term of agreement, and
cross-licensing. . . . Patent infringement disputes
do arise from license agreements. There may be an
issue, as here, of whether certain goods are covered
by the licensed patents; or the licensee may elect to
challenge the validity of the licensed patents.
Thus, the governing law clause in the present case,
as in any patent license agreement, necessarily co-
vers disputes concerning patent issues.
See id. (citations omitted). Applying California law, we
found that the forum selection clause at issue, which used
the language “arise from, under, out of or in connection
with this Agreement,” encompassed ITC proceedings initi-
ated after the license agreement was executed. See id.
8 DODOCASE VR, INC. v. MERCHSOURCE, LLC
at 1331–32. Here, the district court did not err in conclud-
ing that the language of the forum selection clause of the
MLA, which used similar language, “arising out of or under
this Agreement,” encompassed PTAB proceedings. 3
We therefore affirm the district court’s holding on the
first preliminary injunction requirement that Dodocase
was likely to succeed on the merits of its claim that
MerchSource violated the forum selection clause of the
MLA by filing the PTAB petitions.
Turing to the second requirement, irreparable harm,
Dodocase argued at the district court that it would be ir-
reparably harmed without an injunction because it would
be forced to litigate on multiple fronts (PTAB and district
court) and would be deprived of its bargained-for forum.
Dodocase, 2018 WL 1475289, at *11. MerchSource argues
on appeal that there is no irreparable harm in a patent
owner having to defend its patents before the PTAB. See
Appellant’s Br. 28–33. The district court evaluated the al-
leged harm to Dodocase, including the hardships “manifest
in the need to defend a challenged patent on multiple fronts
at the same time” and the fact that Dodocase was a small
company with limited employees and resources, and deter-
mined that Dodocase established that it would be irrepara-
bly harmed in the absence of an injunction. See Dodocase,
3 At oral argument, MerchSource asserted that
Texas Instruments was distinguishable because the lan-
guage in the Texas Instruments agreement also included
“in connection with,” making it broader than the language
in the MLA in this case. See Oral Argument at 9:56–10:51,
12:49–13:21, Dodocase VR, Inc. v. MerchSource, LLC
(No. 2018-1742), http://www.cafc.uscourts.gov/oral-argu-
ment-recordings. This minor distinction does not make the
reasoning in Texas Instruments interpreting very similar
language any less applicable to this case.
DODOCASE VR, INC. v. MERCHSOURCE, LLC 9
2018 WL 1475289, at *11. The district court did not abuse
its discretion in evaluating irreparable harm.
The third requirement for a preliminary injunction is
that the balance of the equities tips in the movant’s favor.
The district court weighed the alleged harm to Dodocase,
described above, against the alleged harm to MerchSource,
specifically MerchSource’s contention that the requested
injunctive relief of withdrawing the PTAB petitions and
moving to dismiss the PTAB proceedings would result in
their inability to ever pursue PTAB review because of the
one-year time bar of 35 U.S.C. § 315(b). Id. at *11–12. On
appeal, MerchSource raises the same alleged harm of being
barred from refiling because of the one-year statutory bar
of § 315(b). Appellant’s Br. 34. While we acknowledge
MerchSource’s concern, we find that the district court did
not abuse its discretion in determining that the balance of
hardships tipped in favor of granting the preliminary in-
junction.
On the final requirement, whether the preliminary in-
junction is in the public interest, the district court noted
the public interest in enforcing contractual rights and obli-
gations. See Dodocase, 2018 WL 1475289, at *12. The dis-
trict court also considered the fact that MerchSource would
be able to challenge the validity of the patents in the dis-
trict court and that independent third parties could initiate
separate PTAB proceedings as relevant to the public inter-
est analysis. See id. The district court did not abuse its
discretion in determining that the public interest sup-
ported granting a preliminary injunction.
We have considered MerchSource’s remaining argu-
ments and find them unpersuasive. We conclude that the
district court did not abuse its discretion in granting a pre-
liminary injunction on this record. We therefore affirm the
district court’s grant of the preliminary injunction.
We remand, however, for the district court to modify
the preliminary injunction order to provide new deadlines
10 DODOCASE VR, INC. v. MERCHSOURCE, LLC
to take the ordered actions. The district court ordered
MerchSource to take the following actions by certain dead-
lines: “(1) send the email to the PTAB by Sunday March 25,
2018 requesting a conference call to facilitate the with-
drawal of the PTAB Petitions, and (2) if the PTAB grants
permission to file motions to dismiss the petitions, then file
the motions by 12:00 p.m. on April 3, 2018.” Id. at *14.
These dates have since passed. We remand for the district
court to modify the preliminary injunction order to provide
new deadlines to promptly take the prescribed actions.
IV
We now turn to MerchSource’s Motion. MerchSource
argues that the preliminary injunction and the appeal of
the preliminary injunction are moot because Dodocase as-
signed the rights in the patent to DDC who became the pa-
tent owner in the PTAB proceedings. Motion at 5–6. While
styled as a “Motion and Observation of Mootness,”
MerchSource’s Motion simultaneously asks us to dismiss
the appeal for lack of jurisdiction and vacate the district
court’s preliminary injunction order. See id. at 2. 4 We can-
not vacate the preliminary injunction, as MerchSource
asks us to do, unless we have the jurisdiction that
MerchSource claims we lack. We conclude that we do have
jurisdiction and that the case is not moot. The Motion is
accordingly denied.
MerchSource’s Motion does, however, note that the
ownership of the patents licensed under the MLA has
changed from Dodocase to DDC. MerchSource’s Motion
presents this change in ownership only in the context of its
4 MerchSource later seemed to concede that the case
is not moot when it argued, “[n]otwithstanding mootness,
there is still a dispute between Dodocase and MerchSource
as to whether the filing of the PTAB proceedings was a
breach of the MLA’s forum selection clause.” Motion at 5.
DODOCASE VR, INC. v. MERCHSOURCE, LLC 11
mootness argument; it does not argue that the change in
ownership means that the district court erred in granting
the preliminary injunction or that it must be reconsidered
or modified.
V
For the foregoing reasons, the district court’s grant of
a preliminary injunction is affirmed. Our stay of the pre-
liminary injunction is lifted. However, we remand for the
district court to modify the preliminary injunction order to
provide new deadlines to promptly take the prescribed ac-
tions.
AFFIRMED AND REMANDED
COSTS
The parties shall bear their own costs.