Federal Circuit Rejects Forum Selection Clause in Patent Dispute

Do you ever wonder how enforceable a forum selection clause is in a contract?  The Federal Circuit provided guidance on this issue recently in a patent infringement case between two British telecom companies in In re Fortinet, Inc., No. 2020-120, 2020 U.S. App. LEXIS 14077 (Fed. Cir. May 1, 2020) (“In re Fortinet”).

In In re Fortinet, British Telecommunications plc and BT Americas, Inc. (collectively, “BT”) sued Fortinet, Inc. (“Fortinet”) for infringing five U.S. patents in Delaware federal court.  Fortinet was a supplier of computer hardware and software to BT and in 2014 had entered a contract with BT that required “any claims or disputes arising out of contractual and/or non-contractual obligations relating to or in connection with the [Agreement] . . . shall be governed by and construed in accordance with the laws of England.” The contract also required the parties to “submit to the exclusive jurisdiction of the English courts in relation to contractual and/or non-contractual obligations.”

After being sued for patent infringement in Delaware, Fortinet could have asked the court to stay the action until an English court sorted out the scope of other language in the contract, including a clause stating that BT “shall have no intellectual property right” in Fortinet's products. Instead, Fortinet took a bolder position, and asked the Delaware court to dismiss the action altogether, so that an English Court could consider the entire dispute, including the patent infringement allegations.

Fortinet had some helpful Supreme Court dicta on its side.  In 2013 the Supreme Court had stated that “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.” Atl. Marine Constr. Co. v. United States Dist. Court, 571 U.S. 49, 62 (2013).  Fortinet’s problem was that it could not prove that an English court would even consider BT’s patent infringement claims; a forum that will not entertain an action is no forum at all.  Fortinet briefed the availability of English courts extensively to the Court but, according to the Federal Circuit:

had only been able to cite cases in which English courts had construed claims of a United States patent in the context of a licensing dispute and had failed to cite any English case or statute that provides assurance that an English court could or would assert jurisdiction over a United States patent infringement action.

Fortinet’s inability to cite a single case in which an English court adjudicated a U.S. patent infringement action was fatal to Fortinet’s motion to dismiss because “it cannot be assumed that a foreign court would adjudicate an intellectual property dispute where the alleged infringement occurred elsewhere.”

The simple lesson to be learned from the case is that a United States court will usually enforce a forum selection clause.  However, the party relying on the clause must be able to show that the alternate forum has the power and is willing to adjudicate the dispute, which is unlikely when a U.S. patent is at issue. Fortinet might have been better served by an arbitration clause, since an arbitration panel has the power to consider any dispute the parties contractually agree to put before it.