The Software IP Report

Settlement Agreement Forum Selection Clause Read Narrowly

By Charles Bieneman

Categories: Patent Civil Procedure, The Software IP Report

Forum selection clauses in settlement agreements should be very carefully worded. That is the lesson of Synopsys Inc. v. Mentor Graphics Corp., No. C 12-5025 MMC (N.D. Cal. April 3, 2013), where the court refused to apply the forum selection clause in a settlement agreement. The court reasoned that a provision for the retention of jurisdiction by a prior court did not apply where it was invoked not in an action to enforce the settlement agreement, but as an affirmative defense in a declaratory judgment action claiming that patents were invalid and not infringed.

Mentor Graphics sued EVE for patent infringement in the District of Oregon in 2006. That case settled. After a settlement conference, the court made a minute entry in the docket as follows: “Case settles. The clerk is directed to enter a 60 day order of dismissal. The court shall retain jurisdiction over the settlement agreement.” The clerk did not mention retention of jurisdiction in the settlement order, which, as filed, stated that the case was “dismissed with prejudice, subject to either party reopening the case in the event of failure to consummate final settlement within sixty (60) days.”

Mentor Graphics and EVE then did enter into a settlement agreement releasing each other from all claims in the 2006 action. The settlement agreement included the following provision:

Enforced According to Terms. The Parties intend this Agreement to be enforced according to its terms. To the extent that any dispute arises as to such enforcement, the Parties agree that the United States District Court for the District of Oregon shall retain jurisdiction over this matter and shall have sole authority to resolve disputes.

Following the 2006 action, in 2010 and again in 2012, Mentor Graphics sued EVE, in Oregon, alleging infringement of additional patents. In September 2012, EVE and Synopsis brought their action in the Northern District of California alleging invalidity and non-infringement of the three patents in the 2006 suit. Mentor Graphics filed a motion to transfer venue.

The court turned first to the question of whether venue in the Northern District of California was proper.  The court assumed, “arguendo, [that] the minute order expresses an immediate retention of jurisdiction by the court and not simply an intent to do so at a future time,” and turned to “the scope of such retention.” Looking to the language of the settlement agreement, the court thought that the Oregon court’s retention of jurisdiction was limited to a dispute arising from “enforcement” of the settlement agreement. However, in this instance, “the Settlement Agreement entered in the 2006 Oregon Action is raised as an affirmative defense to plaintiffs’ claims.” If “the parties, by their Settlement Agreement, wished to provide the District of Oregon with exclusive venue over the instant action, they could have used language broad enough to do so.” They did not, and venue was proper in the Northern District of California.

The court nonetheless transferred the case to the District of Oregon, granting mentor Graphics’ motion to transfer venue pursuant to 28 U.S.C. § 1404(a).