Arbitration Clause (Temporarily?) Derails ITC Investigation

Posted on | August 28, 2008 | No Comments

2008-1504 Sumitomo v. ITC
ITC 337-TA-635

Sumitomo appeals from the decision of the ITC to terminate the investigation regarding the importation of certain pesticides and products containing clothianidin that infringe claims 1 and 9 of 5,034,404.  The ITC determined that an arbitration clause in a license between predecessors of the parties required termination of the investigation under 19 U.S.C. § 1337(c) (2008) and 19 C.F.R. § 210.21(a)(2). 

The named respondents are Syngenta AG (Basel, Switzerland), Syngenta India Ltd. (Mumbai, India), Syngenta Corp. (Wilmington, Delaware), Syngenta Seeds, Inc. (Golden Valley, Minnesota), Syngenta Crop Protection Inc., (Greensboro, North Carolina), Garst Seed Co. (Slater, Iowa), and Golden Harvest Seeds, Inc. (Waterloo, Nebraska).

The Commission voted not to review the initial determination (ID) from the administrative law judge terminating the investigation.

Respondents moved to dismiss the investigation arguing that the earlier license required the alleged patent infringement to be arbitrated.  According to the ALJ, the initial issue before him was not whether the dispute must be arbitrated, but whether the ITC or the arbitrator should determine arbitrability:

In determining whether to stay or termination an investigation in favor of arbitration, the undersigned [ALJ] must “first inquire as to who has the primary power to decide arbitrability under the parties’ agreement.” Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006) [pdf].  If the parties did not clearly and unmistakably intend to delegate the arbitrability decision to an arbitrator, then the undersigned must undertake a full arbitrability inquiry. Id. If the parties have clearly and unmistakably intended to delegate the arbitrability decision to an arbitrator, then the undersigned must make a secondary inquiry to determine whether the assertion of arbitrability is “wholly groundless.” Id.

While the ID is redacted so that the specific language of the license is omitted, the ALJ found that the arbitration clause’s specific incorporation of arbitration rules–which in turn empower the arbitrator to decide arbitrability–satisfied the "clear and unmistakable intent" prong:

In Qualcomm, the license at issue similarly incorporated specific arbitration rules. 466 F.3d at 1372-73. Like the ICC Rules, the incorporated arbitration rules in Qualcomm made clear that the arbitral tribunal determined its own jurisdiction. Id. The court found that the incorporation of the arbitration rules into the license agreement demonstrated that the parties clearly and unmistakably intended to delegate the issue of arbitrability to an arbitrator. Id. at 1373. Because there is a similar situation here, the undersigned finds that the parties have clearly and unmistakably delegated the determination of arbitrability to the arbitrator. See also Shaw Group Inc. v. TripleJine Int’l Corp., 322 F.3d 115, 122 (2d Cir. 2003) (finding that the incorporation of the ICC Rules into a license agreement evidenced the parties’ intent to delegate arbitrability to the arbitrator.

The ALJ then found that the claim of arbitration was not "wholly groundless"–an admittedly easy standard to meet:

The “wholly groundless” inquiry is a limited one, and is not intended to be a actual determination of arbitrability :

[I]n undertaking the “wholly groundless” inquiry, the district court should look to the scope of the arbitration clause and the precise issues that the moving party asserts are subject to arbitration. Because any inquiry beyond a “wholly groundless” test would invade the province of the arbitrator … the district court need not, and should not, determine whether Nokia’s defenses are in fact arbitrable.

Qualcomm, 466 F.3d at 1374. Examining the license, the undersigned finds that the “arising out of or relating to” language in the arbitration clause supports a broad interpretation.  Certain Nickel Metal Hydride Consumer Batteries, Components Thereof and Consumer Electronic Products Containing Same, Inv. No. 337-TA-579, Order No. 4, at 6, n. 6 (May 30,2007) (stating that “arising out of’ arbitration clauses are interpreted broadly).

Thus, the investigation was terminated in favor of arbitration–in which the first order of business will be to decide whether the infringement claims should, in fact, be arbitrated and, if not, another ITC action could be initiated.

More reading:

Initial Determination

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