Troutman Sanders LLP: Patent Infringement Claims are Subject to Arbitration, But District Court Orders Stay Rather than Dismissal Pending Arbitration

Troutman Sanders LLP: Patent Infringement Claims are Subject to Arbitration, But District Court Orders Stay Rather than Dismissal Pending Arbitration

By Megan Rahman,

In a July 13 decision found here, Judge Jackson stayed, rather than dismiss, the case pending arbitration and ruled that the court could determine the issues of arbitrability, which would, in this case, include the patent infringement claims.  Bayer CropScience AG, et al. v. Dow AgroSciences LLC, et al., Civil Action No. 2:12cv47, 2012 Dist. LEXIS 97850 (E.D. Va. July 13, 2012).  This matter involved a dispute between the parties arising out of a patent license agreement which contained a mandatory arbitration clause, which provided for final, binding arbitration in accordance with the Rules of the International Chamber of Commerce ("ICC").  Plaintiffs alleged that Defendants had violated the License Agreement, causing Plaintiffs to terminate the License Agreement and sue for patent infringement.  Defendants moved to dismiss Plaintiffs' patent infringement claims for lack of subject matter jurisdiction, based upon the arbitration clause, alternatively, moving to stay the litigation pending arbitration.

With respect to Defendants' request for dismissal of the case because of the arbitration clause in the License Agreement, the district court recognized that the Fourth Circuit provides the option of either dismissal of a dispute covered by an arbitration agreement or a stay of the action pending arbitration.  In contrast, the Federal Circuit has reasoned that an arbitration agreement does not divest a court of jurisdiction to hear a case at all. Finding no justification for dismissal as a result of such authority, the district court found that the outright dismissal requested by Defendants was not warranted.

The district court next addressed whether an arbitrator, as opposed to the court, should determine the threshold issues of arbitrability.  The district court recognized that the Fourth Circuit has stated generally that a district court should decide the scope of the issues to be submitted to arbitration, but it noted that a majority of federal courts have held that the incorporation of the AAA rules in a contract vest the arbitrator with the authority to decide which issues are subject to arbitration.  Noting both that the question remains unsettled in this Circuit, and the fact that the contract before it invokes the ICC rules and not the AAA rules, the district court found that it could determine the threshold issue of arbitrability.

Having decided that, the district court went on to conclude that the patent infringement claims are subject to arbitration, given the scope of the arbitration clause and the fact that under 35 U.S.C. § 294, patent infringement claims are expressly arbitrable.  Accordingly, the district court stayed the entire action pending arbitration of all issues in the complaint, reserving its right to dismiss the action sua sponte at a later date.

Copyright © 2012, Troutman Sanders LLP

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