Assignee Disputes Arbitrability of Disputes

DataTreasury Corp., v. Wells Fargo & Company [2007-1317] (April 16, 2008) [FOGEL, Mayer, Bryson] The Federal Circuit affirmed the denial of a motion to dismiss or stay litigation pending arbitration, because the parties are not bound by the operative arbitration clause.
SIGNIFICANCE: Arbitration clause does not gene ally pass with title to the patent.
BRIEF: In a case involving the arbitrability of a claim, the Federal Circuit reviews the district court’s determination that the parties have contractually bound themselves to arbitrate disputes de novo, and its factual findings for clear error. Regional circuit law is applied to contractual disputes, including disputes involving license agreements. In determining whether parties have agreed to arbitrate a particular dispute, courts in the Fifth Circuit consider: (1) whether a valid agreement between the parties exists; and (2) whether the dispute in question falls within the scope of that arbitration agreement. Although none of the parties in the case had signed the license agreement that contained the arbitration clause, Appellants argued that the arbitration clause “runs with the patent.” The cases do not support a conclusion that procedural terms of a licensing agreement unrelated to the actual use of the patent (e.g. an arbitration clause) are binding on a subsequent owner of the patent. The Federal Circuit said that requiring a non-signatory party to arbitrate solely on the basis of an arbitration clause in a license agreement between signatory parties would be inconsistent with basic principles of contract law and the Federal Arbitration Act, 9 U.S.C. § 2 et seq. (“FAA”). Arbitration under the FAA is a matter of consent, not coercion. The Federal Circuit concluded Neither party in this litigation signed the PLA or participated in negotiating any of its terms. Accordingly, the dispute between these parties was not subject to the arbitration clause of that agreement. As this court previously has recognized, “a party cannot be compelled to arbitrate if an arbitration clause does not bind it.”