Federal Circuit orders stay of
district court proceedings in international patent disputes pending
arbitration, highlighting federal policy in favor of arbitration, particularly
in the international realm
Deprenyl Animal Health, Inc.
(hereinafter DAHI) is a Louisiana corporation with its principal place of
business in Kansas, and is the U.S. subsidiary of a Canadian corporation based
in Ontario. The University of Toronto Innovations Foundation (UTIF) is a
Canadian technical licensing corporation which assists the University of
Toronto in using its academic inventions for commercial purposes. In 1992, the
parties entered into a licensing agreement in Kansas that eventually resulted
in a patent. The agreement contained an arbitration clause, providing for
arbitration of disputes in Canada under the Ontario Arbitrations Act. The
choice-of-law clause provided that Ontario law would apply to contract
disputes.
This falling out began in 1998
when DAHI’s parent company announced that the FDA had approved the drug Anipryl
when used to treat canine cognitive dysfunction. UTIF claimed that Anipryl was
subject to the licensing agreement between the parties. In May 2000, DAHI sued
UTIF in Kansas federal court seeking a declaratory judgment that the licensing
agreement did not apply to sales of the drug, and that it was not infringing
the patent. Two months later, DAHI filed an action in an Ontario Superior
Court. It sought a declaration (1) that the dispute cannot be arbitrated in
Canada because the license agreement does not apply, and (2) that neither the
agreement nor the patent covered DAHI’s product. In March 2002, the Ontario Superior
Court of Justice ordered the Canadian court and arbitration proceedings stayed
pending the outcome of this appeal.
UTIF sought dismissal based on
lack of personal jurisdiction over it or, in the alternative, to dismiss
pending binding arbitration. The district court dismissed the complaint for
lack of personal jurisdiction over UTIF but did not reach the arbitration
issue. DAHI appealed. The U.S. Court of Appeals for the Federal Circuit
reverses, staying the district court proceedings pending arbitration in Canada.
On the issue of jurisdiction, the
Court makes the following comments. “UTIF purposefully directed activities at
DAHI, in Kansas. Although DAHI initially contacted UTIF about the prospect of
licensing certain of UTIF’s technology, UTIF responded with telephone calls and
letters to negotiate, and amend, the resulting ongoing license agreement
pertaining to the technology that developed into the ... patent. As the license
agreement required, UTIF sent DAHI, in Kansas, copies of correspondence with
the patent office and kept DAHI apprised of the prosecution status of the
application that matured into the ... patent. UTIF also sent a letter
contending that Anipryl is subject to the license agreement to DAHI in Kansas.
These constitute sufficient minimum contacts.” [Slip op. 20]
The Court considers the cases
cited by UTIF inapposite, because none of them involved an agreement to license
technology protected by a U.S. patent. Obtaining such a patent and licensing it
count as getting meaningful benefits from U.S. laws.
“Section 293 of Title 35 of the
United States Code underscores the significance of the benefit of the patent
right. Section 293 is a special long-arm statute that requires patentees
residing outside the United States either to designate an agent residing
somewhere within the United States for service of process or to submit to
jurisdiction in the United States District Court for the District of Columbia.
Although Section 293 does not directly authorize the exercise of jurisdiction
over UTIF, the statute represents an important Congressional judgment that in
exchange for obtaining the benefits of a United States patent, it is
appropriate to require foreign patentees to submit to broader jurisdiction in
United States Federal Court than that to which they would otherwise be
subject.” [Slip op. 24]
For due process purposes, the
inclusion of choice-of-foreign-forum and choice-of-law clauses in a license
agreement for a U.S. patent does not necessarily detract from UTIF’s
significant contacts with Kansas or from its purposeful availment of its U. S.
patent rights. On the other hand, these clauses may govern for contract law
purposes. Therefore, the Court reverses the dismissal for lack of personal
jurisdiction.
The Court then turns to the issue
of arbitration. As a general matter, the Court does not see any problem in
having disputes over U.S. patents resolved by binding foreign arbitration.
Here, UTIF argued that the Court should affirm the dismissal because the
arbitration clause requires dispute resolution by Canadian arbitration. DAHI,
in turn, claimed that the scope of the arbitration clause does not encompass
the infringement and invalidity claims.
It is the province of the
Canadian courts to determine the scope of the arbitration clause, and the Court
therefore remands to the district court with instructions to stay proceedings
pending the outcome of the Canadian arbitration proceedings. In this case,
international comity demands that the Canadian arbitration be completed before
any U.S. court action.
“[T]he Supreme Court has
recognized a strong federal policy in favor of arbitration, particularly in the
international realm. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 628-29 (1985). In Mitsubishi Motors, the Supreme Court held
enforceable an agreement to resolve an antitrust claim by foreign arbitration.
... The Court explained that international comity, respect for foreign
tribunals, and the commercial system’s need for predictable dispute resolution
required holding the plaintiff to its agreement to arbitrate. ... These
concerns apply with vital force to the resolution of disputes regarding patent
rights.”
“DAHI contends that,
notwithstanding the arbitration clause in its agreement, it should not be bound
to arbitrate. This is so, it maintains, because the Canadian arbitration
proceedings may apply Canadian law to the issue of the validity of the ...
patent, and Canadian law may estop DAHI, as a licensee, from challenging the
patent’s validity. In Mitsubishi Motors, the Supreme Court rejected a similar
argument. ... In response to the argument that requiring international
arbitration might promote uncertainty because of the chance the arbitral
tribunal would fail to adhere to the law of the United States in resolving
claims arising therefore, the Court explained: ‘To be sure, the international
arbitral tribunal owes no prior allegiance to the legal norms of particular
states ... The tribunal, however, is bound to effectuate the intentions of the
parties. Where the parties have agreed that the arbitral body is to decide a
defined set of claims ... the tribunal ... should be bound to decide that
dispute in accord with the national law giving rise to the claim.’” [Slip op.
37-38]
Citation: Deprenyl Animal
Health, Inc. v. The University of Toronto Innovations Foundation, No. 01-1648
(Fed. Cir. July 23, 2002).
**** Mr. Richard Ehrlich is a specialist in Corporate, Estate and Personal Financial Planning in Florida. In the course of his career, he has prepared hundreds of estate plans and helped hundreds of small businesses navigate the various issues involving insurance, retirement and employee retention. He has helped numerous families deal with the difficulties of taking care of elderly relatives and assisted with all of their long-term planning and long-term care needs. Finally, he has helped investors with their losses in unsuitable investments. LinkedIn Profile: https://www.linkedin.com/in/richard-ehrlich-777b513/; Attorney Profile: http://www.eldercounsel.com/profile/richard-ehrlich-ehrlich-law-center-pa/; Attorney Profile: https://solomonlawguild.com/richard-ehrlich%2C-esq; Attorney News: https://attorneygazette.com/richard-ehrlich%2C-esq#c35a1098-f039-43ab-b0dc-06cff6dabf61
