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

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

Second Circuit holds management company’s claim against Indonesian state‑owned social security insurer under Foreign Sovereign Immunities Act failed to abrogate insurer’s sovereign immunity where plaintiff could not show its negligent supervision claim based on act done in connection with Defendant’s commercial activity

Second Circuit holds management company’s claim against Indonesian state‑owned social security insurer under Foreign Sovereign Immunities Act failed to abrogate insurer’s sovereign immunity where plaintiff could not show its negligent supervision claim based on act done in connection with Defendant’s commercial activity 

Anglo‑Iberia Underwriting Management Company and Industrial Re International, Inc. (“Anglo‑Iberia”) sued P.T. Jamsostek (Persero) (“Jamsostek”), an Indonesian state‑owned social security insurer, and the Republic of Indonesia (“Indonesia”) claiming Jamsostek’s negligent supervision of its employees enabled one of them, Prio Adhi Sartono, to commit commercial reinsurance fraud against Anglo‑Iberia while he was in Colorado pursuing a Jamsostek‑sponsored MBA. The U.S. District Court for the Southern District of New York dismissed Anglo‑Iberia’s negligent supervision claim on the ground no subject matter jurisdiction existed under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C.A. § 1602 et seq. Anglo‑Iberia appealed to the Second Circuit.

A foreign state, or an agency or instrumentality of a foreign state, is immune from federal court jurisdiction unless a specific exception to the FSIA applies. 28 U.S.C.A. §§ 1603(b), 1604. The so‑called “commercial activity” exception abrogates immunity in cases where the action is based on

“[1] a commercial activity carried on in the United States by the foreign state; or upon

[2] an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon
[3] an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”

28 U.S.C. § 1605(a)(2).” [175]

On appeal, the parties presumed Jamsostek’s or Indonesia’s entitlement to sovereign immunity; the only issue was whether the exception applied, thus subjecting them to federal court jurisdiction. Under the second clause of the exception, Anglo‑Iberia argued that its negligent supervision claim was based on (1) the acts Jamsostek performed in the U.S. by supervising and administering its job training program with Sartono and other employees in connection with its employment of Sartono and the other alleged wrongdoing employees at its commercial offices in Indonesia conducting insurance business and (2) Anglo‑Iberia’s act of depositing reinsurance premiums in a New York bank and Jamsostek’s commercial activity in supervising its employees in Indonesia.

Under the third clause, Anglo‑Iberia claimed Jamsostek’s negligent supervision of its employees in Indonesia and Monaco in connection with Jamsostek’s commercial activity in Indonesia caused a direct effect in the U.S. to enter the reinsurance transactions with Jamsostek’s employees and incur financial losses in the United States. [176]

The Second Circuit rejects both arguments, affirming the district court’s dismissal of Anglo‑Iberia’s claim. The Court begins its analysis by noting that under both the second and third clauses of the exception, Anglo‑Iberia had the burden of showing that its negligent supervision claim was grounded on an act done “in connection with a commercial activity” of Jamsostek and Indonesia; therefore, should Anglo‑Iberia fail to establish a “commercial activity,” then arguing a “connection” necessarily also would fail.

In its second‑clause analysis, the Court considers case precedent on construing “commercial activity” under the FSIA:

“In Republic of Argentina v. Weltover, 504 U.S. 607, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992), the Supreme Court explained that a foreign state engages in commercial activity ‘when a foreign government acts, not as a regulator of a market, but in the manner of a private player within it,’” [176] The Court stresses that what matters is the type of action by which a private party engages in commerce, rather than the motive or purpose behind it. In looking to whether Jamsostek’s actions performed in its role as Indonesia’s default health insurer were the type by which a private party engages in commerce, the Court finds that:

“[T]he nature of Jamsostek’s hiring, supervision, and employment of Sartono and other employees is directly concerned with ‘employment in the provision of a governmental program of health benefits through collection of employer contributions and payroll deductions’ and that ‘such employment is by nature non‑commercial.’ [again citing Weltover]. Despite Anglo‑Iberia’s argument to the contrary, to hold otherwise and look only to the fact of employment for purposes of our “commercial activity” analysis would allow the exception to swallow the rule of presumptive sovereign immunity codified in the FSIA.” [178] Here, the Court states, Jamsostek’s actions are sovereign in nature.

The Court then explains Anglo‑Iberia’s third‑clause failure to show a nexus between Jamsostek’s alleged negligent supervision and its alleged commercial activity. The Court notes that the statutory term “in connection” as used in the FSIA “is a term of art” and that as such acts are deemed to be “in connection” with commercial activity only where a “substantive connection” or “causal link” exists between them and the commercial activity. The Court reasons:

“Here, we cannot conclude that Jamsostek’s alleged negligent supervision of Sartono and his colleagues was ‘in connection with’ its provision of basic health insurance in Indonesia. The commercial reinsurance scheme that is said to have injured Anglo‑Iberia was Sartono’s alone and wholly unrelated to any negligent supervision by Jamsostek with respect to its insurance activities in Indonesia.” [179]

Citation: Anglo‑Iberia Underwriting Mgmt. Co. v. P.T. Jamsostek (Persero), 600 F.3d 171 (2d Cir. 2010).

 


**** 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

On petition by bankruptcy Trustee and to assure availability of his assets for creditors, Australian Federal Court grants Mareva injunction regulating widow’s sale of valuable Florida real estate owned by bankrupt former husband at time of his death

On petition by bankruptcy Trustee and to assure availability of his assets for creditors, Australian Federal Court grants Mareva injunction regulating widow’s sale of valuable Florida real estate owned by bankrupt former husband at time of his death

Langley George Hancock died on March 27, 1992, owning several valuable properties in Australia and one in Orlando, Florida. In May 1995, the Western Australia Supreme Court granted probate as to the Hancock estate to executors named in his will. Questions later arose as to whether Hancock had been solvent at the time of his death. Pursuant to a creditor’s petition filed by Hancock Prospecting Pty. Ltd. in December 1997, a federal bankruptcy proceeding began. The Federal Court of Australia ordered the estate to be administered under Part XI of the Bankruptcy Act 1966 (Cth) and appointed a Mr. Donnelly as Trustee.

The Trustee alleged that, despite his insolvency, Mr. Hancock had given Mrs. Rosemarie Porteous (the former Mrs. Rose Hancock) $254,129.71 on October 23, 1991 and that this gift amounted to an act of bankruptcy under the statute. If true, bankruptcy administration would relate back to that date. As the Court notes: “[t]his commencement date is significant for the reason, among others, that under s120 of the Act, gifts made within a period of 5 years prior to the commencement date are, subject to one exception, void as against the Trustee. The exception is that a gift made more than two years prior to the commencement date will not be void as against the Trustee if the transferee proves that the transferor was solvent at the time of the transfer.” [Slip op. 2-3]

In essence, the Trustee was trying to recover under s120 of the Act many gifts of money Mr. Hancock had allegedly made to Mrs. Porteous during the five years prior to October 23, 1991 plus interest on these amounts. He alleged also that Mrs. Porteous used some of these funds to invest in various properties in Australia as well as one property in Orlando, Florida. On March 15, 2001, the Trustee moved the Court to issue several injunctive orders to make sure that these properties or the proceeds from their sales are available to satisfy any orders issued in favor of the Trustee.

As to the United States property, the Trustee sought an order restraining respondents or their representatives from selling, charging, mortgaging, encumbering or otherwise disposing of the property located in Seminole County, Florida (the Orlando property) during the pendency of the bankruptcy proceedings without giving 21-days written notice to the Trustee.

Moreover, in the event the Orlando property is sold, the Trustee asked the Court to order that respondents give not less than 21 days’ written notice to the Trustee before the settlement date on the sale. In addition, the Trustee requested that, in the case of a sale of the Orlando property, the Court order the retention of any proceeds of the sale in a joint bank account in the names of the Trustee and of the solicitor for the respondents in an amount equal to the total claims of the Trustee with respect to the Orlando Property plus interest pursuant to the Federal Court Act.

The Court first notes that injunctive relief against the parties to a proceeding focuses on preventing abuse or frustration of the Court’s process. It then points out that a party seeking a Mareva injunction [see Mareva Compania Naviera S.A. v. International Bulkcarriers S.A. [1975] 2 Lloyd's Rep. 509; [1980] 1 All E.R. 213] must show three elements.

The first element is, that he has a good arguable case or a sufficiently realistic prospect of success in the proceedings. Secondly, the applicant has to show that, without such an order, a real risk exists of inability to satisfy a favorable judgment because a defendant will have hidden or dissipated the assets in question. The final element demands a showing that the balance of convenience requires the entry of the requested order.

In the Court’s view, a vital aspect of a good arguable case here turns on evidence of Mr. Hancock’s insolvency at time of death. The Trustee alleges that, at this point, the deceased was unable to repay debts owed to Clough Building Pty. Ltd., The Hancock Family Memorial Foundation Ltd. and Hancock Mining Ltd. The trustee attached voluminous documentary evidence about Mrs. Porteous’ finances and the gifts she got from deceased. Defendants argued that this so-called “evidence” contains nothing but contested allegations, insufficient to show an arguable case. The Court, however, disagrees.

The Court then considers the danger of dissipation of assets based mainly on a four-day deposition of Mrs. Porteous. At an earlier time, it appears that she may have intended to bring any assets from the sale of the Orlando Property back to Australia.

“The impression created by the whole of the transcript, however, is that Mrs Porteous's life plans are presently rather fluid. The question of her purchasing a French chateau was discussed along with other plans she has for her future. While the particular property might be beyond her reach, the discussion shows that she is not inimical to living overseas. In addition there is, as counsel for the applicant observed, a certain inconstancy of intention. In my opinion there is a strong possibility that Mrs Porteous may alter her plans and deal with the properties in a manner inconsistent with preserving the assets (or their proceeds) in a form accessible to the Trustee.” [Slip op. 17-18]

Finally, the Court decided that, since the parties main dispute was over the amount of interest due, the balance of convenience favors the granting of the Trustee’s motion as to the Orlando Property.

The Court then issues the restraining orders. As to the potential sale of the Orlando Property, and the advance notice of settlement, the Court grants the order essentially in the terms requested above.

With respect to the joint bank account for the proceeds of the sale, the Court’s order reads more specifically as follows: “In the event of sale of the Orlando Property, there shall be retained out of the proceeds of such sale and placed in a joint bank account in the names of the Applicant [Trustee] and the solicitor for the Respondents, an amount of $ 1,590,531.54 together with interest on that amount calculated in accordance with the rates of interest prescribed under Schedule J of the Supreme Court Rules 1970 (NSW) from 8 April 1999 to the date of settlement of such sale.” [Slip op. 22-23]

Citation: Donnelly (Trustee) in matter of bankrupt estate of Hancock (deceased) v. Porteous, [2001] F.C.A. 345, 2001 Aust. Fed. Ct. Lex. 5 (Aust. Fed. Ct., New S. Wales, April 2) (Reed Intl. Books, Aust.).

 



**** 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