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Arbitrability, Who Decides?

Posted by Thomas P. Howard | Nov 15, 2021 | 0 Comments

By James Juo.

Arbitration clauses in license agreements and other contracts are common. The question of whether a particular dispute falls within the scope of what the parties had agreed to arbitrate is known as “arbitrability.” A court should not assume that the parties agreed to arbitrate arbitrability “unless there is ‘clea[r] and unmistakabl[e]' evidence that they did so.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (quoting AT&T Techs. Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986)). Absent that clear and unmistakable delegation, the court should decide issue of arbitrability. AT&T Techs., 475 U.S. at 649.

In ROHM Semiconductor USA LLC v. MaxPower Semiconductor Inc., No. 21-1709 (Fed. Cir. Nov. 12, 2021), the U.S. Court of Appeals for the Federal Circuit found that a license between a parent company and the licensor established an agreement to arbitrate arbitrability between the parent company's foreign subsidiary and the licensor.

In 2007, ROHM Japan and MaxPower entered into a technology license agreement (“TLA”) under which ROHM Japan and its subsidiaries (collectively “ROHM”) were permitted “to use certain power [metal oxide semiconductor field effect transistors (‘MOSFET')]-related technologies of” MaxPower, the licensor. The TLA, as amended in 2011, includes an agreement to arbitrate “[a]ny dispute, controversy, or claim arising out of or in relation to this Agreement or at law, or the breach, termination, or validity thereof.” The arbitration agreement provides that arbitration is to be conducted “in accordance with the provisions of the California Code of Civil Procedure” (“CCCP”).

In 2019, a dispute arose between ROHM Japan and MaxPower concerning whether the TLA covers ROHM's silicon carbide MOSFET products. In September 2020, MaxPower notified ROHM Japan that it intended to initiate arbitration. Shortly thereafter, ROHM USA, a subsidiary of ROHM Japan, initiated an inter partes review (“IPR”) against four MaxPower patents. ROHM USA also filed a lawsuit for declaratory judgment of noninfringement in the Northern District of California; and MaxPower filed a motion to compel arbitration. The district court granted MaxPower's motion to compel arbitration and dismissed the case without prejudice, reasoning that the TLA “unmistakably delegate[s] the question of arbitrability to the arbitrator.”

On appeal, ROHM USA argued that the TLA required that the arbitration follow the CCCP, but that the CCCP was ambiguous because it contains two inconsistent provisions as to who decides arbitrability. Section 1297.161 provides that an arbitrator “may rule on its own jurisdiction” in international commercial arbitration; but Section 1281.2 provides it is the court that “determines that an agreement to arbitrate the controversy exists.” The Federal Circuit, however, held that there is no ambiguity because, under the CCCP, Section 1297.161 supersedes Section 1281.2 with respect to international commercial arbitration. Thus, the question of “[w]hich one of the two provisions governs turns on whether the dispute at issue is an international one.”

Because ROHM USA is a non-party to the TLA and this was an action between two companies based in the United States, involving United States patents, ROHM USA argued that this was a “domestic action” rather than an international one. But the Federal Circuit held that “this case is merely one aspect of a sprawling international dispute,” where ROHM Japan and MaxPower have their places of business in different “states” (Japan and the United States, respectively), the technology under the TLA is licensed worldwide, and the TLA covered MaxPower's patents “in all countries of the world” relating to the licensed technology. Furthermore, the TLA provides that it applies to all subsidiaries of ROHM Japan, which would include ROHM USA (even though ROHM USA apparently was not a separate signatory to the TLA).

Next, ROHM USA argued that the use of the permissive “may” in CCCP Section 1297.161 means that either the arbitral tribunal or a court could determine arbitrability. The Court held this “would render § 1297.161 a dead letter.” Instead, the use of the permissive “may” allows the arbitrator to address arbitrability where necessary, but does not require the arbitrator to do so in every instance such as when arbitrability is not disputed by the parties. In this context, the Federal Circuit found that “may” effectively meant “shall have the power to”; and held that this vests the arbitrator with apparent authority to decide questions of arbitrability.

The Federal Circuit also held that the incorporation of third-party rules, such as the CCCP rules, can be a sufficiently clear and unmistakable delegation of authority to determine arbitrability. “In contracts between sophisticated parties, it is fair to hold the parties to all provisions of their contract, including those incorporated by reference.”

About the Author

Thomas P. Howard

Thomas Howard is an experienced trial lawyer that handles intellectual property litigation nationwide, including copyright, trademark, trade secret and patent litigation, as well as complex civil litigation, including breach of contract, interference with contract, breach of fiduciary duty, conspiracy, fraud and fraudulent transfer of assets.


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