Addressing whether a patent assignee is bound by a pre-existing arbitration agreement entered into by its assignor, the U.S. Court of Appeals for the Federal Circuit affirmed the district court's application of state contract law in denying the defendants' motion to dismiss or stay an infringement suit pending arbitration because the assignee was not a signatory to the arbitration agreement. DataTreasury Corp. v. Wells Fargo & Co. and Wells Fargo Bank, N.A., Case No. 2007-1317 (Fed. Cir., April 16, 2008) (Fogel, Distr. J., sitting by designation).
After obtaining four patents related to check-imaging technology from WMR e-Pin LLC in 2006, DataTreasury promptly filed a highly-publicized infringement suit in the U.S. District Court for the Eastern District of Texas against dozens of financial institutions. In the motion at issue, Wells Fargo asserted that DataTreasury should be bound by an arbitration clause contained in a 2003 license agreement between a Wells Fargo subsidiary and WMR. The 2003 agreement explicitly named one of the patents-in-suit and Wells Fargo argued it also covered the other asserted patents. The district court denied the defendants' motion, finding that DataTreasury was not a party to the 2003 agreement. Wells Fargo appealed.
Based on a de novo review and applying regional circuit law—specifically, Fifth Circuit law—to the contract dispute, the Court held that no valid agreement existed between Wells Fargo and DataTreasury because "courts in Minnesota [the state law specified in the agreement] have held that a party is not bound by an arbitration clause unless it is a signatory to the underlying contract." By affirming on this basis, the Federal Circuit never reached a decision on whether the agreement covered all of the patents-in-suit.
Wells Fargo argued that DataTreasury should be bound by the arbitration clause because it "runs with the patent." The Federal Circuit found Well Fargo's theory lacking in legal authority because the cited cases did 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 Court also cited Fifth Circuit opinion that "requiring a non-signatory party to arbitrate solely on the basis of an arbitration clause license agreement between signatory parties would be inconsistent with the basic principles of contract law and the Federal Arbitration Act."
Practice Note: Wells Fargo did not argue equitable estoppel, assumption, agency or third-party beneficiary upon which non-signatories have previously been compelled to arbitrate under Minnesota law. Query: Based on this decision, will patent owners try to escape from tactically unfavorable arbitration agreements by means of an assignment to a separate (but "friendly") entity?
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