International Commercial Arbitration of Patent Cases

One of the more powerful new petitions for writ of certiorari is the case of Dow AgroSciences, LLC v. Bayer CropScience AG, Docket No. 17-372.  Although the question presented – focusing on arbitration of patent cases – does not strike to the core of patent law doctrine, it is one of the more likely to be granted certiorari.

The petition begins: International arbitration of federal statutory claims poses a threat to U.S. public policy that can be mitigated only by independent judicial review. [DowBayerPetition].

The case here involves a set of crops genetically modified to be resistant to the herbicide glufosinate.  Some of the crops include additional genetically modified resistance in a “molecular stack” with additional herbicide resistant genes such as aad-12 (2,4-D herbicide tolerance) and dmmg.

Bayer sued Dow for infringement, but a prior agreement forced to the case to arbitration and a $455 arbitration award for Bayer that was affirmed by the Federal Circuit.

Affirming Arbitration Award

Now, Dow has petitioned the Supreme Court with the following question presented:

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), as incorporated into Chapter 2 of the Federal Arbitration Act (“FAA”), 9 U.S.C. 201 et seq., authorizes a U.S. court to decline recognition and enforcement of an arbitral award that “would be contrary to the public policy” of the United States.

Here, recognition and enforcement of a $455 million arbitral award based on duplicative and expired patents is contrary to the U.S. public policy that patents are granted only for “limited Times.” But the Federal Circuit held that award enforceable, ruling that a court may not entertain a public-policy challenge in the absence of a prior judicial decision on nearly identical facts.

The question presented is:

Whether a federal court must independently determine whether recognition and enforcement of an arbitral award under the New York Convention would be contrary to the public policy of the United States.

Dow AgroSciences, LLC v. Bayer CropScience AG, 2017 WL 4022790.

Unlike many areas of law, the Patent Act includes a particular provision recognizing voluntary arbitration of patent dispute. 35 U.S.C. 294. The provision indicates that the Federal Arbitration Act (Title 9) should be followed “to the extent such title is not inconsistent with this section.”  The statute particularly provides that the ordinary defenses to patent infringement “shall be considered by the arbitrator if raised.”

 

16 thoughts on “International Commercial Arbitration of Patent Cases

  1. If you read the opinions carefully you can see that Dow’s argument about post-expiration royalties is silly. The damages under French law had to do with Bayer’s “loss of opportunity” to collect royalties for a totally different technology (covered by a totally different set of patents) from a third party.

    1. I refuse to believe that French law looks like a four-eyed octopus-bunny. You, sir, are clearly an imposter.

  2. While there is considerable controversy over arbitration agreements for which one party has no real ability to opt out of, if this was instead an agreement to arbitrate entered into between consenting major corporations it is hard to see why it would make appealing “good facts” a cert grant?

    1. I think that I best argument for taking cert in this case (and to say that this is the best argument is not to say that it is necessarily a good argument) is that this case exposed a loophole in the Court’s recent Marvel v. Kimble decision. The license agreement here obliged the licensee to pay royalties after the patent term had expired. The Court recently reaffirmed that this is illegal under U.S. law, but the license agreement here had a choice of law clause opting for the application of French law. The arbitration panel decided that French law did not prohibit royalties to persist after patent expiration, so the contract was enforced despite the Court’s very recent decision to the contrary.

      In other words, you had a contact signed and drafted (in English) in the U.S., between a U.S. company & a German company, adjudicated in New York, but where the Supreme Court’s very recent rulings were ignored because the lawyers who drafted the license agreement were clever enough to invoke French law. If this situation is allowed to stand, then Kimble becomes, in effect, a dead letter.

      As it happens, I was not wild for the outcome of Kimble, so I am not overmuch concerned to see that the Court rush to close this loophole. I could imagine, however, that the Court itself cares more than I do about loopholes to evade Its decisions, so maybe they will take this case on that basis.

      1. Not sure how Kimble becomes a dead letter, given as you have that this is French law controlling and not US law.

        I do not see the loophole that you see – unless of course you think that all contracts must somehow fall to US law as controlling law (but I do not think that THAT is the loophole that you are thinking of).

        1. My point is that Kimble is supposed to be a restriction on freedom of contract. Absent the Court’s rule, if two parties want to agree to license terms that require royalties to extend beyond the patent term, that is their business and none of our own. The SCotUS, however, abrogated the freedom to contract on this particular issue, and announced a rule that such a contract is not enforceable in the U.S.

          Bayer has discovered a way to draft around the Court’s rule—specify French law and international arbitration. Now that everyone knows that the rule can be drafted around, it is no longer really a rule, so much as just a default to be drafted around. To the extent that the Court really meant it to be a rule, they will need to take this case and reverse the CAFC.

          Or not. I would be perfectly content if the CAFC’s rule were allowed to stand.

          1. that such a contract is not enforceable in the U.S.

            You forgot an important part: “under controlling US law.”

            But that is expressly not here – hence, your concern with “around” something that is NOT controlling is not substantiated.

            Sure, everyone could draft around it.

            So what?

            Are you now going to insist that in order to preserve US laws, that ALL contracts must delegate US law as controlling?

            This situation is simply different on its facts and I am just not seeing how your concern actually attaches in the way that you seem to think that it does.

            1. You mistake me. My point is not that the choice of law clause constitutes a draft-around. If this same license agreement with the same choice of law clause for French law had been litigated in a U.S. district court or a state court, the Supreme Court’s Kimble rule would still have been given effect, because the application of French law on this one, particular point would have contrary to public policy.

              In other words, the draft-around is the provision agreeing to international arbitration in this particular New York arbitration forum. If such arbitration clauses are held enforceable, then Kimble will be, in quick succession, a dead letter, as license agreements will simply come to include such arbitration provisions as a matter of course.

              This is not intended as a “parade of horribleness,” because I do not regard such an outcome as horrible. Maybe the Court does not, either. If, however, the Court intends for its recent Kimble ruling to have real legal effect, however, it will need to take this case and reverse the CAFC.

              1. Application of French law does not go through a “must pass US muster” filter.

                (By the way, I understand your point perfectly – at least the one that you have provided and now confirmed; but your point is simply not correct)

                1. Application of French law does not go through a “must pass US muster” filter.

                  Well, not in an arbitration panel, no. That is my point.

                  If you mean to say that the a federal or state district court does not concern itself with public policy considerations before giving effect to a choice-of-law clause, however, then you are very much mistaken. Under Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 496-97 (1941), a U.S. court sitting in diversity applies the choice-of-law rules of its local state. Here the arbitration panel was in Manhattan, so let us imagine that this case had, instead, been heard in the U.S. district court for SDNY. In that case, the court would have applied New York’s choice-of-law rules. New York law holds that “the law of the State chosen by the parties to govern their contractual rights and duties [applies] unless… [such is] contrary to a fundamental public policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue.” Joy v. Heidrick & Struggles Inc., 403 N.Y.S.2d 613, 615 (1977).

                  In other words, the U.S. district court would at least have to ask itself whether the Supreme Court’s public policy choice about not extending royalties beyond patent term outweighs the contracting parties choice of French law. I suppose it is possible that the district court might say that the freedom of contract outweighed the Supreme Court’s public policy choice, but this would not be a foregone conclusion.

                  The only way that one can confidently draft around the Supreme Court’s Kimble decision is to require arbitration instead of enforcement in a district court. That is why I could imagine the SCotUS taking this case to curtail arbitration in such circumstances—to cut off the draft-around.

                2. a U.S. court sitting in diversity applies the choice-of-law rules of its local state.

                  Hmmm – Not sure that you are applying the actual choice-of-law rules correctly.

                  But for the immediate point here – for the sake of argument (and this too stems from your original post), the law that governs is French law.

                  Under this situation – these facts – your concern expressed about Kimble does not come to pass.

                  The secondary concern – the ability to “draft around” is ALSO not seemly. This ability to “draft around” already exists and it appears that your answer to that ability is to FORCE US law – and any “choice” then is no real choice at all.

                3. But for the immediate point here…, the law that governs is French law.

                  No, no, and no.

                  No court in the United States ever applies a law other than its own law. Missouri courts only apply Missouri law. Florida courts only apply Florida law. United States courts only apply United States law.

                  It just happens, however, that Missouri law is that if two parties to a contract agree that they want their contract to be adjudicated under (e.g.) California law, then Missouri law is that the Missouri court should apply California law (except, only so much of California law that does not trespass against Missouri public policy). Similarly, all 49 of the other U.S. states (and the federal government) have made their own domestic law to be that otherwise contractually valid choice-of-law clauses will be given effect. But that “otherwise contractually valid” limitation means, of course, that the choice-of-law clause cannot be contrary to the public policy of the forum state (“contrary to public policy” being a grounds for invalidating a contractual provision).

                  In other words, it is quite definitely not French law that would govern in the US-SDNY. Rather, it is U.S. law, which law provides that the contract should be adjudicated according to French law. The public policy analysis that precedes the application of French law, however, would be public policy according to U.S. law, not French law.

                4. This is our crossrooads: “(except, only so much of California law that does not trespass against Missouri public policy).

                  And this is where your version of apply applies a filter that you are adding:

                  should apply California law

                  (except, well, nothing that is NOT controlled by California law)

    2. The cert petition’s assertion of a “split between circuits” on the basic issue of the extent of review, if any, of such arbitration agreements is traditionally a far stronger reason to take cert. That basic issue could presumably be decided by the Supreme Court here without getting into the messy double-patenting and antitrust arguments of this particular case – that could presumably all just be bucked back to the Fed. Cir. even if the Petitioner wins on the basic issue at the Sup. Ct. [and thus still lose]?

  3. I am not certain of the details, but was not the listed rationale for not following the arbitration results (Dow’s assertion of the found infringed patents to be “duplicative and expired patents” hashed out during the arbitration process?

    Either Dow failed to push its reasoning at a timely manner during arbitration, or they timely pushed their reasoning and just do not like the results that the arbitrator came back with.

    So aside from any look at the merits of its (current) arguments, is there a compelling reason to give Dow what appears to be another bite at the apple?

    1. Anon, you’re indeed correct. Dow did raise a public policy argument during the arbitration; the arbitrators reviewed and rejected this challenge. Further undercutting Dow’s position is that the CAFC analyzed Dow’s public policy challenge and found it adequately addressed by the arbitrators.

      With all due respect to Professor Crouch, I don’t think Dow has an excellent chance at getting cert granted in this case. Dow raised a public policy challenge and just didn’t like the results of the arbitration and well as the deference given to the arbitrators by the reviewing courts. [Note: To be perfectly clear here, I’m not in agreement with the arbitration decision in this case.]

      Of course, if you calculate the odds of a cert grant based on whom the petitioner is, the amount in dispute and the quality of SCOTUS counsel, Dow does have a shot at SCOTUS review but that’s an entirely different issue.

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