When parties seek to dismiss or stay a patent dispute in federal court in favor of arbitration pursuant to an agreement, someone needs to decide whether the parties' dispute falls within the scope of the agreement's arbitration provision (and is thus arbitrable). Whether that question is decided by the court or the arbitrator depends on the language of the agreement. So, in essence, the court must interpret the agreement for the limited purpose of divining the parties' intent (or lack thereof) to shunt arbitrability to the arbitrator.
In a recent order in Nidec Corp. v. Seagate Technology LLC, C.A. No. 21-52-RGA, Judge Andrews found that the parties' eight-year-old covenant agreement required that the threshold question of arbitrability be decided by the arbitrator, not the Court.
Segate filed a motion to compel arbitration, and a motion to dismiss or stay the case, while Nidec sought to enjoin arbitration in favor of the district court case (where Nidec was asserting five patents against Seagate).
Judge Andrews noted the general presumption in favor of arbitration under the Federal Arbitration Act, but explained that "[t[he policy favoring arbitration stops short of favoring arbitration of arbitrability. A court should decide that parties agreed to arbitrate arbitrability only if the evidence is clear and unmistakable that they did so." In the face of such clear and unmistakable evidence, the court is required to permit the arbitrator to decide arbitrability, even if the court thinks the argument in favor of arbitrability is "wholly groundless."
The parties' agreement provided that:
If the parties are unable to resolve any dispute, controversy or claim arising out of or relating to this Agreement, including . . . whether the dispute, controversy or claim asserted is able to be arbitrated. . . then either party will have the option to request that the dispute be finally determined by arbitration in accordance with the JAMS International Arbitration Rules.
Judge Andrews easily concluded that this provision put arbitrability squarely in the arbitrator's hands:
Here, there is a dispute between the parties about whether the claims asserted in this case can be arbitrated pursuant to the Covenant Agreement. Therefore, this dispute is within the scope of the arbitration clause and must be delegated to an arbitrator. The Covenant Agreement may be completely irrelevant to the claims in this action. But that is not an issue that I am permitted to resolve per the clear language of the contract.
He disposed of plaintiff Nidec's protests, ruling that "Nidec is not 'being forced to arbitrate a matter that it has not agreed to arbitrate,' it is being compelled to arbitrate the interpretation of 'arise out of or relate to the Covenant Agreement,' which it clearly and unambiguously did agree to arbitrate."
Judge Andrews declined to dismiss NIdec's claims, because to do so would require a decision on arbitrability. Instead, he opted to stay the case pending the arbitrator's decision.
Judge Andrews did signal a warning to Seagate should its claims of arbitrability turn out to be baseless:
Presumably, in a patent case at least, I also have the ability down the road to take actions that respond to wholly groundless assertions of arbitrability, such as, for example, pursuant to an 'exceptional case' determination.