First published in LES Insights
By including an arbitration clause in a license or settlement agreement, parties can agree to resolve certain disputes over the agreement through arbitration, rather than through litigation in court. Arbitration can allow the parties to have more control over certain aspects of the process of resolving disputes and has a variety of benefits as well as challenges. Sometimes, however, parties will dispute the applicability of an arbitration clause when later disputes arise between them. In these situations, the court will assess both whether the parties agreed to arbitration and, if so, the scope of the issues to be arbitrated. Despite liberal policies favoring arbitration agreements, a recent decision in the Northern District of California shows that arbitration clauses can, in certain situations, be narrowly construed, causing the dispute to remain in federal court.
In Radware, Ltd. v. F5 Networks, Inc.,1 Radware sued F5 for infringement of patents directed to managing computer networks. With its answer, F5 filed a counterclaim for infringement of four related patents, one of which (the "'802 patent") was the subject of a previous litigation between Radware and F5. The litigation involving the '802 patent ended when the parties signed a nonexclusive patent license agreement, in which F5 granted Radware the right to practice the claims of the '802 patent and any patents derived from it, which included the other three patents in F5's counterclaim. The Agreement, however, granted Radware only the right to practice the "associative" and "passive" modes disclosed in the '802 patent and expressly did not include the right to practice the "insert" and "rewrite" modes. Further, the Agreement contained an arbitration clause providing that "[a]ny and all disputes between the parties arising out of or related to this Agreement . . . must be submitted for resolution by arbitration." After F5 filed its counterclaims, Radware moved to compel arbitration and stay the litigation, arguing that F5's counterclaims fell within the scope of the arbitration clause.
The Radware Decision
Radware first argued that F5's counterclaims invoked the arbitration clause because they related to the patent rights granted in the License Agreement. The district court rejected that argument, noting that the License Agreement granted only rights to the patents "to the extent that they cover the associative and passive modes." Because the Agreement expressly excluded the "insert" and "rewrite" modes, only counterclaims related to the "associative" and "passive" modes could arise out of or relate to the License Agreement for arbitration purposes. F5's counterclaims, by contrast, alleged that Radware's products infringed the "insert" and "rewrite" modes. Thus, the counterclaims fell outside the scope of the arbitration clause and the case properly remained before the district court.
Radware also argued that an arbitrator should ultimately determine whether F5's counterclaims were subject to arbitration. The district court also dismissed this argument, stating "unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court." While the License Agreement required arbitration for "any disputes arising out of or related to" the License Agreement, the district court found that this was not a clear and unmistakable invocation of arbitration in all circumstances. As such, the district court had full authority to address the scope and application of the arbitration clause. And because F5 unambiguously confined its counterclaim to the modes that were not licensed under the Agreement, the counterclaims did not invoke the arbitration clause.
Further, Radware's arguments that "insert" and "rewrite" functionalities inhere in the "associative" mode also failed. According to the court, the patents expressly distinguished between the various modes in the figures, the claim language, and the abstracts. Moreover, the License Agreement itself differentiated between the various modes. To construe the Agreement otherwise would ignore its own unambiguous language. Accordingly, the district court denied Radware's motion to compel arbitration and stay the litigation.
Strategy and Conclusion
This case illustrates situations that arise when a court is called upon to determine the scope of an arbitration clause. As with drafting other provisions in agreements, parties can consider whether to more explicitly specify the issues or the scope of an arbitration clause. And as well, parties wanting to increase the possibility of arbitration may consider using clauses that explicitly give arbitrators the right to determine the ultimate arbitrability of a dispute.