Arbitration Agreement Does Not Encumber Patent

DataTreasury v. Wells Fargo (and 50+ other banks) (Fed. Cir. 2008)

In 2006, DataTreasury obtained its electronic check clearing patents from WMR e-Pin — a company that had previously licensed its patents to Wells Fargo. The license agreement included a provision requiring arbitration of disputes.

Soon after DataTreasury obtained the patents, it sued Wells Fargo and more than fifty other major banking institutions for patent infringement. On interlocutory appeal here, is the district court’s refusal to stay litigation pending arbitration. DataTreasury argues that it is not bound by the arbitration agreement.

On appeal, the CAFC confirmed that the subsequent purchaser, DataTreasury, is not bound by the arbitration clause. Applying Fifth Circuit interpretation of the FAA and Minnesota law, the appellate panel found that the arbitration policy does not operate as a servitude upon the property. Rather, the arbitration agreement it is a personal contract binding only the original parties. “[R]equiring a non-signatory to arbitrate solely on the basis of an arbitration clause in a license agreement between signatory parties would be inconsistent with basic principles of contract law and the Federal Arbitration Act.”

The case is remanded to Judge Folsom (E.D.Tex.) to resolve the dispute.

Comments

[TJ]

Yes, well, since a license itself is generally only a personal contract right binding only on the parties to a contract--and traditionally does not "run with the land"--the Federal Circuit decision here seems to imply the absurd result that Datatreasury is not bound at all by licenses issued by WMR e-Pin. It obviously runs away from this unacceptable conclusion by saying that arbitration is a "procedural term"; but a mere personal contractual right is a just that regardless of whether it is procedural or not.

[Just Visiting]

"the Federal Circuit decision here seems to imply the absurd result that Datatreasury is not bound at all by licenses issued by WMR e-Pin."

I don't think that's a fair characterization. Minnesota law specifically limits "running" of arbitration clauses such as the one at issue here. The opninion wouldn't apply to most of the other terms of a licnese/contract.

[big hairy rat]

So lawyers have to do a better job of drafting the license agreements so that the Court will understand that the license in all its terms is a charge on the patent, binding on assignees.

[law student]

Is this kinda like the difference between a personal covenant (I won't sue you for trespass if you use my driveway) and an easement (you have the right to use my driveway)?

[big hairy rat]

"Is this kinda like the difference between a personal covenant (I won't sue you for trespass if you use my driveway) and an easement (you have the right to use my driveway)?"

Yes, but if "my" lawyer only drew a personal covenant when he should have drawn an easement, I need a better lawyer. (An easement "runs" with the land as the land is transferred to subsequent owners.)

[TJ]

Just visiting, there is the rub. Minnesota law prohibits the running of arbitration clauses with the property because arbitration contracts are personal and do not run with property. At common law (and in every state that I am aware of), a license to use property is personal and does not run with the property; only easements do. So applying the license-right-is-personal-and-not-enforceable-against-assignee logic would invalidate every patent license out there.

[e#6k]

Hey guys have any of you checked out MPEP 707.05(b)II lately? I don't see the part about requiring a director to sign off on the requiring the applicant to disclose info any more. Anyone see that still in somewhere? Looks like this might have been eased up.

[Dennis Crouch]

e#6k -- If you are thinking of Star Fruits style Requirements for Information, it is in 704.10.

"An examiner or other Office employee may make a requirement for information reasonably necessary to the examination or treatment of a matter in accordance with the policies and practices set forth by the Director(s) of the Technology Center or other administrative unit to which that examiner or other Office employee reports."

[e#6k]

Thanks D, so basically it still rests on the policies and practices of the TC, hmm, well I guess they'll let us know if it eases up. They've let us know about all of the rest of the ease ups fairly fast.

[David J. French]

David French writes:

Consider adding to a license agreement the following clause:

"In support of this license the patent owner hereby conveys and transfers to the licensee a co-ownership interest in the patent which is coextensive with and limited to the rights of the licensee as set out in this license".

[Mark Mann]

This case is just wrong per Supreme Court precedent on the FAA. This has cert written all over it.

[Chris Stone]

Is it not a bit risky to give "co-ownership" to a licensee, even if couched in terms of being "coextensive" with the license? The decision itself provides several alternatives to making that clause enforceable on an assignee, including assumption, incorporation by reference, third party beneficiary rules, and estoppel. Makes sense to me to include such provisions in a contract, i.e., requiring that in the case of assignment, the assignor will require that the assignee agree to all terms of the contract. any thoughts?

[Steve M]

All legalities aside; assuming they were aware of the license; it was morally repugnant for DataTreasury to follow this path. Right and wrong should still matter.

[Anonymous]

Let's get it right. The arbitration agreement only related to ONE of the four patents involved and the case is only SECOND to the infringements of Datatreasury's own ORIGINAL "Check Imaging" patents.

Before throwing stones--read on:

The “innocent banks” and their ilk:
From: Chief Executive (U.S.)5/1/2001 Author: PRINCE, C.J
It's not every CEO who freely admits to swiping other people's ideas--although, truth be told, the vast majority of successful chief executives have probably taken the liberty. But ask Richard Kovacevich, CEO OF WELLS FARGO, whether he prefers inventing ideas or stealing them and he's quick with his response. "Oh, I'd much rather steal an idea," the 57-year-old CEO says matter-of-factly. "Quite frankly, it's much easier mentally. I have no pride about that."

[Just an ordinary inventor(TM)]

Question:
If the DataTreasury invention is a national security matter, as I've read elsewhere, why doesn’t the government exercise eminent domain in return for fair compensation?

[Anonymous]

ASA HUTCHINSON's Op-Ed piece in the Washington Times that argues that America must stop DataTreasury to protect itself from Osama Bin Laden. You have got to be kidding!!!

[Steve M]

JAOI--why no eminent domain? I think I saw a monetary analysis somewhere saying this/these patent/s could cost the US treasury over 1 billion dollars.

Meaning, of course, that it'd be much cheaper for the govt to steal it/them with legislation than license/buy them.