Federal Circuit Refuses To Enjoin International Arbitration Of Patent Claims

by Stinson Leonard Street - Arbitration Nation

https://jdsupra-html-images.s3-us-west-1.amazonaws.com/933aff27-6352-4bb6-be56-48d28b6fc7e8-PillBottles-190x178.jpgJust after I posted about the awesome power of federal courts to enjoin other cases, the Federal Circuit reminds us the power is not absolute.  In Sanofi-Aventis Deutschland Gmbh v. Genentech, Inc., __ F.3d __, 2013 WL 1921073 (Fed. Cir. May 10, 2013), it affirmed the district court’s decision not to enjoin a foreign arbitration over a patent dispute, even though a very similar issue had been fully litigated in the U.S. courts.

Sanofi claimed that Genentech’s drug sales had infringed Sanofi’s patents. The parties had a licensing agreement, which called for the application of German law and for arbitration of disputes with the International Chamber of Commerce. The alleged infringement started in 1997 and constituted a breach of that agreement, but was first raised by Sanofi in 2008.  Once it was raised, Genentech terminated the agreement.

Sanofi started an ICC arbitration on October 24, 2008.  Genentech then filed an action in U.S. federal court, asking the court to find no infringement of the patent.  Genentech won; the district and appellate court found it had not infringed the patent.  However, the district court refused to enjoin Sanofi from continuing with the ICC arbitration.

[In a prime example of how proceeding in multiple venues can lead to conflicting results, the ICC arbitrator then ruled against Genentech.  Applying German substantive law, it found Genentech liable for damages under the licensing agreement.]

Genentech appealed the denial of its motion to enjoin the arbitration.  The federal circuit affirmed the district court’s decision.  A three-factor test applies when district courts decide whether to enjoin parties from pursuing foreign arbitration or litigation: whether the parties and issues are the same, whether the foreign case frustrates a U.S. policy, and “whether the impact on comity would be tolerable.”  Here, the first factor was dispositive.  The U.S. case had determined whether Genentech infringed the patent under U.S. law after the agreement was terminated, while the foreign arbitration centered on whether under German law Genentech had breached the agreement while it was in effect.  Because of those differences, the issues were not the same and the U.S. policy of res judicata was not frustrated.  Furthermore, the court found no reason to override the parties’ selection of the ICC as the forum for disputes under the agreement.

One judge wrote a concurring opinion to make sure this decision would not be misused.  That opinion emphasized that the U.S. policy favoring enforcement of forum selection clauses is not, by itself, enough to prevent the injunction of a foreign proceeding.  If the issues raised in the U.S. courts had been identical to those in the international forum, the judge wrote, “the patent holder should not be allowed to make an end run around the U.S. determination by later invoking an international proceeding.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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