Patent Law

Bank Holdup

By Gary Odom and Jordan Kuhn

Wells Fargo inked a software license agreement with WMR in December 2003. In 2004, a patent license agreement (PLA) followed. In early February 2006, WMR sold four patents to DataTreasury: 5,265,007; 5,583,759; 5,717,868; and 5,930,778, patents encompassing what would become federally-mandated digital check processing under the law known as Check 21. DataTreasury then embarked on a massive patent enforcement campaign against a slew of banks, including Wells Fargo. Wells Fargo thought that DataTreasury was bound by the PLA it had with WMR.

DataTreasury v. Wells Fargo and a Bankroll of Banks (CAFC 07-1317)

On February 24, 2006, Appellee [DataTreasury] filed a complaint in the Eastern District of Texas accusing Appellants of infringing the patents-in-suit. On January 8, 2007, Appellants [Wells Fargo et al] moved to dismiss or, in the alternative, stay pending arbitration. Appellants asserted that the PLA prohibits Appellee from bringing an infringement action against them. Appellants argued that the term "patent" should be interpreted broadly under the PLA. Based on this interpretation, Appellants argued that as an assignee of the patents-in-suit, Appellee is bound by the PLA, including the covenant not to sue and the arbitration clause.

The district court denied the motion to dismiss or stay, figuring that, under prevailing state law (Minnesota), DataTreasury was not bound to the PLA, and, regardless, "a plain reading of the PLA did not support the conclusion that the word "patent" encompasses the patents-in-suit."

Hence this appeal.

Applying basic principles of contract law, courts in Minnesota have held that a party is not bound by an arbitration clause unless it is a signatory to the underlying contract.

As viewed by the Fifth Circuit, requiring a non-signatory party 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, 9 U.S.C. § 2 et seq. ("FAA"). "Arbitration under the FAA is a matter of consent, not coercion." Equal Employment Opportunity Comm'n v. Waffle House, Inc., 534 U.S. 279, 299 (2002).

Neither party in this litigation signed the PLA or participated in negotiating any of its terms.3 Accordingly, the dispute between these parties is not subject to the arbitration clause of that agreement. As this court previously has recognized, "a party cannot be compelled to arbitrate if an arbitration clause does not bind it." Microchip, 367 F.3d at 1357.

Affirmed.

Full post as published by The Patent Prospector on April 17, 2008 (boomark / email).