Ncr Corp v. Korala Associates, Ltd.

• Decision Date: 16 January 2008
• Docket Number: No. 06-3685.,06-3685.
• Citation: 512 F.3d 807
• Parties: NCR CORPORATION, Plaintiff-Appellant, v. KORALA ASSOCIATES LTD., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

512 F.3d 807

NCR CORPORATION, Plaintiff-Appellant, v. KORALA ASSOCIATES LTD., Defendant-Appellee.

No. 06-3685.

United States Court of Appeals, Sixth Circuit.

Argued: February 1, 2007.

Decided and Filed: January 16, 2008.

ARGUED:

Paul R. Gupta, Orrick, Herrington & Sutcliffe, New York, New York, for Appellant. Paul M. Fakler, Moses & Singer, New York, New York, for Appellee.

ON BRIEF:

Paul R. Gupta, Orrick, Herrington & Sutcliffe, New York, New York, John D. Luken, Joshua A. Lorentz, Dinsmore & Shohl, Cincinnati, Ohio, Clifford R. Michel, Mayer Brown, New York, New York, for Appellant. Paul. M. Fakler, Moses & Singer, New York, New York, William F. Patry, Thelen, Reid & Priest, New York, New York, for Appellee.

Before: KENNEDY, BATCHELDER, and CLAY, Circuit Judges.

OPINION

ALICE M. BATCHELDER, Circuit Judge.

Plaintiff NCR Corporation ("NCR") appeals the order of the district court¹ compelling NCR and defendant Korala Associates. Ltd. ("KAL") to arbitrate NCR's claims against KAL, pursuant to 9 U.S.C. § 206,² part of Chapter 2 of the Federal Arbitration Act, see 9 U.S.C. § 201, et seq., which implements the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38.

I. BACKGROUND

NCR is one of the largest providers of Automatic Teller Machines ("ATM") equipment, integrated hardware and software systems, and related maintenance and support services in the world. NCR's ATMs use either the Windows operating system or the OS/2 operating system. NCR installs its APTRA XFS software ("APTRA XFS") on those ATMs using the Windows operating system and its S4i software ("S4i") on those ATMs using the OS/2 operating system. NCR owns a registered copyright for its APTRA XFS software and had applied, on an expedited basis, to register a copyright for APTRA XFS's precursor software. NCR had also applied, on an expedited basis, to register copyrights for two versions of the S4i software.

Over 300,000 NCR ATMs are installed world-wide, and at the time NCR filed its Amended Complaint, approximately 150,000 of these ATMs required the installation of an upgraded software system so that the machines would be Triple-DES³ compliant. NCR has developed a Triple DES system upgrade to install on its ATMs. KAL, likewise, has developed a Triple-DES system upgrade, which can be installed on. NCR ATMs. NCR asserts that KAI, could not have developed its NCR-compatible system upgrade without illegally copying and analyzing NCR's APTRA XFS and S4i software.

On December 15, 1998, KAL and NCR entered into a Software License Agreement ("1998 Agreement") in which KAL agreed to develop and license to NCR three specific software components for NCR's ATMs—Device Controls, Self Service Controls, and Service Providers— which together form software known as Kalypso. KAL also agreed to "develop additional elements of Kalypso from time to time" under the terms of the Agreement. In order to facilitate KAL's development of NCR-friendly software, "NCR agreed to loan to KAL certain computer hardware and/or software items that were necessary to enable KAL to adapt and support the Kalypso Components." To that end, NCR loaned to KAL an NCR ATM which contained NCR's copyrighted APTRA XFS software.

In addition to this particular ATM, NCR alleged that KAL obtained and accessed other NCR ATMs on which APTRA XFS or S4i was installed from NCR bank licensees or from dealers of used or refurbished NCR ATMs. Any software still installed on these ATMs could not have been operated without authorization from NCR.

NCR alleged that KAL, without permission, "obtained access to, made unauthorized use of, and engaged in unauthorized copying" of the APTRA XFS and/or S4i software on NCR ATMs, including the ATM loaned to KAL. According to NCR, by unlawfully accessing and copying the APTRA XFS and S4i software, KAL was able to develop its Triple-DES upgrade—Kalignite Upgrade Solutions—which can be installed on NCR ATMs.

In 2004, NCR brought suit against KAI, seeking damages and injunctive relief. In Counts I and II of its Amended Complaint, NCR alleged KAL's direct copyright infringement of NCR's APTRA XFS and S4i software. In Counts III and IV, NCR alleged KAL's contributory copyright infringement of the APTRA XFS and S4i software, asserting that KAL induced NCR licensees to breach confidentiality restrictions contained within NCR's licensing agreements by providing KAL access to the APTRA XFS and S4i software. In Count V, NCR alleged KAL's tortious interference with contract, asserting that KAL acted intentionally to induce NCR licensees to breach the confidentiality restrictions contained within NCR's licensing agreements by providing KAL access to the APTRA XFS and S4i software. In Count VI, NCR alleged that KAL illegally imported the infringing Kalignite Upgrade Solutions into the United States. And in Count VII, NCR alleged that KAL engaged in unethical business practices or common law unfair competition.

KAL moved to (1) dismiss NCR's Amended Complaint under Rule 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, (2) to compel the arbitration of all of NCR's claims pursuant to 9 U.S.C. § 206 and in compliance with the arbitration clause contained within the 1998 Agreement, and (3) to dismiss the matter under the doctrine of forum non conveniens. The district court first denied KAL's motion to dismiss under Rule 12(b)(1), finding that it had subject matter jurisdiction under both diversity and federal question jurisdiction. But the district court granted KAL's motion to compel arbitration and dismissed NCR's complaint without prejudice. The court did not address KAL's motion to dismiss under Rule 12(b)(6) or on the basis of forum non conveniens. NCR timely appealed the order compelling arbitration.

II. ANALYSIS

We review de novo a district court's decision regarding the arbitrability of a particular dispute. Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d 370, 385 (6th Cir.2005). "Before compelling an unwilling party to arbitrate, the court must engage in a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement." Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003) (citing AT & T Techs. v. Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)).

The arbitration clause contained within the 1998 Agreement provides that:

22.2 Any controversy or claim arising out of or relating to this contract, or breach thereof, shall be settled by arbitration and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall be appointed upon the mutual agreement of both parties failing which both parties will agree to be subject to any arbitrator that shall be chosen by the President of the Law Society.

The parties do not dispute that a valid agreement to arbitrate exists; rather the issue of contention is whether NCR's claims fall within the substantive scope of the agreement.

"As a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir.2004) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). Despite this strong presumption in favor of arbitration, "arbitration is a matter of contract between the parties, and one cannot be required to submit to arbitration a dispute which it has not agreed to submit to arbitration." Simon v. Pfizer Inc., 398 F.3d 765, 775 (6th Cir.2005) (quoting United Steelworkers, Local No. 1617 v. Gen. Fireproofing Co., 464 F.2d 726, 729 (6th Cir. 1972)).

When faced with a broad arbitration clause, such as one covering any dispute arising out of an agreement, a court should follow the presumption of arbitration and resolve doubts in favor of arbitration. Indeed, in such a case, only an express provision excluding a specific dispute, or the most forceful evidence of a purpose to exclude the claim from arbitration, will remove the dispute from consideration by the arbitrators.

Solvay Pharms., Inc. v. Duramed Pharms., Inc., 442 F.3d 471, 482 n. 10 (6th Cir.2006) (internal punctuation and citations omitted).

Here the parties dispute not only the scope of the arbitration clause, but the standard by which to determine whether a particular claim is arbitrable. The district court, relying on language contained within Fazio v. Lehman Bros., Inc., 340 F.3d 386 (6th Cir.2003), concluded that the arbitration clause's language—"any controversy or claim arising out of or relating to this contract"—"encompasses all claims which touch upon matters covered by the agreement." (emphasis added). The court held that every allegation in NCR's Amended Complaint "relates to some part of the Agreement and will require examination and interpretation of the Agreement or an exhibit to the Agreement."

NCR argues that it was legal error for the court to apply the "touches upon matters" standard, while KAL argues that "touches upon matters" is the proper standard for this Circuit. We agree with NCR. While the Fazio court stated that "[e]ven real torts can be covered by arbitration clauses `if the allegations underlying the claims "touch matters" covered by the [agreement]," 340 F.3d at 395 (quoting Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir.1987)), that court did not apply this standard to determine if the plaintiffs claims fell within the scope of the arbitration clause. Instead, the standard the court enunciated and applied was whether "an action Could be maintained without reference to the contract or relationship at issue. If it could, it is likely outside the scope of the arbitration agreement." Id. at...