Baysand Inc. v. Toshiba Corp., Case No. 15-cv-02425-BLF
| Decision Date | 19 November 2015 |
| Docket Number | Case No. 15-cv-02425-BLF |
| Parties | BAYSAND INC., Plaintiff, v. TOSHIBA CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of California |
[Re: ECF 20, 34]
Before the Court is Defendant's Motion to Dismiss the Complaint or Stay Proceedings. ECF 20, 34. Defendant contends that an arbitration tribunal should determine the threshold question of whether or not this dispute is abritrable and asks the Court to dismiss or stay this proceeding pending arbitration. Id. Plaintiff opposes the motion, arguing that the Court must determine arbitrability. ECF 36-1. For the reasons below, the Court finds that an arbitrator should determine the arbitrability of Plaintiff's claims. Accordingly, the Court DENIES Defendant's motion to dismiss and GRANTS Defendant's motion to stay pending the arbitrator's determination of arbitrability.
Plaintiff BaySand, Inc. describes itself as a "fabless semiconductor company developing metal only, configurable ASIC using innovative and disruptive Metal Configurable Standard Cell technology with its principal place of business in Morgan Hill, California." Compl. ¶ 7. Plaintiff alleges that it owns several patents relating to architecture and circuitry for integrated circuits. Id. ¶ 9.
Defendant Toshiba Corporation has its principal place of business in Tokyo, Japan, id. ¶ 8, and describes itself as a "world-class innovator and industry leader in advanced semiconductor products and technologies," see Mot. at 3. Two agreements, described in detail below, govern the relationship between the parties.
On or about October 9, 2012, Plaintiff and Defendant entered into a license agreement ("License Agreement"), which Plaintiff alleges allows Defendant to use a 65 or 40 nanometer mode of Plaintiff's patented technology. Compl. ¶ 10. The License Agreement includes an arbitration clause, which states:
Any dispute, controversies or differences which may arise out of or in connection with the interpretation or performance of this Agreement . . . shall be finally settled according to the Rules of the Conciliation and Arbitration of the International Chamber of Commerce ["ICC Rules"]. Arbitration proceedings shall take p[l]ace in Tokyo, Japan. The decision of the arbitration proceedings shall be final and binding upon both Parties."
Chachkes Exh.1, ECF 34-2 at Article 12.3.
Plaintiff alleges that a dispute exists between the parties regarding whether the License Agreement grants Defendant the right to use a 28 nanometer mode of Plaintiff's technology ("28 Nanometer Technology"). Compl. ¶ 24. Plaintiff contends that the license does not extend to the 28 Nanometer Technology. Id. ¶ 10. Rather, Plaintiff asserts that, since early 2014, it has been working on licensing the 28 Nanometer Technology to another customer ("Customer"). Id. ¶ 12. Plaintiff alleges that it expressly did not communicate the nature and existence of that relationship, nor Customer's identity, to Defendant. Id.
Plaintiff alleges that, in late 2014, Defendant expressed an interest in purchasing or merging with Plaintiff. Id. ¶ 13. Plaintiff allowed Defendant to engage in due diligence, subject to Defendant entering into a non-disclosure agreement ("NDA"). Id.
On or about October 13, 2014, the parties entered into the NDA to allow Defendant to "evaluate the feasibility of acquiring all or part of [Plaintiff]." Chackes Exh. 2, ECF 34-3 at 1. Like the License Agreement, the NDA includes an arbitration clause. The clause states:
Any dispute, controversies or differences which may arise out of or in connection with the interpretation or performance of this Agreement . . . shall be exclusivelyand finally settled by arbitration. The arbitration shall take place in Tokyo, Japan. The arbitration proceedings shall be conducted . . . in accordance with the [ICC Rules]. The decision of the arbitration proceedings shall be final and binding upon the Parties.
Plaintiff alleges that, through the due diligence process, Defendant obtained information regarding Plaintiff's discussions with Customer, as well as information regarding Plaintiff's technology and patent claims. Compl. ¶ 13.
Plaintiff contends that, after accessing this information, Defendant contacted Customer and falsely asserted that Defendant had an exclusive license to the 28 Nanometer Technology. Id. ¶ 14. Plaintiff additionally alleges that Defendant began circulating a product sheet that included the option of scaling to a 28 nanometer mode, id. ¶15, and issued a press release announcing that it was developing a 28 nanometer mode product based on Plaintiff's technology, id. ¶ 16. Plaintiff asserts that Customer has declined to engage in further licensing discussions until and unless Defendant confirms that it has no rights with respect to the 28 Nanometer Technology, which Defendant refuses to do. Id. ¶ 17.
On June 1, 2015, Plaintiff filed a complaint alleging five causes of action: 1) declaratory judgment of patent infringement, 2) promissory fraud, 3) tortious interference with prospective business advantage, 4) misappropriation of trade secrets, and 5) trade libel. ECF 1. On the same day, Plaintiff also filed a Request for Arbitration with the International Chamber of Commerce ("ICC"), asserting claims of breach of contract, declaratory judgment regarding the scope of the License Agreement, and breach of the NDA. Chachkes Exh. 3, ECF 34-4.
On July 15, 2015, Defendant filed this Motion to Dismiss under Rule 12(b)(1), (3), or (6) or to Stay Pending Arbitration pursuant to Section 3 of the Federal Arbitration Act ("FAA"). Plaintiff opposed the motion on August 17, 2015 and Defendant replied on September 8, 2015. The Court heard oral argument on October 29, 2015.
Chapter 2 of the Federal Arbitration Act ("FAA") governs arbitration agreements arising out of commercial legal relationships between parties that are not all United States citizens, 9 U.S.C. § 202, and is "intended to encourage the recognition and enforcement of commercial arbitration agreements in international contracts." Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 538 (1995). Because the parties here are a Japanese and an American company engaged in a commercial transaction that includes at least two agreements with arbitration clauses, the FAA applies to this case.
"By its terms, the [FAA] 'leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.'" Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985)) (emphasis in original). The court's role under the FAA is limited to determining "two 'gateway' issues: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute." Brennan v. Opus Bank, 796 F. 3d 1125, 1130 (9th Cir. Aug. 11, 2015) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)).
Even these gateway issues can be submitted to an arbitrator where there is "clear and unmistakable evidence" that the parties intended that result. See AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986); see also Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1072 (9th Cir. 2013) (citing Howsam, 537 U.S. at 83).
If the court finds that the parties clearly and unmistakably delegated the power to decide arbitrability to an arbitrator, then the court performs a limited inquiry to determine whether the assertion of arbitrability is "wholly groundless." See Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006); see also Bitstamp Ltd. v. Ripple Labs Inc., No. 15-cv-01503-WHO, 2015 WL 4692418, at *5 (N.D. Cal. Aug. 6, 2015); Nitsch v. DreamWorks Animation SKG Inc., No. 14-CV-04062-LHK, 2015 WL 1886882, at *8 (N.D. Cal. Apr. 24, 2015).
If the assertion is not wholly groundless, a court may dismiss or stay the action. See Gilbert v. Bank of Am., No. C 13-01171 JSW, 2015 WL 1738017, at *7 (N.D. Cal. Apr. 8, 2015) (citing Sparling v. Hoffman Const. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988)) (discussingcourt's discretion to dismiss or stay upon a finding that parties agreed to arbitrate arbitrability).
Defendant brings this Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).1 Dismissal for failure to state a claim under Rule 12(b)(6) is proper where a court has determined that the claims before it are subject to arbitration. See, e.g., Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1060 (9th Cir. 2004); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 726 (9th Cir. 1999). Courts in this circuit have also dismissed claims upon a finding that an arbitrator must determine arbitrability. See Daiei, Inc. v. U.S. Shoe Corp., 755 F. Supp. 299, 303 (D. Haw. 1991).
Alternatively, Defendant asks the Court to stay this action pending arbitration pursuant to Section 3 of the FAA, 9 U.S.C. § 3. If the assertion of arbitrability is not "wholly groundless," then the action can be stayed pending a ruling on arbitrability by an arbitrator. See Qualcomm, 466 F.3d at 1371.
The parties agree that a valid arbitration agreement exists between them. See, e.g. Mot. at 6, Opp. at 1. Plaintiff has already invoked the clause to file a Request for Arbitration with the ICC. See Chachkes Exh. 3.
Therefore, the threshold issue in this case is who must determine the arbitrability of Plaintiff's claims: an arbitrator or the Court. Defendant asserts that the parties' incorporation of the ICC Rules into their...
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