Immersion Corp. v. Sony Computer Entm't Am. LLC, Case No. 16-cv-00857-RMW

• Decision Date: 26 April 2016
• Docket Number: Case No. 16-cv-00857-RMW
• Citation: 188 F.Supp.3d 960
• Court: U.S. District Court — Northern District of California
• Parties: Immersion Corporation, Plaintiff, v. Sony Computer Entertainment America LLC, et al., Defendants.

188 F.Supp.3d 960

Immersion Corporation, Plaintiff,

v.Sony Computer Entertainment America LLC, et al., Defendants.

Case No. 16-cv-00857-RMW

United States District Court, N.D. California, San Jose Division.

Signed April 26, 2016

Filed May 19, 2016

Akari Atoyama-Little, Morrison and Foerster, San Francisco, CA, Marc David Peters, Bryan Joseph Wilson, Morrison & Foerster LLP, Palo Alto, CA, for Plaintiff.

Brandon Hugh Brown, Kirkland and Ellis LLP, San Francisco, CA, David Rokach, Kirkland and Ellis LLP, Chicago, IL, Gregory S. Arovas, Kirkland & Ellis LLP, New York, NY, Gregory S. Gewirtz, Lerner David Littenberg Krumholz & Mentlik LLP, Westfield, NJ, John C. O'Quinn, Kirkland and Ellis LLP, Washington, DC, for Defendants.

ORDER GRANTING PETITION TO CONFIRM ARBITAL AWARD

Re: Dkt. Nos. 1, 38

Ronald M. Whyte, United States District Judge

Plaintiff Immersion Corporation petitions this court to confirm an arbital award against defendants Sony Computer Entertainment America LLC and Sony Computer Entertainment Inc. (collectively, "Sony") under the New York Convention. Dkt. No. 1. Sony opposes the petition and requests that the award be vacated pursuant to Article V of the New York Convention and § 10 of the Federal Arbitration Act. Dkt. No. 38. The court heard argument on April 1, 2016. For the reasons set forth below, the court grants Immersion's petition to confirm the award. Sony's motion to vacate is denied. Immersion's request for attorney's fees is denied.

I. BACKGROUND

Immersion is incorporated in Delaware and owns several patents covering digital touch technologies. Sony Computer Entertainment America LLC is incorporated in Delaware, and Sony Computer Entertainment Inc. is incorporated in Japan. Sony manufactures, markets, and distributes PlayStation systems. In 2002, Immersion sued Sony in the Northern District of California, asserting that certain Sony PlayStation products infringed its patents. The court entered final judgment in Immersion's favor, and the parties subsequently entered into a 2007 settlement agreement resolving the litigation and establishing "a new business relationship." Dkt. No. 38-2 at 1. Under the 2007 agreement, Immersion granted Sony a license to manufacture "royalty bearing" products in exchange for the payment of royalties. See id. The agreement defines "Royalty Bearing Products" as products that 1) contain "the physical means... that create tactile sensations that can felt by the user" and 2) are "covered by at least one Immersion Patent in the country or area where such unit is manufactured, sold, used or distributed." Id. ¶ 5.4(b). Section 4.3 of the 2007 agreement provides for arbitration of certain disputes between the parties, including "whether a particular product or service of the Sony Entities is a Royalty Bearing Product." Id. ¶ 4.3(a).

In 2014, a dispute arose between the parties as to whether DualShock® 4 controllers sold by Sony in Japan are "Royalty Bearing Products." In particular, the parties were unable to agree whether the DualShock® 4 controllers are covered by one of Immersion's Japanese patents—the '301 patent. Pursuant to the arbitration clause in the 2007 agreement, the parties arbitrated the dispute with retired United States District Judge James Ware presiding. The arbitrator issued a Final Award on December 22, 2015, declaring that "Sony's DS4's Wireless Controllers manufactured, sold or distributed in Japan after April 8, 2014 were and are ‘royalty bearing’ products as defined by Paragraph 5.4 of the 2007 Agreement." Dkt. No. 38-4 at 23. The arbitrator indicated that the award addressed all issues presented for determination in the arbitration proceeding. Id.

Immersion petitions this court to confirm the award, arguing that Sony "has no legitimate basis for opposing" Immersion's petition. Dkt. No. 1. Sony opposes Immersion's petition and moves to vacate the award on three grounds: 1) the award is contrary to the well-established policy of the United States because the arbitrator precluded Sony from asserting an invalidity defense, 2) the arbitrator refused to hear evidence pertinent and material to the controversy—specifically prior art evidence relating to non-infringement under Japanese law, and 3) the arbitrator manifestly disregarded Japanese law by failing to determine the extent of direct infringement as a necessary predicate for a finding of indirect infringement.

II. IMMERSION'S PETITION TO CONFIRM AND SONY'S MOTION TO VACATE

Immersion asks this court to confirm the award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), which is implemented by the Federal Arbitration Act ("FAA") at 9 U.S.C. §§ 201 –08. Dkt. No. 1 at 1. The arbitration award falls under the New York Convention because it arises "out of a legal relationship...which is considered as commercial" and involves a party that is not a citizen of the United States—Sony Computer Entertainment Inc. Id. § 202. This court must confirm the award "unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention." Id. § 207.

Sony opposes Immersion's petition and asks the court to vacate the award pursuant to Article V of the New York Convention and § 10 of the FAA. There are seven grounds for refusing to confirm or vacating an award under Article V of the New York Convention.¹ In this case, Sony argues that "recognition or enforcement of the award would be contrary to the public policy" of the United States under Article V(2)(b). Sony also argues that it may challenge the award based on the grounds provided for in the FAA, specifically under § 10(a)(3) for failure to consider pertinent and material evidence and under § 10(a)(4) for manifest disregard of the law.² SeeDkt. No. 55 at 9. Immersion contends that the "Convention's enumeration of defenses is exclusive" and that Sony may not challenge the award on FAA grounds. Dkt. No. 45 at 17.

Article V(1)(e) of the New York Convention provides that a court may refuse to confirm an award that has been "set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made." Therefore, Sony argues, the "Convention specifically contemplates that the state in which...the award is made, will be free to set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief." Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584, 588 (2d Cir.2016), quoting Yusuf Ahmed Alghanim & Sons v. Toys "R" Us, Inc., 126 F.3d 15, 23 (2d Cir.1997). Sony notes that this approach has been adopted by other circuits, as well as by a district court in this circuit. See, e.g. , Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998 Year of Account , 618 F.3d 277, 292 (3d Cir.2010), as amended (Dec. 7, 2010) ("When both the arbitration and the enforcement of an award falling under the Convention occur in the United States, there is no conflict between the Convention and the domestic FAA because Article V(1)(e) of the Convention incorporates the domestic FAA and allows awards to be ‘set aside or suspended by a competent authority of the country in which...that award was made.’ Here, because the arbitration took place in Philadelphia, and the enforcement action was also brought in Philadelphia, we may apply United States law, including the domestic FAA and its vacatur standards."); LaPine v. Kyocera Corp. , No. C 07–06132 MHP, 2008 WL 2168914, at *5 (N.D.Cal. May 23, 2008) (finding that for awards rendered in the United States under the New York Convention, "the appropriate standard of review is under both Article V and(9 U.S.C. section 10.")).

Immersion argues that the application of FAA defenses is still an open question in the Ninth Circuit. Dkt. No. 45 at 17 n.4 (citing LaPine , 2008 WL 2168914 at *5 ("[w]hether, in addition to the grounds specified in Article V of the Convention, the ‘domestic’ standards embodied in Chapter I of the FAA apply to review of an arbitral award falling under the Convention and made in the United States under American law is an open question in the Ninth Circuit.")). However, the weight of authority favors applying FAA defenses to New York Convention arbitration awards made in the United States. Immersion cites one Eleventh Circuit case addressing an award rendered in the United States and holding that "no defense against enforcement of an international arbitral award under Chapter 2 of the FAA is available on [any] grounds not specified by the Convention." Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH , 141 F.3d 1434, 1446 (11th Cir.1998). However, the Eleventh Circuit did not explicitly address the effect of Article V(e)(1). This court is not aware of any other authority holding that domestic standards of review do not apply to an arbitration award falling under New York Convention but made in the United States.

In the absence of further guidance from the Ninth Circuit, the court interprets Article V(e)(1) as contemplating review by a competent authority of the country in which an award was made. Therefore, the court considers Sony's arguments for vacating the award under both the New York Convention and the domestic standards for review under the FAA.

A. Public Policy

Sony seeks to vacate the award because it "awarded royalties based upon a finding of indirect infringement of the '301 Patent, but did so while barring Sony from raising any invalidity defenses" in violation of the public policy against excluding invalidity defenses. Dkt. No. 38 at 11. Immersion responds that 1) Sony cannot raise a public policy challenge now that it did not assert in arbitration, 2) Sony has not shown that the award violates the "most basic notions of morality and justice" in the United States, as required for application of the New York Convention's public policy defense, 3) the court may not engage in de novo...