Microchip Technology Inc. v. U.S. Philips Corp.

• Decision Date: 13 May 2004
• Docket Number: No. 03-1478.,03-1478.
• Citation: 367 F.3d 1350
• Parties: MICROCHIP TECHNOLOGY INCORPORATED, Plaintiff-Appellee, v. U.S. PHILIPS CORPORATION and Philips Electronics North America Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

367 F.3d 1350

MICROCHIP TECHNOLOGY INCORPORATED, Plaintiff-Appellee, v. U.S. PHILIPS CORPORATION and Philips Electronics North America Corporation, Defendants-Appellants.

No. 03-1478.

United States Court of Appeals, Federal Circuit.

May 13, 2004.

COPYRIGHT MATERIAL OMITTED

Alan H. Blankenheimer, Heller Ehrman White & McAuliffe LLP, of San Diego, CA, argued for plaintiff-appellee. Of counsel on the brief were Chad S. Campbell and Barbara A. Bailey, Brown & Bain, P.A., of Phoenix, AZ.

John M. DiMatteo, Willkie Farr & Gallagher LLP, of New York, NY, argued for defendants-appellants. With him on the brief was Eugene L. Chang. Of counsel was Anna Aguilar.

Before MICHEL, LOURIE and DYK, Circuit Judges.

DYK, Circuit Judge.

Appellants U.S. Philips Corporation and Philips Electronics North America Corporation (collectively "Philips") appeal the decision of the United States District Court for the District of Arizona denying Philips' motion to compel arbitration. Microchip Tech. Inc. v. U.S. Philips Corp., No. 01-CV-2090-PHX-PGR; 03-CV-0272-PHX-JAT (D. Ariz. June 13, 2003). Because the district court properly denied Philips' motion to compel arbitration, we affirm.

BACKGROUND

Reduced to the essentials, the background for this case may be simply stated. Philips is the owner of U.S. Patent Nos. 4,689,740 (the " '740 patent") and 5,559,502 (the " '502 patent"), which generally relate to electronic circuits and apparatuses used to communicate between integrated circuits in a wide variety of applications, including televisions, computers and cellular phones. In October 2001, Philips sued a number of companies in the Southern District of New York (the "New York action") alleging infringement of the '740 patent. The appellee, Microchip Technology Incorporated ("Microchip"), was not one of the original defendants, but in reasonable apprehension of an infringement suit by Philips, Microchip sought a declaratory judgment in the District of Arizona (the "Arizona action") that it did not infringe and was licensed to practice the '740 patent. Subsequently, Microchip amended its complaint in the Arizona action to seek an additional declaratory judgment it did not infringe and was licensed to practice the '502 patent. Philips counterclaimed for infringement of both patents, asserting that Microchip did not have a license. Philips also added Microchip as a defendant in the New York action, alleging infringement of the '740 patent.

The license dispute centered upon a 1983 agreement (the "1983 agreement") between Philips and General Instrument Corporation ("GI"). The 1983 agreement granted GI a non-exclusive license to specified Philips' patents.¹ Microchip claimed to be GI's successor to the 1983 agreement (and thus licensed under that agreement) because it was "spun off" from "a wholly owned subsidiary" of GI. (J.A. at 284.) Philips argued that Microchip never became a party to the 1983 agreement.

The 1983 agreement also included an arbitration clause that provided:

All disputes arising out of or in connection with the interpretation or execution of this Agreement during its life or thereafter shall be finally settled according to the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators in accordance with the Rules.... The award of the Court of Arbitration shall be final and binding.

(J.A. at 328.)² On December 16, 2002, Philips commenced an arbitration proceeding against Microchip in the International Court of Arbitration (the "ICA") of the International Chamber of Commerce seeking resolution of the license dispute including the issue of Microchip's successorship to the 1983 agreement.

Microchip refused to arbitrate. While continuing to urge that Microchip was not a party to the 1983 agreement, Philips moved in the Arizona district court to compel Microchip to proceed with arbitration, and the ICA agreed to hold the arbitration in abeyance. Philips asserted that the issue of whether Microchip was a successor to the 1983 agreement, and other issues concerning the existence and scope of the license, were subject to arbitration. Microchip responded by filing a motion to stay the arbitration, contending that (1) the question of whether Microchip was a party to the 1983 agreement was a gateway issue for the district court to resolve prior to referring the matter to arbitration; and (2) all of the disputed issues were for the court to decide because the arbitration clause had, by terms of the contract, expired (although the license remained in effect).

The district court denied Philips' motion to compel arbitration, but did not finally decide the issue of arbitrability, successorship or expiration of the arbitration clause. The court stated that:

Before it can determine arbitrability, the Court must first determine if both Microchip and Philips are parties to the GI Agreement. This is admittedly in dispute and is the primary basis for declaratory relief. Making this determination would require the Court to undertake an intense factual inquiry inappropriate for a motion to dismiss. Accordingly, because the Court is unable to determine the applicability of the GI Agreement to these parties, it is unwilling to enforce the arbitration clause contained therein.

Microchip Tech., slip op. at 7. Microchip's motion to stay the arbitration was also granted. Id. Philips appealed from the district court's denial of its motion to compel arbitration.

DISCUSSION

I

Before addressing the merits, we must consider the issue of appellate jurisdiction, which is governed by the law of this circuit. Nystrom v. TREX Co., Inc., 339 F.3d 1347, 1349-50 (Fed.Cir.2003). The district court's decision in this case was not final. Therefore we do not have jurisdiction under 28 U.S.C. 1295(a)(1). However, we conclude that section 16 of the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 16 (2000), rendered the order appealable under 28 U.S.C. § 1292(a)(1).

The FAA is applicable to settlement and license agreements involving patents. Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1365 (Fed.Cir.2001); see 35 U.S.C. § 294 (2000). The FAA allows "[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement" to petition a district court for an order compelling arbitration. 9 U.S.C. § 4 (2000).³ Congress amended the FAA in 1988 to allow a party to appeal an order denying a motion to compel arbitration. Judicial Improvements Act, Pub.L. No. 100-702, tit. X, § 1019(a), 102 Stat. 4671, § 15 (1988) (codified at 9 U.S.C. § 16 (2000)). The Act provides that an appeal can be taken from "an order... denying a petition ... to order arbitration to proceed." 9 U.S.C. § 16(a)(1)(B).

We conclude that section 16 of the FAA removes the barriers to appellate jurisdiction under 28 U.S.C. § 1292(a)(1). Our reasoning is as follows. An order compelling arbitration is in effect a mandatory injunction. See Sinclair Ref. Co. v. Atkinson, 370 U.S. 195, 212, 82 S.Ct. 1328, 8 L.Ed.2d 440 (1962). Denial of a mandatory injunction is ordinarily appealable under section 1292(a)(1). Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 287, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988). However, under the Supreme Court's decision in Gulfstream, an order that has "the practical effect of granting or denying [an] injunction[]" (such as an order compelling or refusing to compel arbitration) would only be appealable under section 1292(a)(1) if it had "serious, perhaps irreparable, consequence." Id. at 288, 108 S.Ct. 1133 (quoting Carson v. Am. Brands, Inc., 450 U.S. 79, 84, 101 S.Ct. 993, 67 L.Ed.2d 59 (1981)). Before the enactment of section 16, some regional circuits concluded that the denial of an order to compel arbitration did not have such consequences.⁴ Congress however disagreed and, through the enactment of section 16, directed that orders denying such motions be appealable.

Section 16 is not itself a jurisdictional provision. It does not appear in the Judicial Code, nor does the word "jurisdiction" even appear in the statutory language. Rather, section 16 renders appealable under section 1292(a)(1) the denial of an injunctive order (i.e., motions to compel arbitration) that otherwise would not be appealable under Gulfstream.⁵ Since the district court had jurisdiction under 28 U.S.C. § 1338, and the order is appealable under section 1292(a)(1), we, rather than the regional circuit, have appellate jurisdiction. 28 U.S.C. § 1292(c)(1) (2000); but see Medtronic Ave, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 51-53 (3d Cir.2001).

We agree with our sister circuits that section 16 allows for appeal of orders denying motions to compel arbitration even when the issue of arbitrability has not been finally decided. In Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir.2002), the Fourth Circuit held that it possessed appellate jurisdiction under section 16 to consider an order denying a motion to compel arbitration. There the district court denied a motion to compel arbitration and stay proceedings without prejudice and "stated its intention to revisit the ruling at a later time." Id. at 635. The Fourth Circuit noted that this "triggered alarm bells of a premature appeal," but concluded that it possessed jurisdiction because "the FAA expressly permits an immediate appellate challenge to a district court's denial of a motion to compel arbitration and stay proceedings." Id. Other circuit courts have reached similar results. See, e.g., Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 103-04 (3d Cir.2000) (finding jurisdiction under section 16 to review the denial of a motion to compel arbitration where the district court indicated that it could not order arbitration until it determined the validity of the underlying contract); Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d 361, 363 (7th Cir.1999) (holding that, despite the district court's indication "that discovery was...