Rhone-Poulenc Specialites Chimiques v. SCM Corp.

• Citation: 226 USPQ 873,769 F.2d 1569
• Decision Date: 06 August 1985
• Docket Number: No. 84-1557,RHONE-POULENC,84-1557
• Parties: SPECIALITES CHIMIQUES, and Rhone-Poulenc Inc., Plaintiffs- Appellees, v. SCM CORPORATION, Defendant-Appellant. Appeal
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1569

769 F.2d 1569

226 U.S.P.Q. 873

RHONE-POULENC SPECIALITES CHIMIQUES, and Rhone-Poulenc Inc., Plaintiffs- Appellees, v. SCM CORPORATION, Defendant-Appellant.

Appeal No. 84-1557.

United States Court of Appeals, Federal Circuit.

Aug. 6, 1985.

Hal D. Cooper, Jones, Day, Reavis & Pogue, Cleveland, Ohio, argued for defendant-appellant; with him on the brief were Kenneth R. Adamo, Cleveland, Ohio, and Samual Friedman, SCM Chemicals Division of SCM Corp., of New York City, N.Y., of counsel and Steven A. Werber, Commander, Legler, Werber, Dawes and Sadler, of Jacksonville, Fla., of counsel.

Norman H. Stepno, Burns, Doane, Swecker & Mathis, Alexandria, Virginia, argued for plaintiffs-appellees; with him on the brief were Ronald L. Grudziecki, and Eric H. Weisblatt, Alexandria, Va., of counsel.

George L. Hudspeth and Thomas F. Harkins, Jr., Mahoney, Hadlow & Adams, Jacksonville, Fla., of counsel.

Vincent E. DeFelice, Rhone-Poulenc, Inc., Monmouth Junction, N.J., of counsel.

Before RICH, BALDWIN, and KASHIWA, Circuit Judges.

RICH, Circuit Judge.

This appeal is from the July 20, 1984, Order of the U.S. District Court for the Middle District of Florida, Jacksonville Division, denying the motion of SCM Corporation (SCM) for stay of proceedings pending arbitration pursuant to 9 U.S.C. Sec. 3. We vacate and remand.

Background

On January 1, 1979, Rhone-Poulenc Specialites Chimiques, a French corporation, and Rhone-Poulenc Inc. (Rhone or RPI) entered into an exclusive license agreement (agreement) with SCM, whereby SCM was granted the exclusive right to practice a chemical process for the isomerization of linalol to make a "geraniol product," comprising geraniol and nerol, using vanadium, a transition metal, as a catalyst according to claim 2 of U.S. patent No. 3,925,485 ('485), and to sell the geraniol product. The agreement provides similar rights in know-how applicable, but not patented, to that claimed chemical process.

The agreement provides two separate royalty schedules: (1) A minimum royalty schedule regardless of production; and, (2) A running percentage royalty based on SCM's actual production.

Subsequently, SCM was assigned a later-issued Kane patent No. 4,254,291 ('291) which discloses a process for the catalytic isomerization of linalyl borate esters, rather than with alcohols as claimed in the '485 patent, also with a vanadium catalyst.

On July 16, 1982, SCM informed Rhone of its desire to renegotiate the agreement in light of the '291 patent, claiming that "SCM from a technical standpoint now is in a position to operate completely outside the scope of the claims [specifically claim 2] in RPI's ['485] patent[,]" and that it would proceed following the '291 process because it produced a more efficient yield. SCM also tendered the minimum royalty due under the agreement theorizing that no additional royalty was owed since it was not operating in accordance with claim 2.

In response, on August 23, 1982, Rhone notified SCM that the '291 patented process could not be practiced without infringing Several months of correspondence ensued in which SCM offered to continue to pay the minimum royalty due, and culminated in SCM's tender of royalties for that percent of the product, specifically 26.8%, that would have been obtained had it used the allegedly less efficient '485 process instead of the process of its '291 patent.

the '485 patent and, therefore, SCM was still liable for a running percentage royalty under the agreement. This is a principal issue in this suit.

On July 5, 1983, Rhone advised SCM that its "deliberate and willful withholding of the total amount of royalties properly due ... constitutes a flagrant and material breach" of the agreement and terminated the agreement.

On July 15, 1983, Rhone filed this suit in district court alleging: (1) breach of contract; (2) misappropriation of trade secrets; and (3) patent infringement.

Rather than filing an answer, SCM filed the motion at issue based on the agreement's arbitration provision which provides in pertinent part:

8.3 Any controversy or claim arising out of or relating to this Agreement or the breach thereof, shall, unless amicably adjusted otherwise, be settled by arbitration in Florida in accordance with the rules of the International Chamber of Commerce....

The district court denied SCM's motion to stay on two alternative grounds: (1) the controversy inherently involves "the non-contract issues of the scope, validity, and infringement of U.S. Patent No. 3,925,485 ... [and does] not arise out of or relate to the Agreement"; and (2) SCM, by its conduct "in unilaterally withholding royalty payments and demanding renegotiation of the agreement ... has thereby lost, waived or abandoned any right to arbitration."

OPINION

Jurisdiction

Rhone moved on September 21, 1984, to dismiss SCM's appeal to this court "for lack of appellate jurisdiction," arguing that the district court's denial of a stay to permit arbitration was neither a final decision nor an appealable interlocutory order. This court denied that motion on October 5, 1984.

This court has subject matter jurisdiction, as discussed below, over any final decision of the district court based in whole or in part on 28 U.S.C. Sec. 1338. 28 U.S.C. Sec. 1295(a)(1). That jurisdiction includes appeals from certain interlocutory orders, such as those granting or refusing injunctions. 28 U.S.C. Sec. 1292(c)(1).

The Eleventh Circuit, in which this case originated, has held that the denial of a stay to permit arbitration is appealable because it "is an interlocutory order refusing an injunction under 28 U.S.C. Sec. 1292(a)(1)." Dimenstein v. Whiteman, 759 F.2d 1514, 1515 (11th Cir.1985). In Dean Witter Reynolds, Inc. v. Byrd, --- U.S. ----, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), the Court accepted without comment the concept that denials of stays to permit arbitration are final and appealable decisions. See Byrd v. Dean Witter Reynolds, Inc., 726 F.2d 552, 553 (9th Cir.1984).

Rhone's complaint, in count III, alleges that SCM infringes the '485 patent and demands: (1) injunctive relief; (2) treble damages pursuant to 35 U.S.C. Sec. 284; And, (3) attorney fees pursuant to 35 u.S.C. Sec. 285. THE district court has subject matter jurisdiction over the complaint based in part on 28 U.S.C. Sec. 1338(a). This court has appellate jurisdiction over an appeal under 28 U.S.C. Sec. 1295(a)(1), including pendant jurisdiction to consider the counts for breach of contract and misappropriation of trade secrets.

At this point in the litigation, this court has before it only SCM's motion to stay the proceedings pending arbitration based on the arbitration provision in the license agreement referred to in count I for breach of contract. Accordingly, at this time we shall not address either count II or count III even though our jurisdiction is founded on count III. Procedurally similar is Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 223 USPQ 1074 (Fed.Cir.1984), in which the court held that it had pendant jurisdiction over a copyright claim, even though the patent claim was not yet ripe for appeal, stating:

This court's potential subject matter jurisdiction over any appeal ... continues to be determined by the complaint ... under which the jurisdiction of the district court was and is based in part on Sec. 1338.

747 F.2d at 1432-33, 223 USPQ at 1081. Air Products and Chemicals, Inc. v. Reichhold Chemicals, Inc., 755 F.2d 1559, 1562, 225 USPQ 121, 123 (Fed.Cir.1985) ("the party who brings suit is master to decide what law he will rely upon ... [and] that '[j]urisdiction generally depends upon the case made and the relief demanded by the plaintiff'." [Citations omitted.].

The "Controversy"

The district court found the controversy involved the allegedly non-contract issues of "the scope, validity, and infringement" of claim 2 of the '485 patent, and that the parties did not intend to submit those issues to arbitration.

Accordingly, this court must "determine whether the parties agreed to arbitrate that dispute." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., --- U.S. ----, ----, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1985) (The Court went on to state, "Thus, as with any other contract, the parties' intentions control, but those intentions are...