Saudi Basic Industries Corp. v. Exxonmobil Corp.

Decision Date01 April 2002
Docket NumberCivil Action No. 00-3841 (WHW).,Civil Action No. 98-4897 (WHW).
CourtU.S. District Court — District of New Jersey

Cheryl L. Farine Hudak & Shunk Co., L.P.A. Akron, OH, Defendant/Cross Plaintiff (ExxonMobil)

Elizabeth Sher Pitney, Hardin, Kipp & Szuch, LLP Morristown, NJ,

James Quinn Weil, Gotshal & Manges, LLP New York, NY,

Hahn, Loeser & Parks, LLP Cleveland, OH,

K.C. Johnson ExxonMobil Corporation Houston, TX,


WALLS, District Judge.

This is a complicated dispute concerning the alleged misuse of a patent and alleged overcharges of royalties to a partnership. In the first lawsuit, Civil Action No. 98-4897(WHW) ("NJ-I"), Plaintiff Saudi Basic Industries ("SABIC") moves to clarify or reform a March 10, 2000 Stipulation where it agreed not to practice a technology that is the subject of a patent dispute. SABIC also moves pursuant to Rule 12(c) for partial judgment on the pleadings to strike Defendant ExxonMobil's ("Exxon") defenses of unclean hands and setoff. Exxon cross-moves to dismiss the Complaint pursuant to Rule 19 for SABIC's failure to join necessary and indispensable parties. The motion for clarification or reformation of the March 10 Stipulation is denied; the motion for partial judgment on the pleadings pursuant to Rule 12(c) is also denied. Exxon's cross-motion to dismiss pursuant to Rule 19 is denied; SABIC is not required to join either ECAI or KEMYA as an indispensable party.

In the second lawsuit, Civil Action No. 00-3841 (WHW) ("NJ-II"), SABIC moves to dismiss the complaint of Exxon based on the Foreign Sovereign Immunities Act, as well as on other jurisdictional grounds. Exxon moves to consolidate the NJ-I and NJ-II actions into a single lawsuit. The motion to dismiss is denied; the motion to consolidate is granted.


The claims asserted in this action have their origin in the late 1970's. Because of the number of parties, at the outset it is useful to list them and their relationships to each other: SABIC is a Saudi Arabian corporation, owned 70% by the Saudi government and 30% by private investors, with its principal place of business in Saudi Arabia. Exxon is a New Jersey corporation with its principal place of business in Texas. Exxon Chemical Arabia, Inc. ("ECAI"), a Delaware Corporation with its principal place of business in Texas, is a wholly-owned subsidiary of Exxon Overseas Corporation, which itself is a wholly-owned subsidiary of Exxon. KEMYA is a 50/50 limited liability partnership formed between SABIC and ECAI under Saudi Arabian law to manufacture polyethylene. Mobil-Yanbu ("Yanbu") is a Delaware corporation with its principal place of business in Delaware.

In the 1970's, SABIC approached a number of potential partners about the possibility of forming joint ventures in Saudi Arabia to manufacture polyethylene. The negotiations culminated in the formations of two joint ventures in 1980; one with Yanbu, the other with ECAI. Exxon is not a direct party to either of these agreements.

The first joint venture was formed by SABIC and Yanbu on April 19, 1980, and created the Saudi-Yanbu Petrochemical Co. ("YANPET"). The second joint venture was entered into by SABIC and ECAI on April 26, 1980, and established the Al-Jubail Petrochemical Co. ("KEMYA"). Both YANPET and KEMYA are limited liability partnerships existing under the laws of Saudi Arabia, and in the business of manufacturing polyethylene in Saudi Arabia.

Exxon asserts that both joint venture agreements provide that the agreements, including their Annexes1 "when executed", constitute the"'whole agreement' between the Partners . . . " (Joint Venture Agreement, Art. 18.1 (emphasis added)) So, according to Exxon, the December 22, 1980 Service Agreement that is the subject of the NJ-I action, is expressly incorporated into the joint venture agreements, creating a "single package" of rights and obligations. This overall scheme required participation by Exxon and Mobil (not just ECAI and Yanbu), and Exxon argues that all parties understood that Exxon and Mobil (now "Exxon") were intended to benefit from the joint venture agreements. SABIC strongly refutes this version of the facts and asserts that the Service Agreement and Joint Venture Agreements constitute separate agreements.

NJ-I Action

By its amended complaint, SABIC seeks a declaration that KEMYA has ownership rights in proprietary information, including trade secrets and U.S. Patent No. 5,352,749, by virtue of a December 22, 1980 Service Agreement between KEMYA and Exxon.

Pursuant to the Service Agreement, Exxon, acting through its unincorporated division Exxon Chemical Company ("ECC"), agreed to provide certain services to KEMYA from time to time, including engineering, administrative, and technical services related to construction of a petrochemical plant at Al-Jubail in Saudi Arabia. (Am. Compl. ¶ 11.) Under the Agreement, processes or patents developed as a result of services provided under the agreement were deemed the property of KEMYA, subject to royalty-free licenses given to Exxon and its affiliates. The Agreement is governed by Saudi Arabian law.

In 1991, in an attempt to expand the capacity of its Al-Jubail petrochemical facility in Saudi Arabia, KEMYA requested that Exxon conduct a study of the plant reactors' ultimate capacity ("the URC study"). (Am. Compl. ¶¶ 19-21.) In connection with that request, Exxon was given access to proprietary information belonging to KEMYA. Id. ¶ 22. SABIC alleges that such access occurred "well prior to the filing of the last of the patent applications that led to the '749 patent." The URC study was completed by July 1991.

SABIC claims that Exxon has improperly withheld the results of the URC study, as well as other aspects of KEMYA's operations, and violated the '749 patent. Further, SABIC alleges that in March 1992, Exxon filed an application for a patent concerning the subject matter of the URC study without authorization. In October 1994, the U.S. Patent and Trademark Office issued the '749 patent, entitled "Process for Polymerizing Monomers in Fluidized Beds," to the holding company Exxon Chemical Patents, Inc. ("ECPI") as assignee. That patent describes a method to increase polyethylene production through a process known as "Super Condensed Mode Technology" ("SCM-T"). SABIC charges that Exxon illegally licensed or otherwise conveyed rights in the '749 patent and other KEMYA trade secrets without permission.

In the NJ-I action, SABIC brings suit on behalf of KEMYA for breach of the Service Agreement and implied covenants, specific performance (delivery of the '749 patent and related trade secrets), misappropriation of trade secrets, conversion, tortious interference with prospective economic advantage, unfair competition, and unjust enrichment. SABIC has not joined the other partner, ECAI, as a plaintiff because in its view, ECAI as a subsidiary of Exxon, would not sue its related corporation.

SABIC claims that Exxon expressly acknowledged SABIC and KEMYA's right to contest Exxon's claim of ownership to the technology at issue here. (Am. Compl., Ex. A.) The NJ-I complaint alleges that SCM-T belongs to KEMYA, and that it was wrongfully misappropriated by Exxon. Exxon disputes this argument, and avers that it had a right to practice SCM-T. (Answer ¶ 10.)

The NJ-II ActionUnipol License

On or about September 28, 1980, SABIC entered into an agreement with Union Carbide Corp. ("UCC"), to have the exclusive sublicense for a gas-phase process to manufacture polyethylene in Saudi Arabia. This technology is referred to as Unipol® process. In exchange for its exclusive license, SABIC pays UCC, among other things, a running royalty. (Del. Compl., ¶10.)

SABIC entered into two sublicense agreements with YANPET and KEMYA, effective October 15, 1980, which gave those partnerships the right to use Unipol process in their respective plants to manufacture polyethylene. Under the sublicense agreements, both partnerships were required to pay SABIC a running royalty.

In NJ-II, Plaintiffs Exxon, Yanbu and ECAI claim that SABIC overcharged the partnerships by collecting royalties at a higher rate than agreed upon (the "royalty overcharges").

The Delaware Action

On July 24, 2000, SABIC filed a complaint against Yanbu and ECAI in the Superior Court of Delaware (Civil Action No. OOC-07-161-VAB ("Delaware action"). SABIC's complaint seeks declaratory relief against these defendants solely on the issue of whether the royalty charges were proper under the joint venture agreements. As said, in NJ-II, Yanbu and ECAI have accused SABIC of "over-charging" both partnerships for royalties in violation of the joint venture agreements.


SABIC and Exxon sharply disagree as to the nature of their overall contractual arrangements. As mentioned, they entered into a joint venture agreement in April 1980. The parties agree on this basic point, but disagree on everything that follows. According to Exxon, the joint venture agreement served as an overall operating agreement for the parties, incorporating any future agreements or amendments. SABIC denies this and argues that the April 26, 1980 Joint Venture Agreement, the subject of NJ-II, and the December 22, 1980 Service Agreement, the subject of NJ-I, are separate and distinct and should not be joined in the same action. The Court now sets forth the most plausible nature of ...

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