Wal-Mart Stores, Inc. v. Helferich Patent Licensing, LLC
| Decision Date | 17 June 2014 |
| Docket Number | No. 13 C 06485,13 C 06485 |
| Citation | 51 F.Supp.3d 713 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | Wal–Mart Stores, Inc., Plaintiff, v. Helferich Patent Licensing, LLC, and Does 1–10, Defendants. |
Bradley C. Graveline, Sheppard Mullin Richter & Hampton LLP, Chicago, IL, Laura Lindsay Chapman, Sheppard, Mullin, Richter & Hampton, LLP, San Francisco, CA, for Plaintiff.
Bruce S. Sperling, Eamon Padraic Kelly, Eugene J. Frett, Sperling & Slater, Chicago, IL, for Defendants.
Wal–Mart Stores, Inc. (“Plaintiff”) brings this action against Helferich Patent Licensing, LLC (“HPL”) and Does 1–10 seeking recession of a patent license agreement based on substantial nonperformance or breach, mutual mistake of law, and lack of consideration. Presently before the Court is HPL's motion to dismiss this action and compel arbitration pursuant to Federal Rule of Civil Procedure 12(b)(1) and Section 4 of the Federal Arbitration Act (the “FAA”). For the reasons set forth below, the Court grants HPL's motion to compel arbitration.
Plaintiff is a Delaware corporation with its principal place of business in Bentonville, Arkansas. HPL is an Illinois limited liability company with its principal place of business in Chicago, Illinois. (Id. ¶ 2.) Plaintiff alleges that Does 1–10, employees and/or agents of HPL whose names and capacities are unknown to Plaintiff, are responsible in some manner for the occurrences at issue. (Id. ¶¶ 3–4.)
HPL owns numerous patents covering “commercially significant developments” in the fields of wireless content provisioning and messaging, wireless/cellular handsets, and wireless services/infrastructure. (Id. ¶ 8.) In 2011, Plaintiff and HPL negotiated and executed a Content Patent License Agreement (the “Agreement”) in which HPL licensed its patents to Plaintiff, released claims relating to the patents, and covenanted not to sue Plaintiff for Plaintiff's use of the licensed technology. Plaintiff paid $500,000 as consideration for the Agreement (the “License Payment”). (Id. )
Section 2(b) of the Agreement contains a warranty provision that states that HPL represents and warrants that “[n]o licenses or other rights have been granted or will be granted under the Licensed Patents and Applications that would prevent the licenses, covenants, releases and rights granted to [Plaintiff] hereunder.” (R. 23, Ex. A, Agreement at 3.) Plaintiff alleges that it relied on this warranty provision when entering into the Agreement and that the warranty provision was a material reason it entered into the Agreement.
In Section 3(e) of the Agreement, HPL “expressly reserves the right to assert claims, file suit, or maintain causes of actions ... against Third Parties for the Third Party's Infringement of any Reserved Claim of any of the Licensed Patents and Applications based upon a product, service, system or method within the scope of the Licensed Field....” (R. 23, Ex. A, Agreement at 5.) HPL filed several patent infringement actions in Illinois that were consolidated in district court. The defendants in those actions moved for summary judgment on the issue of patent exhaustion; on August 14, 2013, the district court granted the defendants' motion, finding that HPL's patent infringement claims were exhausted as a result of prior licenses taken previously by “the entire cellular handset manufacturing industry.” (Id. ¶ 15.) Plaintiff alleges that because the patents are exhausted by HPL's prior licenses to handset manufacturers, the warranty provision in the Agreement is untrue. (Id. ¶ 16.) Plaintiff alleges that it is thus entitled to rescission of the Agreement and return of the License Payment. (Id. )
Section 9(c) of the Agreement contains an arbitration provision that states: “All disputes, controversies, or differences that may arise between the parties out of, or in relation to, or in connection with this Agreement, or for the breach thereof, shall be finally settled in Chicago, Illinois by arbitration under the Rules of the American Arbitration Association.” (R. 23, Ex. A, Agreement at 10.)
Plaintiff initiated this action on September 10, 2013, by filing a redacted three-count complaint and a motion to file the complaint under seal. On September 20, 2013, the Court granted Plaintiff's motion to file the complaint under seal, (R. 8, Min Order); Plaintiff filed its complaint under seal on October 20, 2013, (R. 10, Sealed Compl.). In Count I, Plaintiff alleges substantial nonperformance or breach of the Agreement by HPL. (Id. ¶¶ 20–22.) In Count II, Plaintiff alleges that the parties entered the Agreement based on a mutual mistake of law. (Id. ¶¶ 23–26.) In Count III, Plaintiff alleges that HPL failed to provide consideration for the Agreement. (Id. ¶¶ 27–28.) Plaintiff seeks rescission of the Agreement in each of its three Illinois common law claims. (Id. ¶¶ 20–28.)
On December 6, 2013, HPL moved to dismiss this action and compel arbitration, (R. 18, Def.'s Mot.); HPL filed its sealed motion to dismiss and compel arbitration on December 11, 2013, (R. 23, Def.'s Sealed Mot.). Plaintiff filed a sealed response to HPL's motion on December 31, 2013, (R. 28, Pl.'s Sealed Resp.), and HPL filed a sealed reply on January 23, 2014, (R. 35, Def.'s Sealed Reply). HPL's motion to dismiss this action and compel arbitration is currently before the Court.
The FAA governs questions of arbitrability in both federal and state courts. Jain v. de Mere, 51 F.3d 686, 688 (7th Cir.1995). The FAA reflects a “liberal federal policy favoring arbitration,” AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1745, 179 L.Ed.2d 742 (2011) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ), and operates to place arbitration agreements on the same footing as other contracts and ensure that courts enforce agreements to arbitrate, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) ; Dean Witter Reynolds v. Byrd, 470 U.S. 213, 219–20, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Section 2 of the FAA provides that an arbitration clause in “a contract evidencing a transaction involving commerce ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Courts are to uphold and enforce applicable arbitration agreements according to their terms unless they are invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability.” Concepcion, 131 S.Ct. at 1746 (quoting Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) ).
When parties have signed an arbitration agreement, the only questions a court may properly decide are threshold questions of substantive arbitrability: whether the parties agreed to arbitrate a particular issue. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). These threshold questions of substantive arbitrability include: (1) whether the parties are bound by a given arbitration agreement; and (2) whether an arbitration provision in a binding contract applies to a particular type of controversy. Id. at 84, 123 S.Ct. 588. The FAA “establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone, 460 U.S. at 24–25, 103 S.Ct. 927.
The FAA permits a federal district court to compel arbitration when there is: (1) a written agreement to arbitrate; (2) a dispute covered by or within the scope of a valid arbitration agreement; and (3) a refusal to arbitrate. Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 687 (7th Cir.2005). Parties may only be compelled to arbitrate those issues they have agreed to arbitrate. Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909 (7th Cir.1999) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ). If the Court is satisfied that the parties agreed to arbitrate the issues presented, it must promptly compel arbitration. 9 U.S.C. § 4. The party seeking to invalidate or oppose the arbitration agreement bears the burden of demonstrating that the arbitration agreement is unenforceable and that the claims are unsuitable for arbitration. SeeGreen Tree Fin. Corp.–Ala. v. Randolph, 531 U.S. 79, 91–92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). Once a court is satisfied with its determination that the parties have agreed to arbitrate the issues at hand, the court must compel arbitration and “shall on application of one of the parties stay the trial of action until such arbitration has been had in accordance with the terms of the agreement.” 9 U.S.C. § 3. A request for arbitration “should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” United Steelworkers of Am., 363 U.S. at 582–83, 80 S.Ct. 1347.
The parties do not dispute that Plaintiff and HPL executed the Agreement and that the Agreement contains a valid and enforceable arbitration provision. (R. 23, Def.'s Sealed Mot. at 1; R. 28, Pl.'s Sealed Resp. at 4.) Rather, the issue is whether Plaintiff's claims seeking rescission of the Agreement fall within the scope of the arbitration provision. HPL argues that the broad arbitration provision clearly requires that Plaintiff's disputes be arbitrated. (R. 23, Def.'s Sealed Mot. at 1.) Additionally, HPL argues that the arbitrator, rather than the Court, should make the initial decision as to arbitrability of...
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