Arbitration Clause Does Not "Run With Patent"

Finding that the parties in Datatreasury Corp. v. Wells Fargo & Co. (No. 2007-1317; April 16, 2008) were not the parties to a patent license agreement containing an arbitration clause and thus were not bound under state law by that clause, a Federal Circuit panel affirms a district court's order denying the accused infringers' motion to dismiss or stay the infringement litigation pending arbitration. A Wells Fargo subsidiary had entered into a software license agreement in 2003 with e-Bank LLC and WMR e-Pin LLC, and that agreement memorialized a side agreement that WMR would grant a royalty free license under its Central Check Clearing System patent. In 2004, WMR and the Wells Fargo subsidiary did enter into a patent license agreement based on that patent and agreed to arbitrate any dispute or disagreement in accordance with the software license agreement's dispute resolution procedures. Then in 2006, WMR assigned four patents, one of which was the licensed patent, to Datatreasury who later sued Wells Fargo & Company and Wells Fargo Bank for patent infringement.

Federal policy favoring arbitration does not apply, says the panel, to a determination of whether there is a valid agreement to arbitrate between the parties. Instead, ordinary contract principles determine who is bound. Applying state law, in this case Minnesota's law, the panel notes that none of the parties to this litigation was a signatory to the patent license agreement or assisted in negotiating its terms, and thus could not be bound absent a theory of equitable estoppel, agency, third party beneficiary, incorporation by reference, assumption or veil-piercing/alter ego. None of these theories was asserted in this case. And the court finds no persuasive authority for the proposition that the arbitration clause binds Datatreasury because it "runs with the patent." Legal encumbrances deemed to run with the patent in prior case law involved only the right to use the patented product, not a duty to arbitrate.