SCOTUS Declines to Review $455 Million International Arbitration Award in Biotech Patent Dispute

The United States Supreme Court has declined to consider whether an international arbitration tribunal’s award in a breach of contract and patent infringement lawsuit should be overturned.  In Dow Agrosciences, LLC, et al. v. Bayer Cropscience AG, et al., Nos. 2016-1530 and 2016-1623 (March 1, 2017), a foreign corporation, Bayer, entered into a licensing agreement with Delaware-based Dow Agrosciences related to several of Bayer’s patented biotechnologies.  More than a decade later, Bayer filed a lawsuit in the U.S. accusing Dow of breaching the parties’ contract and infringing Bayer’s patents.

The lawsuit was stayed pending arbitration before an International Chamber of Commerce tribunal. Following arbitration proceedings, Bayer was awarded $455 million in damages plus interest.  After that, a federal district court confirmed the arbitral award despite Dow’s objections and Dow filed an appeal with the United States Court of Appeals for the Federal Circuit.

On appeal, the court first determined it had jurisdiction over the dispute:

In this case, Bayer’s complaint arises under the patent laws. The complaint expressly alleges multiple counts of patent infringement. The district court stayed adjudication of those claims pending arbitration, but did not dismiss the case or the patent claims. After the tribunal entered its award, the court resolved the parties’ post-award motions in the same action. Bayer cites, and we are aware of, no authority establishing that the tribunal’s adjudication of the patent-infringement claims altered the court’s basis for jurisdiction.

The conclusion would not change even if one looked beyond the original complaint to the post-arbitral-award proceedings in the district court. When Dow turned to the court to challenge the arbitral award by way of a motion to vacate, it asserted patent law as a necessary basis for certain challenges to parts of the tribunal’s award. See Gunn, 133 S. Ct. at 1065. In particular, Dow argued that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38, required the court to decide, among other issues, whether enforcement of the award would violate a host of patent-law requirements and policies. See New York Convention art. V(2)(b). Those questions were not only “necessarily raised,” but also “substantial” and “disputed.” Gunn, 133 S. Ct. at 1065. Moreover, because French law governed the contract claim, there was no basis for concern that the federal court’s determination of the patent-law issues, within the strict limits of arbitral-award review, would “disrupt[] the federal-state balance.” Id. Thus, whether viewed as a new claim or as a compulsory counterclaim to Bayer’s claim for confirmation of the arbitral award, Dow’s challenge comes within the Gunn standard.

Next, the Federal Circuit stated its review of the award was limited:

Judicial review of the arbitral award at issue here is very limited even if, as we assume for present purposes, the standards governing both international and domestic arbitration apply. In numerous ways, the relevant federal statutes and precedents make clear that ordinary legal or factual error is not a ground for disturbing an arbitral award like the one at issue here.

The New York Convention and its enabling statute, 9 U.S.C. §§ 201–208, require that a district court confirm an award “unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” 9 U.S.C. § 207. One ground invoked here requires a finding that “the award deals with a difference [i.e., issue] not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration.” New York Convention art. V(1)(c). Another requires a finding that “recognition or enforcement of the award would be contrary to the public policy” of “the country where recognition or enforcement is sought.” New York Convention art. V(2)(b).

The Federal Arbitration Act likewise strictly limits the grounds for disturbing an arbitral award. See 9 U.S.C. §§ 10–11; Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584–89 (2008). For example, the Act permits vacatur “where the arbitrators exceeded their powers.” 9 U.S.C. § 10(a)(4). But as the Supreme Court has explained, the Act authorizes only “the limited review needed to maintain arbitration’s essential virtue of resolving disputes straightaway,” thus ensuring that arbitration not become “merely a prelude to a more cumbersome and time-consuming judicial review process.” Hall Street Assocs., 552 U.S. at 588 (quoting Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th Cir. 2008)). The Court adhered to those principles in reviewing international arbitral awards under the Act. BG Grp., PLC v. Republic of Argentina, 134 S. Ct. 1198, 1206 (2014).

After that, the appellate court turned to the merits of the case.  The Federal Circuit held:

The tribunal’s rejection of Dow’s double-patenting defense to patent infringement does not justify nonenforcement of the award. Dow argued to the tribunal that the Leemans patents were invalid for obviousness type double patenting in light of Strauch ’268, contending that the patents were commonly owned by Bayer AG, the parent company of Bayer CropScience AG (owner of the Strauch patents) and Bayer CropScience NV (owner or coowner of the Leemans patents). The tribunal carefully scrutinized Dow’s argument, accepted the premise that the Leemans and Strauch patents did not claim patentably distinct inventions, but nevertheless rejected the challenge. It concluded that the patents were not commonly owned because Bayer CropScience AG and Bayer CropScience NV were different entities and Dow had not provided sufficient evidence to pierce the corporate veil separating them. We cannot say that the tribunal’s conclusion is contrary to public policy or reflects a manifest disregard of the law under the strict standards governing such challenges.

In addition, the court ruled:

We reach the same conclusion with respect to Dow’s argument that the tribunal’s contract-damages award is partially unenforceable because it violates U.S. patent law limits on the recovery of post-expiration royalties for practicing a patent. In Brulotte v. Thys Co., 379 U.S. 29 (1964), the Supreme Court held unenforceable a licensing agreement that required the licensee to pay royalties after the expiration of the patent. Recently, the Court declined to overrule that precedent. See Kimble v. Marvel Entm’t., LLC, 135 S. Ct. 2401 (2015). Under the standards for public-policy and manifest-disregard challenges, we conclude, Dow has not established that the contract award—more precisely, the portion of the award reaching past the 2023 expiration of the RE’962 reissue patent— must be vacated based on Brulotte.

The court also dismissed Dow’s remaining arguments related to vacating the arbitration award:

Dow presents a number of additional arguments for vacating the arbitral award. It argues that the tribunal exceeded its powers or manifestly disregarded applicable law (or committed some error that would justify vacatur) by (1) rejecting Dow’s written description and enablement defenses, (2) ruling on the RE’962 patent, (3) misconstruing the relevant contract provisions, and (4) imposing an 8% rate for pre-award interest. We reject these contentions.

Finally, the United States Court of Appeals for the Federal Circuit adjusted the post-judgment interest awarded in the case before affirming the district court’s order confirming the $455 million arbitral award.

After the Federal Circuit issued its opinion, Dow filed a petition for certiorari with the Supreme Court of the United States.  The nation’s highest court declined to consider the case via its December 4th Orders List:

17-372 DOW AGROSCIENCES, LLC, ET AL. V. BAYER CROPSCIENCE AG, ET AL. The petitions for writs of certiorari are denied. Justice Alito took no part in the consideration or decision of these petitions.

Please stay tuned to Disputing for updates on other arbitration cases now being considered by the Supreme Court.

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