United States Court of Appeals for the Federal Circuit
2007-1317
DATATREASURY CORP.,
Plaintiff-Appellee,
v.
WELLS FARGO & COMPANY and WELLS FARGO BANK, N.A.,
Defendants-Appellants,
and
BANK OF AMERICA CORPORATION, BANK OF AMERICA, N.A., U.S. BANCORP,
U.S. BANK, N.A., WACHOVIA CORPORATION, WACHOVIA BANK, N.A.,
SUNTRUST BANKS, INC., SUNTRUST BANK, BB&T CORPORATION,
BRANCH BANKING AND TRUST COMPANY, BANCORPSOUTH, INC.,
BANCORP SOUTH BANK, COMPASS BANCSHARES, INC., COMPASS BANK,
CULLEN/FROST BANKERS, INC., THE FROST NATIONAL BANK,
FIRST HORIZON NATIONAL CORPORATION, FIRST TENNESSEE BANK, N.A.,
HSBC NORTH AMERICA HOLDINGS, INC., HSBC BANK USA, N.A.,
HARRIS BANKCORP, INC., HARRIS, N.A., NATIONAL CITY CORPORATION,
NATIONAL CITY BANK, ZIONS BANCORPORATION,
ZIONS FIRST NATIONAL BANK, BANK OF NEW YORK CO., INC.,
THE BANK OF NEW YORK CO., INC., UNIONBANCAL CORPORATION,
UNION BANK OF CALIFORNIA, N.A., BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
CITIZENS FINANCIAL GROUP, INC., COMERICA INCORPORATED,
COMERICA BANK & TRUST, N.A., FIRST CITIZENS BANCSHARES, INC.,
FIRST CITIZENS BANK & TRUST COMPANY, KEYCORP,
KEYBANK NATIONAL ASSOCIATION, LASALLE BANK CORPORATION,
DEUTSCHE BANK TRUST COMPANY AMERICAS,
LASALLE BANK, N.A., M&T BANK CORPORATION, M&T BANK,
THE PNC FINANCIAL SERVICES GROUP, INC., PNC BANK, N.A.,
SMALL VALUE PAYMENTS COMPANY, LLC, REMITCO, LLC,
THE CLEARING HOUSE PAYMENTS COMPANY, LLC,
FIRST DATA CORPORATION, TELECHECK SERVICES, INC.,
ELECTRONIC DATA SYSTEMS CORP., UBS AMERICAS, INC.,
THE BANK OF NEW YORK, and VIEWPOINTE ARCHIVE SERVICES, LLC,
Defendants.
Karl A. Rupp, Provost Umphrey, L.L.P., of Dallas, Texas, argued for plaintiff-
appellee.
Jay F. Utley, Baker & McKenzie LLP, of Dallas, Texas, argued for defendants-
appellants. With him on the brief were John G. Flaim, Kevin M. O’Brien, Nathan A.
Engels, and W. Barton Rankin. Of counsel was Kevin J. Sullivan.
Appealed from: United States District Court for the Eastern District of Texas
Judge David J. Folsom
United States Court of Appeals for the Federal Circuit
2007-1317
DATATREASURY CORP.,
Plaintiff-Appellee,
v.
WELLS FARGO & COMPANY and WELLS FARGO BANK, N.A.,
Defendants-Appellants,
and
BANK OF AMERICA CORPORATION, BANK OF AMERICA, N.A., U.S. BANCORP,
U.S. BANK, N.A., WACHOVIA CORPORATION, WACHOVIA BANK, N.A.,
SUNTRUST BANKS, INC., SUNTRUST BANK, BB&T CORPORATION,
BANCORP SOUTH BANK, COMPASS BANCSHARES, INC., COMPASS BANK,
CULLEN/FROST BANKERS, INC., THE FROST NATIONAL BANK,
FIRST HORIZON NATIONAL CORPORATION, FIRST TENNESSEE BANK, N.A.,
HSBC NORTH AMERICA HOLDINGS, INC., HBSC BANK USA, N.A.,
HARRIS BANKCORP, INC., HARRIS, N.A., NATIONAL CITY CORPORATION,
NATIONAL CITY BANK, ZIONS BANKCORPRATION,
ZIONS FIRST NATIONAL BANK, BANK OF NEW YORK CO., INC.,
THE BANK OF NEW YORK CO., INC., UNIONBANCAL CORPORATION,
UNION BANK OF CALIFORNIA, N.A., BANK OF TYKYO-MITSUBISHI UFJ, LTD.,
CITIZENS FINANCIAL GROUP, INC., COMERICA INCORPORATED,
COMERICA BANK&TRUST, N.A., FIRST CITIZENS BANCSHARS, INC.,
FIRST CITIZENS BANK & TRUST COMPANY, KEYCORP,
KEYBANK NATIONAL ASSOCIATION, LASALLE BANK CORPORATION,
DEUTSCHE BANK TRUST COMPANY AMERICAS,
LASALLE BANK, N.A., M&T BANK CORPORATION, M&T BANK,
THE PNC FINANCIAL SERVICES GROUP, INC., PNC BANK,N.A.,
SMALL VALUE PAYMENTS COMPANY, LLC, REMITCO, LLC,
FIRST DATA CORPORATION, TELECHECK SERVICES, INC.,
ELECTRONIC DATA SYSTEMS CORP., USB AMERICAS, INC.,
THE BANK OF NEW YORK, and VIEWPOINTE ARCHIVE SERVICES, LLC,
Defendants.
Appeal from the United States District Court for the Eastern District of Texas in case no.
2:06-CV-72, Judge David J. Folsom.
__________________________
DECIDED: April 16, 2008
__________________________
Before MAYER, and BRYSON, Circuit Judges, and FOGEL, ∗ District Judge.
FOGEL, District Judge.
Wells Fargo & Company (“WFC”) and Wells Fargo Bank, N.A. (collectively,
“Appellants”) appeal an order of the United States District Court for the Eastern District
of Texas denying Appellants’ motion to dismiss or stay litigation pending arbitration
brought by Datatreasury Corp. (“Appellee”). This Court heard oral argument on
November 6, 2007. Because the parties are not bound by the operative arbitration
clause, we affirm.
I.
In December 2003, one of WFC’s subsidiaries, Wells Fargo Services Corp.
(“WFSC”) entered into a software license agreement with e-Banc LLC (“e-Banc”) and
WMR e-Pin LLC (“WMR”). This agreement, the Software License Agreement Schedule
2 (“Schedule 2"), provided WFSC with rights to certain software, including software that
“provides ability to provide net settlement services.” 1 Schedule 2 also memorialized the
following side agreement:
∗
Honorable Jeremy Fogel, District Judge, United States District Court for
the Northern District of California, sitting by designation.
1
The Patent License Agreement defines “net settlement services” as:
national net settlement services, including, without limitation, data
collection, member profile capabilities, settlement, billing, reports,
enhancements, and other functions described in Schedule 2, and all
attending, accompanying and other services, functions, capabilities, rights,
2007-1317 2
WMR . . . shall sign a side agreement representing and warranting that it
has the rights to license its Central Check Clearing System patent relating
to national net settlement (No. 5,265,008) (“Patent”) and shall grant Wells
Fargo a royalty free license to . . . use such Patent for the term of the
License hereunder . . . .
In 2004, WFSC entered into a Patent License Agreement (“PLA”) with WMR. The PLA
between WFSC and WMR contained six clauses that are relevant to this case:
(1) PLA License Grant
WMR hereby grants Wells Fargo a non-exclusive, fully paid-up, royalty
free worldwide right and license under and to the Patent, and any rights
that may be embodied in the Patent, for the purpose of enabling Wells
Fargo, or any of its Affiliates, to use or utilize the Licensed Products for
providing and performing, directly or indirectly, any Net Settlement
Services (the “License”).
(2) PLA Definition of the Patent Being Licensed
“Patent” means the U.S. Patent No. 5,265,007, entitled “Central Check
Clearing System,” issued on or about November 23, 1993, and all
applications and patent disclosures related thereto, and all provisionals,
reissuances, continuations, continuations-in-part, divisionals, revisions,
renewals, extensions, substations, conversions, and reexaminations
thereof, and all foreign and international counterparts and equivalents
thereof.
(3) Successorship Clause
This agreement shall be binding upon and inure to the benefits of the
Parties and their respective successors.
(4) Anti-Assignment Clause
[N]either Party may assign or transfer this Agreement, or any part thereof,
without prior written consent of the other Party, which consent shall not be
unreasonably withheld.
and uses permitted or granted under or pursuant to the Software License
Agreement and schedules.
2007-1317 3
(6) Covenant Not to Sue Clause
WMR covenants, for itself an on behalf of all of its Affiliates, not to sue or
initiate or threaten any claim, action, litigation, arbitration or other
proceeding against, and releases from liability, Wells Fargo or any of its
Affiliates or Permitted Assignees . . . or users or beneficiaries of any Net
Settlement services in any jurisdiction or under any laws anywhere in the
world in connection with Wells Fargo’s [or] Affiliates or Permitted
Assignees’ . . . use or utilization of or benefit from (i) the Licensed
Products or (ii) any Net Settlement Services, or (iii) any rights granted
under the Software License Agreement and the Schedule 2.
(7) Arbitration Clause
Any dispute or disagreement arising between WMR and Wells Fargo
concerning the applicability or interpretation of this License Agreement
shall be resolved in accordance with the dispute resolution procedures
specified in the software License Agreement.
The PLA also provides expressly “this agreement will be governed by and interpreted in
accordance with the laws of the state of Minnesota.” Neither Appellant nor Appellee is a
party to the PLA.
In February 2006, WMR assigned four patents to Appellee: U.S. Patent No.
5,265,007 (“the ‘007 patent”) and U.S. Patents Nos. 5,583,759; 5,717,868; and
5,930,778 (collectively, “patents-in-suit”). On February 24, 2006, Appellee filed a
complaint in the Eastern District of Texas accusing Appellants of infringing the patents-
in-suit. On January 8, 2007, Appellants moved to dismiss or, in the alternative, stay
pending arbitration. Appellants asserted that the PLA prohibits Appellee from bringing
an infringement action against them. Appellants argued that the term “patent” should be
interpreted broadly under the PLA. Based on this interpretation, Appellants argued that
as an assignee of the patents-in-suit, Appellee is bound by the PLA, including the
covenant not to sue and the arbitration clause.
On April 24, 2007, the district court denied the motion to dismiss or stay. It
2007-1317 4
determined two issues: (1) whether Appellee may be compelled to arbitrate under the
terms of the PLA; and (2) whether the patents-in-suit are within the scope of the PLA.
Applying Minnesota law, the district court concluded that Appellee is not a party that
may be bound by the PLA’s arbitration clause, either in its own right or as a “successor”
of WMR. The district court also held that a plain reading of the PLA did not support the
conclusion that the word “patent” encompasses the patents-in-suit.
II.
“In a case involving the arbitrability of a claim, [the Federal Circuit] review[s] the
district court’s determination that the parties have contractually bound themselves to
arbitrate disputes de novo, and its factual findings for clear error.” Cont’l Ins. Co. v.
Polish S.S. Co., 346 F.3d 281, 282 (Fed. Cir. 2003). Regional circuit law is applied to
contractual disputes, including disputes involving license agreements. McCoy v.
Mitsubishi Cutlery, 67 F.3d 917, 920 (Fed. Cir. 1995) (“[W]hether express or implied, a
license is a contract governed by ordinary principles of state contract law.”). When
determining the scope of an arbitration clause, the Fifth Circuit applies the state law that
governs the agreement. Wash. Mut. Fin. Group v. Bailey, 364 F.3d 260, 264 (5th Cir.
2004).
In determining whether parties have agreed to arbitrate a particular dispute,
courts in the Fifth Circuit consider: “(1) whether a valid agreement between the parties
exists; and (2) whether the dispute in question falls within the scope of that arbitration
agreement.” OPE Int’l LP v. Chet Morrison Contractors, Inc., 258 F.3d 443, 445 (5th
Cir. 2001); see also Pennzoil Exploration & Prod. Co., 139 F.3d 1061, 1064 (5th Cir.
1998) (noting that “[a]rbitration is a matter of contract between the parties, and a court
2007-1317 5
cannot compel a party to arbitrate a dispute unless the court determines the parties
agreed to arbitrate the dispute in question”). “[T]he question of whether a party is bound
by an agreement containing an arbitration provision is a threshold question for the Court
to decide.” Microchip Tech. Inc. v. U.S. Philips Corp., 367 F.3d 1350, 1357 (Fed. Cir.
2004) (internal quotations omitted). Because in deciding whether there is a valid
agreement between the parties, the Fifth Circuit applies state law, see Fleetwood
Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002), the question of
arbitrability in the instant case turns on whether, under Minnesota law, there is a valid
agreement to arbitrate between Appellant and Appellee.
“[F]ederal policy favoring arbitration does not apply to the determination of
whether there is a valid agreement to arbitrate between the parties; instead ordinary
contract principles determine who is bound.” Id. Applying basic principles of contract
law, courts in Minnesota have held that a party is not bound by an arbitration clause
unless it is a signatory to the underlying contract. See, e.g., State v. Cross Country
Bank, Inc., 703 N.W. 2d 562, 569 (Minn. Ct. App. 2005) (“Arbitration is a matter of
contract, and a party that has not agreed to arbitrate a dispute cannot be required to
arbitrate.”); see also Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 353 (5th Cir.
2003) (“In order to be subject to arbitral jurisdiction, a party must generally be a
signatory to a contract containing an arbitration clause.”); Westmoreland v. Sadoux, 299
F.3d 462, 465 (5th Cir. 2002) (“[I]t is well and good if the parties to a private agreement
wish to choose an alternative dispute system, but [the Fifth Circuit] is wary of choices
imposed after the dispute has arisen and the bargain has long since been struck.”).
2007-1317 6
Appellants seek to enforce the arbitration provision of the PLA despite the fact
that none of the parties involved in this litigation was a signatory to that agreement.
Under Minnesota law, a non-signatory can enforce an arbitration clause in limited
circumstances. For instance, a non-signatory may be compelled to arbitrate under
theories of equitable estoppel, agency and third-party beneficiary. See Cross Country
Bank, 703 N.W. 2d at 570. Likewise, in Bridas the court recognized six theories that
may be asserted to bind a party that has not signed an arbitration agreement: (1)
incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; (5)
estoppel; and (6) third-party beneficiary. Id. at 357. Appellants do not contend that any
of these theories applies in the instant case. Instead, they assert that Appellee is bound
by the arbitration clause because it “runs with the patent.” 2 However, Appellants cite no
persuasive authority for their argument.
Appellants rely on cases standing for the general proposition that because the
owner of a patent cannot transfer an interest greater than that which it possesses, an
assignee takes a patent subject to the legal encumbrances thereon. See, e.g., Worley
v. Tobacco Co., 104 U.S. 340 (1881) (holding that where an inventor’s public use
invalidated his patent assignee did not have title to a valid patent); Sanofi, S.A. v. Med-
Tech Veterinarian Prods., 565 F. Supp. 931 (D.N.J. 1983) (holding that a patentee who
had licensed the exclusive right to distribute his product in the United States could not
subsequently assign that right because a patentee cannot transfer a right greater than it
2
The parties dispute the scope of the PLA. Appellants assert that the PLA
applies to the patents-in-suit because they: (1) are “related” to the ’007 patent and
therefore are within the meaning of the PLA’s patent definition; and (2) are patents for
“net settlement services” subject to the covenant not to sue. Because the order of the
district court may be affirmed for the reasons discussed in this opinion, we do not reach
these issues.
2007-1317 7
possesses). However, the legal encumbrances deemed to “run with the patent” in these
cases involved the right to use the patented product, not a duty to arbitrate. The cases
do not support a conclusion that procedural terms of a licensing agreement unrelated to
the actual use of the patent (e.g. an arbitration clause) are binding on a subsequent
owner of the patent.
As viewed by the Fifth Circuit, requiring a non-signatory party to arbitrate solely
on the basis of an arbitration clause in a license agreement between signatory parties
would be inconsistent with basic principles of contract law and the Federal Arbitration
Act, 9 U.S.C. § 2 et seq. (“FAA”). “Arbitration under the FAA is a matter of consent, not
coercion.” Equal Employment Opportunity Comm’n v. Waffle House, Inc., 534 U.S. 279,
299 (2002). The Fifth Circuit has explained:
[W]e will read the reach of an arbitration agreement between parties
broadly, but that is a different matter from the question of who may invoke
its protections. An agreement to arbitrate is a waiver of valuable rights
that are both personal to the parties and important to the open character
of our state and federal judicial systems-an openness this country has
been committed to from its inception. It is then not surprising that to be
enforceable, an arbitration clause must be in writing and signed by the
party invoking it.
Westmoreland, 299 F.3d at 465.
Neither party in this litigation signed the PLA or participated in negotiating any of
its terms. 3 Accordingly, the dispute between these parties is not subject to the
arbitration clause of that agreement. As this court previously has recognized, “a party
cannot be compelled to arbitrate if an arbitration clause does not bind it.” Microchip,
3
WFSC and WMR are the signatories of Schedule 2. The record does not reflect a
corporate affiliation between Appellee and either of the signatories.
2007-1317 8
367 F.3d at 1357. Accordingly, the district court’s order denying Appellants’ motion to
dismiss or stay pending arbitration is affirmed.
AFFIRMED
2007-1317 9