LG Electronics, Inc. v. Interdigital Communications, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LG ELECTRONICS, INC., )
)
Plaintiff, )
)
v. ) C.A. No. 9747-VCL
)
INTERDIGITAL COMMUNICATIONS, INC., )
INTERDIGITAL TECHNOLOGY CORPORATION, )
and IPR LICENSING, INC., )
)
Defendants. )

OPINION

Date Submitted: July 16, 2014
Date Decided: August 20, 2014

Jeremy D. Anderson, Joseph B. Warden, FISH & RICHARDSON P.C., Wilmington,
Delaware; Michael J. McKeon, Christian A. Chu, Scott A. Elengold, FISH &
RICHARDSON P.C., Washington, District of Columbia; Attorneys for Plaintiffs.

Neal C. Belgam, Kelly A. Green, SMITH, KATZENSTEIN & JENKINS LLP,
Wilmington, Delaware; David S. Steuer, Matthew R. Reed, WILSON SONSINI
GOODRICH & ROSATI, Palo Alto, California; Attorneys for Defendants.

LASTER, Vice Chancellor.
 LG Electronics, Inc. (“LG”) and the defendants are parties to an arbitration before

the International Centre for Dispute Resolution. After LG filed the arbitration, the parties

entered into a non-disclosure agreement, titled “Agreement Governing Confidential

Settlement Communications” (the “NDA”). LG alleges in this action that the defendants,

whom this decision refers to collectively as “InterDigital,” breached the NDA by

submitting certain documents to the arbitrators. As a remedy, LG seeks a permanent

injunction compelling InterDigital to withdraw the offending documents and to refrain

from further breaches of the NDA. InterDigital has moved to dismiss on the grounds that

LG‟s claims are properly before the arbitral tribunal and this court should defer to the

tribunal under McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co.,

263 A.2d 281 (Del. 1970). The motion to dismiss is granted.

I. FACTUAL BACKGROUND

The facts are drawn from LG‟s verified complaint and the documents it

incorporates by reference. At this procedural stage, the complaint‟s allegations are

assumed to be true, and the plaintiff receives the benefit of all reasonable inferences.

A. The 2006 Patent License Agreement

In 2006, LG and InterDigital entered into a Wireless Patent License Agreement

(the “License Agreement” or “PLA”). Section 5.2 provides that if the parties cannot

resolve a dispute through negotiation, then either party can submit the dispute to

arbitration. PLA § 5.2. The parties disagree about whether the License Agreement

remains in force.

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B. The ITC Proceedings

On July 26, 2011, InterDigital filed a complaint with the United States

International Trade Commission (the “ITC”) against a range of defendants. In substance,

InterDigital alleged that the defendants had imported wireless devices that infringed

InterDigital‟s patents. In December, InterDigital added LG and two of its subsidiaries as

defendants. On January 20, 2012, LG moved to terminate the ITC proceeding on the

grounds that the License Agreement covered its products and the terms of the License

Agreement entitled it to arbitrate InterDigital‟s claims. An administrative law judge

issued an initial determination that LG‟s request for arbitration was not “wholly

groundless” and terminated the proceeding as to LG. After multiple rounds of appellate

review, the United States Supreme Court ordered the ITC to dismiss the case.

C. The Arbitration Proceedings

On March 19, 2012, while still a party to the ITC proceeding, LG filed a demand

for arbitration with the International Centre for Dispute Resolution. The demand sought

a determination that the License Agreement gives LG the right to use the patents that

InterDigital asserted in the ITC proceeding. Shortly after LG initiated the arbitration,

InterDigital and LG entered into the NDA. The NDA defines certain types of documents

and communications as “Settlement Communications” and restricts the abilities of the

parties to use those Settlement Communications. Significantly, the NDA does not

contain an arbitration provision.

An arbitral tribunal (the “Tribunal”) was constituted on January 17, 2013. On

April 19, LG submitted its opening brief to the Tribunal. LG made a point of stating that

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it had not included any information in its brief about the negotiation of the License

Agreement or certain post-signing communications with InterDigital because LG

believed that those matters fell within the NDA‟s definition of Settlement

Communications and could not be used in the arbitration.

In response, InterDigital asked the Tribunal to rule on whether the NDA applied to

pre-NDA communications. InterDigital argued the parties only intended for the NDA to

cover prospective settlement communications and not to prevent the submission of pre-

NDA evidence to the Tribunal. LG responded by advancing its own interpretation of the

NDA, which stressed that the NDA extended to anything that fell within the definition of

Settlement Communications “at any time.” Pl.‟s Compl. Ex. C at 3-5.

On May 8, 2013, the Tribunal ruled that InterDigital‟s request was “premature.”

Pl.‟s Compl. Ex. D. The Tribunal took “the view that the [NDA] issue is one of the

admissibility of evidence rather than of the [meaning] of the NDA” and stated that it

would address that question if it became necessary to do so. Id. at 2.

InterDigital submitted its response brief to the Tribunal on May 31, 2013. LG

contends that InterDigital‟s brief improperly disclosed Settlement Communications to the

Tribunal. Shortly thereafter, the parties agreed to a temporary stay of the arbitration.

D. This Litigation

On June 2, 2014, InterDigital asked the Tribunal to lift the stay. Two days later,

LG submitted a concurring letter. With the stay lifted, LG asked InterDigital to withdraw

its brief and re-file it without the alleged Settlement Communications. InterDigital

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refused. On June 9, LG filed this suit, seeking injunctive relief compelling InterDigital to

withdraw its brief and barring it from breaching the NDA in the future.

II. LEGAL ANALYSIS

InterDigital has moved to dismiss LG‟s complaint in favor of the arbitration.

InterDigital does not assert that the court lacks subject matter jurisdiction over the

dispute. Rather, it asks the court to exercise its discretion under the McWane doctrine to

dismiss this action in favor of the earlier-filed arbitral proceeding.

The Delaware Supreme Court held in McWane that “a Delaware action will not be

stayed as a matter of right by reason of a prior action pending in another jurisdiction

involving the same parties and the same issues,” but that “such [a] stay may be warranted

. . . by facts and circumstances sufficient to move the discretion of the Court.” 263 A.2d

at 283 (emphasis added). Nevertheless, “such discretion should be exercised freely in

favor of the stay when there is a prior action pending elsewhere, in a court capable of

doing prompt and complete justice, involving the same parties and the same issues.” Id.

In lieu of granting a stay, a Delaware court applying McWane may dismiss the later-filed

Delaware action in favor of the first-filed proceeding. See Donald J. Wolfe, Jr. &

Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of

Chancery § 5.01 at 5-3 (2013).

A. The Arbitration Constitutes A First-Filed Action.

The first question when applying the McWane doctrine is whether “there is a prior

action pending elsewhere.” McWane, 263 A.2d at 283. Although the arbitration was

filed before this action, LG asserts that an arbitral proceeding cannot constitute a “prior

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action” under McWane. There do not appear to be any cases in which a Delaware court

has applied McWane to dismiss a suit in favor of a first-filed arbitration. LG claims that

the lack of precedent means McWane does not apply to a first-filed arbitration.

There is a logical reason for the dearth of cases other than the inapplicability of

McWane to a prior pending arbitration. In most cases involving an existing arbitration,

the defendant will move to dismiss the later-filed action on the grounds that the parties

are required to arbitrate the dispute. The court will then rule on the issue of substantive

arbitrability or, depending on the parties‟ contract, dismiss the action so that the arbitral

tribunal can rule on that issue. If the dispute is arbitrable, McWane never comes up. If

the dispute is not arbitrable, then the arbitral tribunal is not “capable of doing prompt and

complete justice” and McWane does not apply.

Due to an uncommon confluence of factors, InterDigital‟s McWane argument

avoids this Morton‟s fork. The parties agree that the Tribunal at least has the power to

determine if the underlying dispute is arbitrable, and the parties also agree that the

specific matter at issue in this case arises out of the NDA, which does not contain an

arbitration provision. This case therefore presents the rare instance when both the arbitral

tribunal and the court have jurisdiction such that McWane could apply.

In McWane, the Delaware Supreme Court discussed two primary policy rationales

for the McWane doctrine. First, it “avoid[s] the wasteful duplication of time, effort, and

expense that occurs when judges, lawyers, parties, and witnesses are simultaneously

engaged in the adjudication of the same cause of action in two courts.” Id. Second, it

“avoid[s] . . . the possibility of inconsistent and conflicting rulings and judgments and an

5
unseemly race by each party to trial and judgment in the forum of its choice.” Id. Both

rationales apply with equal force to a first-filed arbitration.

In other contexts, such as for purposes of issue and claim preclusion, this court has

treated an arbitration as a prior action. See, e.g., Meso Scale Diagnostics, LLC v. Roche

Diagnostics GmbH, 62 A.3d 62, 89-90 (Del. Ch. 2013) (applying collateral estoppel

doctrine to an arbitration panel‟s holding); Brown v. T-Ink, LLC, 2007 WL 4302594, at

*14 n.63 (Del. Ch. Dec. 4, 2007) (noting that if the challenged arbitration proceeded to a

final decision, it “[might] have issue or claim preclusive effect”). Similarly for purposes

of McWane, there does not appear to be a principled distinction between a first-filed

action in a court in another jurisdiction and a first-filed arbitration. The arbitration

constitutes a first-filed action for purposes of the McWane doctrine.

B. The Tribunal Can Provide Prompt And Complete Justice.

The next step in the McWane analysis is to determine whether the Tribunal can

provide prompt and complete justice. LG contends that the Tribunal cannot provide

prompt and complete justice because the NDA does not contemplate arbitration and

because the Tribunal cannot award equitable relief.

1. The Dispute Is Arbitrable.

“[A]rbitration is a matter of contract . . . .” James & Jackson, LLC v. Willie Gary,

LLC, 906 A.2d 76, 78. “[A] party cannot be required to submit to arbitration any dispute

which he has not agreed so to submit.” Id. As LG points out, the NDA does not contain

an arbitration provision. Instead, it provides that “any Party shall have the right . . . to

have the provisions of this Agreement specifically enforced by any court, agency, or

6
tribunal having personal jurisdiction over the Party.” Pl.‟s Compl. Ex. A § 9. LG argues

that this provision entitles it to seek relief in a judicial forum, rather than an arbitral one.

In one sense, LG‟s reading is overly narrow. The reference to an “agency”

suggests that the parties did not intend to limit themselves strictly to judicial fora, and the

word “tribunal” is broad enough to include arbitral tribunals. But LG is correct that the

language is not sufficiently clear to constitute an agreement to arbitrate the dispute. See

DMS Properties-First, Inc. v. P.W. Scott Assocs., Inc., 748 A.2d 389, 391 (Del. 2000)

(“A party cannot be forced to arbitrate the merits of a dispute . . . in the absence of a clear

expression of such intent in a valid agreement.”). The NDA is therefore not dispositive.

It neither empowers InterDigital to force LG to arbitrate this dispute nor entitles LG to

insist on a judicial forum.

InterDigital argues that the dispute under the NDA is nonetheless arbitrable

because it is an evidentiary matter incidental to the arbitration. Delaware courts are

generally reluctant to get involved in procedural disputes in arbitrations, and for good

reason. “To have a Delaware court inject itself into [such] situation[s] would show

disrespect toward the Arbitration panel, which has the broad authority to address these

issues in the first instance, and would be contrary to our state‟s—and our nation‟s—

strong public policy favoring arbitration.” SOC-SMG, Inc. v. Day & Zimmermann, Inc.,

2010 WL 3634204, at *3 (Del. Ch. Sept. 15, 2010) (footnotes omitted).

The SOC-SMG case is instructive. There, SOC-SMG brought suit in Delaware

seeking to disqualify the defendants‟ counsel in a JAMS arbitration. Chief Justice Strine,

then a Vice Chancellor, granted summary judgment sua sponte against SOC-SMG, ruling

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that “[j]ust as a trial judge should deal in the first instance with alleged discovery abuses

or attorney misconduct in cases before her, so should an arbitration panel.” Id. As he

noted, arbitrators routinely resolve “the discovery issues necessarily related to” the

disputes before them, and “courts have refused to intervene on an interlocutory basis to

either first-or second-guess those rulings.” Id. at *2. “Rather, the interests of justice are

served by charging the arbitrators with deciding the overall matter, including allegations

of discovery abuse and disqualification motions, in the first instance.” Id. The same

rationale applies to evidentiary disputes like the one at issue in this action.

The fact that this dispute arises out of a separate contract does not change the

outcome. “Once it is determined . . . that the parties are obligated to submit the subject

matter of a dispute to arbitration, „procedural‟ questions which grow out of the dispute

and bear on its final disposition should be left to the arbitrator.” John Wiley & Sons,

Inc. v. Livingston, 376 U.S. 543, 557 (1964); see also Howsam v. Dean Witter Reynolds,

Inc., 537 U.S. 79, 84 (2002) (“[Procedural questions] are presumptively not for the judge,

but for an arbitrator, to decide.”). The “subject matter” of the dispute is not whether

InterDigital‟s brief breaches the NDA; it is whether the License Agreement grants LG a

license to use the patents that were at issue in the ITC proceedings. LG does not argue

that that dispute is not arbitrable. Indeed, it was LG that initiated the arbitration.

In a similar case, the United States Court of Appeals for the Seventh Circuit held

that a district court judge had erred by ruling that the arbitrators did not have the power to

construe a confidentiality agreement, even though the confidentiality agreement itself did

not contain an arbitration clause. See Trustmark Ins. Co. v. John Hancock Life Ins. Co.

8
(U.S.A.), 631 F.3d 869, 874 (7th Cir. 2011) (Easterbrook, J.). As the Trustmark panel

noted, “[a]rbitrators who have been appointed to resolve a commercial dispute are

entitled to resolve ancillary questions that affect their task.” Id. “Arbitrators are entitled

to decide for themselves those procedural questions that arise on the way to a final

disposition . . . .” Id. Allowing parties to seek judicial review of procedural decisions

“would be the end of arbitration as a speedy and (relatively) low-cost alternative to

litigation.” Id. Other federal courts of appeal similarly have held that trial courts should

decline to address procedural or preliminary disputes that arise during the course of an

arbitration. See, e.g., Savers Prop. & Cas. Ins. Co. v. Nat’l Union Fire Ins. Co. of

Pittsburgh, PA, 748 F.3d 708, 722 (6th Cir. 2014) (holding that it was improper for a

district court to review an arbitral panel‟s procedural rulings absent a final award);

Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414-15 (2d Cir. 1980) (noting that

policy considerations counsel against allowing parties to obtain review of arbitrators‟

preliminary rulings).

The logic of these cases is persuasive. Allowing parties to seek judicial review

every time an arbitrator rules on—or, as in this case, declines to rule on—a procedural

issue would frustrate the arbitral process. If the Tribunal errs, LG can seek judicial

review after the award becomes final. See SOC-SMG, 2010 WL 3634204, at *3. Until

then, this court will not interfere with the Tribunal by providing an ad hoc forum for

interlocutory review.

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 2. The Tribunal Can Provide Equitable Relief.

LG also argues that the Tribunal cannot provide prompt and complete justice

because the License Agreement provides that the Tribunal shall act “as arbitrators at law

only.” PLA § 5.2(c). According to LG, this language renders the Tribunal incapable of

awarding LG the injunctions it seeks because they constitute equitable relief. Delaware is

one of the few remaining jurisdictions where this argument has resonance, because

Delaware has retained its separate court of equity. Capitalizing on this court‟s familiarity

with the distinction between law and equity, LG argues that an “arbitrator at law” only

can grant the types of relief that could be granted by a common law court. LG‟s wishful

reading does not bear close scrutiny. Rather than hearkening back to the traditional

division between law and equity, the “arbitrator at law” concept addresses a quite

different distinction in the world of arbitration between arbitrators who decide cases by

following the legal principles of a particular jurisdiction—largely as a court of law in that

jurisdiction would—and arbitrators who have far greater freedom to select the applicable

law, depart from that law, and impose case-specific remedies based on a sense of

fairness. By specifying that the Tribunal will act as “arbitrators at law,” the parties to the

License Agreement opted for the former, not the latter, but they did not constrain the

Tribunal‟s authority to grant injunctive relief.

The distinction between the courts of law and equity dates back to medieval

England, where the English Court of Chancery evolved to “provide[] judicial relief to

those left remediless because of the procedural rigidity, corruption, and inadequate

enforcement machinery of the common law.” William T. Quillen & Michael Hanrahan,

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A Short History of the Delaware Court of Chancery—1792-1992, in Court of Chancery of

the State of Delaware—1792-1992, at 22 (1993). When litigants could not obtain relief

in the common law courts, they petitioned the king, appealing to the sovereign‟s oath to

provide “equal and right justice” to his subjects. See J.H. Baker, An Introduction to

English Legal History 98 (4th ed. 2002). As sovereign, the king lawfully could deploy

force to coerce a defendant into providing a fair remedy that fit the circumstances of the

case, leading to the equitable maxim that “equity acts on the person.” Wolfe & Pittenger,

supra, at v (listing “THE MAXIMS OF EQUITY” and including “Equity acts in

personam, and not in rem.”).

“Appeals to the king, instead of to his courts, became numerous, and about the

time of Edward I, it became usual to refer such petitions for consideration and disposition

to the Lord Chancellor,” who was one of the king‟s principal domestic advisors. Thomas

O. Main, Traditional Equity and Contemporary Procedure, 78 Wash. L. Rev. 429,

441(2003). “In the fourteenth and fifteenth centuries, the [English] Court of Chancery

developed into a distinct court.” Id. at 442. The court had “broad and imprecise”

jurisdiction based principally on whether the Chancellor viewed the remedy in the

common law courts as being inadequate. See Quillen & Hanrahan, supra, at 22.

Over time, the role of Chancery and the nature of equity evolved. 1 “The early

chancellors decided cases with little or no regard for precedent, basing their decisions

1
See generally Dennis R. Klinck, Conscience, Equity and the Court of Chancery in Early
Modern England (2010) (tracing evolution of concepts of conscience and equity from origins of
English Court of Chancery through the end of the eighteenth century); 1 Spencer W. Symons,

11
largely upon their idiosyncratic ideas of „conscience.‟” Main, supra, at 445. Variations

among individual notions of right or wrong led to Selden‟s well-known aphorism:

Equity is a roguish thing. For Law we have to measure . . . ; Equity is
according to the conscience of him that is Chancellor, and as that is larger
or narrower, so is equity. „Tis all one as if they should make the standard
for the measure we call a “foot” a Chancellor‟s foot; what an uncertain
measure this would be! One Chancellor has a long foot, another a short
foot, a third an indifferent foot. „Tis the same thing in the Chancellor‟s
conscience.

John Selden, “Equity,” Table Talk (1689), quoted in Wolfe & Pittenger, supra, at v. But

during the same era that Selden wrote these words, a fundamental transformation in the

English Court of Chancery was already underway. After becoming Lord Chancellor in

1618, Francis Bacon began the reformation process by issuing one hundred rules of

equity. See Main, supra, at 447; see also Story, supra, § 51. The path of reform

continued after Lord Bacon, particularly under the chancellorships of Lord Nottingham

(1673-1682) and Lord Hardwicke (1736-1756), and the exercise of equitable authority

became more circumscribed and settled. See Main, supra, at 447-48; see also Klinck,

supra, at 225-27 (describing efforts of Lord Nottingham and noting that he is “commonly

regarded as the father of modern or systematic equity”); Story, supra, § 52 (citing efforts

of Lord Nottingham and Lord Hardwicke). As early as 1672, the English Court of

Chancery was adhering to the doctrine of stare decisis, and by 1802, an English decision

remarked that courts of equity had “no more discretionary power than courts of law.

Pomeroy’s Equity Jurisprudence §§ 48-62 (5th ed. 1995) [hereinafter Pomeroy’s] (describing
evolving nature of equity); 1 Joseph Story, Commentaries on Equity Jurisprudence §§ 38-58
(13th ed. 1886) (same).

12
They decide new cases, as they arise, by the principles on which former cases have been

decided, and may then illustrate or enlarge the operation of those principles; but the

principles are as fixed and certain as the principles on which the courts of common law

proceed.”2

Sir William Blackstone‟s Commentaries may have provided the bridge. His

monumental work restated English law as a set of substantive rules separate from

procedure, and his Commentaries drew no distinction between the traditional systems of

law and equity:

Equity then, in its true and genuine meaning, is the soul and spirit of all
law: positive law is construed, and rational law is made, by it. In this,
equity is synonymous to justice; in that, to the true sense and sound
interpretation of the rule. But the very terms of a court of equity, and a
court of law, as contrasted to each other, are apt to confound and mislead
us: as if the one judged without equity, and the other was not bound by any
law. Whereas every definition or illustration to be met with, which now
draws a line between the two jurisdictions, by setting law and equity in
opposition to each other, will be found either totally erroneous, or
erroneous to a certain degree.

3 William Blackstone, Commentaries on the Laws of England *429, at 269 (Coley ed.

vol. 1 1872) (1765), quoted in Main, supra, at 459-60. As Blackstone saw it, courts of

law and equity applied the same substantive rules, but they used different procedures to

administer the rules and issued different remedies to implement their decisions: “Such

then being the parity of law and reason which governs both species of courts, wherein (it

2
Bond v. Hopkins, 1 Sch. & Lef. 413, 428 (1802), quoted in Main, supra, at 448 n.118.
See generally Pomeroy’s, supra, § 59 (describing settled nature of equity as “a system of positive
jurisprudence . . . founded upon and contained in the mass of cases already decided”); Story,
supra, §§ 1-37 (describing nature of equity jurisprudence and rejecting claims about unbridled
discretion and arbitrariness).

13
may be asked) does their essential difference consist? It principally consists in the

different modes of administering justice in each; in the mode of proof, the mode of trial,

and the mode of relief.” 3 Blackstone, supra, *436, at 272, quoted in Main, supra,

at 460.

Meanwhile, English settlers in the American colonies brought the motherland‟s

law and procedure with them. Howard L. Oleck, Historical Nature of Equity

Jurisprudence, 20 Fordham L. Rev. 23, 40 (1951). After the American War of

Independence, the constitutions of several states, including Delaware, provided for

separate courts of equity modeled after the English Court of Chancery. Id. at 41. Under

Delaware‟s constitution, the Delaware Court of Chancery received and possesses “all the

general equity jurisdiction of the High Court of Chancery of Great Britain as it existed

prior to the separation of the colonies.” DuPont v. DuPont, 85 A.2d 724, 727 (Del.

1951). Likewise, Article III, Section 2 of the United States Constitution, empowers the

federal courts to hear cases “in Law and Equity.” U.S. Const. art. III, § 2, cl. 1. Congress

did not vest federal equity jurisdiction in a separate court but rather contemplated that

federal judges would administer law and equity on different “sides” using different

procedures, alternatively acting as common law judge or chancellor depending on

whether the case was filed as a common law complaint or a bill in equity. Main, supra,

at 450. When exercising equity jurisdiction, federal courts held “the same [jurisdiction]

that the high court of chancery in England possesse[d].” Miss. Mills v. Cohn, 150 U.S.

202, 205 (1893).

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 During the mid-19th century, most American states merged their separate courts of

law and equity. See Main, supra, at 464-67; Oleck, supra, at 42. The Judicature Acts of

1873 and 1875 achieved the same result in Great Britain. See Baker, supra, at 114; Main,

supra, at 476. “Since 1938 the federal district courts of the United States have

recognized one merged form of action under the Federal Rules of Civil Procedure.”

Main, supra, at 431. Most recently, Arkansas merged its separate courts of law and

equity in 2001. Ark. Const. amend. 80, § 6; Ark. R. Civ. P. 2. Today, only Delaware,

Tennessee, and Mississippi retain separate courts of equity.3 Elsewhere, “[t]he image of

separate systems of law and equity is . . . an increasingly fading memory.” Main, supra,

at 431. In Great Britain and in the vast majority of American jurisdictions, a court of law

is simply a court, and it can exercise equitable powers when applying and enforcing the

law.

In my view, a reading of the License Agreement as a whole demonstrates that its

reference to “arbitrators at law” has nothing to do with the traditional division between

law and equity. The License Agreement provides that the “[t]he arbitration proceedings

shall be governed by . . . the AAA International Rules.” PLA § 5.2(c). The version of

those rules in effect at the time the License Agreement was executed distinguished

between an arbitrator who applies “the substantive law(s) or rules of law . . . applicable to

3
See Miss. Code Ann. § 9-5-81 (2013); Tenn. Code Ann. § 16-11-101 (2014). While
they lack separate courts of equity, New Jersey maintains a Chancery division in its Superior
Court and South Carolina has Masters-in-Equity who handle equitable issues referred to them by
the state‟s Circuit Court. See N.J. Const. art. VI, § 3, ¶ 3 ; S.C. Code Ann. § 14-11-15 (2013).

15
the dispute” and an arbitrator who reaches a decision as an “amiable compositeur or ex

aequo et bono.” Defs.‟ Reply Br. Ex. 16 at art. 28. In arbitration lingo, these are very

different concepts. “Arbitrators at law” are those who apply the legal precedent of a

particular legal system as a court would. An arbitrator acting as an “amiable compositeur

or ex aequo et bono” is free to resolve the dispute by applying broader principles of

fairness, largely without reference to the law of a particular legal system.4

4
See Amiable Compositor Law & Legal Definition,
http://definitions.uslegal.com/a/amiable-compositor/ (last visited Aug. 20, 2014) (“The concept
of amiable compositor has its historical origins in French law. An amiable compositor acts as a
conciliator rather than a decision-maker in a dispute. An amiable compositor is also not bound
to apply strict rules of civil procedure and substantive law.”); see also William Tetley, Glossary
of Conflict of Laws, McGill University Faculty of Law,
http://www.mcgill.ca/maritimelaw/glossaries/conflictlaws/ (last updated June 16, 2011)
(“Clauses . . . allowing the arbitrators to act as „amiables compositeurs‟, permit the arbitrators to
decide the dispute according to the legal principles they believe to be just, without being limited
to any particular national law. . . . The arbitrators are authorized, as „amiables compositeurs‟, to
disregard legal technicalities and strict constructions which they would be required to apply in
their decisions if the arbitration agreement contained no „amiable compositeur‟ clause.”). The
roles of amiable compositeur and arbitrator ex aequo et bono are “somewhat similar” to each
other, and “whether there is a difference between the two concepts is a question not sufficiently
answered by the scholarship on the subject.” Karyn S. Weinberg, Equity in International
Arbitration: How Fair is “Fair”? A Study of Lex Mercatoria and Amiable Composition, 12
B.U. Int‟l L.J. 227, 231 n.26 (1994); see also William W. Park, National Law and Commercial
Justice: Safeguarding Procedural Integrity in International Arbitration, 63 Tul. L. Rev. 647,
648 n.1 (“An arbitrator [acting as an amiable compositeur] is sometimes said to be deciding ex
aequo et bono, although it is not clear how congruent the Latin and French expressions really
are.”). Some scholars assert that they are “considered to mean the same thing,” but “at least
some systems draw a clear distinction” between the two. Weinberg, supra, at 231 n.26. When a
distinction is drawn, it is usually that an amiable compositeur “must consult the applicable law”
and is “allowed to disregard only certain aspects of the applicable law,” whereas an arbitrator
acting ex aequo et bono is allowed to “disregard the relevant legal rules, including mandatory
rules.” Christine Lecuyer-Thieffry & Patrick Thieffry, Negotiating Settlement of Disputes
Provisions in International Business Contracts: Recent Developments in Arbitration and Other
Process, 45 Bus. Law. 577, 592 & n.75 (1990).

16
 If equity were still Selden‟s “roguish thing,” then there might be a closer analogy

between a court of equity and an amiable compositeur or an arbitrator acting ex aequo et

bono such that the traditional law/equity distinction might lend interpretive weight to the

phrase “arbitrators at law.” But that characterization of equity had lost its force by the

beginning of the nineteenth century, if not before, and both Pomeroy and Story

demolished it in their treatises. See Pomeroy’s, supra, §§ 56-67; Story, supra, §§ 1-37.

Today, consistent with the famous maxim, “[e]quity follows the law.” Wolfe &

Pittenger, supra, at v.

The role of an amiable compositeur or an arbitrator acting ex aequo et bono does

not resemble a modern court of equity. “Whereas decisions in equity are deemed to

be . . . part of the law, decisions ex aequo et bono are imputed to an extra-legal realm.”

Leon Trakman, Ex Aequo et Bono: Demystifying an Ancient Concept, 8 Chi. J. Int‟l L.

621, 627 (2008). “The rationale behind this distinction is that adjudicators may „fill gaps‟

in the law based on principles of equity, but not based on notions of fairness that are not

reduced to legal principles and rules of law.” Id. “Whereas equity is part of an

applicable legal system, notions of equality associated with ex aequo et bono are deemed

to reside in a moral, social, or political realm that is external to the law.”5 The arbitral

roles appear to envision a degree of discretion and ability to depart from legal precedent

5
Id.; see also Lecuyer-Thieffry & Thieffry, supra, at 592 n.75 (noting that under Swiss
law, arbitrators deciding ex aequo et bono “may . . . disregard the relevant legal rules, including
mandatory rules”); Steven J. Stein, The Drafting of Effective Choice-of-Law Clauses, N97AICB
ABA-LGLED A-103, 104 (1997) (noting that “arbitrators . . . deciding on a purely ex aequo et
bono basis” are the exception to the rule that “all arbitral decisions are made under some law”).

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and doctrine far beyond anything that an American court would regard as permissible,

even a true court of equity like the Delaware Court of Chancery or a federal court

wielding the full panoply of its equitable authority.

In my view, the reference in the License Agreement to “arbitrators at law” was not

designed to limit the powers of the arbitral tribunal to those held by a common law court

in a jurisdiction, like Delaware, that maintains the traditional distinction between law and

equity. The reference rather was intended to establish that the arbitrators would reach a

decision in a manner analogous to a court, namely by consulting the language of the

contract, applying its plain meaning, considering evidence of the parties‟ intent if the

contact‟s language is ambiguous, and relying on case precedents and similar authorities.

The language was not intended to prevent the Tribunal from awarding equitable relief,

any more than a court of law is precluded from awarding equitable relief in a jurisdiction

that has merged its systems and no longer distinguishes between courts of law and courts

of equity.

Section 5.2(c) of the License Agreement reinforces this interpretation by providing

that “[t]he Arbitration Panel has no power to reform this Agreement.” PLA § 5.2(c).

“Reformation is an equitable remedy . . . .” 76 C.J.S. Reformation of Instruments § 1

(2014); accord James River-Pennington, Inc. v. CRSS Capital, Inc., 1995 WL 106554,

at *8 (Del. Ch. Mar. 6, 1995) (“Reformation is an equitable right . . . .”). If the arbitrators

at law could not grant equitable relief, then there would be no need to deny them the

power to grant reformation. The most natural reading of the “arbitrators at law” language

is to make clear that the arbitrators will decide the case by applying legal principles as a

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court would, instead of acting as “amiable compositeur[s] or ex aequo et bono.” The

language does not foreclose equitable relief.

LG also contends that its claim for injunctive relief exceeds the scope of the relief

that the Tribunal can grant, because it seeks “an injunction . . . prohibiting InterDigital

from further breaching the NDA by disclosing, using, and relying on Settlement

Communications and other confidential information to the Tribunal and elsewhere.”

Compl. at 13. The “and elsewhere” language, LG argues, would extend to situations

outside the Tribunal‟s purview. That claim, however, is not yet ripe. “Injunctions may,

of course, be issued where the evidence establishes a pattern of conduct from which a

court may and does conclude that there is a reasonable apprehension of risk of future

breaches of duty of a predicable type.” Thorpe v. Cerbco, Inc., 1996 WL 560173, at *4

(Del. Ch. Sept. 13, 1996) (Allen, C.). But this is not such a case. Even taking all of LG‟s

allegations as true, InterDigital has only breached the NDA once, and it has never

breached it outside of the arbitration. LG has made no allegation whatsoever that there is

any “pattern of conduct” involving the disclosure of Settlement Communications

“elsewhere.” The only plausibly ripe claim for a permanent injunction would be one

barring future breaches of the NDA in submissions to the Tribunal. If LG wishes to press

such a claim, it should do so before the Tribunal, not here. LG‟s other requested

injunctive relief—a mandatory injunction requiring InterDigital to withdraw its

arbitration brief—is relief that the Tribunal is capable of granting by simply striking the

brief.

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 The License Agreement evidences a clear intent to submit claims for equitable

relief to arbitration, and LG‟s only ripe claim is properly within the Tribunal‟s

jurisdiction. The Tribunal is capable of providing LG with the relief it seeks.

Consequently, the Tribunal can provide prompt and complete justice for purposes of the

McWane doctrine.

C. The Arbitration Involves The Same Parties And Issues.

LG does not dispute that this action and the arbitration involve the same parties. It

does argue, however, that the two proceedings do not involve the same issues.

McWane does “not require[] that the parties and issues in both actions be identical.

Substantial or functional identity is sufficient.” AT&T Corp. v. Prime Security Distribs.,

Inc., 1996 WL 633300, at *2 (Del. Ch. Oct. 24, 1996). LG contends that this action calls

for the interpretation of the NDA and the determination of whether InterDigital breached

it, but the only alleged breach is InterDigital‟s submission of its arbitration brief. That

issue has been placed before the Tribunal, so the McWane doctrine‟s requirement of

“substantial or functional identity” is met.

III. CONCLUSION

InterDigital has established that (i) the arbitration constitutes a prior action, (ii) the

Tribunal is capable of doing prompt and complete justice, and (iii) the arbitration

involves the same parties and the same issues. LG has not identified any other reasons

why this court should not exercise its discretion freely in favor of the first-filed

arbitration. This action is dismissed under the McWane doctrine.

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