In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2070
A FFYMAX, INC.,
Plaintiff-Appellee,
v.
O RTHO-M C N EIL-JANSSEN P HARMACEUTICALS, INC., and
JOHNSON & JOHNSON P HARMACEUTICAL R ESEARCH &
D EVELOPMENT, L.L.C.,
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 04 C 6216—Matthew F. Kennelly, Judge.
A RGUED S EPTEMBER 16, 2011—D ECIDED O CTOBER 3, 2011
Before E ASTERBROOK, Chief Judge, and W OOD and
T INDER, Circuit Judges.
E ASTERBROOK, Chief Judge. In 1992 two companies
began a joint venture to develop peptide compounds.
The parties’ names have changed in corporate mergers
or restructurings; we use their current names—Affymax
and Ortho-McNeil-Janssen Pharmaceuticals (Ortho for
2 No. 11-2070
short). The agreement provides that any inventions
created by the parties’ joint efforts are jointly owned,
but that inventions attributable to a single party are
owned by that party. The agreement also says that
disputes will be arbitrated.
The joint venture produced commercially valuable
discoveries. Affymax sued in 2004, seeking a declaration
that it owns the patents and patent applications in two
groups: the ‘940 family and the ‘078 family.^ The district
court ordered arbitration. 420 F. Supp. 2d 876 (N.D. Ill.
2006). The International Center for Dispute Resolution
appointed a three-member panel, which oversaw exten-
sive discovery and held a 35-day hearing. The panel’s
award, issued in October 2010, concludes that the
parties jointly invented, and thus jointly own, the
‘940 family, but that Ortho solely invented and owns
the ‘078 family. Affymax asked the district court to set
aside this award, but the judge confirmed most of the
panel’s rulings—particularly the conclusion that the
parties jointly own the ‘940 family and that Ortho
solely invented the technology reflected in the ‘078
^
The ‘940 family comprises U.S. Patent Applications
08/155,940 and 11/855,948; U.S. Patents 5,830,851, 5,773,569, and
5,986,047; World Intellectual Property Organization Patents
PCT/US94/13147 and PCT/US96/09810; and European Patent
EP0886648. The ‘078 family comprises U.S. Patent 5,767,078;
European Patent Application EP96/918,317; Japanese Patent
3,998,043; Australian Patent 732,294; Australian Patent Applica-
tion 2004/203,690; Canadian Patent Application 2,228,277; and
Mexican Patent 203,378.
No. 11-2070 3
patent. But the court vacated the award to the extent that
the panel ruled in Ortho’s favor on the foreign patents
corresponding to the ‘078 U.S. patent. 2011 U.S. Dist.
L EXIS 28679 (N.D. Ill. Mar. 21, 2011). The judge directed
the panel to reconsider.
As the district judge saw things, the panel “manifestly
disregarded the law” (2011 U.S. Dist. L EXIS 28679 at *18)
by awarding Ortho ownership of the foreign patents
without analysis: “the panel should have assessed
inventorship separately with regard to the foreign
patents before determining their ownership.” Id. at *17.
The district judge inferred from the lack of discussion
that the arbitrators must have based their award on
some factor other than inventorship. By exceeding
their remit, the district judge concluded, the arbitrators
“manifestly disregarded the law.” Ortho appealed to us
from the aspect of the judgment that vacates part of the
award; Affymax has appealed to the Federal Circuit
from the aspect of the judgment that confirms the rest
of the award.
Although the district judge’s decision is not final to
the extent it remanded the controversy to the arbitrator,
Ortho’s appeal is authorized by 9 U.S.C. §16(a)(1)(E),
which permits appeals from judicial orders modifying,
correcting, or vacating arbitral awards, whether or not
the judicial orders are properly called “final decisions.”
And this court is the right forum for the appeal. The
Federal Circuit’s appellate jurisdiction is exclusive
when the district court’s jurisdiction rests on 28 U.S.C.
§1338, which covers patent disputes. This, however, is
4 No. 11-2070
a contract dispute rather than a patent dispute. Neither
Affymax nor Ortho seeks a remedy provided by the
patent laws. The parties’ underlying dispute concerns
the meaning and application of the 1992 contract, and
the immediate dispute concerns the application of the
Federal Arbitration Act, 9 U.S.C. §§ 1–16, which governs
judicial review of arbitral awards that grow out of trans-
actions in interstate commerce (as this award does).
Judge Friendly’s famous opinion in T.B. Harms Co.
v. Eliscu, 339 F.2d 823 (2d Cir. 1964), holds that contro-
versies about contracts that allocate ownership of copy-
rights arise under the contract, not the copyright laws.
This circuit has adopted that approach for trademarks
as well as copyrights. See, e.g., International Armor &
Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912
(7th Cir. 2001). It is logically applicable to all intellectual
property, including patents. Both the Federal Circuit
and this circuit have held so explicitly, see Kennedy v.
Wright, 851 F.2d 963, 966 (7th Cir. 1988); Beghin-Say Inter-
national, Inc. v. Rasmussen, 733 F.2d 1568, 1571 (Fed. Cir.
1984), and the Supreme Court reached the same con-
clusion in Christianson v. Colt Industries Operating Corp.,
486 U.S. 800 (1988), though without citing Eliscu. The
principle that a contractual dispute about ownership
does not arise under the patent laws puts this case
within the jurisdiction of the regional circuits,
which review other contractual controversies that land
in arbitration.
The Federal Arbitration Act authorizes a court to
vacate an award for any of four reasons:
No. 11-2070 5
(1) where the award was procured by corruption,
fraud, or undue means;
(2) where there was evident partiality or corrup-
tion in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct
in refusing to postpone the hearing, upon suf-
ficient cause shown, or in refusing to hear evi-
dence pertinent and material to the controversy;
or of any other misbehavior by which the rights
of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers,
or so imperfectly executed them that a mutual,
final, and definite award upon the subject
matter submitted was not made.
9 U.S.C. §10(a). This list is exclusive; neither judges nor
contracting parties can expand it. Hall Street Associates,
L.L.C. v. Mattel, Inc., 552 U.S. 576, 584–89 (2008). Disregard
of the law is not on the statutory list. The district judge’s
conclusion that the arbitrators disregarded the law by
failing to discuss the foreign patents separately from
the domestic patents therefore does not justify vacating
the award.
We held in George Watts & Son, Inc. v. Tiffany & Co., 248
F.3d 577 (7th Cir. 2001), that, despite the limited scope
of §10(a), a court may set aside an award that directs
the parties to violate the legal rights of third persons
who did not consent to the arbitration. Thus an award
directing the parties to form a cartel, and fix prices or
output, could be vacated as a violation of the Sherman
6 No. 11-2070
Antitrust Act, even though the Federal Arbitration Act
does not authorize the award’s vacatur. Arbitration
implements contracts, and what the parties cannot do
through an express contract they cannot do through an
arbitrator. But Affymax does not contend that the
panel’s award directs Ortho to violate any rule of
positive law designed for the protection of third parties.
Nor does Affymax contend that different arbitrators
have issued incompatible awards, only one of which
could be enforced without commanding the parties to
do the impossible. See Jonites v. Exelon Corp., 522 F.3d
721 (7th Cir. 2008).
Some decisions of this circuit after George Watts & Son
have implied that “manifest violation of law” has some
different or broader content. See, e.g., Edstrom Industries,
Inc. v. Companion Life Insurance Co., 516 F.3d 546, 552
(7th Cir. 2008). But these decisions did not purport to
overrule George Watts & Son. More importantly, none
survives Hall Street Associates. Except to the extent recog-
nized in George Watts & Son, “manifest disregard of the
law” is not a ground on which a court may reject an
arbitrator’s award under the Federal Arbitration Act.
Accord, Ramos-Santiago v. United Parcel Service, 524
F.3d 120, 124 n.3 (1st Cir. 2008); Citigroup Global Markets
Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009); Medicine
Shoppe International, Inc. v. Turner Investments, Inc., 614
F.3d 485 (8th Cir. 2010).
That’s not the only problem with the district court’s
decision. What law, precisely, did the arbitrators vio-
late? The district court’s opinion does not say. No
No. 11-2070 7
rule of law requires arbitrators to render opinions—or,
having chosen to write an opinion, to discuss every
issue that the parties contested. Federal courts them-
selves often let issues pass in silence, and arbitration
need not be as formal as litigation. Many an arbitration
ends with an award saying who won but omitting rea-
sons. Administrative law judges can’t decide that
way but must explain themselves; arbitrators are free
to act summarily, unless the parties’ contract requires
an opinion. The 1992 joint-venture contract does not
call for the arbitrators to discuss every issue at length,
or at all.
Perhaps the district judge just chose his words inex-
actly. Section 10(a)(4) permits a court to vacate an award
if the arbitrators exceeded their powers. The 1992
contract called for the arbitrators to decide who
invented the technology reflected in the patents;
ownership tracks inventorship. If the arbitrators
resolved the dispute on some other ground—for example,
a belief that one of the inventions is not patentable, or
a conclusion that ownership should be shared so that
all parties make a profit—the award would be set aside
under §10(a)(4). Disregard of the law comes within
§10(a)(4) if it also amounts to disregard of the contract
that conveys the arbitrators’ authority.
Some language in the district court’s opinion suggests
that the judge thought that the arbitrators had defied
the contract by making a decision on a ground other
than the (contractual) principle that ownership follows
inventorship. Yet the judge did not identify any
8 No. 11-2070
language in the award saying this. Instead the judge
inferred from silence that the arbitrators must have had
an extra-contractual ground. That’s a logical error.
Silence is just silence.
Affymax defends its judgment by pointing to some
of the award’s language. This avoids the problem of
inferring faithlessness from silence. But the language
that Affymax finds portentous does not even hint that
the arbitrators did something different from what their
charge required. It would not serve any purpose to
trudge through the award line-by-line, nor would such
scrutiny be compatible with the principle that judicial
review of arbitral awards is deferential. See Major League
Baseball Players Ass’n v. Garvey, 532 U.S. 504 (2001). It
suffices to say that neither what the arbitrators said,
nor what they omitted, supports an inference that
what they did was other than decide who invented the
technology in question.
As it happens, the arbitrators had no reason to
discuss the foreign patents separately from the domestic
patents. Both Affymax and Ortho filed briefs and other
papers telling the panel that inventorship (and thus
ownership) of all patents in a single family is controlled
by who made the invention that led to the principal
domestic patent in that family. The parties disagreed
about who invented what, but they agreed that there
were only two functional issues, one for each patent
family. The award reflects that agreement and therefore
evinces faithfulness to the task at hand, rather than disre-
gard of the law or the panel’s limited powers.
No. 11-2070 9
Affymax believes that the arbitrators erred in resolving
the questions put to them. But “the question for decision
by a federal court asked to set aside an arbitration
award . . . is not whether the arbitrator or arbitrators
erred in interpreting the contract; it is not whether they
clearly erred in interpreting the contract; it is not
whether they grossly erred in interpreting the contract;
it is whether they interpreted the contract.” Hill v.
Norfolk & Western Ry., 814 F.2d 1192, 1194–95 (7th Cir.
1987). This panel applied the 1992 contract, and its
award must be enforced.
The district court’s judgment is reversed (to the
extent appealed from), and the case is remanded with
instructions to confirm the award in full.
10-3-11