Wednesday, July 27, 2016

Illumina v. Ariosa: the CAFC discusses the phrase “relating to”

The outcome of Illumina v. Ariosa

Illumina, Inc. (“Illumina”) appeals a district court order
denying Illumina’s motion to compel arbitration.
Illumina and Ariosa Diagnostics, Inc. (“Ariosa”) entered
into a supply agreement in which the parties agreed that
certain disputes will be subject to compulsory arbitration.
The arbitration clause came into dispute when Illumina
sued Ariosa for patent infringement, and Ariosa counterclaimed
for breach of contract on grounds that, under the
terms of the supply agreement, Ariosa had a license to the
patent-in-suit. Illumina invoked the arbitration clause of
the supply agreement and moved to compel arbitration.
The district court concluded that Ariosa’s counterclaims
are not subject to arbitration. We affirm the district
court’s order denying compulsory arbitration.

The issue

Ariosa responds that its counterclaims fall within the
terms of the exclusion-from-arbitration clause. Ariosa
maintains that the presumption in favor of arbitration
only applies after a court determines that an ambiguity
exists as to whether a particular dispute is subject to
arbitration and the party favoring district court litigation
fails to rebut that presumption. Ariosa notes that the
district court has twice concluded that Ariosa’s counterclaims
“unambiguously relate to issues of patent infringement”
and thus “are outside of the scope of the
arbitration agreement.” J.A. 6. Ariosa argues that Illumina’s
claim of patent infringement is tied to the question
of whether Ariosa was granted, and continues to enjoy, an
express or implied license to the ’794 patent.


We agree that Ariosa’s counterclaims are not subject
to arbitration. The pertinent language of the arbitration
provision is unambiguous and makes clear that “disputes
relating to issues of” patent scope and infringement are
not subject to mandatory arbitration. J.A. 219. Illumina
put the scope of licensed patent rights in issue by suing
Ariosa for patent infringement. The counterclaims at
issue—declaratory judgment of non-infringement, breach
of contract, and breach of certain covenants—are predicated
on the notion that the infringement allegations
cannot stand because of the licensing provisions within
the supply agreement. Endo Pharm., Inc. v. Actavis, Inc.,
746 F.3d 1371, 1374 (Fed. Cir. 2014) (noting that the
burden of proving license as a defense rests with the
alleged licensee). The scope of the licensed intellectual
property rights is germane to whether Ariosa ultimately
obtained a license to the ’794 patent for goods that it has
been exclusively purchasing from Illumina under the
supply agreement. Ariosa’s counterclaims are not about
licensing or a license defense in the abstract—they are
centered on whether Ariosa is licensed to use, and thus is
immunized from infringement of, the asserted claims of
the ’794 patent.

As to "relating to":

The Ninth Circuit and courts interpreting California
law have held that the phrase “relating to” should be
given broad meaning, in contrast to other prefatory
phrases, such as “arising hereunder.”1 In view of California
law and past interpretations of similar clauses, a
disagreement about the scope of licensed rights does not
render the clause ambiguous for purposes of invoking the
presumption in favor of arbitration. To the extent Illumina
suggests that the word “issues” narrows the import of
the exclusion-from-arbitration clause, we disagree because
the full phrase links “issues” with the modifier
“relating to”: “disputes relating to issues of.” J.A. 219.


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