Medtronic AVE Inc v. Advanced Cardiovascular Systems, Inc. ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
4-17-2001
Medtronic AVE Inc v. Advanced Cardiovascular
Systems, Inc.
Precedential or Non-Precedential:
Docket 00-5230
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Filed April 17, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-5230
MEDTRONIC AVE, INC.
v.
ADVANCED CARDIOVASCULAR SYSTEMS, INC.,
Appellant
On Appeal from the United States District Court
for the District of Delaware
(D.C. Civ. Nos. 98-00080, 98-00314, 98-00316)
District Judge: The Honorable Sue L. Robinson
Argued February 12, 2001
BEFORE: SCIRICA, FUENTES, and GREENBERG,
Circuit Judges
(Filed: April 17, 2001)
Peter Buscemi (argued)
Richard S. Meyer
D. Michael Underhill
John H. Williamson
Mark A. Goodin
Morgan, Lewis & Bockius
1800 M Street, N.W.
Washington, D.C. 20036
Attorneys for Appellee
Frederick L. Cottrell, III
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
Aldo A. Badini (argued)
Henry J. Ricardo
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Richard A. Bardin
Craig B. Bailey
Fulwider Patton Lee & Utecht, LLP
10877 Wilshire Boulevard,
10th Floor
Los Angeles, CA 90024
Attorneys for Appellant
OPINION OF THE COURT
GREENBERG, Circuit Judge.
This matter is before the court on an appeal fr om an
order of the district court dated September 30, 1999,
denying American Cardiovascular Systems' ("ACS") motion
for a stay of patent infringement litigation pending
arbitration pursuant to 9 U.S.C. S 3. ACS sought a stay in
this litigation brought by Medtronic/Arterial Vascular
Engineering,1 Inc. ("A VE") so that it could enforce the
arbitration clauses in two agreements containing a release
and a covenant not to sue, respectively, into which ACS
had entered with C.R. Bard, Inc. ("Bar d"). After ACS and
Bard executed these agreements, AVE, in 1998, purchased
Bard's coronary catheter business. At that time Bard
assigned the two agreements to AVE. A VE and ACS agree
_________________________________________________________________
1. Medtronic, Inc. acquired AVE in January 1999 and thus AVE has been
known as Medtronic AVE, Inc. since that time. The district court, by an
order dated October 22, 1999, allowed the caption of the consolidated
cases to be amended to reflect the name change.
2
that the arbitration clauses are valid and that their
provisions bind them, but AVE asserts that the claims it
advances in this patent infringement litigation ar e outside
the scope of the two agreements. The district court agreed
with AVE and ACS appeals. We will affirm the district
court's order denying the motion to stay the litigation
pending arbitration because Bard never owned the claims
involved in this litigation and, as a result, disputes
regarding them are not subject to the arbitration provisions
of either agreement. Thus, although AVE has stepped into
Bard's shoes, inasmuch as it owes to ACS only obligations
it derived from Bard, the arbitration clauses in the two
agreements do not apply to AVE's separate claims involved
here.
I. BACKGROUND
ACS's coronary stent delivery systems consist of small
pieces of stainless steel that are laser cut fr om a tube and
affixed to a stent delivery catheter. The FDA-approved
coronary stent is pre-mounted on a catheter that positions
the stent in the appropriate region of the blood vessel. The
balloon end of the catheter is inflated to expand the stent
and place it against the vessel wall. The catheter then is
withdrawn.
(a) The 1992 Agreement
Bard, a company involved in the development,
manufacture and sale of medical devices, sued ACS in
1988, alleging infringement of certain of its patents for
catheter technology. See C.R. Bard, Inc. v. Advanced
Cardiovascular Sys., Inc., No. SA CV 88-646 JSL, 1989 U.S.
Dist. LEXIS 18439 (C.D. Cal. July 28, 1989); app. at 352-
56. ACS then sued Bard in 1990, alleging infringement of
several of ACS's patents for catheter technology, but Bard
asserted counterclaims for infringement of Bar d's catheter
technology patents in that litigation. See Advanced
Cardiovascular Sys., Inc. v. C.R. Bard, Inc., No. C90-0503
FMS, 1992 WL 478215 (N.D. Cal. Dec. 22, 1992); app. at
293-351. In January 1992, ACS and Bard settled the
actions through an agreement (the "1992 Agreement") in
which they cross-licensed various catheter patents to each
other and agreed to pay royalties.
3
The 1992 Agreement contained mutual releases which
provided that each party:
on behalf of [itself and its] respective predecessors,
successors, parents, subsidiaries, assigns,
stockholders, officers, directors, attor neys, agents,
employees and representatives hereby releases and
discharges the other party, and its r espective
predecessors and successors, parents, subsidiaries and
their respective assigns, stockholders, officers . . . from
any and all debts, claims, demands, damages,
liabilities, obligations, causes of action, agr eements,
suits, sums of money, and rights, whether known or
unknown, suspected or unsuspected, which are based
on any actions or inaction occurring prior to the date
of this Agreement and which the party now owns or
holds, or at any time heretofore owned or held, by
reason of any act, matter, cause or thing whatsoever
[subject to certain exceptions not relevant here].
1992 Agreement P 8; app. at 87-88.
The agreement also provided for arbitration to settle
certain disputes:
Any dispute between the parties concerning the
construction, interpretation, and effect of this
Agreement or any clause herein contained, or the
rights and liabilities of the parties hereunder , or the
coverage of any patent claims licensed herein, shall be
resolved, if necessary, by binding arbitration in
accordance with the commercial arbitration rules of the
American Arbitration Association, and judgment upon
the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof.
1992 Agreement P 15.a; app. at 92.
(b) The 1998 Agreement
In 1997 Bard sued ACS for infringement of certain of its
patents for catheters based on actions not cover ed by the
1992 Agreement. See C.R. Bard, Inc. v. Advanced
Cardiovascular Sys., Inc., 997 F. Supp. 556 (D. Del. 1998);
app. at 357-62. Then in 1998 Bard sued ACS again for
infringement of its catheter patents. See C.R. Bard, Inc. v.
4
Advanced Cardiovascular Sys., Inc., No. 98-120 (RRM) (D.
Del.); app. at 363-67. To resolve these actions, Bard and
ACS entered into a settlement agreement on or about April
4, 1998, in which ACS agreed to pay Bar d $100,000,000,
and the parties cross-licensed certain catheter patents to
each other. This agreement did not contain any releases but
did include mutual covenants not to sue which, with
respect to Bard, provided as follows:
Bard and its Affiliates covenant not to sue ACS and its
Affiliates for any and all debts, claims, demands, and
liabilities, whether known or unknown, suspected or
unsuspected, which are based in any way on any and
all of ACS's and its Affiliates past and curr ent domestic
and foreign angioplasty catheters including stent
delivery catheters. For purposes of this section,``ACS's
and its Affiliates past and current domestic and foreign
angioplasty catheters including stent delivery catheters'
shall mean ACS's and its Affiliates past and curr ent
domestic and foreign angioplasty catheters including
stent delivery catheters and shall specifically exclude
any future modifications to such products.
1998 Agreement P 4.b; app. at 110.
The 1998 Agreement required ACS to deliver to Bard
certain catalogues and materials which showed "current
domestic and foreign angioplasty catheters including stent
delivery catheters" to identify products exempted from suit
by the Agreement. See app. at 110 (1998 Agreement P 4.b).
The ACS Coronary Stent Delivery Systems, including the
ACS RX Multi-Link and the ACS RX Multi-Link HP , were
listed and pictured in the materials that ACS provided to
Bard, and these products were the subject of the
infringement action. See app. at 56-57. The U.S. and
International Product Brochur es ACS delivered listed the
integrated stent delivery systems which consist of a stent
mounted on a stent delivery catheter. See app. at 20-38.
In this 1998 Agreement, Bard and ACS also agreed to
settle certain disputes by arbitration as pr ovided in the
following clause:
Any dispute between the parties concerning the
construction, interpretation, and effect of this
5
Agreement or any clause herein contained, or the
rights and liabilities of the parties hereunder , or the
coverage of any patent claims licensed herein, shall be
resolved, if necessary, by binding arbitration in
accordance with the commercial arbitration rules of the
American Arbitration Association, and judgment upon
the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof.
1998 Agreement P 13; app. at 116.
(c) Actions Between ACS and AVE and A VE's Purchase of
Bard's Business
During the period of its disputes with Bard, ACS also was
involved in litigation with AVE. ACS first sued AVE in
December 1997 in the Northern District of California, and
AVE sued ACS on February 18, 1998, in the District of
Delaware. AVE's complaint for patent infringement of its
stent technology patents against ACS involves two ACS
coronary stent delivery systems: the ACS RX Multi-link
Stent Delivery System and the ACS RX Multi-link HP Stent
Delivery System. AVE also has advanced various state law
claims against ACS (including breach of contract,
misappropriation of trade secrets, unfair competition, and
wrongful acquisition of property and conversion) regarding
the development of the stent delivery systems and events
that occurred between 1989 and 1991. Then, in April 1998,
ACS brought a second patent infringement action in the
Northern District of California against AVE.
While these three actions were pending, on October 1,
1998, AVE purchased the assets of Bar d's coronary
catheter business which included its various catheter
technology patents. See app. at 176. The 1992 Agreement
allowed its assignment as long as the patents that were the
subject of the Agreement were transferr ed, see app. at 95-
96 (1992 Agreement P 22), and the 1998 Agreement allowed
its assignment in connection with a merger , consolidation
or sale of its stock or sale of the assets of its business. See
app. at 119-20 (1998 Agreement P 20). Accordingly, Bard
assigned all of its rights and obligations under the two
agreements to AVE.
6
On February 8, 1999, in response to AVE's action against
it and after the California court transferr ed the two cases
pending before it to Delaware, ACS moved to stay AVE's
district court action, Medtronic A VE, Inc. v. Advanced
Cardiovascular Sys., Inc., No. 98-80-SLR (D. Del.), pending
arbitration of whether either the release in the 1992
Agreement or the covenant not to sue in the 1998
Agreement bars the action. In addition, ACSfiled a demand
for arbitration. Obviously, the demand for arbitration was
somewhat unusual as ACS predicated it on pr ovisions in
agreements to which AVE was not a party when it brought
the action. AVE opposed ACS's motion, ar guing that Bard
never owned AVE's claims against ACS for infringement of
AVE's stent patents or the state law claims involved in the
litigation between AVE and ACS. AVE also argued that the
Bard-ACS agreements did not cover these claims and that
they were not subject to arbitration.
In March 1999, the district court held a hearing on ACS's
motion and then, on September 30, 1999, denied the
motion. See app. at 5 (Mem. Order at 1). The district court
held that it could not interpret the release of all claims held
by Bard in the 1992 Agreement or its undertakings in the
1998 Agreement as applying to separate claims held by
Bard's assignee, AVE. See app. at 16 (Mem. Order at 12).
The court stated that "[a]lthough catheters and stents may
be bundled for marketing purposes, there can be no
question but that catheters and stents involve dif ferent
technology and patents and that AVE developed its stent
technology independent of Bard [the assignor to AVE]." App.
at 17 (Mem. Order at 13).
Subsequently, ACS made a motion to rear gue its motion
to stay the action pending arbitration or, in the alternative,
for a stay pending appeal. On March 24, 2000, ACS
withdrew its motion to reargue andfiled an appeal from the
district court's September 30, 1999 order . On March 31,
2000, ACS moved in this court to stay proceedings in the
district court pending appeal, and, after AVEfiled its
opposition to ACS's motion, a motions panel of this court
referred ACS's motion to the merits panel by an order dated
May 5, 2000. ACS, however, has withdrawn the motion as
the district court has stayed the proceedings before it.
7
(d) Related Cases and Proceedings
This case, Medtronic AVE, Inc. v. Advanced
Cardiovascular Systems, Inc., 98-80-SLR, has been
consolidated with the two proceedings ACS br ought against
AVE in the Northern District of Califor nia and which the
California court transferred to the District of Delaware,
Advanced Cardiovascular Systems, Inc. v. Arterial Vascular
Engineering, Inc., No. 98-314, and Advanced Cardiovascular
Systems, Inc. v. Arterial Vascular Engineering, Inc., No. 98-
316. Medtronic, Inc., AVE's parent company, also has sued
ACS twice regarding infringement of Medtr onic's stent
patents. See Medtronic, Inc. v. Advanced Cardiovascular
Sys., Inc., No. 97-2459 JMR/FLN (D. Minn.); Medtronic, Inc.
v. Advanced Cardiovascular Sys., Inc. and Guidant Corp.,
No. 99-761 JMR/FLN (D. Minn.). ACS moved to stay the
proceedings based on the arbitration clause in the 1998
Agreement between Bard and ACS. The district court
denied ACS's motion, and the Court of Appeals for the
Eighth Circuit affirmed. See Medtr onic, Inc. v. Advanced
Cardiovascular Sys., Inc., 221 F.3d 1343 (table), 2000 WL
637045 (8th Cir. 2000). The court ruled that as the parent
corporation of AVE, Medtronic, Inc. was not bound to the
1998 Agreement.
II. DISCUSSION
(a) Jurisdiction
The district court had jurisdiction over this patent
infringement case pursuant to 28 U.S.C. S 1331 and
1338(a). We conclude for the reasons we set forth that we
have jurisdiction over the appeal of the denial of the motion
to stay pending arbitration pursuant to 9 U.S.C.
S 16(a)(1)(A) and 28 U.S.C. S 1294(1).
The parties in their primary briefs indicated, without
substantial discussion, that this court has jurisdiction over
this appeal under 9 U.S.C. S 16(a)(1)(A). W e, however,
questioned this point inasmuch as the district court's
jurisdiction was based in whole or in part on 28 U.S.C.
S 1338 so that under 28 U.S.C. S 1295(a) the United States
Court of Appeals for the Federal Circuit would have
exclusive jurisdiction over an appeal from a"final decision"
8
in this case. Accordingly, we directed the parties to file
supplemental briefs on the jurisdictional point. In their
supplemental briefs they have adhered to their position that
we have jurisdiction.
After considering these briefs we have deter mined that we
have jurisdiction and thus we adjudicate this appeal on the
merits. Our starting point is 9 U.S.C. S 16(a)(1)(A) which
makes the order in this case appealable. Section 16(a)(1)(A),
however, does not indicate the court to which such an
appeal may be taken. Thus, we examine the general
statutes providing for the courts of appeals' jurisdiction. We
conclude that section 1295(a) does not vest jurisdiction in
the Court of Appeals for the Federal Circuit because this
appeal is not from a "final decision." After all, rather than
ending the litigation on the merits, see John Hancock
Mutual Life Ins. Co. v. Olick, 151 F.3d 132, 135-56 (3d Cir.
1998), "the order ensure[d] that[the] litigation will continue
in the District Court." Gulfstream Aer ospace Corp. v.
Mayacamas Corp., 485 U.S. 271, 275, 108 S. Ct. 1133,
1136 (1988); see Aluminum Co. of Am. v. Beazer East, Inc.,
124 F.3d 551, 557 (3d Cir. 1997). Furthermore, we see no
reason to regard the order asfinal under the collateral
order doctrine as we are satisfied that even if it were not
appealable under section 16(a)(1)(A), it effectively could be
reviewed after entry of a final judgment in the district court.
See Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98
S. Ct. 2454, 2458 (1978); Queipo v. Prudential Bache Secs.,
Inc., 867 F.2d 721, 722 (1st Cir. 1989). Thus, section
1295(a) does not vest jurisdiction in the Court of Appeals
for the Federal Circuit over the current appeal in this case.
We also conclude that the Court of Appeals for the
Federal Circuit could not have jurisdiction over this appeal
under 28 U.S.C. S 1292(c) which vests it with exclusive
jurisdiction over an appeal from an interlocutory order as
described in 28 U.S.C. S 1292(a)(1) or (b) in cases in which
it would have jurisdiction over an appeal fr om a final
decision under section 1295. Plainly section 1292(b) cannot
be applicable as the procedures for allowing an
interlocutory appeal as set forth in that section have not
been followed here.
9
Thus, we are left to consider only section 1292(a)(1)
which deals, inter alia, and as possibly applicable here,
with orders refusing to grant injunctions. Upon
consideration of that subsection we are satisfied, in
harmony with Gulfstream, 485 U.S. at 287-88, 108 S.Ct. at
1142-43, and in accordance with the weight of authority,
that the order denying the stay should not be r egarded as
appealable as an order denying an interlocutory injunction
under section 1292(a)(1). See McLaughlin Gor mley King Co.
v. Terminix Int'l Co., 105 F .3d 1192, 1193-94 (8th Cir.
1997); Queipo, 867 F.3d at 722; see also Cofab, Inc. v.
Philadelphia Joint Bd. etc., 141 F.3d 105, 108-09 (3d Cir.
1998).
In view of the foregoing analysis we come to the
conclusion that the Court of Appeals for the Federal Circuit
would not have had jurisdiction if ACS had pr osecuted this
appeal to that court. That conclusion, however , in itself
does not mean that we do have jurisdiction. After all, what
we have held with respect to the Court of Appeals for the
Federal Circuit's lack of jurisdiction under section 1295(a)
would apply equally to us if we attempted to exer cise
jurisdiction under our usual source of jurisdiction, 28
U.S.C. S 1291, as that section, like section 1295(a),
provides for jurisdiction only over appeals fr om "final
decisions." Moreover, we no mor e can exercise jurisdiction
under section 1292(a)(1) by regarding the order denying the
stay as an order denying an interlocutory injunction than
could the Court of Appeals for the Federal Cir cuit under
section 1292(c)(1) which incorporates that section. Thus,
this case is the unusual one that finally tur ns on the
residual jurisdictional statute, 28 U.S.C.S 1294(1), which
provides, with exceptions that we hold ar e inapplicable,
that an appeal from a reviewable decision of a district court
"shall be taken to the . . . court of appeals for the circuit
embracing the district." Inasmuch as the appeal has been
taken from the United States District Court for the District
of Delaware, which is within this circuit, we have
jurisdiction.
In reaching our result we have not overlooked the opinion
of the Court of Appeals for the Seventh Circuit in In re BBC
International, Ltd., 99 F.3d 811 (7th Cir. 1996), a case that
10
we brought to the parties' attention when we r equested the
supplemental briefs. In BBC, the regional court of appeals
held that it did not have jurisdiction to entertain a petition
for a writ of mandamus pursuant to 28 U.S.C. S 1651(a)
which authorizes courts of appeals "in aid of their
respective jurisdictions" to issue writs. Id. at 812-13. In
reaching its conclusion, the court indicated that the
"[p]ower to issue writs of mandamus depends on [the]
power to entertain appeals when the case ends," and it
thus held that it did not have jurisdiction to issue the writ
because any appeal from a final decision in the case would
have to be taken to the Court of Appeals for the Federal
Circuit. Id. at 813. Thus, for the court to determine
whether it had jurisdiction to entertain a writ of mandamus
it had to work backwards from its conclusion on the
question of whether it would have jurisdiction at the time
of a final decision.
Here, however, our methodology is dif ferent as we are
deciding the case on the basis of what court has
jurisdiction now. Thus, our analysis in no way is confined
by a provision such as that in section 1651(a) that a court
may issue writs "in aid" of its jurisdiction. Consequently,
the circumstance that the Court of Appeals for the Federal
Circuit will have exclusive jurisdiction over any appeal from
a final decision in this case does not requir e that we
conclude differently than we do with r espect to our
jurisdiction over the appeal in this case at this time.
(b) Standard of Review
We exercise plenary review over the legal questions
concerning the applicability and scope of an arbitration
agreement. See Harris v. Green T ree Fin. Corp., 183 F.3d
173, 176 (3d Cir. 1999) (considering a district court's denial
of a motion to compel arbitration and stay pr oceedings
pending arbitration); Pritzker v. Merrill L ynch, Pierce, Fenner
& Smith, Inc., 7 F.3d 1110, 1113 (3d Cir . 1993).
Nevertheless, to the extent that the district court predicated
its decision on findings of fact, our standar d of review is
whether those findings were clearly err oneous.2 See Kaplan
_________________________________________________________________
2. When a district court interprets language contained in contracts we
review its determination under the clearly erroneous standard. See John
11
v. First Options of Chicago, Inc., 19 F.3d 1503, 1509 (3d Cir.
1994).
(c) Court Decides Arbitrability of Dispute
When Congress enacted the Federal Arbitration Act, 9
U.S.C. SS 1-13, it provided a framework for the development
of a body of uniform federal law gover ning contracts within
its scope. Therefore, if the Arbitration Act is applicable,
federal law applies in questions regarding the construction
and enforcement of an arbitration clause, even in those
cases in which the district court's jurisdiction is based on
diversity of citizenship.3 See Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S. Ct. 3346,
3353 (1985); Goodwin v. Elkins & Co., 730 F .2d 99, 108 (3d
Cir. 1984); Becker Autoradio U.S.A., Inc. v. Becker
Autoradiowerk, 585 F.2d 39, 43 (3d Cir . 1978). Accordingly,
if the Arbitration Act applies, federal law, including general
principles of contract law, determines whether there is a
valid arbitration clause. See First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 1924 (1995);
_________________________________________________________________
F. Harkins Co. v. Waldinger Corp., 796 F.2d 657, 658 (3d Cir. 1986). But
if the district court engages in contract construction, we exercise
plenary
review. See id. at 659. "By ``interpretation of language' we determine what
ideas that language induces in other persons. By``construction of the
contract,' as that term will be used her e, we determine its legal
operation
--its effect upon the action of courts and administrative officials. If we
make this distinction, then the construction of a contract starts with the
interpretation of its language but does not end with it; while the process
of interpretation stops wholly short of a deter mination of the legal
relations of the parties." Id. at 659 (citing 3 Corbin, Corbin on
Contracts,
S 534 at 9 (1960)).
3. Although the Arbitration Act creates federal substantive law regarding
agreements to arbitrate, it does not cr eate any independent federal-
question jurisdiction under 28 U.S.C. S 1331. 9 U.S.C. S 4 "provides for
an order compelling arbitration only when the federal district court
would have jurisdiction over a suit on the underlying dispute; hence,
there must be diversity of citizenship or some other independent basis
for federal jurisdiction before the order can issue. . . . Section 3
likewise
limits the federal courts to the extent that a federal court cannot stay a
suit pending before it unless there is such a suit in existence." Moses H.
Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n.32, 103
S. Ct. 927, 942 n.26 (1983).
12
Mitsubishi, 473 U.S. at 626, 105 S.Ct. at 3353; Harris, 183
F.3d at 178; Goodwin, 730 F.2d at 108.
In appropriate circumstances, 9 U.S.C.S 4 allows
litigants to obtain an order requiring a r eluctant party to
arbitrate a dispute, as it directs the district court to order
a party to arbitrate if it is "satisfied that the making of the
agreement for arbitration or the failur e to comply therewith
is not an issue." PaineWebber Inc. v. Hartmann, 921 F.2d
507, 510 (3d Cir. 1990); see Harris, 183 F.3d at 178-79.
But under section 4 when one party refuses to arbitrate,
the issue of whether the dispute is within the scope of the
agreement requires district court r esolution. See AT & T
Techs., Inc. v. Communication Workers of Am., 475 U.S. 643,
649, 106 S. Ct. 1415, 1418 (1986); PaineW ebber, 921 F.2d
at 510-11. There is an issue in dispute in those
circumstances because arbitration is "fundamentally a
creature of contract," Kaplan, 19 F.3d at 1512, and thus
arbitrators have the authority to resolve disputes only if the
parties have agreed to submit to arbitration. See AT&T
Techs., 475 U.S. at 648, 105 S.Ct. at 1418 (" ``[A]rbitration
is a matter of contract and a party cannot be r equired to
submit to arbitration any dispute which he has not agreed
so to submit.' "). Accordingly, for a court to enter an order
compelling arbitration there must be sufficient evidence
that the parties consented to arbitration in an expr ess
agreement. See United Steelworkers of Am. v. Warrior & Gulf
Navigation Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 1353
(1960); Kaplan, 19 F.3d at 1512; PaineWebber, 921 F.2d at
511; Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d
51, 54 (3d Cir. 1980).
While a court asked to stay proceedings pending
arbitration must determine whether ther e is a valid
agreement to arbitrate and, if so, whether the specific
dispute falls within the substantive scope of that
agreement, "its function [nevertheless] is very limited when
the parties have agreed to submit all questions of contract
interpretation to the arbitrator. It is confined to
ascertaining whether the party seeking arbitration is
making a claim which on its face is governed by the
contract." United Steelworkers of Am. v. American Mfg. Co.,
363 U.S. 564, 567-68, 80 S. Ct. 1343, 1346 (1960); see also
13
United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29,
36-37, 108 S. Ct. 364, 370 (1987). To deter mine whether a
claim falls within the scope of an arbitration agr eement, the
"focus is on the factual underpinnings of the claim rather
than the legal theory alleged in the complaint." Svedala
Indus., Inc., Civ. No. 96-4538, 1996 WL 590861, at *3 (E.D.
Pa. 1996), citing, inter alia, Mitsubishi, 473 U.S. at 622,
n.9, 105 S. Ct. at 3351 n.9. If the court deter mines that
there is an agreement to arbitrate and that the issue in
dispute falls within the scope of the agreement, it must
submit the matter to arbitration without ruling on the
merits of the case. See Beck v. Reliance Steel Prods. Co.,
860 F.2d 576, 579 (3d Cir. 1988).
However, federal policy favors arbitration and thus a
court resolves doubts about the scope of an arbitration
agreement in favor of arbitration. See Moses H. Cone, 460
U.S. at 24-25, 103 S.Ct. at 941; First Liberty Inv. Group v.
Nicholsberg, 145 F.3d 647, 653 (3d Cir. 1998); Kaplan, 19
F.3d at 1512. There is a "presumption of arbitrability."
PaineWebber, 921 F.2d at 511; see Pritzker, 7 F.3d at 1114-
15; Stateside Mach. Co. v. Alperin, 591 F .2d 234, 240 (3d
Cir. 1979) ("doubtful issues regar ding the applicability of an
arbitration clause are to be decided in favor of
arbitration."). An order to arbitrate "should not be denied
unless it may be said with positive assurance that the
arbitration clause is not susceptible of an interpr etation
that covers the asserted dispute." United Steelworkers v.
Warrior, 363 U.S. at 582-83, 80 S.Ct. at 1353; see also AT
& T Techs., 475 U.S. at 650, 160 S.Ct. at 1419; First Liberty
Inv. Group, 145 F.3d at 653; Schulte v. Prudential Ins. Co.
of Am. (In re Prudential Ins. Co.), 133 F.3d 225, 231 (3rd
Cir. 1998); Sharon Steel Corp. v. Jewell Coal and Coke Co.,
735 F.2d 775, 778 (3d Cir. 1984) ("So long as the
appellant's claim of arbitrability was plausible,
interpretation of the contract should have been passed on
to the arbitrator."). Yet ther e is a limit as to how far a court
should go in resolving a dispute in favor of arbitration
because, as we stated in PaineWebber, while interpretive
disputes should be resolved in favor of arbitrability, "a
compelling case for nonarbitrability should not be trumped
by a flicker of interpretive doubt." PaineWebber, 921 F.2d at
513.
14
(d) The 1992 Settlement Agreement and Release
As we have indicated, AVE does not dispute that it is
bound by the agreements between ACS and Bar d, including
the arbitration clauses. Accordingly, the question for us to
determine is whether the district court err ed in holding that
the dispute is not within the scope of the arbitration
clauses. In the release4 contained in the 1992 Agreement,
each party released the other party from demands,
damages, liabilities, obligations, causes of action,
agreements, suits, sums of money and rights, which were
based on any actions or inaction occurring prior to the date
of the agreement and which the party then owned or held.
See app. at 87-88 (1992 Agreement P 8). The agreement
also provided for arbitration of "any dispute between the
parties concerning the construction, interpr etation and
effect of this Agreement or any clause herein contained, or
the rights and liabilities of the parties her eunder." App. at
92 (1992 Agreement P 15.a).
But even if AVE predicates its claims on property
interests extant prior to the date of the 1992 Agreement,
inasmuch as Bard did not then own or hold the interests of
AVE, Bard could not have agreed to release ACS from or
arbitrate claims relating to those inter ests. Accordingly,
while it is true that when AVE accepted the assignment of
the 1992 agreement from Bard it "step[ped] into [Bard's]
shoes," see Premier Dental Prod. Co. v. Darby Dental Supply
Co., 794 F.2d 850, 853 (3d Cir. 1986); Professional
Collection Consultants v. Hanada, 62 Cal. Rptr . 2d 182,
184, 53 Cal. App. 4th 1016, 1018-19 (Cal. Ct. App. 1997),
the agreement to arbitrate cannot be applied to AVE's
separate interests that Bard never owned. Therefore,
although this litigation is extraordinarily complex, our
resolution of it requires nothing mor e than the application
of a rather straightforward principle.
_________________________________________________________________
4. A release is a provision that intends a present abandonment of a
known right or claim. By contrast, a covenant not to sue also applies to
future claims and constitutes an agreement to exercise forbearance from
asserting any claim which either exists or which may accrue. . . ."
McMahan & Co. v. Bass, 673 N.Y.S.2d 19, 21, 250 A.D.2d 460, 461
(1998).
15
ACS argues that Svedala Industries, 1996 WL 590861,
supports the view that releases given by an assignor can
bar independent, pre-existing claims of an assignee where
the release explicitly applies to successors and assigns. It
argues that, like AVE, the plaintif f in Svedala contended
that the release could not bar its independent patent claims
because the promisor did not hold rights to the patent at
issue at the time of the release. In Svedala, two companies,
Barmac and Tidco International, entered into a license
agreement in 1988 regarding the ``571 patent and related
products that Barmac owned. The patent r elated to an
impact breaking apparatus designed to r educe the size of
certain minerals. Tidco and Svedala Industries, Inc.
("Svedala Inc.") were sister companies, as both were
subsidiaries of Svedala Industries, AB ("Svedala AB"). See
Svedala, 1996 WL 590861, at *1. In 1993, T idco, Svedala
Inc., and Svedala AB entered into a settlement agreement
and mutual release with Kemper Equipment Inc. over
certain disputes regarding the sales and operations of their
respective crushing and screening equipment business and
ancillary operations. See id. at *1.
The release agreement provided that the parties on behalf
of themselves and their respective:
predecessors, successors, heirs, assigns, . . .
subsidiaries, sister companies, parent companies and
all persons, connected with them fully release and
discharge the other and their respective predecessors,
successors . . . subsidiaries, sister companies, par ent
companies . . . from any and all claims, demands,
causes of action, obligations, damages and liabilities of
any nature whatsoever, whether or not now known,
suspected or claimed . . . .
Id. at *1. About one year later in 1994 T idco acquired
Barmac. See id. at *2. Then in 1996, T idco assigned the
'571 patent Barmac previously owned to Svedala Inc. See
id. at *2. Svedala Inc. then brought a lawsuit against
Kemper and Rock Engineered for infringement of the '571
patent. Kemper and Rock Engineered moved to stay the
proceedings and to compel arbitration. See id. at *2.
The court rejected Svedala's argument that Svedala
16
predicated on a contention that at the time of the 1993
release agreement it had no rights in the '571 patent and
therefore had no patent infringement claim to release so
that the matter did not fall within the arbitration clause. In
rejecting the argument, the court r easoned, inter alia, that
although Svedala Inc. did not have rights in the patent at
the time of the release, Barmac did have rights in the
patent at that time, and Tidco is the successor of Barmac5
and is a sister company to the plaintiff Svedala Inc. See id.
at *4. The release specified that it applied to all successors
and sister companies and all persons connected with them,
and Svedala Inc., in addition to being a party to the release,
was a sister company of Tidco (a party to the release) and
also later an assign. See id. at *1.
Obviously the situation in Svedala is completely
distinguishable from that here. First of all, the plaintiff
Svedala Inc. itself was a party to the broad 1993 release,
whereas AVE was not a party to the 1992 release between
Bard and ACS. Second, even if Svedala had not been a
party to the release, Tidco was a party to the release and
entered into it on behalf of its sister companies, of which
Svedala was one. In this case, AVE was not bound to the
release agreement between Bard and ACS through a
relationship with either of the parties existing at the time of
the execution of the release. Because the defendants in
Svedala put forth evidence that they had made and offered
for sale the accused infringing device prior to the time of
the release, the fact that Svedala Inc. was a party to the
release is relevant, even if the claim was unknown.
In contrast, in this case, although Bard was a party to
the release and later assigned the contract to AVE, at the
time of the release Bard did not own and, in fact, never
owned the patents that are now the subject of the suit
between AVE and ACS. This is a crucial dif ference because
here, unlike in Svedala, the party seeking to invoke the
arbitration clause is trying to apply the clause in an action
on a patent that was not acquired from a party to the
_________________________________________________________________
5. We also note that the district court in Svedala apparently regarded
Barmac as a predecessor of Tidco for purposes of the release. See
Svedala, 1996 WL 590861, at * 4.
17
agreement to arbitrate. Thus, if AVE's action against ACS
concerned patents that Bard acquir ed after the date of the
release and Bard assigned the contract containing that
release to AVE, this case would be in a very different
posture.
In another case that ACS cites to support its case,
Universal Studios Inc. v. Viacom Inc., 705 A.2d 579 (Del. Ch.
1997), two parties entered into a joint ventur e agreement
relating to the cable television business that included a
non-compete provision requiring that the participants not
engage in the same business as the joint ventur e. See id. at
583. Another party, Viacom, then bought the interests of
one of the participants in the joint venture. This acquisition
posed a problem because Viacom alr eady was in the cable
business. After complex negotiations and business
developments that we need not describe, litigation ensued.
The court held that the non-compete clause was ef fective
with respect to Viacom. See id. at 590-91, 600.
Universal Studios is different fr om this case in that the
parties there were involved in a joint venture and had
signed a non-compete agreement and exclusivity
agreement, and the purchaser of the inter est of one joint
venturer stepped into its shoes thereby becoming as subject
to the non-compete provision of the joint venture agreement
as to all its other provisions. Accordingly, the joint venture
agreement and the non-compete and exclusivity agreements
gave rise to different fiduciary and contractual obligations
and duties than those provided by a release or covenant not
to sue which relate to obligations and claims of the parties
subject to the agreement rather than claims of a third
party. Thus, Universal Studios dealt with the obligations of
a party to adhere to the terms of a joint venture when it
acquired an interest in the ventur e. Accordingly, the factual
pattern in Universal Studios is so distinct from that here
that the case is not useful in resolving the controversy here.
Reid v. Contel Cellular of Louisville, Inc., 208 F.3d 214
(table), 2000 WL 303005 (6th Cir. 2000), is a more
pertinent citation than Svedala and Universal Studios. In
Reid, Contel acquired a portion of the business of McCaw
Cellular, Reid's employer. Contel, however, though it hired
other McCaw Cellular employees, did not hire Reid,
18
according to Reid because of her physical handicap. Reid
then filed an action under Kentucky law against Contel in
state court which was removed to the district court. Reid,
however, remained McCaw Cellular's employee.
Subsequently Reid left McCaw Cellular's employment and
at that time received a severance package pursuant to
which she released McCaw Cellular and its successors and
assigns from all possible claims. Contel then successfully
moved for summary judgment on the ground that it was a
"successor/assign" of McCaw Cellular. On appeal, the court
of appeals reversed, indicating that "Contel's assignee
status vis-a-vis McCaw extends only to the subject matter
contained within the purchase agreement and that it is
illogical to allow Contel to benefit as assignee from every
release to which McCaw has been a party since the date of
the purchase agreement." Id. at * 2.
We certainly agree with Reid because a contrary holding
would have meant that the successor to a release could
apply it to bar claims quite beyond anything the parties to
the release could have contemplated. After all, a releasor
giving a release to a second party hardly would anticipate
that, as a result of an assignment, a thir d party could apply
the release to a claim the releasor had against the third
party that was quite independent of its claims against the
second party. Reid, then, supports the r esult the district
court reached in this case.
Moreover, a release usually will not be construed to bar
a claim which had not accrued at the date of its execution
or a claim which was not known to the party giving the
release. See Three Rivers Motors Co. v. Ford Motor Co., 522
F.2d 885, 895-96 (3d Cir. 1975). While it is true that cases
ACS has cited support the view that a release can bar even
unknown claims, these cases would be relevant only if it
were Bard's unknown claims that AVE, stepping into Bard's
shoes, wished to pursue against ACS. See id. at 894-96
(holding that although ordinarily words of release will not
be construed to bar unknown claim, parties intended to
release accrued but unknown antitrust claims); San Diego
Hospice v. San Diego, 37 Cal. Rptr. 2d 501, 504-05, 31 Cal.
App. 4th 1048, 1052-54 (Cal. Ct. App. 1995). Inasmuch as
AVE seeks to assert claims that Bard never owned, the
19
cases ACS cites are not relevant. Accor dingly, it can be said
with "positive assurance" that the claims in this case which
AVE asserts against ACS are not within the scope of the
release in the 1992 Agreement and that A VE thus is not
bound to arbitrate disputes regarding them.
(e) The 1998 Settlement and Covenant Not to Sue
The covenant not to sue in the 1998 Agreement provided:
Bard and its Affiliates covenant not to sue ACS and its
Affiliates for any and all debts, claims, demands, and
liabilities, whether known or unknown, suspected or
unsuspected, which are based in any way on any and
all of ACS's and its Affiliates past and curr ent domestic
and foreign angioplasty catheters including stent
delivery catheters. For purposes of this section,``ACS's
and its Affiliates past and current domestic and foreign
angioplasty catheters including stent delivery catheters'
shall mean ACS's and its Affiliates past and curr ent
domestic and foreign angioplasty catheters including
stent delivery catheters and shall specifically exclude
any future modifications to such products.
1998 Agreement P 4.b; app. at 110. However, the covenant
not to sue does not apply to AVE's separate claims that
Bard never owned.
In Spindelfabrik Suessen-Schurr Stahlecker & Grill v.
Schubert & Salzer Maschinenfabrik Aktiengesellschaft , 829
F.2d 1075, 1079 (Fed. Cir. 1987), defendant Schubert had
entered into a license agreement with Murata Machinery,
Ltd. ("Murata") in 1982. Under this agr eement, Murata
granted a nonexclusive license to its patents to Schubert.
See id. In 1983, Suessen sued Schubert for infringement of
Suessen's '946 patent, which dominated the Murata
patents under which Schubert had a license. See id. at
1076. Suessen later bought Murata's technology and
business from Murata in 1984. See id. at 1079. Schubert,
in defense against Suessen's action, argued that it had an
implied license under the Suessen '946 patent, as
Schubert's actions were merely an exer cise of its license
under the 1982 agreement. See id. Schubert also claimed
that when Suessen acquired the Murata patents, it
"stepped in the shoes" of Murata and ther efore was barred
20
by legal estoppel from suing Schubert for practicing the
licensed technology. See id.
The court rejected Schubert's argument for an implied
license. Id. at 1080. Under the agreements at issue,
Suessen had not made a promise not to sue under
Suessen's separate patents, and treating it as such would
be an overly broad interpretation. See id. at 1081. "[A]
patent license agreement is in essence nothing more than
a promise by the licensor not to sue the licensee. . . .
Indeed, the patentee of X and his licensee, when making,
using, or selling X, can be subject to suit under other
patents." Id.
Similarly, in ZapatA Industries Inc. v. W .R. Grace & Co.,
51 U.S.P.Q.2d 1619, 1620 (S.D. Fla. 1999), ZapatA
Industries Inc. ("ZapatA") and Advanced Oxygen
Technologies, Inc. ("AOTI") settled disputes between them
by entering into a license agreement in 1991 under which
AOTI was to receive ownership of the oxygen technology
and all rights in related patents issued or applied for by
either party and ZapatA was given licenses of all patents
covering the oxygen technology and agreed to pay royalties
to AOTI. See id. at 1622. In 1992, following a breach of
contract dispute, ZapatA and AOTI entered a settlement
agreement under which ZapatA agreed to assign all patents
and patent applications to AOTI and the license agr eement
was amended and would remain in effect unless the parties
agreed on a new one. The settlement agr eement did not
expand or amend the provisions of the license agreement in
which each party had made the representation that as of
August 1, 1991 (the date of the license agreement), the
technology licensed to the other party did not infringe any
third party patent rights. See id. at 1622-23. In 1991 and
1992, after the date of the license agreement between AOTI
and ZapatA, W.R. Grace & Co. ("Grace") independently
obtained two patents (which AOTI never owned). See id. at
1623. In 1995, Grace acquired AOTI's oxygen scavenging
technology and its patents, under which ZapatA was
licensed by AOTI. The purchase agreement did not contain
a provision that would release ZapatA or any other third
party from liability for infringing the Grace patents. See id.
at 1623.
21
ZapatA claimed but Grace denied that ZapatA had an
"implied license" under the Grace patents because Grace
assumed AOTI's warranty of non-infringement under the
AOTI-ZapatA settlement agreement. See id. at 1625.
Consequently, ZapatA instituted an action seeking a
declaration that Grace was precluded fr om enforcing its
patents against ZapatA by reason of implied license and
estoppel. Grace filed a motion for summary judgment on
this issue because AOTI never owned the Grace patents or
had any rights under those patents and therefor e did not
have any right under them to provide to ZapatA through
the AOTI-ZapatA agreements. See id. The court stated:
"ZapatA received nothing more fr om AOTI than a promise
not to be sued by AOTI on AOTI's patents. That pr omise did
not, and . . . could not, apply to Grace's patents which
AOTI never owned and never had any rights under . To the
extent Grace assumed the license, it owed ZapatA nothing
more than what AOTI had owed. . . . Grace's``commitment'
does not include a promise, express or implied, not to sue
under Grace's own patents." Id. at 1626-27.
While obviously Schubert and ZapatA involve facts
distinct from those here, similar principles apply in this
case. At the time of the 1998 Agreement, Bar d and ACS
contracted for a covenant not to sue. When A VE stepped
into Bard's shoes, it had to adhere to the covenant not to
sue on Bard's claims. But absent a pr ovision stating
otherwise, assignment of a contract will result in the
assignee stepping into the shoes of the assignor with regard
to the rights that the assignor held and not in an expansion
of those rights to include those held by the assignee. "An
assignment does not modify the terms of the underlying
contract. It is a separate agreement between the assignor
and the assignee which merely transfers the assignor's
contract rights, leaving them in full force and effect as to
the party charged. . . . Insofar as an assignment touches on
the obligations of the other party to the underlying
contract, the assignee simply moves into the shoes of the
assignor." Citibank, N.A. v. T ele/Resources, Inc., 724 F.2d
266, 269 (2d Cir. 1983). "[A]n assignment is intended to
change only who performs an obligation, not the obligation
to be performed." Capitan Enter ., Inc. v. Jackson, 903
S.W.2d 772, 776 (Tex. Ct. App. 1994)." ``An assignee
22
obtains only the right, title and interest of his assignor at
the time of his assignment, and no more.' " Id., citing State
Fidelity Mortgage Co. v. Varner, 740 S.W.2d 477, 480 (Tex.
App.--Houston [1st Dist.] 1987). Thus, A VE did not by
accepting the assignments from Bard limit its rights under
the patents involved in this action which it did not obtain
from Bard.
ACS argues that if Bard had acquir ed a new patent the
day after the 1998 Agreement was executed, the agreement
by its terms would have prevented Bar d from asserting that
new patent against the ACS products because the covenant
not to sue is product based, not patent based. ACS
maintains that the district court focused on the technology
and the patents rather than the products.6 See Br. of
Appellant 23. But the "stepping into the shoes" assignment
means that even if Bard had obtained a new patent related
to catheters the day after the Agreement was executed, AVE
could not now sue ACS based on that patent if the
covenant not to sue was interpreted to cover a patent that
was obtained after the covenant not to sue was signed.7
However, if AVE had acquired a new patent the day after
the parties executed the 1998 Agreement, it still could sue
on it because Bard never would have owned that patent
and therefore the patent would not have been within the
scope of the agreement.
_________________________________________________________________
6. The district court reasoned that ther e "can be no question but that
catheters and stents involve different technology and patents and that
AVE developed its stent technology independent of Bard. The plain and
unambiguous language of the 1998 Agreement, therefore, demonstrates
that the litigation at issue, involving stent technology, is not an
arbitrable grievance under the 1998 Agreement." App. at 17 (Mem. Order
at 13).
7. It is uncertain whether the covenant not to sue would be interpreted
to cover a patent that was obtained after the covenant not to sue was
signed inasmuch as the covenant covers claims that are based on ACS's
and its Affiliates past and current domestic and foreign angioplasty
catheters including stent delivery catheters, specifically excluding any
future modifications to such products. Therefore, it is possible that a
patent obtained after this agreement still would be based on a "past or
current" catheter; however, it is also possible that a patent obtained
after
the agreement would not be considered based on such a catheter and
could, for example, be considered a "futur e modification."
23
III. CONCLUSION
For the foregoing reasons, we will affir m the district
court's order denying ACS's motion to stay the proceedings
in the district court pending arbitration.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
24