LG Electronics, Inc. v. Interdigital Communications, Inc. , 2014 Del. Ch. LEXIS 150 ( 2014 )

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
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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
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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.
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(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,
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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).
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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).
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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).
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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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