By Eric Schweibenz
On March 5, 2009, ALJ Theodore R. Essex issued Order No. 20 in Certain Composite Wear Components and Products Containing Same (337-TA-644).  In the Order, ALJ Essex denied respondent AIAE Engineering and Vega Industries Ltd.’s (AIAE) motion to terminate the investigation based on an arbitration agreement.

According to the Order, the arbitration agreement was contained in a Settlement Deed executed by AIAE and complainant Magotteaux International S/A (Magotteaux) that ended their collaboration to develop and manufacture composite wear components in India.

AIAE claimed that termination of the investigation was appropriate on two separate grounds: (1) the law favors arbitration, particularly in the arena of international commerce; and (2) allegations of infringement and validity that “relate to” the license provisions in the Settlement Deed are subject to the arbitration provision therein.

Magotteaux argued against termination on two separate grounds: (1) the motion was untimely because AIAE had many opportunities during both the investigation and a related litigation in India to raise the arbitration clause but failed to do so, and thus waived any right to arbitration; and (2) the technology of the patent is “completely unrelated” to the Settlement Deed.

Regarding waiver, ALJ Essex noted the following: (1) the parties have been engaged in litigation since 2006; (2) the Settlement Deed had been used to establish contract jurisdiction in Indian courts rather than settle disputes by arbitration; (3) AIAE, rather than invoking the arbitration clause, had previously stated that it “fully intend[s]” to participate and defend itself in this investigation; and (4) granting AIAE’s motion would prejudice Magotteaux because Magotteaux would be forced to forfeit vast amounts of resources spent on the Indian and ITC litigations, AIAE would be able to walk away from the investigation with the benefit of Magotteaux’s discovery responses that disclose the bases for its claims against AIAE, and Magotteaux’s intellectual property rights would further erode if it had to begin anew its efforts to protect those rights in another forum.

With respect to whether the dispute was subject to arbitration, ALJ Essex found that AIAE failed to establish that the arbitration clause necessarily applied to the patent-in-suit, noting that AIAE demonstrated little more than that the timing of the patent-in-suit may overlap with the license grant found in the Settlement Deed, and not that any technical or subject-matter nexus exists between the Settlement Deed and the patent-in-suit.

Finally, ALJ Essex found that based on the parties’ actions and the limited amount of discovery before him, it was far from clear whether the parties “clearly and unmistakably” intended to delegate the arbitrability decision to the arbitrator.