HTC Corp. v. Telefonaktiebolaget LM Ericsson, No. 6:18-CV-00243-JRG (E.D. Tex. Jan. 22, 2019) [click for opinion]

Before the district court was Plaintiffs’ motion to sever, stay, and compel arbitration of Defendants’ counterclaims. Those counterclaims alleged that Plaintiffs breached their obligation to negotiate in good faith and sought a declaratory judgment that Plaintiffs repudiated any rights with respect to Defendants’ FRAND (fair, reasonable, and non-discriminatory) declarations.

Plaintiffs argued that these counterclaims were subject to arbitration as a result of the parties’ 2014 global patent license agreement (“GPLA”) because the underlying basis of Defendants’ counterclaims were rooted in an alleged violation of the GPLA. Plaintiffs, in justifying why they had not sought arbitration sooner, argued that they did not know about this legal basis until summary judgment motions were argued. In response, Defendants argued that it had disclosed this legal basis numerous times throughout the litigation and that Plaintiffs nonetheless substantially invoked the judicial process.

The issue before the court was whether Plaintiffs could compel arbitration on the counterclaims mere weeks before trial, or whether Plaintiffs had waived the right to seek arbitration. As a threshold issue, the court considered whether the court or the arbitrator should determine whether Plaintiffs waived the right to arbitration. The court opined that whether a party has waived the right to arbitration is a question for the court unless there is a clear indication the parties reserved the issue for the arbitrator, i.e. via litigation-conduct waiver. Because the GPLA did not include such an explicit waiver, the court determined that it could properly evaluate whether the right to arbitration was waived.

The court found that Plaintiffs waived the right to arbitrate Defendants’ counterclaims. The court explained that a waiver occurs when (1) the party substantially invokes the judicial process that (2) causes prejudice to the other party. The court then evaluated facts central to the dispute, including:

  • Defendants repeatedly disclosed that the 2014 GPLA formed the basis of its counterclaims, including in its answer, its interrogatory responses, deposition testimony, and its expert report;
  • The parties had already completed fact and expert discovery on all claims not already sent to arbitration;
  • Plaintiffs moved for summary judgment dismissal on Defendants’ counterclaims, which is a determination on the merits sufficient to constitute waiver; and
  • At no point did Plaintiffs demand arbitration since the filing of the complaint.

Based on the above, the court found that Plaintiffs had knowledge that Defendants’ assertions relied upon the 2014 GPLA. Despite this knowledge, Plaintiffs failed to timely assert their right to arbitrate. Now that the case was only weeks away from trial, the court determined that Defendants would be unfairly prejudiced if the counterclaims were sent to arbitration.

Due to Plaintiffs’ waiver of its right to arbitrate, the court denied the motion to compel arbitration of Defendants’ counterclaims.

A version of this post originally appeared in the May 2019 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.

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