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AbbVie Inc. v. Novartis Vaccines and Diagnostics, Inc.

United States District Court, N.D. California

August 31, 2017

ABBVIE INC., Plaintiff,
v.
NOVARTIS VACCINES AND DIAGNOSTICS, INC., et al., Defendants.

          REDACTED/PUBLIC VERSION ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION DOCKET NO. 48

          EDWARD M. CHEN, UNITED STATES DISTRICT JUDGE

         Plaintiff AbbVie Inc. has filed suit against Defendants Novartis Vaccines and Diagnostics, Inc. and Grifols Worldwide Operations Ltd. AbbVie seeks a declaratory judgment that certain patents owned by Novartis, or co-owned by Novartis and Grifols, are invalid.[1] Currently pending before the Court is Novartis's motion to compel arbitration. According to Novartis, arbitration should be compelled because the parties' predecessors entered into a license agreement regarding the patents at issue (AbbVie's predecessor became a licensee of Novartis's predecessor) and that agreement contains an arbitration clause providing that disputes related to the agreement shall be arbitrated. AbbVie disagrees. According to AbbVie, the license agreement expressly carves out patent validity disputes from arbitration.

         Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby GRANTS the motion to compel arbitration.

         I. FACTUAL & PROCEDURAL BACKGROUND

         In March 2002, Novartis's and AbbVie's predecessors (Chiron Corporation and Abbott Laboratories, respectively), entered into a license agreement. See Gaede Decl., Ex. A (license agreement). The license agreement is governed by California law. See Lic. Agmt. § 9.7 (providing that the agreement “shall be governed by and shall be construed in accordance with the laws of the State of California without regard to the conflicts of laws provisions thereof”).

         Under the agreement, Chiron gave Abbott and its affiliates a license to use certain Chiron processes - referred to in the agreement as “Licensed Processes” - in exchange for ___ See, e.g., Lic. Agmt. § 2.2 (granting a nonexclusive, ___ license “under the Licensed Processes . . . to make, have made, keep, use, offer to sell, and sell any and all Identified Products derived or resulting, indirectly or directly, from the Licensed Processes”). “Licensed Processes” is defined as “any process that involves the use, practice or manufacture of a Licensed Composition and/or Licensed Method.” Lic. Agmt. § 1.13. In turn, “Licensed Composition” and “Licensed Method” are defined (in essence) as compositions or methods that are covered by valid patent claims. More specifically:

• “Licensed Composition” is defined as “any composition, the making, using, selling, keeping, offering for sale, importing or exporting thereof would, but for the license granted herein infringe any Valid Claim within Chiron Patent Rights.” Lic. Agmt. § 1.11.
• Similarly, “License Method” is defined as “any method or process, the practice of which would, but for the license granted herein, infringe a Valid Claim of the Chiron Patent Rights, (including, without limitation, the manufacture, use, sale, keeping, offer for sale, important or exportation of a product which would infringe any such Valid Claim).” Lic. Agmt. § 1.12.

         “Valid Claim” is defined in § 1.25 of the license agreement as “any claim of an issued (or granted) and unexpired patent which has not been held unenforceable, unpatentable or invalid by a decision of a court or governmental agency of competent jurisdiction.” Lic. Agmt. § 1.25 (emphasis added).

         The license agreement between Chiron and Abbott contains, inter alia, an arbitration clause to cover certain disputes between the companies. The arbitration clause can be found in two different places: § 9.8 of the agreement and Exhibit 9.8 of the agreement.

• Section 9.8 of the agreement specifies: “If the parties are unable to resolve any dispute regarding this Agreement, then the terms of Exhibit 9.8 hereto shall apply.” Lic. Agmt. § 9.8 (emphasis added added).
• Exhibit 9.8, in turn, provides: “The parties recognize that a bona fide dispute as to certain matters may arise from time to time during the term of this Agreement which relates to either party's rights and/or obligations. To have such a dispute resolved by this Alternative Dispute Resolution (“ADR”) provision, a party must send written notice of the dispute to the other party . . . .” Lic. Agmt., Ex. 9.8 (emphasis added).

         Based on the broad terms of § 9.8 and Exhibit 9.8, Novartis argues that the dispute between the parties regarding the validity of its patents should be arbitrated. AbbVie disagrees, taking the position that § 1.25 of the agreement effectively carves out patent validity disputes from arbitration.

         II. DISCUSSION

         A. Parties' Arguments

         The parties agree that the Federal Arbitration Act (“FAA”) is applicable in the instant case. Under the FAA, “[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or equity for the revocation of any contract.” 9 U.S.C. § 2.

         In the instant case, AbbVie does not argue that there are grounds to revoke the contract containing the arbitration agreement. Instead, AbbVie argues that there is a gateway issue of arbitrability for the Court to decide - more specifically, “whether an arbitration clause in a concededly binding contract applies to a given controversy.” Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 2011); see also Martin v. Yasuda, 829 F.3d 1118, 1123 (9th Cir. 2016). As noted above, AbbVie contends that, based on the “Valid Claim” provision, the parties agreed to carve out from arbitration disputes related to patent validity.

         In response, Novartis argues that, against the backdrop of

the FAA, the strong federal policy in favor of arbitration, the presumption of arbitrability, the powerful Supreme Court cases interpreting the FAA, the explicit statute authorizing arbitration of validity disputes arising out of license agreements [35 U.S.C. § 294[2][, ] if the parties had wished to exclude disputes regarding patent validity from the scope of the ...

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