No Anti-Suit Injunction Where Foreign Arbitration Controls Resolution of Licensing Dispute
In a case addressing a request for an anti-suit injunction relating to a foreign contract arbitration, the U.S. Court of Appeals for the Federal Circuit upheld a lower court’s denial of an anti-suit injunction sought by Genentech in its feud with Sanofi-Aventis over viral replication patents, finding that the foreign contract arbitration raised different issues than the parallel patent infringement litigation in district court. Sanofi-Aventis Deutschland GmbH v. Genentech, Inc., Case No. 12-1454 (Fed. Cir., May 10, 2013) (Reyna, J.) (Dyk, J., concurring).
Sanofi-Aventis, a German company, owns patents covering the use of viral enhancer sequences to augment recombinant protein production. Genentech licensed those patents under a 1992 agreement that named German law as the law governing its terms. The agreement further required disputes arising under it to be settled by arbitration in accordance with the rules of the International Chamber of Commerce (ICC).
In 2008, a dispute did in fact arise when Sanofi-Aventis accused Genentech of failing to identify Genentech’s Rituxan and Avastin drugs as “licensed products” for which royalties were due under the agreement. When a Sanofi-Aventis predecessor initiated ICC arbitration in Germany, Genentech terminated the agreement. It next sought and won a declaratory judgment of non-infringement in a U.S. district court, which the Federal Circuit affirmed. Genentech then moved the district court to enjoin Sanofi-Aventis from pursuing the ICC arbitration. After the district court denied that request, Genentech appealed.
The Federal Circuit, applying U.S. Court of Appeals for the Ninth Circuit law, affirmed. Citing E. & J. Gallo Winery v. Andina Licores S.A., the Court applied a three-factor test turning, in this instance, on the second-half of its first prong: “[W]hether or not the first action is dispositive of the action to be enjoined.” Non-identical issues that are still “functionally the same such that the result in one action is dispositive of the other” satisfy this criterion.
Genentech, however, could not meet this standard, as the parties had chosen to arbitrate license disputes in foreign proceedings governed by ICC rules and German substantive law. So while the Federal Circuit acknowledged that Genentech did not infringe the licensed patents as a matter of U.S. patent law, the foreign arbitrator was free to adopt a definition of “licensed product” under the agreement that differed from American standards of patent infringement. And indeed, as the Court noted, the foreign arbitrator had concluded as a matter of German law that Genentech could infringe the patents by using the enhancer sequences in its manufacturing process even though the enhancer was not within the final product. The arbitrator had also concluded that Genentech may infringe even if the patents were invalid. These departures signaled that the issues to be settled by the ICC arbitration differed from those resolved in district court. Genentech’s request for an anti-suit injunction thus failed on the first Gallo factor.
The Federal Circuit then analyzed the final two Gallo factors, finding that U.S. policies favoring forum selection clauses—and holding parties to them—would not be frustrated and in fact enhanced judicial comity. These findings further weighed against an injunction.
In his concurrence, Judge Dyk explained that the first Gallo prong, consideration of the controlling issues, should be given substantial weight in the analysis. Citing 9th Circuit precedent, Judge Dyk cautioned litigants from reading the majority’s evaluation of each Gallofactor as an indication that they should be considered on equal footing. The first prong, he wrote, presents a “threshold consideration.”