Wal-Mart Stores, Inc. v. Helferich Patent Licensing, LLC
51 F. Supp. 3d 713
N.D. Ill.2014Background
- Wal-Mart (Delaware corp.) and Helferich Patent Licensing (HPL) entered a 2011 Content Patent License Agreement; Wal‑Mart paid $500,000 for the license and release/covenant not to sue.
- Agreement warranted that HPL had not granted licenses that would prevent the rights granted to Wal‑Mart; HPL reserved rights to sue third parties for certain infringement.
- HPL later pursued patent litigation; a district court found HPL’s claims exhausted by prior licenses to handset manufacturers, which Wal‑Mart says makes HPL’s warranty false.
- Wal‑Mart sued in federal court seeking rescission of the Agreement (three Illinois common‑law rescission claims: breach/substantial nonperformance, mutual mistake of law, lack of consideration) and return of the license payment.
- The Agreement contains a broad arbitration clause (AAA rules, Chicago) and a severability clause; HPL moved to compel arbitration and to dismiss; Wal‑Mart opposed.
- The district court concluded the parties clearly and unmistakably delegated arbitrability to an arbitrator by incorporating AAA Rule 7 and granted HPL’s motion to compel arbitration, staying the federal case pending arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Wal‑Mart’s rescission claims fall within arbitration clause | Parties did not agree to arbitrate rescission/invalidity; court should decide arbitrability | Broad clause and AAA rules cover disputes; arbitrator should decide arbitrability | Arbitrator decides scope; claims subject to arbitration determination by arbitrator |
| Who decides threshold arbitrability question | Court should resolve arbitrability as a threshold matter | Incorporation of AAA Rules (including R‑7) shows clear and unmistakable intent to delegate to arbitrator | Incorporation of AAA Rules gives clear and unmistakable delegation to arbitrator |
| Effect of Section 9(h) severability language reserving invalidity/unenforceability/rescission | Section 9(h) reserves those issues for a court and thus removes them from arbitration | 9(h) is a severability clause and does not negate the broad arbitration clause or delegation | Whether 9(h) creates an exception is a question for the arbitrator to decide |
| Remedy in district court after compelling arbitration | Dismiss the federal suit | Dismiss or stay is appropriate | Court must compel arbitration and stay the proceedings pending arbitration (not dismiss) |
Key Cases Cited
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (establishes federal policy favoring arbitration)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (threshold arbitrability questions decided by court unless parties clearly delegate)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (arbitration clause separability doctrine)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (party allocation of arbitrability decision; clear and unmistakable standard)
- Contec Corp. v. Remote Solution Co., 398 F.3d 205 (incorporation of AAA Rules can show clear delegation to arbitrator)
- Terminix Int'l Co. v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327 (arbitrator decides arbitrability where parties incorporated AAA rules)
- Tice v. American Airlines, 288 F.3d 313 (district court should stay proceedings pending arbitration rather than dismiss)
- Continental Casualty Co. v. American National Ins. Co., 417 F.3d 727 (same: stay pending arbitration preferred)