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Mala Geoscience AB v. Witten Technologies

May 30, 2007

MALA GEOSCIENCE AB, PETITIONER,
v.
WITTEN TECHNOLOGIES, INC., RESPONDENT.



The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge

MEMORANDUM OPINION

Mala Geoscience AB ("Mala") petitions the Court to vacate, in part, an arbitration award rendered in Washington, D.C. Mala claims: (1) the arbitrator exceeded his authority when he ordered Mala to convey the so-called "Glue Patents" to Respondent Witten Technologies, Inc. ("WTI") because the arbitrator interpreted an agreement over which he had no jurisdiction since disputes under the agreement had to be arbitrated in Sweden, not the United States; (2) the arbitrator acted without the requisite factual support when he found WTI to be solvent, thereby precluding Mala from terminating the parties' licensing agreement due to WTI's alleged insolvency; and (3) the arbitrator again acted without the required evidentiary support when he ordered Mala to pay attorney fees based on the value of certain stock options. WTI opposes Mala's petition, seeking confirmation of the arbitration award. As explained below, the Court finds that the arbitrator exceeded his power when he ordered Mala to convey the Glue Patents. That portion of the award will be vacated, and the remainder of the award will be affirmed.

I. BACKGROUND FACTS

Mala is a Swedish company that manufactures technology used to locate objects buried underground, including ground-penetrating radar. Mala's Application to Partially Vacate Award of Arbitrator ("App. to Vacate") ¶ 11. In September of 1997, Mala entered into a Prototype Development Agreement ("PDA") and Licensing Agreement ("LA") with WTI. Id. ¶ 13. WTI is a U.S. corporation,*fn1 founded by Robert Green and the late Dr. Alan Witten to develop Dr. Witten's work with "geophysical diffraction tomography . . . and its applications through ground penetrating radar to see underground." Opp. Ex. 5, WTI's Post Arbitration Brief at 4; see App. to Vacate ¶ 12. Mala and WTI came together to determine if software developed by Dr. Witten could be joined with ground-penetrating radar to make a commercially viable mobile machine to locate underground objects such as utility pipes. Opp. Ex. 5, WTI's Post Arbitration Brief at 4; see App. to Vacate ¶ 12.*fn2

The parties entered into the PDA to develop Computer Assisted Radar Tomography ("CART"). Id. ¶ 13. Mala was required to develop a prototype radar array; WTI was required to develop software that could process and display the data collected by the radar array and to create and maintain a sales organization to market the CART. Id. In exchange, under the terms of both the PDA and the LA, Mala granted WTI an exclusive license to sell the CART in the primary utility locating market and a non-exclusive license in other markets. Id. ¶ 14; see Opp. Ex. 1, LA & Ex. 12, PDA. In December 1999, Mala delivered the prototype to WTI and began manufacturing CARTs on a small scale. App. to Vacate ¶ 15.*fn3

The parties anticipated that new patents and patent improvements might be created in the course of their business relationship. Thus, the PDA and the LA assigned the rights to such patents and patent improvements as follows: (1) Mala had the right to its radar hardware and radar software technology, together with any improvements on such radar hardware and radar software; and (2) WTI had the right to its software display technology together with any improvements on such software display technology. App. to Vacate ¶ 32.

Disputes arose between the parties. In October 2002, the parties resolved some of those disputes by entering into an Exchange and Settlement Agreement ("ESA"). App. to Vacate ¶ 16. The ESA "signaled the end of the prototype development phase and the beginning of the commercial marketing phase of the CART." Id. The ESA contained an arbitration clause, providing that arbitration of disputes in connection with the ESA must take place in Sweden.*fn4 Opp. Ex. 11, ESA ¶ 5.

In accordance with the ESA, on September 29, 2004, WTI executed a Patent Assignment transferring to Mala the Ground-Penetrating Radar Array and Timing Circuit, Patent Application Serial No. 09/658,188 (the "Timing Circuit Patent"). Opp. Ex. 15, Patent Assignment. The Patent Assignment conveys the Timing Circuit Patent together with all "continuing applications, continuations, . . . and continuations-in-part." Id., Patent Assignment at 1. Pursuant to the "continuation" language, Mala recorded the Patent Assignment against the Glue Patents,*fn5 patents which essentially cover software that connects the Mala radar and software to the WTI software, and in this way Mala attempted to obtain ownership of the Glue Patents. App. to Vacate ¶ 33. WTI contends that Mala was not entitled to ownership of the Glue Patents.

Despite the settlement of certain claims under the ESA, disputes between the parties continued. As a result, on June 2, 2005, Mala brought a claim in arbitration seeking termination of the LA for the reasons, among others, that WTI breached its duty to market the CART and that WTI was insolvent. Id. at ¶¶ 7 & 19.*fn6 WTI asserted a counterclaim, and the claim and counterclaim were arbitrated at a hearing on April 24-28, 2006. On July 10, 2006, the Arbitrator rendered his decision. Id. ¶ 10. The Arbitrator entered an Award, finding in favor of WTI with regard to the principal issues as follows:

1. The LA shall remain in effect;

2. Mala shall convey the Glue Patents back to WTI;

3. Mala shall pay WTI $420,000 in attorney's fees and costs; and

4. Mala shall pay the fees and expenses of the arbitration forum.

WTI's Mot. to Confirm Ex. A, Award ("Award") at 15.

Subsequently, Mala filed in this Court its Application to Vacate the Award in part.

Mala seeks to vacate three parts of the Award: (1) the portion requiring Mala to transfer the Glue Patents to WTI; (2) the portion finding WTI to be solvent and thereby denying Mala's request to terminate the LA; and (3) the portion requiring Mala to pay WTI's attorney's fees based on valuations for certain stock options. WTI seeks confirmation of the Award.

II. LEGAL STANDARDS

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1-16, was passed by Congress "to establish an alternative to the complications of litigation." Revere Copper & Brass v. Overseas Private Inv. Corp., 628 F.2d 81, 83 (D.C. Cir. 1980). Further, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241 (1962). Judicial review of an arbitration award is narrowly limited. Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 395-96 (2002); Revere Copper, 628 F.2d at 83. "Allowing undue challenges to arbitration awards would defeat the finality and speedy dispute resolution expected of the arbitration procedure." Revere Copper, at 83 n.1. "By agreeing to arbitrate, a ...


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