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In a ruling destined to grab the attention of the intellectual property bar, a federal judge in Pennsylvania has decided that a broadly worded arbitration clause in a marketing contract ordinarily expires when the contract itself expires, and therefore applies only to disputes stemming from the period in which the parties had a contractual relationship. “A broad arbitration clause in an expired contract applies only in limited instances to disputes that have no connection to the contract,” U.S. District Judge Legrome D. Davis wrote in his 16-page opinion in The Basketball Marketing Co. v. Urbanworks Entertainment. “Once the underlying contract expires,” Davis wrote, an arbitration clause survives only if the claim falls under specific exceptions recognized by the courts or if parties have included “language within the clause extending its duration.” Applying that rule, Davis concluded that although the arbitration clause covers “all disputes,” it nonetheless applied to just one of the plaintiff’s eight claims — its breach of contract claim — and could not be used by the defendant to compel arbitration of the remaining intellectual property tort claims since they focus on conduct that allegedly occurred after the contract had expired. As a result, Davis refused to compel arbitration of the plaintiffs’ claims for trademark infringement; unfair competition and trade practices; trademark dilution; false advertising; unjust enrichment; and conversion. The ruling is a victory for attorneys Barry L. Cohen and J. Alexander Hershey of Thorp Reed & Armstrong, who represent the Basketball Marketing Co., a basketball products and apparel company that does business under the name “And 1.” According to the suit, And 1 manufactures and sells a variety of basketball products, including footwear and clothing, and DVDs and videos of basketball events. So far, the company’s most successful products are its DVDs and videotapes marketed under the title “And 1 Mix Tape Tour,” which show scenes from a traveling exhibition basketball game. In March 2002, And 1 entered into a marketing, manufacturing and distribution agreement with Urbanworks. According to the opinion, an arbitration clause in the contract said: “In the event of any dispute between [And 1] and UrbanWorks Distribution Inc., whether arising in fact or in law and including all contractual and tort claims arising under both state and/or federal law … the parties agree to submit such dispute to binding arbitration.” According to the suit, the relationship began to sour in January 2003 when And 1 complained about alleged discrepancies in Urbanworks’ reporting of sales and amounts owed. By late May 2003, And 1 had informed Urbanworks that it did not want to extend the contract beyond the initial 18-month term, according to the suit. When And 1 filed suit, it accused Urbanworks of breach of contract for allegedly failing to provide complete and accurate revenue figures and failing to justify various reporting discrepancies. In the next seven counts in the suit, And 1 complained that, even after the contract had expired, Urbanworks continued without permission to promote, market and sell merchandise with And 1′s trademarks. Urbanworks’ lawyers — Manny D. Pokotilow and Salvatore R. Guerriero of Caesar Rivise Bernstein Cohen & Pokotilow — moved for dismissal of the entire suit, arguing that all of the claims were subject to arbitration. But And 1′s lawyers argued that the arbitration clause applied only to the contract claim, and said they opposed arbitration of any of the other claims since the alleged misconduct that formed the predicate for those counts arose after the contract expired. Now Davis has sided with And 1, finding that Urbanworks’ reading of the arbitration clause to cover all of the claims was “untenable as a matter of law.” Urbanworks’ reading of the clause, Davis said, “attempts to collapse the validity and scope prongs of the arbitrability analysis, making the breadth of a clause (i.e., its application to any dispute arising between the parties) dictate its validity (i.e., its ability to survive the expiration of the agreement containing the clause).” Even a broadly worded arbitration clause, Davis said, “is not an arbitration clause that survives indefinitely.” Davis found that the U.S. Supreme Court addressed a similar issue relating to the scope of arbitration clauses in its 1991 decision in Litton Financial Printing Inc. v. NLRB. Since the Litton decision came in the context of a collective bargaining agreement, Davis found there were limitations in applying its standard to commercial contracts. “Unlike a general commercial contract, parties to a collective bargaining agreement are presumed to enjoy an ongoing relationship,” Davis wrote. “This means that the motive for terminating a collective bargaining agreement is oftentimes not to end the relationship and all contractual provisions between the two parties, but, instead, to tweak a few of the provisions within the collective bargaining agreement.” In the labor context, Davis said, termination of a collective bargaining agreement “does not necessarily evince a party’s intent to terminate the arbitration clause.” By contrast, Davis said, the termination of a commercial contract “may very well signify such intent.” Without a “continuing relationship,” Davis found, “parties to a general commercial contract may desire the more adversarial and protracted nature of judicial proceedings before a court of law, rather than the prompt and inexpensive resolution of their disputes by an expert tribunal.” As a result, Davis concluded, “the policies in favor of permitting arbitration clauses to survive an expired collective bargaining agreement may not in all instances support permitting arbitration clauses to survive the termination of a commercial contract.” Nonetheless, Davis found that the logic of the Litton decision is “applicable to general contracts” because the justices’ discussion of the issue amounted to “an exhaustive mapping of the situations in which parties can be made to arbitrate pursuant to an arbitration clause in an expired contract.” Applying Litton, Davis concluded that the arbitration clause applied only to the breach of contract claim. “There is no factual support that plaintiff’s intellectual property claims arose under the agreement, as defined by the Litton standard,” Davis wrote. The seven tort claims, Davis said, “involve facts that occurred after the . . . termination of the agreement and following the breakdown in the business relationship between And 1 and defendant.” In those claims, Davis said, And 1 is not seeking to vindicate rights that accrued or vested under the agreement. “Defendant’s limited right to distribute products bearing plaintiffs’ intellectual property ended with the expiration of the agreement. Defendant does not argue that the agreement still exists. Nor does defendant argue that the contract permitted the continued use of plaintiffs’ intellectual property throughout May 2004,” Davis wrote. “Thus, defendant has not presented a link between defendant’s alleged misuse of plaintiffs’ intellectual property and the rights guaranteed by the agreement.” Davis rejected Urbanworks’ argument that since the arbitration clause was so broadly worded, and since it contained no limit on its temporal scope. “The breadth of an arbitration clause is only significant to the extent that the arbitration clause enjoys validity by surviving the expiration of the agreement,” Davis wrote. “To conclude otherwise would result in the perpetual arbitrability of all future claims between plaintiff and defendant, thereby undermining the parties’ intent and eviscerating the Litton rationale that the purpose of an arbitration clause ‘is to enforce a contract rather than to transcend it.’”

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