Oracle Corp. will have to risk its crown jewels with an arbitrator.
The U.S. Court of Appeals for the Ninth Circuit ruled Friday that, because Oracle incorporated international trade rules into a contract with a European mobile software firm, an arbitrator will decide whether an IP dispute between the two companies is subject to arbitration.
"This is an issue of first impression in the Ninth Circuit," Judge Morgan Christen wrote for a unanimous panel, holding that incorporation of United Nations arbitration rules constitutes "clear and unmistakable evidence that the parties to an agreement intended to arbitrate questions of arbitrability."
The dispute centers around Java programming language acquired via Oracle's acquisition of Sun Microsystems. Eleven years ago Sun licensed the technology to a corporate predecessor of Myriad Group AG, and Myriad now asserts the right to use its brand of Java for free. Oracle has sued for copyright and trademark infringement, breach of contract and unfair competition.
Sun's "click-through" license agreement specified that "any dispute arising out of or relating to this license shall be finally settled by arbitration" under the rules of the United Nations Commission on International Trade Law, or UNCITRAL.
But, Oracle responds, the arbitration clause also had a unique carve-out provision that expressly reserved to the courts "any dispute relating to such party's intellectual property rights." At oral argument in May, DLA partner Jeffrey Shohet explained that the company is happy to arbitrate "garden variety contract disputes," but wants its "crown jewel" IP rights decided by judges.
U.S. District Judge Saundra Brown Armstrong in Oakland had sided with Oracle, but the Ninth Circuit reversed in Oracle v. Myriad Group. "We hold that as long as an arbitration agreement is between sophisticated parties to commercial contracts, those parties shall be expected to understand that incorporation of the UNCITRAL rules delegates questions of arbitrability to the arbitrator," Christen wrote, with Judges Ronald Gould and William Fletcher concurring.
As for Oracle's argument about the carve-out clause, it "conflates the scope of the arbitration clause, i.e., which claims fall within the carve-out provision, with the question of who decides arbitrability," Christen concluded.
King & Spalding partner Jeffrey Bucholtz argued the appeal for Myriad.