Interdigital Communications, Inc. v. Huawei Investment & Holding Co.
Docket: 15-cv-4485 (JGK)
Court: District Court, S.D. New York; February 22, 2016; Federal District Court
The legal action involves an arbitration dispute between InterDigital Communications, Inc. and related entities (collectively "InterDigital") and Huawei Investment Holding Co. and associated entities (collectively "Huawei"). The parties have been negotiating a licensing agreement for InterDigital’s patents related to 3G and 4G wireless technology for several years. In 2014, they agreed to resolve their dispute through binding arbitration under the ICC Rules, where the Arbitral Tribunal would determine fair, reasonable, and nondiscriminatory (FRAND) licensing terms.
The Tribunal, composed of an independent arbitrator appointed by the ICC Court and two party-nominated arbitrators, issued a partial arbitration award in favor of InterDigital on May 22, 2015. Following the award, InterDigital filed a petition in this Court on June 9, 2015, for confirmation of the Partial Award, while on the same day, Huawei initiated proceedings in Paris to set aside the award. A Final Award was issued by the Tribunal on July 14, 2015, again favoring InterDigital. Subsequently, Huawei sought to stay the enforcement of this award and to dismiss InterDigital’s petition.
This Court has jurisdiction under 9 U.S.C. § 203 and 28 U.S.C. § 1332. The Court has decided to stay InterDigital’s petition for confirming the award and has granted Huawei’s request to stay enforcement proceedings. InterDigital is a Delaware corporation focused on wireless technology development, while Huawei is a global technology firm with a significant presence in China and Texas, engaged in providing telecommunications solutions and mobile devices. Both companies are members of standards-setting organizations and have been involved in ongoing litigation regarding patent infringement. The arbitration agreement between them, established on December 23, 2013, mandated expedited arbitration in Paris, with each party nominating an arbitrator to form the Tribunal.
If the parties fail to nominate an arbitrator, the ICC will appoint one. The Arbitration Agreement specifies that New York law governs its interpretation. Parties are permitted to cite laws from any jurisdiction in their arguments, but the arbitrators will determine FRAND (Fair, Reasonable, and Non-Discriminatory) terms for the Completed License based on presented evidence and arguments. The parties consented to non-exclusive jurisdiction in New York courts.
The Agreement outlines the Tribunal's scope and tasks, seeking to determine FRAND royalty rates, the Initial Royalty Payment (IRP), and other disputed contractual terms. A Form Licensing Agreement (FLA) was submitted, containing both agreed and contested terms, and the Tribunal is to resolve disputes by selecting from these terms. The FLA's validity and interpretation are also governed by New York law.
On March 27, 2014, a Joint Request for Arbitration was submitted to the ICC, with Judge Fidelma Macken and Professor Mark Patterson nominated as arbitrators and Peter Leaver appointed as the Tribunal's President. A merits hearing was held from January 12-16, 2015, leading to a Partial Award issued on May 22, 2015, which included a majority opinion, administrative details, a table of comparable licenses, responses to party letters, and a Completed License reflecting the Tribunal's resolutions on contested terms and royalty rates. Professor Patterson dissented, advocating for a combined approach to FRAND analysis.
The Partial Award was finalized on June 9, 2015, when InterDigital sought confirmation from the court, while Huawei appealed to the Cour d’Appel in Paris to vacate it. The Final Award was issued on July 14, 2015, awarding InterDigital the IRP with interest. Subsequently, Huawei filed a cross-petition to stay enforcement on July 24, 2015, and InterDigital amended its petition on August 14, 2015, to seek confirmation and enforcement of the Final Award.
The arbitration proceedings are governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, categorizing the Award as a foreign arbitral award in the U.S. The jurisdiction where the award was made holds primary jurisdiction, while other signatory states have secondary jurisdiction for enforcement challenges.
Courts with secondary jurisdiction, specifically under the New York Convention, can only refuse enforcement of an arbitration award based on the grounds listed in Article V. In contrast, courts in the country where arbitration occurs (primary jurisdiction) have broader authority to annul the award. Although New York law governs the Arbitration Agreement, it only applies to its interpretation, while the substantive law for determining the royalty rate was not limited to New York law; the parties were free to reference laws from any jurisdiction. Since Paris is the arbitration seat, French courts have the primary jurisdiction to annul the award, which Huawei has sought to do. The New York courts hold secondary jurisdiction, limited to assessing whether to enforce the arbitration award.
A key issue is whether to stay InterDigital's enforcement petition pending the outcome of Huawei’s annulment action in France. Huawei initiated annulment proceedings on June 9, 2015, shortly after a Partial Award was rendered, while InterDigital filed for enforcement the same day. Huawei subsequently requested a stay of the enforcement action, with a hearing set for March 8, 2016. The decision to stay enforcement lies within the court's discretion, particularly when a parallel annulment action exists in the originating country. Although the New York Convention allows for potential adjournment of enforcement proceedings pending the annulment, the Second Circuit has cautioned against stays that could delay resolution and increase litigation costs. A stay may be justified if there is a risk of the award being annulled, as the French court offers a broader scope of review than the limited grounds specified in Article V. Thus, deference to the French proceedings is advisable, given their familiarity with local law and the potential for a different outcome regarding the award's validity.
The Court of Appeals has outlined several factors to evaluate the appropriateness of a stay in enforcement actions related to arbitration awards. Key considerations include: the goals of arbitration promoting quick resolutions and minimizing litigation costs; the status and expected duration of foreign proceedings; the level of scrutiny the award may face in foreign courts; characteristics of the foreign proceedings (whether they aim to enforce or annul the award, their timing relative to enforcement actions, the initiating party, and any intent to delay); potential hardships for the parties involved; and any additional relevant circumstances. The first two factors should carry more weight in decisions.
Huawei asserts that its motion to stay the Enforcement Action meets these criteria. The analysis suggests that the factors favor a stay pending the outcome of the French annulment proceedings, which are expected to cause minimal delay and may prevent conflicting results. InterDigital acknowledges Huawei's attempt to annul the award and that French courts qualify as "competent authorities" under international conventions. District courts have previously chosen to stay enforcement actions until the originating country resolves annulment proceedings.
The Court concludes that to avoid inconsistent outcomes and promote judicial efficiency, it will delay its enforcement decision until the French courts complete their review. While this decision may cause an immediate delay, it is anticipated to be shorter than the potential delay from confirming the award only for it to be subsequently annulled by the French court, which would lead to more complex and costly litigation. Thus, awaiting the French ruling aligns with the objectives of expeditious dispute resolution and cost avoidance.
The Court finds that the objectives of arbitration and speedy dispute resolution favor granting a stay of the enforcement proceedings in light of Huawei’s upcoming Annulment Action hearing in Paris on March 8, 2016. A decision from the French court is anticipated within four to six weeks post-hearing. The Court notes that continuing with the enforcement proceedings could lead to duplication and delays, especially given that any ruling would likely be subject to appeal, potentially prolonging the process beyond the expiration of the Final Award (FLA) in 2016. The Court aims to avoid inconsistent outcomes between its enforcement decision and the Paris court's ruling on the annulment of the Award.
InterDigital's interest in prompt enforcement is acknowledged; however, Huawei has not complied with the Arbitration Agreement's terms regarding the Interim Relief Payment (IRP), which was due within 30 days of the Final Award, and has indicated it will not make this payment while the Annulment Action is ongoing. Huawei proposed an interim payment based on a dissenting arbitrator's conclusion, which InterDigital rejected due to conditions attached.
To protect both parties, the Court orders Huawei to post security for the Final Award plus interest, as outlined in Article VI of the New York Convention. Consequently, Huawei's motion to stay the enforcement proceedings is granted, and the motion to confirm the Award is also stayed. The parties are instructed to submit letter briefs by February 29, 2016, regarding the security amount and type, with responsive briefs due by March 4, 2016. The stay may be revised if circumstances change, and InterDigital may renew its petition for confirming the Award following the French court's decision. All pending motions are to be closed by the Clerk.
The Court refers to the Partial and Final Award collectively as the "Award." Standard-setting organizations require contributors of proprietary technology to agree to license their technology on reasonable and nondiscriminatory ("RAND") terms; without such agreements, the technology may be excluded from the standard. RAND licenses serve as a quid pro quo, offering contributors competitive advantages through industry-wide acceptance of their technologies. InterDigital noted that the Arbitration Agreement allowed for a non-exclusive forum in New York for enforcing arbitral awards. However, this provision did not prevent annulment proceedings in France and did not establish New York as the primary jurisdiction under the New York Convention, as the arbitration did not occur in New York and the applicable law was RAND, allowing parties to reference laws from any jurisdiction.
