United States District Court, D. Minnesota
Bruce J. Koch, Esq., Thorsten Schmidt, Esq. and Schmidt LLC, 560 Lexington Avenue, 16th Floor, New York, NY 10022; Erin E. Westbrook, Esq. and Barnes & Thornburg, LLP, 225 South Sixth Street, Suite 2800, Minneapolis, MN 55402, counsel for plaintiff.
David A. Davenport, Esq. and Winthrop & Weinstine, PA, 225 South Sixth Street, Suite 3500, Minneapolis, MN 55402, counsel for defendant.
DAVID S. DOTY, District Judge.
This matter is before the court upon the cross-motions by petitioner Arkwright Advanced Coating, Inc. to vacate the arbitration award and respondent MJ Solutions GmbH to confirm the award. Based on a review of the file, record, and proceedings herein, and for the following reasons, the court grants the motion to confirm arbitration award and denies the motion to modify or vacate the arbitration award.
This arbitration dispute arises out of a 2003 non-exclusive license agreement between Arkwright and respondent MJ Solutions GmbH (Agreement). The Agreement grants Arkwright a license to certain patents owned by MJ Solutions in exchange for a two-percent royalty. Davenport Aff. Ex. A, at 1; id. § 3.1.1. Specifically, Arkwright has a "non-exclusive, royalty bearing license... under the [patents] to make, use, to offer for sale, sell, or transfer Covered Product." Id . § 2.1. "Covered Product" includes any "Textile Transfer Media" covered by the patents. Id . § 1.5. In layman's terms, "Textile Transfer Media" means products that enable consumers to transfer images produced by a printer onto fabrics such as t-shirts. Section 6.2 of the Agreement permits Arkwright to withhold royalties in the event of third-party infringement as follows:
If at any time, any third party shall infringe any [patent] to such an extent that ARKWRIGHT is placed at a substantial commercial disadvantage with respect to its operations under its license, and ARKWRIGHT so notifies [MJ Solutions] in writing, furnishing adequate evidence of the infringement, and [MJ Solutions] does not within ninety (90) days after receipt of such notice (1) abate the infringement by licensing or otherwise, or (2) bring suit against at least one infringer, ARKWRIGHT shall be entitled to withhold royalties due thereafter while infringement continues until one of these acts is effected by [MJ Solutions].
Id. § 6.2.
In August 2008, Arkwright identified certain products that it believed were infringing on the patents at issue based on product information sheets produced by the allegedly infringing companies, i.e., Cooler Concepts (under product name Perma Trans Dark) and Neenah (under product names Avery® Dark Fabric Transfer and Iron Man (Light & Dark) Offset Heat Transfer Papers). Koch Decl. Exs. 7-9. Arkwright provided the product information sheets to MJ Solutions in the fall of 2008, and in response MJ Solutions requested more specific information about the alleged infringement in order to assess whether Arkwright provided "adequate evidence of infringement" as required by the Agreement. Davenport Aff. Ex. A § 6.2. Arkwright did not respond to the request with additional information.
On April 29, 2009, Arkwright wrote a letter to MJ Solutions stating that the above-identified infringing products placed it at a "substantial commercial disadvantage" and that it would withhold royalties under § 6.2 of the Agreement. Koch Decl. Ex. 10. Based on the record, it appears that MJ Solutions did not respond to the letter until March 29, 2013, when counsel for MJ Solutions provided written notice of default of the Agreement due to Arkwright's failure to pay royalties since March 31, 2009. Id . Ex. 11; see also Davenport Aff. Ex. A § 7.4 (default provision). MJ Solutions challenged Arkwright's earlier claim that third-party infringement put it at a "substantial commercial disadvantage" and demanded that Arkwright cure its default within ninety days by paying the royalties due or provide evidence of its commercial disadvantage. Koch Decl. Ex. 11.
Arkwright responded on August 7, 2013, by initiating arbitration proceedings under § 11.1 of the Agreement. MJ Solutions filed counterclaims. The arbitration hearing took place from October 6-9, 2014, before arbitrator Clifford M. Greene. The two key issues presented were (1) whether Arkwright was entitled to withhold royalty payments on dark textile transfer products; and (2) whether light textile transfer products fall within the scope of the Agreement.
On December 18, 2014, Greene issued a comprehensive award. See Davenport Aff. Ex. E. Relevant here, Greene determined that (1) Arkwright breached its obligation to pay royalties for the sale of dark transfer products as required by the Agreement; and (2) light transfer products are not Covered Products and were not subject to the royalty provision. Id. at 34. Greene then permanently enjoined Arkwright from making, using, or selling dark transfer products under the Agreement, but allowed Arkwright to honor inventory already ordered or in stores provided that Arkwright pay royalties from such sales. Id . With respect to damages, Greene awarded MJ Solutions $388, 247.44 for dark transfer royalties withheld by Arkwright up to September 26, 2014,  plus interest in the amount of $153, 647.00. Id. at 34-35. MJ Solutions now seeks to confirm the award and Arkwright requests vacatur.
I. Standard of ...