Boston Scientific Corporation v. Acacia Research Group, LLC et al

Filing 30

MEMORANDUM regarding 16 MOTION to Confirm Final Arbitration Award, and 4 MOTION to Vacate. Signed by Judge Richard G. Andrews on 6/25/2018. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

BOSTON SCIENTIFIC CORPORATION,

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Petitioner,
V.

ACACIA RESEARCH GROUP, LLC, and
LIFEPORT SCIENCES, LLC,

Respondents.

Civ. No. 17-1144-RGA

MEMORANDUM
In February 2017, petitioner Boston Scientific Corporation and respondents Acacia
Research Group, LLC and Lifeport Sciences, LLC (collectively, "Acacia") engaged in a
contractually mandated arbitration, after which the arbitration panel issued an award in favor of
Acacia. Currently pending before the court are cross-motions by the parties, whereby Boston
Scientific has moved to vacate the final arbitration award, and Acacia has moved to confirm the
final arbitration award. (D.I. 4; D.I. 16). The court has jurisdiction over this matter pursuant to 9
U.S. C. § 9. For the reasons stated herein, Boston Scientific' s motion is denied and Acacia's motion
is granted.
I.

BACKGROUND
A. The Demand for Arbitration
On September 26, 2012, Acacia and Boston Scientific entered into an agreement (the

"Assignment Agreement"), under which Boston Scientific assigned all rights, title, and interest in
certain patents to Acacia. (D.I. 6-1, Ex. 1 at§ 1.1). In exchange, Acacia agreed to pay Boston
Scientific $8 million upfront and a royalty in the future. (Id. at §§ 3.1 & 3.2). The royalty is

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calculated as a share of any "Net Proceeds" derived from enforcement of the patents. (Id. at § 3.2).
The Assignment Agreement is "governed by and construed under applicable federal law and the
laws of the State of Delaware, excluding any conflict oflaw provisions." (Id. at § 7.2).
Section 7 .1 of the Assignment Agreement requires any dispute between the parties, not
resolved by mediation, to be submitted to binding arbitration, initiated and conducted in
accordance with the AAA Commercial Arbitration Rules. (Id. at § 7 .1). The arbitration must be
''before a panel of three (3) arbitrators experienced in intellectual property contracts and issues and
selected in accordance with the rules set forth below." (Id. ). "To select the arbitrators, the Parties
will request a list of ten (10) neutral arbitrators from the AAA." (Id.). "Each Party will then rank
the arbitrators and the three arbitrators with the highest ranking will serve as the panel." (Id.).
After the Assignment Agreement was executed, Acacia assigned a subset of the patents to
its wholly-owned subsidiary, Lifeport Sciences, LLC. (D.I. 6-1 , Ex. 19 at 1). Lifeport then sued
Cook Corporation for infringement. (Id. at 6). In response, Cook informed Acacia that several of
the asserted patents were subject to a covenant not to sue for which Cook had previously paid
Boston Scientific $20 million (the "Cook Covenant").

(Id.).

In the Assignment Agreement

between Acacia and Boston Scientific, Boston Scientific had represented and warranted that, with
an exception not applicable here, "the Patents are not subject to a covenant not to sue." (D.I. 6-1 ,
Ex. 1 at § 4.1.5). After confirming that the Cook Covenant existed, Lifeport dismissed the action
against Cook, and Acacia sought to recover damages from Boston Scientific for making a false
representation and warranty. (Id. , Ex. 19 at 6-7). When the parties could not resolve their dispute,
Acacia demanded arbitration. (Id. , Ex. 2).

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B. The Selection of Arbitrators
Pursuant to Section 7.1 of the Assignment Agreement, the AAA provided the parties with
a list often potential arbitrators. (D.I. 6-1 , Ex. 5). On December 2, 2015 , Boston Scientific asked
the AAA for more candidates because it was "unable to identify any experience in 'intellectual
property contracts and issues'" for five of the ten candidates, including two of the candidates who
were ultimately appointed to the panel-William F. Carroll, Esq. and Mark A. Shank, Esq. (Id. ,
Ex. 7). That same day, the AAA denied Boston Scientific' s request, stating: "The AAA provided
a list of arbitrators who listed Intellectual Property experience in their arbitration resume. We trust
they have the experience listed." (D.I. 18-1, Ex. A).
On December 4, 2015, Boston Scientific objected to the list of names "as violating Section
7 .1 of the parties' Assignment Agreement, which requires each arbitrator to possess 'experience[]
in intellectual property contracts and issues."' (D.I. 6-1 , Ex. 11 ). On December 17, 2015 , the
AAA appointed as arbitrators Mr. Carroll, Mr. Shank, and George Bowles, Esq. , and asked each
of them to "provide a note about how or why they meet the qualifications needed for this case."

(Id. , Exs. 12 & 15). Mr. Shank provided a note stating:
I have been counsel in patent case[ s] , copyright, trademark cases, trade secret
and breach of confidentiality cases. [I] [h]ave served as counsel in several
software cases involving IP issues. Almost all of these cases involve contracts
of some type or another involving or protecting IP.
(D.I. 18-1, Ex. B).
On December 24, 2015, Boston Scientific again objected to the appointment of Mr. Shank,
stating:
Mr. Shank does not appear to have any background or experience in "intellectual
property contracts or issues." Specifically, based on a review of Mr. Shank's
experience over the past 10 years, available via Westlaw, his name appears as
counsel on only one patent case since 2005 (and, when reviewing that case, Mr.
Shank is listed, not as counsel of record, but as "movant" counsel on a peripheral
issue).
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(D.I. 6-1 , Ex. 13). Acacia responded on December 28, 2015 , arguing, "Patents constitute just one
facet of intellectual property, and narrowing the requirement as Boston Scientific advocates would
re-write the parties ' Agreement." (Id. , Ex. 14).
The AAA submitted Boston Scientific's objection and Acacia's response to its
Administrative Review Council (the "Council"). (Id., Ex. 15). The Council reaffirmed Mr. Shank
as an arbitrator. (Id. , Ex. 17). As the Council explained, Boston Scientific asked that Mr. Shank
be disqualified based on his purported lack of relevant experience, but under the AAA's rules an
arbitrator may only be disqualified for "partiality or lack of independence, inability or refusal to
perform his or her duties with diligence and in good faith, and any grounds for disqualification
provided by applicable law." (Id.).

C. The Arbitration
The arbitration hearing was held in Fort Worth, Texas from February 20, 2017 to February
23, 2017. (D.I. 6-1, Ex. 19 at 1). On May 12, 2017, the panel issued its Memorandum Opinion
and Award, finding for Acacia and awarding $3,470,440.96 in damages, interest, fees and costs.

(Id. at 35). The Panel concluded: "It is clear based on the evidence that Boston Scientific had
knowledge of the Cook Covenant," which "establishe[ d] a breach of the representation and
warranty in Section 4.1.5 of the Agreement." (Id. at 15).

II.

DISCUSSION
The Federal Arbitration Act (the "FAA") gives courts an "extremely limited" role in

reviewing arbitration awards. Sheet Metal Workers v. Ariz. Mech. & Stainless, Inc., 863 F.2d 647,
653 (9th Cir.1988). An application to confirm an award must be granted so long as (1) the
application is brought in the court specified by the parties, if one is specified; (2) "at any time
within one year after the award is made"; and (3) the award is not "vacated, modified, or corrected

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as prescribed in sections 10 and 11" of the FAA. 9 U.S .C. § 9. "It is irrelevant whether the courts
agree with the arbitrator's application and interpretation of the agreement." Roberts & Schaefer
Co. v. Local 1846, United Mine Workers , 812 F.2d 883 , 885 (3d Cir. 1987) (quoting ArcoPolymers, Inc. v. Local 8-74, 671 F.2d 752, 755 (3d Cir. 1982)). Here, the parties specified that
"entry of judgment with respect to the decision of the arbitrators" shall be decided in "any
Delaware state or federal court." (D.I. 6, Ex. 1 at§ 7.2). Acacia's Motion to Confirm was brought
within one year of the award. (D.I. 6-1, Ex. 19; D.I. 16). Thus, the dispute before the court is
whether the award should be confirmed for the reasons presented by Acacia or vacated for the
reasons argued by Boston Scientific.
Acacia argues that the court cannot reach the substance of Boston Scientific's motion,
because it was not timely under the deadline prescribed by the FAA. 1 (D.I. 17 at 10). "A party to
an arbitration award who fails to comply with the statutory precondition of timely service of notice
forfeits the right to judicial review of the award." Kelly v. MBNA Am. Bank, 2007 WL 1830892,
at *4 (D. Del. June 25, 2007) (quoting Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith, 477
F.3d 1155, 1158 (10th Cir. 2007)). Under the FAA, "[n]otice of a motion to vacate, modify, or
correct an award must be served upon the adverse party or his attorney within three months after
the award is filed or delivered." 9 U.S.C. § 12. The arbitration panel emailed the award to the
parties on May 15, 2017. (Id., Ex. G). Then, Boston Scientific sent a copy of the motion to vacate
to Acacia by e-mail on August 15, 2017 and by FedEx the next day, August 16, 2017. (D.I. 23-1,
Ex. 1; D.I. 18-1 Ex. I). Nevertheless, the court need not determine if (1) service by email
constitutes valid service under 9 U.S.C. § 12, or (2) service on August 16, 2017 was within the

Acacia initially argued that the motion to vacate was also untimely under the Delaware
Uniform Arbitration Act, but abandoned this argument in its reply. (D.I. 17 at 9-10; D.I. 22 at 2;
D.I. 27 at 4 n. 4).
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time allowed. Even if service was timely, Boston Scientific has not shown that the arbitral award
should be vacated.
An arbitral award may be vacated only for the reasons enumerated in Sections 10 and 11
of the FAA. Hall St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 584 (2008). BSC's Motion is
brought under subsection 10(a)(4), which provides that an award may be vacated "[w]here the
arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final , and definite
award upon the subject matter submitted was not made." 9 U.S.C. § 10(a)(4); D.I. 4. Specifically,
BSC argues that Mr. Shank did not meet the qualifications set forth in Section 7 .1 of the
Assignment Agreement and, therefore, the panel had no power to resolve the parties' dispute and
enter the Award under review. (D.l. 5 at 9).
"[A]rbitration is a matter of contract." Howsam v. Dean Witter Reynolds, Inc. , 537 U.S .
79, 83 (2002). "The power and authority of arbitrators in an arbitration proceeding is dependent
on the provisions under which the arbitrators were appointed."

eCast Settlement Corp. v.

Matthews-Orr, 2008 WL 2386172, at *5 (D.N.J. June 9, 2008) (quoting Szuts v. Dean Witter
Reynolds, Inc. , 931 F.2d 830, 831 (11th Cir. 1991 )). "If in the agreement provision be made for a
method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be
followed." 9 U.S.C. § 5. "Arbitration awards made by arbitrators not appointed under the method
provided in the parties' contract must be vacated." eCast, 2008 WL 2386172, at *5.
Here, the Assignment Agreement required that each of the three arbitrators be "experienced
in intellectual property contracts and issues." (D.l. 6, Ex. 1 at§ 7 .1 ). There are two notable points
regarding this clause. First, the Assignment Agreement does not indicate how much experience
or what kind of experience, only that the arbitrator has "experience."

In other words, the

Assignment Agreement did not require "significant" experience, or that the experience be litigation

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experience, as Boston Scientific suggests. (See D.I. 22 at 10-12). Second, the term "intellectual
property" is not limited to patent law as Boston Scientific suggests. (See , e.g. , Id. at 11 (stating
that there is no indication that Mr. Shank has experience in "litigation or arbitration of patent
infringement claims")). Instead, "intellectual property" means: "A category of intangible rights
protecting commercially valuable products of the human intellect.

The category comprises

primarily trademark, copyright and patent rights, but also includes trade-secret rights, publicity
rights, moral rights, and rights against unfair competition." Black's Law Dictionary (14th ed.
2014). Thus, under the terms of the Assignment Agreement as written, Mr. Shank was qualified
to serve as an arbitrator, because he has experience in "intellectual property contracts and issues."
Mr. Shank was first admitted to the bar in 1979 and, as of the date of his appointment to
the panel, had been practicing law for approximately thirty-seven years. (D.I. 6, Ex. 6). Mr.
Shank's resume states that he has "substantive experience" in "intellectual property" and "trade
secrets." (Id.) . His law firm website biography lists litigation experience including "matters
involving claims of theft, trade secrets and intellectual property." (D.I. 18-1, Ex. J). When asked
by the AAA to provide his qualifications, Mr. Shank stated that he had been counsel in "patent
case[s], copyright, trademark cases, trade secret and breach of confidentiality cases," and "served
as counsel in several software cases involving IP issues." (D.I. 6, Ex. 16). Finally, a search of
publicly available information shows that Mr. Shank was counsel in Schnee-Morehead, Inc. v.

Parr Technologies, LLC, No. 3-07-CV-1809-M (N.D. Tex.) (a misappropriation of trade secrets
case involving the intellectual property of a manufacturer of adhesive sealant products); and

Jericho Systems Corp. v. Boaz Allen Hamilton Inc., No. 3:07-cv-2009-L (N.D. Tex.) (a case
involving misappropriation of the plaintiffs software). (D.I. 17 at 18; D.I. 22 at 12-13). Both
cases were filed in 2007. Boston Scientific may find wanting Mr. Shank' s role in those cases, but

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as stated previously, it did not bargain for a certain quality or quantity of experience. Given the
foregoing, Mr. Shank satisfied the Assignment Agreement's requirement that he have experience
in "intellectual property contracts and issues." As a result, the panel did not exceed its powers in
rendering the final arbitration award.

III.

CONCLUSION
For the foregoing reasons, Boston Scientific' s motion to vacate the final arbitration award

(D.I. 4) is denied, and Acacia's motion to confirm the final arbitration award (D.I. 16) is granted.
An appropriate order will be entered.

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