Schlumber Technology et al v. Baker Hughes Inc.

Filing 81

OPINION on Arbitration terminating 10 , 21 , 67 . (Signed by Judge Lynn N. Hughes) Parties notified. (ghassan, 4)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

United States District Court
Southern District of Texas

ENTERED
Schlumberger Technology Corp., et al.,
Plaintiffs,

'Versus
Baker Hughes, Inc.,
Defendant.

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December 10, 2015
David J. Bradley, Clerk

Civil Action H'Il'3 573

Opinion on Arbitration

1.

Background.
In 2009, Schlumberger Technology Corp. and Baker Hughes, Inc., agreed to arbitrate

patent disputes - among other things. Having recogniz;ed that they frequently sue each other
for infringement, they decided to waive remedies available at law, like the right to appeal, in
exchange for what they hoped would be a faster resolution of their disputes.
Baker Hughes says that this agreement has worked. Since

2009,

they have settled

16

of 18 disputes. Only three have required arbitration and two of those arbitrated were settled
before a final hearing.
Schlumberger brought this lawsuit because it says that the agreement is irreparably
broken. It pleaded that Baker Hughes has repeatedly breached their agreement by creating
satellite arbitration, persisting with meretricious defenses, delaying resolution with onerous
discovery, and by refusing to acknowledge its notice of a dispute.
In addition to breach of contract, Schlumbergerpleaded that Baker Hughes fraudulently
induced it to sign the arbitration agreement. It says that Baker Hughes never intended to
expeditiously resolve patent disputes. Schlumberger wants the court to rescind the contracts
and resolve its claims for patent infringement.

2..

Arbitration.
Baker Hughes and Schlumberger must arbitrate the claims for breach of contract, fraud,

and infringement of United States Patents 5,515,038 and 6,152.,2.2.0.

A.

Breach.

The patent dispute-resolution agreement says that "disputes" must be arbitrated.
Disputes are not limited to patent-infringement claims; they include. those about
"interpretation, construction, and alleged breach" of contract.
Because the contract explicitly says that this claim must be arbitrated, Schlumberger
cannot sue in federal court. Only the arbitration panel can decide foundational questions about
its jurisdiction like whether the contract should be rescinded.
Schlumberger says that another paragraph of its contract says that only the nonbreaching party may compel arbitration. According to it, Baker Hughes is the breaching party.
Both parties have arguably breached the contract. Either may compel arbitration. This
paragraph does not change the agreement's broad definition of dispute. Foundational questions
about the agreement must be resolved by the arbitrator.
Interpreting arbitration agreements to allow judicial supervision would eviscerate the
perceived benefit of arbitration - speed. Parties agree to arbitrate because they are willing to
forego some of their rights at law in exchange for what they hope will be a quick result.
Misbehavior during arbitration must be policed by the arbitrator.

B.

Fraud.

Schlumberger says that Baker Hughes defrauded it by tricking it into signing an
agreement to resolve cases quickly that it never intended to follow. Putting aside the total lack
of evidence to support this claim, a statement of intent or anticipation cannot be fraudulent
inducement because it is not a substantial misrepresentation of an existent fact. I
The court will not, however, resolve Schlumberger's fraud claim. Like the claim for
breach of contract, it must be arbitrated. What the parties intended to do with their agreement
is a question that involves interpretation and construction of the agreement. In their contract,
the parties have charged the arbitrator with that responsibility.

I

Prudential Ins. Co. v.JeffersonAssocs., Ltd., 896 S.W.2.d 15 6 , 16 3 (Tex. 1995)·

Unlike cases where the accusation of fraud directly implicates the arbitration clause in
a contract, Schlumberger concedes that it knew that it was signing an agreement to arbitrate.
It merely says that Baker Hughes never intended to comply with that agreement. In the unlikely
event that is true, it still does not change the obdurate reality that Schlumberger agreed to
arbitrate.
If a party to an arbitration can run to federal court with imprecise cries of fraud, the
speed and affordability of arbitration will be lost. Lawyers are all too fond of cloaking what is,
in reality, a claim for breach of contract as fraud.

C.

Infringement.

Schlumberger concedes that its claim for infringement of the' 0 38 patent would have
been included in the agreement to arbitrate. The agreement excludes from arbitration, however,
tools that clean or remediate wells. It says this excludes its claim about the' 220 patent.
Whether a particular claim for infringement concerns technology that the parties agreed
to resolve through arbitration is a foundational question for the arbitration panel. As another
court has already concluded, this agreement leaves questions of arbitrability to the arbitrator. 2

3.

Dismissal.
The parties agree that Schlumberger' s claims that Baker Hughes infringed its 6,732,8 r 7

and 7,3 r4,099 patents are not arbitrable. Baker Hughes has moved to dismiss that claim
because the petition does not describe the technology or infringement with precision. Its
motion will be denied without prejudice. Schlumberger may promptly amend its complaint.

2 Schlumberger Technology Corp. v. Baker Hughes Inc., 355 S.W·3d 79r, 802
(Tex. App. Houston erst Dist.] 20rr).

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Conclusion.
Arbitration -like resolution by the judiciary - is not always speedy. Sometimes parties

misbehave and delay the process - other times it is the decider. Under the agreement that
Schlumberger signed, the arbitration panel must police these matters. The parties are obliged
to arbitrate the claims for breach of contract, fraud, and infringement of the
patents.

Signed on December 9,

201 5,

at Houston, Texas.

Lynn N. Hughes
United States DistrictJudge

'038

and

'020