MICROSOFT AND Samsung agreed to arbitrate claims against Samsung. The parties agreed to arbitrate disputes concerning Annual Invoices and Royalty Reports. A u.s. District Court in New York ruled in favor of the plaintiffs.
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14-10-10 MOL Samsung motion to arbitrate Microsoft case.pdf
MICROSOFT AND Samsung agreed to arbitrate claims against Samsung. The parties agreed to arbitrate disputes concerning Annual Invoices and Royalty Reports. A u.s. District Court in New York ruled in favor of the plaintiffs.
MICROSOFT AND Samsung agreed to arbitrate claims against Samsung. The parties agreed to arbitrate disputes concerning Annual Invoices and Royalty Reports. A u.s. District Court in New York ruled in favor of the plaintiffs.
MICROSOFT CORPORATION AND MICROSOFT LICENSING GP, Plaintiffs, -against- SAMSUNG ELECTRONICS CO., LTD., Defendant. Case No. 1:14-CV-6039 (JSR) Hon. Jed S. Rakoff Oral Argument Requested
DEFENDANTS MEMORANDUM OF LAW IN SUPPORT OF MOTION TO COMPEL ARBITRATION AND STAY THE CASE
OMELVENY & MYERS LLP George A. Riley Andrew Frackman Ian Simmons John Kappos Gary Svirsky Ryan Yagura Brad M. Elias Jeffrey A.N. Kopczynski Times Square Tower 7 Times Square New York, New York 10036 Telephone: (212) 326-2000 Facsimile: (212) 326-2061 Attorneys for Defendant Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 1 of 20 TABLE OF CONTENTS
Page PRELIMINARY STATEMENT ................................................................................................... 1 BACKGROUND ........................................................................................................................... 2 A. The agreement between Samsung and Microsoft is embodied in two interconnected contracts. ............................................ 2 B. The parties agreed to arbitrate disputes concerning Annual Invoices and Royalty Reports. ...................................................... 5 C. The Amended Complaint asks this Court to relieve Microsoft of its obligations while enforcing Samsungs obligations. ........................ 5 ARGUMENT ................................................................................................................................. 6 I. MICROSOFT AGREED TO ARBITRATE ITS CLAIMS AGAINST SAMSUNG. ..................... 6 A. The parties arbitration agreement is enforceable under the FAA. ................................................................... 6 B. The arbitrators must decide any questions of arbitrability. .................................................................... 7 C. The parties dispute is arbitrable under the BCAs plain language. ............................................................... 9 i. Both counts in the Amended Complaint fit within Section 3.3 of the BCA. ................................................. 9 ii. Both counts in the Amended Complaint fall under the BCA, not the PLA. ................................................ 12 D. The agreements forum-selection provisions do not apply to Microsofts claims. ......................................................... 13 II. THIS CASE SHOULD BE STAYED PENDING ARBITRATION. ....................................... 14 CONCLUSION ............................................................................................................................ 15 i Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 2 of 20 TABLE OF AUTHORITIES Page CASES Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278 (2d Cir. 2005), abrogated on other grounds by Goldman, Sachs & Co. v. Golden Empire Sch. Fin. Auth., 2014 U.S. App. LEXIS 16155 (2d Cir. Aug. 21, 2014) ........................................................................................................... 13 Cendant Corp. v. Forbes, 72 F. Supp. 2d 341 (S.D.N.Y. 1999)....................................................................................... 14 Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., 189 F.3d 289 (2d Cir. 1999)...................................................................................................... 6 Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060 (2d Cir. 1993)........................................................................................................ 6 Ecopetrol S.A. v. Offshore Exploration & Prod. LLC, 2014 U.S. Dist. LEXIS 126829 (S.D.N.Y. Sept. 10, 2014) .................................................... 14 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995) .................................................................................................................. 7 Goldman, Sachs & Co. v. Golden Empire Schools Fin. Auth., 2014 U.S. App. LEXIS 16155 (2d Cir. Aug. 21, 2014) .......................................................... 13 Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) .................................................................................................................... 6 JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163 (2d Cir. 2004).................................................................................................... 11 Khanna v. Am. Express Co., 2011 U.S. Dist. LEXIS 146542 (S.D.N.Y. Dec. 14, 2011) ...................................................... 9 McAllister Bros. v. A & S Transp. Co., 621 F.2d 519 (2d Cir. 1980).................................................................................................... 11 Moses H. Cone Meml Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) ................................................................................................................ 9, 12 Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72 (2d Cir. 1998)........................................................................................................ 6 Personal Sec. & Safety Sys. v. Motorola Inc., 297 F.3d 388 (5th Cir. 2002) .................................................................................................. 13 ii Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 3 of 20 TABLE OF AUTHORITIES (continued) Page Seed Holdings, Inc. v. Jiffy Intl AS, 2014 U.S. Dist. LEXIS 38565 (S.D.N.Y. Mar. 24, 2014) ...................................................... 12 Severstal US Holdings, LLC v. RG Steel, LLC, 865 F. Supp. 2d 430 (S.D.N.Y. 2012)..................................................................................... 11 Shaw Grp. Inc. v. Triplefine Intl Corp., 322 F.3d 115 (2d Cir. 2003)...................................................................................................... 8 Smith/Enron Cogeneration Ltd. Pship v. Smith Cogeneration Intl, Inc., 198 F.3d 88 (2d Cir. 1999).................................................................................................... 2, 7 United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960) ................................................................................................................ 12 Variblend Dual Dispensing Sys., LLC v. Seidel GmbH & Co., 970 F. Supp. 2d 157 (S.D.N.Y. 2013)................................................................................... 6, 8 VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II L.P., 717 F.3d 322 (2d Cir. 2013).................................................................................................. 2, 8 STATUTES 9 U.S.C. 201 ................................................................................................................................. 2 9 U.S.C. 206 ................................................................................................................................. 8 9 U.S.C. 3 ................................................................................................................................... 15 OTHER AUTHORITIES Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 UST 2517, TIAS 6997, 330 UNTS 3 .......................................................... 8 iii Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 4 of 20
Defendant Samsung Electronics Co., Ltd. (Samsung) submits this memorandum of law in support of its motion to compel arbitration of the Amended Complaint filed by Microsoft Corporation and Microsoft Licensing GP (together, Microsoft) and to stay this lawsuit. PRELIMINARY STATEMENT When Samsung and Microsoft entered into a licensing, development, and marketing agreement, they recognized that they might one day have a dispute. But rather than waste resources on litigation, and to protect the confidentiality of commercially sensitive information at the heart of the agreement, the parties specified that they would arbitrate certain disputes in Japan under the Rules of Arbitration of the International Chamber of Commerce (ICC Rules). Arbitration was the parties clear and unmistakable intent then, and arbitration is what Second Circuit precedent mandates now. Microsofts claims in this action fall squarely within the parties agreement to arbitrate. Under Section 3.3 of the parties Confidential Business Collaboration Agreement (BCA), the arbitrable issues include any dispute with respect to Annual Invoices or Royalty and Credit Calculation Reportsboth of which form the basis of Microsofts claims. As its Amended Complaint alleges, Microsoft seeks approximately $7 million in interest for Samsungs delay in paying the 2013 Annual Invoice while the parties sought to resolve their royalty dispute. And Microsoft seeks a judicial declaration that Samsungs reason for the delaythat Microsofts merger with a Samsung competitor breached the parties agreementdoes not excuse Samsung from submitting royalty reports and making future invoice payments. Regardless of the Amended Complaints merits (and there are none), there is no question that Section 3.3 requires the parties to submit this dispute to binding arbitration under ICC Rules. The parties agreement to arbitrate must be enforced under Chapter 2 of the FAA, 9 U.S.C. 201, which implements the Convention on the Recognition and Enforcement of
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Foreign Arbitral Awards (the New York Convention), because the BCA satisfies the four requirements set forth in Smith/Enron Cogeneration Ltd. Partnership v. Smith Cogeneration International, Inc., 198 F.3d 88, 92 (2d Cir. 1999). The agreement (i) is written, (ii) provides for arbitration in a country that is a signatory to the Convention (Japan), (iii) concerns a subject matter that is commercial, and (iv) is not entirely domestic in scope. Moreover, by agreeing to arbitrate under ICC Rules, the parties committed to submit any questions about the arbitrability of their claims to the arbitrators. The Second Circuit reaffirmed this settled principle just last year in VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II L.P., 717 F.3d 322, 326 (2d Cir. 2013), holding that an arbitration clause subjecting disputes to the rules and procedures of the [ICC] clearly and unmistakably commits to arbitration any questions about the arbitrability of particular disputes. It is thus no defense for Microsoft to argue that its claims fall outside the scope of the BCAs arbitration provisionthat is a question for the arbitrators to decide. Therefore, the FAA, the New York Convention, Second Circuit precedent, and the parties agreements all require Microsoft to arbitrate its claims under ICC Rules, and this case should be stayed pending the conclusion of that arbitration. BACKGROUND A. The agreement between Samsung and Microsoft is embodied in two interconnected contracts. On July 1, 2011, Samsung and Microsoft executed two contracts: the BCA and the Confidential Patent Licensing Agreement (the PLA). 1 Samsung is a Korean corporation with 1 See Declaration of Brad M. Elias (Elias Decl.), Ex. 1 (PLA); Elias Decl., Ex. 2 (BCA). 2
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its principal place of business in Suwon, South Korea. 2 Microsoft is a Washington corporation with its principal place of business in Redmond, Washington. 3
Under the PLA, Samsung and Microsoft agreed to cross-license their patent portfolios and release each other from any existing liability for patent infringement. 4 Samsung agreed to pay annual royalties to Microsoft for seven years based on Samsungs per-unit sales of Android smartphones and tablets. 5 Microsoft, in turn, agreed to reduce Samsungs annual royalty payments in accordance with a fixed schedule of Microsoft License Fee Credit[s]. 6
Under the BCA, the parties agreed to collaborate on the development and marketing of certain Samsung Windows devices and the use of Microsoft search services. 7 Microsoft committed to provide Samsung with Success Credits for meeting certain sales goals for Windows phones and tablets. 8 And Microsoft committed to provide Samsung with annual Collaboration Credits for creating and executing a plan to develop and market Windows phones and tablets and for using Microsoft search services. 9 The amounts owed by Samsung to Microsoft under the agreements must be reported to Microsoft on an annual Royalty and Credit 2 See Elias Decl., Ex. 1 (PLA) at 1. Pursuant to the Courts October 8, 2014 instruction, Samsung has filed the BCA and PLA provisionally under seal. Samsung and Microsoft continue to meet and confer concerning the redaction of commercially sensitive information from those agreements, and Samsung hopes to present a joint sealing proposal to the Court. Samsung respectfully requests that the Court defer any action with regard to sealing until the hearing on this motion, which is scheduled for November 7, or until such other time that the parties are provided an opportunity to be heard on the sealing issue. 3 See id. 4 See id. 2.1, 2.2, 3.1. 5 See id. 4.2.2. 6 Id. 4.2.1 & Ex. B. 7 Elias Decl., Ex. 2 (BCA) at 1. 8 Id. 3.1.2 & Ex. E. 9 Id. 3.1.1 & Exs. B, C, D. 3
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Calculation Report (the Royalty Report) pursuant to the BCA. 10 After receiving the Royalty Report, Microsoft is required to issue an Annual Invoice that includes, among other things, the net amount owed by Samsung for the fiscal year under the BCA and PLA. 11 Under the BCA, the Royalty and Credit Calculation Report . . . will be deemed to constitute, include, supersede and be in lieu of any Royalty Report otherwise due under Section 4.2.3 of the PLA. 12
Because the BCA and PLA are interconnected, the parties agreed to an Entire Agreement provision that integrates the terms of the BCA, the PLA, and the parties non- disclosure agreement. 13 That interconnectedness is also reflected in Section 8.5 of the BCA, which permits Samsung to terminate the PLA in the event that Microsoft breaches Section 9.7 of the BCA. 14 BCA Section 9.7 prohibits either party from assigning any rights or obligations hereunder, whether by operation of law, contract or otherwise, including by way of a change of Control. 15 As relevant here, where the assignment is to a competitor of the other party, the assignment is defined to include any merger of a party with a third party. 16 Part of the parties dispute about the Annual Invoice concerns whether Microsofts acquisition of Nokias Devices and Services business and subsequent integration of that business into its existing operations constitutes a merger with a Samsung competitor within the meaning of Section 9.7. 10 Id. 3.1.4 & Ex. F. Because Microsoft has failed to fulfill its Success Credits obligations, Samsung is separately arbitrating that issue under ICC Rules in accordance with BCA Section 3.3.2. See Notice of Arbitration (Oct. 7, 2014 ECF No. 38). 11 Elias Decl., Ex. 2 (BCA) 3.2.1. 12 Id. 3.1.4; see also id. at Ex. F (Form of Royalty Report). 13 Id. 9.12 (This agreement, together with the [non-disclosure agreement] and PLA, constitutes the entire agreement between the parties with respect to the subject matter, including any prior letters of intents or term sheets.). 14 See id. 8.5 (If Samsung terminates this Agreement pursuant to Section 9.7, then Samsung may terminate the PLA by giving Microsoft written notice terminating the PLA . . . .). 15 Id. 9.7. 16 Id.; see also Am. Compl. 15, 42, 43, 51. 4
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B. The parties agreed to arbitrate disputes concerning Annual Invoices and Royalty Reports. The BCA prescribes how the parties must resolve certain disputes. Under sections 3.3.1 and 3.3.2, the parties must meet in person and discuss listed disputes in good faith, and if the parties cannot resolve their disagreement, they shall submit the dispute to binding arbitration under the auspices and in accordance with the Rules of Arbitration of the International Chamber of Commerce (with certain modifications to ICC Rules concerning the selection of arbitrators). 17 The parties also agreed that any arbitration will be heard in Japan before three arbitrators. 18 The arbitrable issues include any dispute between the parties with respect to any Royalty and Credit Calculation Report . . . or any Annual Invoice. 19 And while the BCA also contains a forum-selection provision in which the parties consented to jurisdiction and venue in the Southern District of New York, 20 that provision explicitly carves out disputes covered under Section 3.3i.e., disputes that the parties agreed to arbitrate. 21
C. The Amended Complaint asks this Court to relieve Microsoft of its obligations while enforcing Samsungs obligations. With this lawsuit, Microsoft seeks to retain for itself the full amount of Samsungs payment for Fiscal Year 2, as well as amounts due under future invoices. 22 First, Microsoft asserts that Samsung breached the PLA by failing to pay the Fiscal Year 2 Annual Invoice on time, and seeks to recover interest on the late payment. 23 Second, Microsoft seeks a declaration that Samsungs stated reason for delaying payment of the Fiscal Year 2 Annual Invoicethat 17 Elias Decl., Ex. 2 (BCA) 3.3.2; see also id. 3.3.1, 3.3.3. 18 See id. 3.3.2. 19 Id. 3.3.1 (emphasis added). 20 See id. 9.5. 21 Id.; see also id. 3.3. 22 See Am. Compl. 51. 23 See id. 4548. 5
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Microsoft improperly merged with a Samsung competitordoes not excuse Samsung from submitting royalty reports and making future invoice payments. 24 While Samsung vigorously disputes the merits of both Microsoft claims, both counts must be resolved in an arbitration under ICC Rules in accordance with BCA Section 3.3. ARGUMENT I. MICROSOFT AGREED TO ARBITRATE ITS CLAIMS AGAINST SAMSUNG. A. The parties arbitration agreement is enforceable under the FAA. If Microsoft wishes to pursue its claims against Samsung, it is obligated to submit them to binding arbitration. Chapter 2 of the FAA, which implements the New York Convention, governs commercial, non-domestic agreements like the BCA and the PLA. See Variblend Dual Dispensing Sys., LLC v. Seidel GmbH & Co., 970 F. Supp. 2d 157, 163 (S.D.N.Y. 2013). The FAA reflects the strong federal policy favoring arbitration as an alternative means of dispute resolution, Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998), and makes that bias even stronger in the context of international transactions. Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., 189 F.3d 289, 294 (2d Cir. 1999) (quoting Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1063 (2d Cir. 1993)). Thus, when a disputes arbitrability is in question, the party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration. Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000). As the Second Circuit has explained, the FAAs implementing provisions set forth four requirements for enforcing arbitration agreements under the New York Convention: (1) there must be a written agreement; (2) it must provide for arbitration in the territory of a signatory of 24 See id. 4951. 6
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the convention; (3) the subject matter must be commercial; and (4) it cannot be entirely domestic in scope. Smith/Enron, 198 F.3d at 92 (affirming order granting motion to compel arbitration under the New York Convention). Each of those requirements is satisfied here: (1) the BCA and PLA contain written agreements to arbitrate under ICC Rules; 25
(2) the arbitration must take place in Japan, which is a signatory to the New York Convention; 26
(3) the subject matter of the dispute is plainly commercial in nature; and (4) the dispute between Microsoft, a Washington corporation, and Samsung, a South Korean corporation, is international in scope. 27
Because the parties agreement to arbitrate is enforceable under Chapter 2 of the FAA, this Court has jurisdiction to compel arbitration. See 9 U.S.C. 206 (A court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States.). B. The arbitrators must decide any questions of arbitrability. Where the parties agreed to submit the threshold question of arbitrability to the arbitrators, federal courts will enforce that agreement. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). And the Second Circuit has repeatedly held that where, as here, the parties agreed to arbitrate under ICC Rules, they have clearly and unmistakably agreed to submit the question of arbitrability to the arbitrators. Only last year, in VRG Linhas Aereas S.A., 25 See Elias Decl., Ex. 2 (BCA) 3.3.2; Elias Decl., Ex. 1 (PLA) 4.2.5. 26 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 UST 2517, TIAS 6997, 330 UNTS 3, at UST 2563 (listing Japan as a signatory); see also Elias Decl., Ex. 1 (PLA) 4.2.5, Ex. 2 (BCA) 3.3.2. 27 See Elias Decl., Ex. 1 (PLA) at 1 (listing Samsung as a Korean corporation and Microsoft as a Washington corporation). 7
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the Second Circuit held that an arbitration clause subjecting disputes to the rules and procedures of the ICC International Court of Arbitration clearly and unmistakably commits to arbitration any questions about the arbitrability of particular disputes. 717 F.3d at 326 (emphasis added). That echoed Shaw Group Inc. v. Triplefine International Corp., where the Second Circuit held that because [the agreement] provides for arbitration to be conducted under the rules of the ICC, which assign the arbitrator initial responsibility to determine issues of arbitrability, we conclude that the agreement clearly and unmistakably evidences the parties intent to arbitrate questions of arbitrability. 322 F.3d 115, 122, 12425 (2d Cir. 2003) (emphasis added). 28 This Court too has held that because parties agreed to ICC Rules, any questions as to the scope of the arbitration provision or the arbitrability of particular disputes are . . . properly committed to arbitration. Variblend Dual Dispensing Sys., 970 F. Supp. 2d at 170. Here, just as in VRG, Shaw, and Variblend, the parties expressly contracted to arbitrate disputes listed in Section 3.3.1 of the BCA under ICC Rules. Under BCA Section 3.3.2, the parties agree[d] to exclusively settle such dispute by binding arbitration under the auspices and in accordance with the Rules of Arbitration of the International Chamber of Commerce. 29
Similarly, under PLA Section 4.2.5, the Parties agree[d] to exclusively settle such disputes by binding arbitration under the auspices and in accordance with the Rules of Arbitration of the International Chamber of Commerce. 30 Therefore, under binding Second Circuit precedent, 28 In reaching its decision, the Court cited the ICC rule regarding determining arbitrability, which provides that [i]f the Respondent does not file an Answer . . . or if any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement, the [ICA] Court may decide, without prejudice to the admissibility or merits of the plea or pleas, that the arbitration shall proceed if it is prima facie satisfied that an arbitration agreement under the Rules may exist. In such a case, any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself. 322 F.3d at 122. 29 Elias Decl., Ex. 2 (BCA) 3.3.2. 30 Elias Decl., Ex. 1 (PLA) 4.2.5. 8
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the arbitrability of Microsofts claims against Samsung is a question for the arbitrator and not this Court. C. The parties dispute is arbitrable under the BCAs plain language. i. Both counts in the Amended Complaint fit within Section 3.3 of the BCA. While the Court need not decide the arbitrability of Microsofts claims, if the Court elects to consider that question, it should direct the parties to arbitration under a plain reading of the BCA. As the Supreme Court observed, the FAA establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. Moses H. Cone Meml Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 2425 (1983). This Court too has held that under the FAA, courts must compel arbitration where the parties have agreed to arbitrate and the scope of that agreement encompasses the claims presented. Khanna v. Am. Express Co., 2011 U.S. Dist. LEXIS 146542, at *5 (S.D.N.Y. Dec. 14, 2011) (Rakoff, J.) (granting motion to compel and stay case and holding that rushing to court cannot defeat such a motion because it contradicts the language of the [agreement] by effectively removing [defendants] right to elect arbitration). By its terms, the BCA demonstrates that both causes of action in the Amended Complaint fall into the list of issues that the parties agreed to arbitrate under Section 3.3.1: In the event of any dispute between the parties with respect to any Royalty and Credit Calculation Report, the calculation of any Reinvestment Credits under Section 3.1.4, the calculation of any Success Credit Recapture, the calculation of any WP Termination Credits, the scope or results of any audit under Section 3.1.5[,] or any Annual Invoice, the parties (and, in the case of any dispute 9 Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 13 of 20
regarding the scope or results of any audit under Section 3.1.5, the auditor) will meet and discuss in good faith to resolve such dispute. 31
Section 3.3.2 then provides that [i]f the parties are unable to resolve any dispute pursuant to Section 3.3.1, the parties agree to exclusively settle such disputes by binding arbitration. 32
This language covers Microsofts allegations in the Amended Complaint: Microsofts first count seeks interest on late-paid royalties under the 2013 Annual Invoice for Fiscal Year 2. 33 The second count seeks six separate declarations amounting to a judgment that Samsung must pay Microsoft all royalty payments required by the License Agreement, 34
which under BCA Section 3.2.2 Samsung would have to pay only after Microsoft issues Annual Invoices for Fiscal Years 3 through 7. 35 Both causes of action are therefore arbitrable disputes with respect to any Royalty and Credit Calculation Report . . . or any Annual Invoice. 36
Indeed, the Amended Complaint is awash in allegations about disputed royalty payments based on Annual Invoices: Samsung breached the License Agreement last fall by refusing to make its Fiscal Year 2 royalty payment on time and then refusing to pay interest. 37
Samsung also refused to make the undisputed FY2 royalty payment it owed to Microsoft on October 11, 2013, the date it was due. 38
31 Elias Decl., Ex. 2 (BCA) 3.3.1 (emphasis added). 32 Id. 3.3.2 (emphasis added). The modifications are spelled out in 3.3.3 and 3.3.4 and go to the ICC rules concerning the selection of arbitrators. 33 Am. Compl. 54. 34 Id. 62(e). 35 See Elias Decl., Ex. 2 (BCA) 3.2.2 (within thirty (30) days after receipt of an Annual Invoice, Samsung will pay the Net Amount to MLGP [Microsoft Licensing GP] . . . by wire transfer to the account specified by Microsoft in the Annual Invoice). 36 Id. 3.3.1; see also Am. Compl. 54, 62(e). 37 Am. Compl. 2. 38 Id. 12. 10
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On November 29, 2013, Samsung finally paid Microsoft the previously agreed-to net royalty amount (minus certain funds for taxes), while preserving all of its legal positions. However, despite Microsofts repeated requests for contractually-mandated interest on the undisputed FY2 net royalty amount owed to Microsoft, Samsung has refused to make the interest payment it owes. 39
In fact, allegedly due to the Nokia acquisition, Samsung did not pay the undisputed FY2 royalty amount due on October 11, 2013 as required. 40
Two days before Samsung made its payment of the FY2 net royalty amount (without interest), it sent Microsoft a letter, dated November 27, 2013, in which it set forth its positions . . . on the legal issues raised in this Complaint which are sharply contested by Microsoft. 41
The Amended Complaint contains at least a half dozen other paragraphs with similar references to royalty payments under the Annual Invoice. 42
Even if Section 3.3.1 of the BCA were read as what some cases refer to as a narrow arbitration clause, it would still cover Microsofts claims. See JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163, 172 (2d Cir. 2004) (Recognizing there is some range in the breadth of arbitration clauses, a court should classify the particular clause as either broad or narrow.). When interpreting narrow arbitration clauses, the proper inquiry is whether the court can say with positive assurance that the clause is not susceptible of an interpretation that the claims fit within its scope. Severstal US Holdings, LLC v. RG Steel, LLC, 865 F. Supp. 2d 430, 438 (S.D.N.Y. 2012) (holding that even narrow arbitration clauses must be construed in favor of arbitration and arbitration should be compelled unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute (quoting McAllister Bros. v. A & S Transp. Co., 621 F.2d 519, 522 (2d Cir. 1980), and United 39 Id. 13. 40 Id. 47. 41 Id. 49. 42 See, e.g., id. 14, 15, 16, 36, 46, 54. 11
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Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960))). Here, it cannot be said with positive assurance that the BCAs arbitration provision is not susceptible of an interpretation that covers Microsofts breach-of-contract and declaratory-judgment claims. Judge Koeltls recent decision in Seed Holdings, Inc. v. Jiffy International AS, 2014 U.S. Dist. LEXIS 38565 (S.D.N.Y. Mar. 24, 2014), illustrates how even a narrow clause can favor arbitration. There, the court found that an arbitration clause covering [t]he determination . . . of the Actual Working Capital was narrow in scope. Id. at *44. But because the arbitration clause did not limit types of objections to the calculation, the court found that [r]easonably interpreted, [the arbitration clause] therefore reflects the parties intent to arbitrate all disputes relating to the parties differences over the determination of actual closing working capital. Id. at *46. So too hereeven if BCA Section 3.3.1 does not cover all disputes without limitation, it nevertheless reflects the parties intent to arbitrate all disputes relating to the parties differences over Annual Invoices and Royalty and Credit Calculation Reports, which are precisely the claims at issue here. Even under a narrow reading of BCA Section 3.3.1, the issues raised in the Amended Complaint constitute an arbitrable dispute. And to the extent there is any ambiguity about the parties intent or the arbitration provisions scope, it must be resolved in favor of arbitration. See Moses H. Cone Meml Hosp., 460 U.S. at 2425 (holding that the FAA establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration). ii. Both counts in the Amended Complaint fall under the BCA, not the PLA. The BCAs arbitration provision governs this dispute because Microsofts claims arise from a Royalty and Credit Calculation Report and Annual Invoice that were issued under the 12 Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 16 of 20
BCA, not the PLA. While both contracts provide generally for royalty reports, 43 the parties nonetheless recognized the potential for needless duplication and expressly provided in the BCA that the Royalty and Credit Calculation Report . . . will be deemed to constitute, include, supersede and be in lieu of any Royalty Report otherwise due under Section 4.2.3 of the PLA. 44
Further, Samsungs Royalty Reports were issued in the form provided for in the BCA, to which Microsoft has not objecteda point Microsoft reiterates in the Amended Complaint. 45
Accordingly, if the Court were to consider the arbitrability of Microsofts claims, it should do so by interpreting the arbitration provision in the BCA. D. The agreements forum-selection provisions do not apply to Microsofts claims. The parties selection of a judicial forum in BCA Section 9.5 does not override their clear intent to arbitrate this dispute under BCA Section 3.3. In fact, Section 9.5 expressly carves out disputes the parties agreed to arbitrate under Section 3.3 from the forum-selection clause. 46
Moreover, even absent such a carve-out, the Second Circuit gives effect to an arbitration clause unless the forum selection clause specifically precludes arbitrationwhich Section 9.5 does not do. Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278, 284 (2d Cir. 2005) (quoting Personal Sec. & Safety Sys. v. Motorola Inc., 297 F.3d 388, 396 n.11 (5th Cir. 2002)), abrogated on other grounds by Goldman, Sachs & Co. v. Golden Empire Schools Fin. Auth., 2014 U.S. App. LEXIS 16155, at *9 n.3 (2d Cir. Aug. 21, 2014); see also Ecopetrol S.A. v. Offshore Exploration & Production LLC, 2014 U.S. Dist. LEXIS 126829, at *3233 (S.D.N.Y. Sept. 10, 43 See Elias Decl., Ex. 1 (PLA) 4.2.3; Elias Decl., Ex. 2 (BCA) 3.1.4. 44 Elias Decl., Ex. 2 (BCA) 3.1.4. 45 See Am. Compl. 46 (Microsoft did not, and does not, dispute Samsungs 2013 Royalty Report.). 46 See Elias Decl., Ex. 2 (BCA) 9.5; see also Am. Compl. 21. 13
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2014) (holding that because forum-selection clause did not unambiguously require parties to refer all disputes to court, the clause did not provide positive assurance that the parties intended to override the broad arbitration clause). Indeed, Section 9.5 says nothing about whether the parties disputes must be submitted to litigationit merely states that [w]ith respect to all civil actions they consent to jurisdiction and venue in the Southern District of New York. Of course, not all disagreements must be arbitrated under Section 3.3 of the BCAsome disputes could fall within the forum-selection clauses. For example, if a party breached its confidentiality obligations (under BCA Section 4 and PLA Section 7.2) or was discovered to have violated its representations and warranties, the allegedly aggrieved party would properly be able to seek relief in this Court. Neither of those disputes falls within the items listed in BCA Section 3.3.1. II. THIS CASE SHOULD BE STAYED PENDING ARBITRATION. As long as arbitration is pending, this case should be stayed. Section 3 of the FAA mandates that result. See 9 U.S.C. 3 (If any suit or proceeding be brought . . . upon any issue referable to arbitration . . . the court in which such suit is pending . . . shall on application of one of the parties stay the trial of the action until such arbitration has been had . . . .); see also Cendant Corp. v. Forbes, 72 F. Supp. 2d 341, 342 (S.D.N.Y. 1999) (Rakoff, J.) (granting a stay under Section 3 of the FAA and noting the granting of a stay under this section is mandatory if an issue in the case is referable to arbitration). Accordingly, Samsung requests that the Court stay this action pending the completion of arbitration proceedings under ICC Rules. 14 Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 18 of 20
CONCLUSION For these reasons, Samsung requests that the Court enforce the parties contract and direct this case to arbitration under ICC Rules. Samsung further requests that the Court stay this action pending the completion of that arbitration. 15 Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 19 of 20
Dated: New York, New York October 10, 2014
Respectfully submitted,
OMELVENY & MYERS LLP
By: /s/ George A. Riley
George A. Riley (pro hac vice) (griley@omm.com) Two Embarcadero Center, 28th Floor San Francisco, CA 94111 Telephone: (415) 984-8700 Facsimile: (415) 984-8701
Andrew Frackman (afrackman@omm.com) Gary Svirsky (gsvirsky@omm.com) Brad M. Elias (belias@omm.com) Jeffrey A. N. Kopczynski (jkopczynski@omm.com) 7 Times Square New York, New York 10036 Telephone: (212) 326-2000 Facsimile: (212) 326-2061
Ryan K. Yagura (pro hac vice) (ryagura@omm.com) 400 South Hope Street, 18th Floor Los Angeles, California 90071 Telephone: (213) 430-6000 Facsimile: (213) 430-6407
Ian Simmons (pro hac vice) (isimmons@omm.com) 1625 Eye Street, NW Washington, DC 20006 Telephone: (202) 383-5300 Facsimile: (202) 383-5414
John Kappos (pro hac vice) (jkappos@omm.com) 610 Newport Center Drive, 17th Floor Newport Beach, California 92660 Telephone: (949) 823-6900 Facsimile: (949) 823-6994
Attorneys for Defendant Samsung Electronics Co., Ltd.
16 Case 1:14-cv-06039-JSR Document 42 Filed 10/10/14 Page 20 of 20
REPLY IN SUPPORT OF MOTION TO DISMISS BY DEFENDANTS JACOB LEW, U.S. DEPARTMENT OF THE TREASURY, JENNIFER SHASKY CALVERY, AND THE FINANCIAL CRIMES ENFORCEMENT NETWORK - February 18, 2016