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WILLEMIJN HOUDSTERMAATSCHAPPIJ, BV v. STANDARD MIC

May 14, 1996

WILLEMIJN HOUDSTERMAATSCHAPPIJ, BV, Petitioner, against STANDARD MICROSYSTEMS CORPORATION, Respondent.


The opinion of the court was delivered by: OWEN

 OWEN, District Judge:

 Willemijn Houdstermaatschappij, BV ("Willemijn") petitions this court to confirm an arbitration award which denied Standard Microsystems Corporation ("SMC") benefits under a most-favored-licensee clause contained in the parties' October 1, 1992 License Agreement. SMC's petition urges the court to vacate the award as manifestly unjust.

 Willemijn is a holding company incorporated in the Netherlands whose primary business is the licensing of U.S. Patent Re. 31,852 ("the '852 patent"). The '852 patent, which was issued in 1985 as a reissue of an earlier 1981 patent, describes a data communication system for transmitting information between a central master computer and several subordinated terminal units. SMC is a Delaware corporation which manufactures, among other products, interfaces permitting the connection of computers and peripheral equipment to token ring data communications systems; SMC's token ring systems conform with the 802.5 and FDDI standard promulgated by the Institute of Electrical and Electronic Engineers.

 In a license agreement effective as of October 1, 1992, Willemijn granted SMC a non-exclusive license to manufacture and distribute data communication systems within the scope of the '852 patent as well as certain other auxiliary products. Article 5.9 of the Agreement provided that

 
if Willemijn, after execution of this agreement by both parties, grants a license under the Licensed Patent containing provisions that require payments at rates of royalty less than provided for in [the royalty provisions of the agreement], Willemijn shall promptly notify [SMC] of those royalty provisions. [SMC] shall then be entitled, upon written request . . . , to substitute for [its royalty] provisions . . . the corresponding provisions of such other license but only if [SMC] also agrees to accept any other terms and conditions of such other license identified by Willemijn to [SMC].

 The parties agreed to submit any claims arising under the agreement to arbitration.

 Almost five years earlier, in 1988, Willemijn and another of its licensees, Proteon, Inc., had submitted to arbitration the question whether the '852 patent covered 802.5 and FDDI token ring systems manufactured by Proteon. The Proteon-Willemijn arbitration panel concluded on April 13, 1994 that the '852 patent did not cover Proteon's token ring data communication systems. See Arbitration Award No. 13 133 00789 92 (Apr. 13, 1994). The decision followed the U.S. Patent and Trademark Office's issuance of a reexamination certificate on October 20, 1992 confirming, after two years of reexamination proceedings, that the '852 patent did not cover token ring data communication systems. Proteon subsequently petitioned for a confirmation of the award in the Southern District of New York. However, before the court acted and in order to avoid further litigation, Willemijn and Proteon entered into an agreement effective May 3, 1994, pursuant to which Willemijn granted Proteon immunity from suit under the '852 patent. Accordingly, the court never acted on the petition. Willemijn at no time advised SMC of its dispute with Proteon, the arbitration demand, or the arbitration award.

 On November 17, 1994, SMC demanded arbitration before the American Arbitration Association in accordance with the license agreement. SMC alleged that Willemijn had breached the agreement by granting Proteon a royalty-free license to manufacture products covered by the '852 patent without notifying SMC and offering it equally favorable terms. SMC also claimed that Willemijn had fraudulently induced it to enter into the agreement by failing to disclose the contemporaneous arbitration proceeding with Proteon.

 On September 28 and 29, 1995, the three-member arbitration panel issued the following decisions:

 
1. Did WILLEMIJN HOUDSTERMAATSCHAPPIJ, BV, hereinafter referred to as RESPONDENT, fraudulently induce STANDARD MICROSYSTEMS CORPORATION, hereinafter referred to as CLAIMANT, to enter into the License Agreement by failing to disclose the commencement of an arbitration proceeding between RESPONDENT and a third party, Proteon, Inc.?
 
Decision: No, by all the Arbitrators. Hence, there is no basis for a return of any monies paid by CLAIMANT to RESPONDENT pursuant to the License Agreement between them.
 
. . .
 
3. Was the Most Favored License (MFL) clause 5.9 in the License Agreement between the Parties brought into effect to the benefit of CLAIMANT by the granting of an immunity of suit under U.S. Patent Re. 31,852 in a Settlement Agreement, dated May 3, 1994, between RESPONDENT and one of its former Licensees, Proteon, Inc., and was the License Agreement breached when RESPONDENT ...

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