US District Court for the Northern District of California grants Apple’s motion to compel arbitration

On 2 March 2016, the US District Court for the Northern District of California granted Apple Inc. (“Apple”)’s petition to compel arbitration against BYD Company Limited (“Limited”), finding that it had jurisdiction over Limited and that it was a party to an arbitration agreement entered into between Apple and Limited’s subsidiary, BYD Precisions Manufacturing Company, Ltd. (“Precision”) (Apple Inc., v BYD Company Limited, et al., Case no. 15-cv-04985-RS (N.D. Cal. 2016)).

Factual Background

In 2011, Apple engaged Limited to develop, supply, and support certain components of its consumer electronic products in China. The terms of the relationship were memorialized in a Master Development and Supply Agreement (“MDSA”), and following three years, Apple instigated discussions to update the parties’ arrangement. The 2014 MDSA emerged from these negotiations, but was entered into between Apple and Precision. Section 13.2(e) of the 2014 MDSA prohibited Precision, its “Related Entities”, and their successors and assigns from asserting intellectual property claims against Apple, its suppliers, and its distributors. The 2014 MDSA also included a “Dispute Resolution, Jurisdiction, and Venue” provision providing “[a]ll disputes arising out of or related to the [2014] MDSA shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce [‘ICC’]”.

Limited later brought patent infringement claims against various Apple entities in China. Thereafter, Apple filed a petition before the US District Court for the Northern District of California, seeking to compel arbitration of its dispute with Limited, who responded that it is not amenable to personal jurisdiction in this forum. Limited also denied it was bound by the 2014 MDSA because it never signed that agreement nor manifested an intent to be bound by its terms.

The District Court’s Order

The US District Court agreed with Apple that “under general contract principles, a forum selection clause may give rise to waiver of objections to personal jurisdiction, provided that the defendant agrees to be so bound”. The question then was whether Limited, a non-signatory, was bound by the arbitration clause, according to the general principles applied to the formation and construction of contracts.

The US District Court found that Apple adequately has shown Precision acted as Limited’s agent, and therefore consented to the 2014 MDSA on Limited’s behalf. The US District Court noted that the terms of the two MDSA’s were an important measure of the parties’ intent. Taken together, they strongly suggested Limited authorized Precision to enter the 2014 MDSA. The 2014 contract clearly was an update of the earlier agreement and although Precision substituted for Limited as a named “Party”, Limited still appeared in the title and in attachments seven and eight. The 2011 MDSA could be amended, however, only by Limited’s authorized signatory, suggesting Limited assented to Precision acting on its behalf with respect to the agreement.

The US District Court found that the e-mails and declarations also suggested Limited was aware of the contours of the agreement, and permitted its subsidiaries to make representations to Apple on its behalf. Further, Limited did not dispute it was a “Related Entity” according to the text of the agreement. The 2014 MDSA suggested Limited agreed to let Precision speak on its behalf.

The record, therefore, reflected that Limited elected to act through Precision, who accepted that invitation. Accordingly, the US District Court found that Apple has met its burden to make prima facie showing that specific jurisdiction over Limited existed.

In determining whether to enforce the arbitration agreement which fell under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), the US District Court considered whether “(1) there is an agreement in writing within the meaning of the Convention; (2) the agreement provides for arbitration in the territory of a signatory of the Convention; (3) the agreement arises out of a legal relationship … which is considered commercial; and (4) a party to the agreement is not an American citizen”. If these questions were answered in the affirmative, the US District Court would be required to order arbitration unless it found that the agreement to be null and void, inoperative, or incapable of being performed.

Having concluded Limited was bound to the 2014 MDSA under ordinary agency principles, all four prerequisites were met. First, the 2014 MDSA was an “agreement in writing within the meaning of the Convention”. Second, the agreement called for arbitration to take place in San Francisco, California, and the United States is a signatory to the Convention. Third, the 2014 MDSA involved a commercial relationship because it provided for the development, supply, and support of commercial goods. Finally, both Limited and Precision are Chinese companies. Accordingly, a party to the 2014 MDSA was not an American citizen.

Given a valid arbitration agreement existed, the US District Court considered whether the clause encompassed the dispute at issue. It found that it did. Apple claimed Limited breached the “non-assert” provision of the 2014 MDSA, which applied to Limited as a “Related Entity” of a signatory of the agreement. This controversy fell within the arbitration clause because that provision was broadly defined to capture all disputes “[a]rising out of or related to” the 2014 MDSA.

Because a valid arbitration agreement encompassed the parties’ dispute, the US District Court granted Apple’s motion to compel arbitration.

Amore detailed summary and an excerpt of this decision, indexed and searchable according to the list of topics published in http://www.newyorkconvention.org/court+decisions/description will be published in the 2016 volume of the Yearbook Commercial Arbitration, published by the International Council of Commercial Arbitration (ICCA).

Source: Original Order of the US District Court available at www.pacermonitor.com