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Qualcomm Incorporated, et al. v. Nokia Corporation, et al.

Posted in Opinion Commentary by Jake Ward on November 4, 2006

The ”Wholly Groundless” Inquiry for Arbitrability Was Not Performed by the District Court.  

(Fed. Cir. 2006, 06-1317)

Nokia appealed a district court (S.D. Cal.) order denying Nokia’s motion to stay litigation with Qualcomm pending arbitration.  Qualcomm and Nokia had originally entered into an agreement (importantly containing an arbitration clause) whereby Qualcomm granted Nokia a non-exclusive license to some of Qualcomm’s patents with respect to Code Division Multiple Access (CDMA) mobile telecommunications standard technology.  At a later date, Qualcomm sued Nokia for infringement of some of Qualcomms patents.  The district court conducted a full arbitrability analysis and found that the products listed in the Complaint were non-CDMA products and therefore the infringement issues were not related to the agreement.  On this basis, the court denied Nokias motion to stay pending arbitration.

The issue of the case is essentially whether the inquiry the district court made in determining whether to stay legal proceedings pending arbitration was correct?  Specifically, what inquiry must the court make to be “satisfied” that the issue involved in the suit is referable to arbitration under an agreement?  

Section 3 of the Federal Arbitraiton Act (FAA) provides:  

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referrable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.  (Emphasis added).

The CAFC concluded that, in order to be satisfied of the arbitrability of an issue, the court should first inquire as to who has the primary power to decide arbitrability under an agreement.  If the court concludes the parties did not intend to delegate such decision to an arbitrator, the court should undertake a full arbitrability inquiry in order to be satisfied that the issue involved is referable to arbitration.  If, however, the court concludes that the parties intended to delegate such power to an aribrator, then the court should perform a second (and more limited) inquiry to determine whether the assertion of arbitrability is “wholly groundless,” and if not found should stay the trial pending a ruling on arbitrability by an arbitrator.

Under these standards, the CAFC found that the agreement showed the clear and unmistakable intent of the parties to delegate arbitrability decisions to an arbitrator, and that the second and requisite “wholly groundless” inquiry was not performed by the district court.  Therefore, the CAFC vacated and remanded to the district court to make the appropriate inquiry.

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