Dow takes its gene patents row with Bayer to the Supreme Court to avoid the $455 million arbitral award

When a company agrees to arbitrate an international patent licensing agreement, the avenues for the appeal of the resulting arbitral award are very limited. Even the invalidity or expiration of the underlying patents may be insufficient to overturn the decision of the panel. Dow Agrosciences LLC (“Dow”) experienced that first hand in its fight against Bayer CropScience AG’s (“Bayer”) patent infringement claim after the Federal Circuit affirmed judgment of a district court to recognize the $455 million arbitral award issued by the International Court of Arbitration.

The case stems from a patent licensing agreement that allowed Dow to use pat genes, which confer to plants resistance to herbicides. Bayer terminated the agreement alleging Dow’s breach by sublicensing the genes to a third party.

Bayer sued Dow for infringement in a federal district court, but the action was stayed in favor of International Court of Arbitration proceedings under French law. The arbitral tribunal found that Dow breached the agreement and issued an award in the amount of $455 million.

While the arbitration was pending, Dow filed requests with the USPTO for reexamination, which ultimately resulted in the invalidation of certain related patents.

The district court recognized the award, and Dow challenged the decision in the Federal Circuit arguing, among other grounds, that the award, which was based on the ultimately invalid patents, was against U.S. public policy. The Federal Circuit disagreed holding that the tribunal’s that there was no determination was not invalid, and affirmed the lower court decision.

On September 11, 2017, Dow filed a petition for certiorari asking the Supreme Court to review the case. The sole question for the Supreme Court is whether a court, when facing public policy challenges, is required to review the arbitral award de novo on the merits instead of relying on the tribunal’s determination. Dow argued that, should the court review the award independently, it would find that the agreement was invalid based on the Supreme Court decision in Brulotte v. Thys Co., 379 U.S. 29 (1964), which held unenforceable a licensing agreement that required the licensee to pay royalties after the expiration of the patent.

The Dow v. Bayer case emphasizes that the judicial review of international arbitral awards is very limited. The grounds for the review are set forth in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award (the “New York Convention”). Only in rare cases courts are allowed to look into the merits of the case. On the other hand, the enforceability of foreign court judgments is not as clear. Although most U.S. states have adopted laws for the enforcement of foreign judgments, the process is not as streamlined and uniform as the enforcement of arbitral awards under the New York Convention.

The enforceability of arbitral awards in 156 countries-signatories of the New York Convention is a key reason why arbitration may be the most appropriate vehicle to resolve disputes in international intellectual property licensing matters.