Paris Court of Appeal, No. 10/19655

Paris Court of Appeal, First Pole – First Chamber, 1st December 2011, No. 10/19655

S.A. VICTOCOR TECHNOLOGIES
vs.
BENTELER AUTOMOBILTECHNIK GMBH

On 22 October 2004, VICTOCOR and BENTELER signed a “Confidentiality Agreement” (hereinafter the “Agreement”) by which the parties undertook not to disclose the information exchanged and to mutually recognise the intellectual property rights of each other. Following the filing by BENTELER of a patent application in Germany, France and the United States (patent family D1), VICTOCOR implemented the arbitration clause and obtained an agreement on 8 July 2008 ordering BENTELER to pay 900,000 euros in damages.

In 2005, BENTELER filed two new series of patent applications (patent families D2 and D4) in Germany, the United States and France. Believing that these patents had been filed in violation of the agreement, VICTOCOR once again filed a request of arbitration under the supervision of the International Chamber of Commerce.

By an award issued in Paris on 3 September 2010, the tribunal composed of Ms. B, Mr. R, arbitrators, and Mr. Hausmann, President: on the main claim, found that BENTELER committed violations of article 2 of the agreement, but that in the absence of evidence of damage, VICTOCOR was unfounded in its claims for financial compensation; rejected BENTELER’s counterclaim; rejected VICTOCOR’s allegations of recklessness in the counterclaim; and awarded the major part of the arbitration costs against BENTELER.

VICTOCOR filed an appeal for the annulment of this award on 6 October 2010.

In its submissions of 24 October 2011, VICTOCOR requests the Court to partially set aside the award in so far as it rejects its main claim, to uphold the award in so far as it rejects BENTELER’s counterclaim, to dismiss BENTELER’s claims and to order it to pay it the sum of 30,000 euros pursuant to Article 700 of the Code of Civil Procedure. VICTOCOR maintains that the arbitrators exceeded the limits of their mission (Article 1502-3, now 1520-3 of the Code of Civil Procedure), disregarded due process (in French Principe de la contradiction (Article 1502-4, now 1520-4 of the Code of Civil Procedure) and violated international public policy (Article 1502-5, now 1520-5 of the Code of Civil Procedure).

In its submissions of 27 October 2011, BENTELER requests the Court to declare inadmissible the claim of ultra petita concerning the withdrawal of the D 4 patent family in the United States, to declare VICTOCOR’s claims for annulment of the award unfounded and to dismiss it, to declare the action abusive and to order VICTOCOR to pay it the sum of 50,000 euros in damages, in addition to90,000 euros under Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the grounds that by not adopting the convergent interpretation of the Agreement given by the parties, and which was adopted by the award of 8 July 2008, the arbitrators exceeded the terms of their mission and disregarded the res judicata effect attached to the first award and, consequently, violated international public policy (Articles 1502-3 and 1502-5 (now 1520-3 and 1520-5) of the Code of Civil Procedure).

VICTOCOR explains that the arbitral tribunal considered that the penalty provided for in Article 3.6 of the Agreement applied exclusively to breaches of the confidentiality obligation stipulated in Article 3 and not to the commitments to respect intellectual property provided for in Article 2, whereas both the statements of the parties and the award of 8 July 2008 were interpreted to the contrary.

Whereas on 22 October 2004, the companies VICTOCOR and BENTELER signed a confidentiality agreement with retroactive effect;

Whereas article 2 of the Agreement is devoted to intellectual property rights; whereas points 2.1 and 2.4 define the rights held by each of the parties to their patents, trademarks, models and know-how; whereas points 2.2 and 2.3 set out the fate of VICTOCOR’s technology developments;

Whereas article 3, entitled “Confidentiality” defines the nature of confidential information, determines the obligations of non-disclosure agreed by the parties and provides, in point 3.6, for a penalty of 150,000 euros in the event of breach of a confidentiality obligation, without prejudice to additional damages in the event of significant negligence or fraud;

Whereas the arbitral tribunal held that the penalty clause in article 3.6 only sanctions breaches of confidentiality obligations under article 3 and not violations of intellectual property rights as defined in article 2;

Whereas, first, that the allegation by VICTOCOR of a common interpretation of the parties on the applicability of article 3.6 to the commitments under article 2 is based on the fact that BENTELER filed a counterclaim for the condemnation of VICTOCOR pursuant to article 3.6 to the payment of penalties for violations of its intellectual property rights;

However it results from the submissions made before the arbitral tribunal, as well as from the minutes of the proceedings, that BENTELER’s main allegation was that Article 3.6 only applied to confidentiality obligations and not to intellectual property rights and that it was only in the event that VICTOTOR’s interpretation would prevail that it agreed to rely on the same basis to support its counterclaim;

That it thus appears that, contrary to the claimant’s allegation, there was no convergent interpretation of the parties that would bind the tribunal; that the first part of the ground, based on the non-compliance of the arbitrators with their mission, can only be dismissed;

Considering, secondly, that the award delivered between the same parties on 8 July 2008 ordered BENTELER to pay VICTOCOR a compensation of 900,000 euros for violations of the agreement resulting from filing D1 family patent applications; that, regardless of the grounds on which this award is based, it has not been shown that its enforcement in France would be incompatible with the award differed, delivered on the occasion of filing the D2 and D4 family patents; that, consequently, the difference in interpretation of the agreement by the two awards, if established, does not carry any effective and concrete violation of international public policy;

Whereas the ground must be set aside in its two parts;

On the ground taken from the fact that the arbitral tribunal exceeded the terms of its mission and violated due process (in French Principe de la contradiction) by raising ex officio the ground based on the absence of demonstration of a prejudice (article 1502-3 and 1502-4, now 1520-3 and 1520-4, Civil Procedure Code):

VICTOCOR argues that its claim was exclusively aimed at condemning BENTELER to pay the penalties provided for in article 3.6 of the Agreement and that the arbitral tribunal, by ruling on a claim for damages that was not formulated and by rejecting it on the grounds that no damage resulting from the infringement of intellectual property rights was established, even though this ground raised ex officio had not been submitted for debate, ruled ultra petita and in violation of due process (in French Principe de la contradiction).

Whereas VICTOCOR, in its request for arbitration, in its subsequent submissions and during the hearing, requested the arbitral tribunal to recognise that BENTELER violated the Agreement by filing, publishing and withdrawing its patent applications and by disclosing confidential information to third parties; that it initially claimed damages valued at 2,700,001 euros, which were increased during the course of the proceedings to 5,250,001 euros, corresponding to 35 alleged violations of the Agreement, with a value of 150,000 euros each one, in addition to a provision of one euro in respect of provisional damages for significant misconduct or fraud;

One the one hand, the arbitrators found that the information disclosed was not confidential. On the other hand, the arbitral tribunal considered that the penalty clause was not applicable to infringements of intellectual property rights. Thus, the arbitrators noted that there was no alternative basis for the condemnation requested, without exceeding their mission, nor disregarding due process (in French Principe de la contradiction).

That the ground cannot be accepted in any of its parts;

On the ground taken from the fact that in ruling on the validity of patent families D2 and D4, the arbitral tribunal did not respect the terms of its mission, violated due process (in French Principe de la contradiction) and disregarded public policy (article 1502-3, 1502-4 and 1502-5, now 1520-3, 1520-4 and 1520-5, of the Civil Procedure Code):

VICTOCOR alleges that in ruling on the validity of patent families D2 and D4, when the parties did not present a request to this effect, nor developed any arguments on this point, the arbitrators ruled ultra petita and in disregard of due process (in French Principe de la contradiction). VICTOCOR also argues that the arbitrators further violated public policy, the question of validity of patents being within the exclusive jurisdiction of the national offices that grant them, or of the domestic courts.

On the one hand, in deciding that the patent applications of the D2 and D4 families did not involve the disclosure of confidential information, the arbitrators held that the know-how incorporated in these applications was already part of the state of the art as it resulted from a previously published Russian patent, so that this information could not be qualified as confidential information within the meaning of Article 3 of the Agreement. Furthermore, if BENTELER committed 17 violations of Article 2, no compensation could be awarded on these grounds since the penalty clause was not applicable to intellectual property infringements. VICTOCOR did not establish any damage and finally, the German Patent Office was not aware of the Russian prior art “which has a substantial impact on the value of the patents” of the D 2 and D 4 families (Award § 92);

Whereas in so deciding, after the parties been given the opportunity to discuss the content of the Russian patent, the arbitral tribunal, which did not rule primarily on the validity of the BENTELER patents, did not disregard either the scope of its mission, or due process (in French Principe de la contradiction), or international public policy;

That the ground can only be dismissed in its three parts;

On the ground that the arbitrators ruled ultra petita, and therefore exceeded their mission, in deciding that BENTELER committed an infringement of the Agreement by withdrawing the D4 family’s U.S. patent application even though no claim had been made on this ground (article 1502-3, now 1520-3, of the Civil Procedure Code):

VICTOCOR argues that the arbitrators found that BENTELER committed a fault in withdrawing the D4 family’s US patent application, even though no request for a finding of such a breach of contract had been made, for the good reason that no withdrawal had taken place.

Whereas the award holds (§ 82) that “the withdrawal of the U.S. patent application of the D4 family constitutes an additional breach of the Agreement”; that it decides that this contractual breach, like the others, is not compensable;

Whereas it results from the documents of the arbitration proceedings that VICTOCOR did not make any such claim;

Whereas, contrary to what BENTELER states, the fact that the award pronounced on a claim that was not before the arbitrators, is not a material error that VICTOCOR would be inadmissible to rely on before the annulment judge because it did not exercise the rectification action within the time limit set by the arbitration rules;

Whereas it is appropriate to set aside the award in so far as it ruled on this point ultra petita;

Whereas it follows from the foregoing that the award should be set aside only in so far as it held that the withdrawal of the U.S. patent application from the D4 patent family constituted a breach of contract by BENTELER; whereas the action is dismissed as to the remainder;

Whereas it has not been demonstrated that the exercise of the action has degenerated into an abuse; that the compensation claim presented by BENTELER on this count will be rejected;

Whereas there is no need for VICTOCOR to benefit from the provisions of article 700 of the Civil Procedure Code; that it will be allocated on this basis the sum of 30,000 euros to BENTELER;

FOR THESE REASONS:

Sets aside the award delivered on the 3 September 2010 between the parties in so far as it held that the withdrawal of the application filed in the United States from the D4 patent family constitutes a breach of contract by BENTELER.

Dismisses the appeal for the remainder.

Dismisses BENTELER’s claim for damages for abusive appeal.

Dismisses VICTOCOR’s claim based on article 700 of the Civil Procedure Code.

Orders VICTOCOR to pay BENTELER the sum of 30,000 euros pursuant to article 700 of the Civil Procedure Code.

Orders VICTOCOR to pay the costs and admits the SCP Duboscq and Pellerin, avowed, for the benefit of article 699 of the Civil Procedure Code.