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ARCH DEVELOPMENT CORPORATION v. BIOMET

July 28, 2003

ARCH DEVELOPMENT CORPORATION, PETITIONER,
v.
BIOMET, INC., RESPONDENT.



The opinion of the court was delivered by: James B. Zagel, District Judge.

MEMORANDUM OPINION AND ORDER

Petitioner ARCH Development Corporation seeks confirmation of arbitral awards arising out of a dispute with Biomet, Inc. Biomet in turn, seeks to vacate the awards, primarily alleging that the Arbitrator exceeded his authority and engaged in misconduct. For the reasons set forth below, I grant ARCH's motion to confirm and deny Biomet's motion to vacate.

Factual Background

ARCH is an affiliate of the University of Chicago established to facilitate the commercialization of technology developed by University of Chicago faculty members. Among other things, ARCH's responsibilities include entering into intellectual-property licenses with private industry and prosecuting patents on the inventor's behalf. Biomet is a publicly traded corporation that manufactures and markets products used primarily by musculoskeletal medical specialists in both surgical and non-surgical therapy, including orthopedic devices such as prosthetic knees and hips.

In 1988, Biomet approached Dr. Henry Finn, a University of Chicago faculty member, expressing interest in licensing technology relating to an artificial knee now popularly known as the "Finn Knee." That matter was referred to ARCH. On March 31, 1989, ARCH and Biomet entered into a license agreement (the "License Agreement."). Section 10.8 of the License Agreement required the parties to arbitrate any disputes "in accordance with the rules of the American Arbitration Association [the `AAA']."

Biomet commenced manufacturing and selling the Finn Knee. Though royalties in the early period were low, by 1999 they amounted to some $400,000 per year. Biomet continued paying royalties to ARCH covering sales through September 1999. However, in January 2000, Biomet told ARCH that its obligation to pay royalties had ended as of March 31, 1999 and that no further payments would be forthcoming. In addition, Biomet stated that its last two royalty payments (covering the period April 1, 1999 through September 30, 1999) had been made in error and that it reserved the right to seek a refund.

ARCH disputed Biomet's interpretation of the License Agreement's termination provisions. The parties attempted to settle the matter but were unsuccessful. ARCH therefore initiated an arbitration proceeding in August 2000 by filing a Statement of Claim with the AAA as the License Agreement provides. ARCH's Statement of Claim alleged that Biomet had breached the Agreement by refusing to pay royalties due ARCH under the Agreement. ARCH also sought an accounting, the payment of all past due royalties, and an injunction restraining Biomet from further making, using or selling licensed products without paying royalties to ARCH as provided for in the Agreement. On September 28, 2000, Biomet filed its Answer, Affirmative Defenses and Counterclaims to the Arbitration Demand. Biomet did not object to the arbitrator's jurisdiction or to the scope of the arbitration. Indeed, Biomet filed a counterclaim, seeking a refund of the last two royalty payments, or, in the alternative, of all royalty payments, and also a declaration that it was not infringing ARCH's patent — even though ARCH had never asserted Biomet was infringing. The parties agreed that D. Peter Hochberg, a patent lawyer who is a member of the AAA's Commercial Panel, would serve as the arbitrator. In addition, it was decided amongst the parties, the AAA and the Arbitrator that the Arbitrator was to render a "reasoned award." The parties then proceeded to take extensive discovery.

On October 29, 2001, the parties filed cross-motions for summary judgment. In addition, each party submitted several letters to the Arbitrator in response to his questions. On September 12, 2002, the Arbitrator issued an award (the "September Award"). The September Award initially discussed the main questions to be decided and then went on to cite the relevant portions of the License Agreement, including the terms defining the license grant and the relevant definitions. It then stated that the Arbitrator has "read all of the pleadings and considered all of the evidence" and made eight detailed findings and conclusions:

1. The entire License Agreement must continue until the expiration of the `701 patent, namely, on December 5, 2011.
2. The "Finn Knee" is a Licensed Product under the License Agreement, even though it does not have a third plane of motion.
3. The License Agreement did not terminate on March 31, 1999.
4. The License Agreement did not terminate because the License Agreement was not restricted to a three-plane knee, which Biomet was not selling.
5. Biomet is not entitled to restitution of the $200,000 in royalties it paid after March 31, 1999.
6. Biomet is not entitled to restitution of the $1.2 million in royalties it paid during the period 1989-1999.
7. Biomet must pay to ARCH an amount equal to the royalties that have accrued on sales of Licensed Products from July 1, 1999 through the date of judgment.
8. Biomet must continue paying royalties to ARCH until December 5, 2011 so long as it makes Licensed Product under the License Agreement, including the "Finn Knee."
Finally, the September Award stated that it represented a "full settlement of all claims and counterclaims submitted to this Arbitration. All claims and counterclaims not expressly granted herein are, hereby denied."

On October 2, 2002, Biomet requested clarification and/or modification of the September Award for several reasons, one of which was to correct the date from which royalties would begin accruing. On October 21, 2002, the Arbitrator modified the September Award, changing the royalty accrual date but denying Biomet's other requested changes. Biomet continued to pursue one issue, namely whether it was obligated to pay interest on the September Award because the Award did not expressly mention interest. Pursuant to the Arbitrator's direction, the parties submitted letter briefs to him on that issue. As noted, the September Award stated that the "entire License Agreement" would remain in effect until 2011. Section 3.7 of the License Agreement provides that Biomet must pay pre-judgment interest at 1% per month on overdue royalties. Consistent with that, on March 10, 2003, the Arbitrator issued an award (the "March Award"), clarifying that "Biomet must pay pre-judgment interest at the rate of one percent (1%) per month on the thirty-first day after the due date of each overdue payment as set forth in § 3.7 of the License Agreement."

Between the issuance of the September and the March Awards, Biomet filed, on December 12, 2002, a petition with this Court to vacate the September Award. However, Biomet did not serve ARCH with notice of the motion until ARCH filed a petition to confirm the September and March Awards on March 27, 2003. ARCH's petition was initially assigned to Judge St. Eve. However, when Biomet subsequently moved under Local Rule 40.4 for reassignment of the later-filed case to my calendar, ARCH stipulated that the two cases are related and should be resolved together here.

Biomet's Petition to Vacate

Section 12 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 12, provides that "[n]otice of a motion to vacate . . . an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered." "A party to an arbitration award who fails to comply with the statutory precondition of timely service of notice forfeits the right to judicial review of the award." Piccolo v. Dain, Kalman & Quail, Inc., 641 F.2d 598, 600 (8th Cir. 1981); accord Franco v. Prudential Bache Securities, Inc., 719 F. Supp. 63, 64 (D.P.R. 1989). Accordingly, if a party fails to serve notice of its court filing on the adverse party within three months after the award was issued, the motion must be dismissed as untimely. Piccolo, 641 F.2d at 600; Franco, 719 F. Supp. at 64; Ultracashmere House, Ltd. v. Nordstrom, Inc., 123 F.R.D. 435, 436 (S.D.N.Y. 1988). That rule applies even if the motion to vacate was filed with the court within the three-month period. Franco, 719 F. Supp. at 65.

Here, Biomet's petition to vacate was first served on ARCH more than six months after the September Award was filed and more than four months after it was modified in October. The fact the parties sought to modify and then clarify the September Award is of no significance because the limitations period prescribed by § 12 is not tolled by the filing of an application to modify or clarify an arbitration award. Fradella v. Petricca, 183 F.3d 17, 20 (1st Cir. 1999). Accordingly, by the plain terms of ยง 12, Biomet's petition to vacate must be ...


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