Federal Circuit Provides Direction On How The CCCP Is Applied To International Arbitration
The jurisdiction of arbitrators to determine their own jurisdiction, or what is often described as the competence-competence doctrine, remains one of the more complex areas of arbitration law in the United States. Recently, in the case of ROHM Semiconductor USA, LLC v. MaxPower Semiconductor, Inc. which arose out of California, the Federal Circuit[1] was confronted with the question of whether the competence-competence doctrine applies where the Parties have incorporated by reference the California Code of Civil Procedure, or "CCCP" into their agreement to arbitrate. As discussed further below, the answer to this question turned on whether an arbitration is classified as international or domestic.
Background of Parties’ Relationship and Dispute
ROHM Japan and MaxPower Semiconductor, Inc. (“MaxPower”) entered into a technology license agreement (the “TLA”). The TLA provided that ROHM Japan and its subsidiaries (collectively, “ROHM”) were permitted to use certain technologies of MaxPower in exchange for royalties. While not a signatory to the TLA, one of those subsidiaries was ROHM USA, LLC (“ROHM USA”). The amended TLA included an arbitration agreement, with the arbitration being conducted in accordance with the provisions of the CCCP.
After a dispute arose between ROHM Japan and MaxPower, MaxPower initiated arbitration. Shortly thereafter, ROHM USA filed a complaint in the U.S. District Court, Northern District of California. In light of the TLA’s arbitration agreement, MaxPower responded to the Complaint by filing a motion to compel arbitration, which the District Court granted. Relying on the provisions of the CCCP, which was incorporated by reference into the arbitration clause, the District Court reasoned that the TLA “unmistakably delegates the question of arbitrability to the arbitrator.” ROHM USA appealed the decision to the U.S. Court of Appeals for the Federal Circuit.
Analysis of the Court of Appeals’ Decision
On appeal, ROHM USA in essence argued two points: (1) a court and not the arbitral tribunal should decide whether the tribunal has jurisdiction to decide questions of arbitrability because the arbitration was domestic pursuant; and, (2) even if the arbitration was international, there was no “clear and unmistakable evidence” that the parties delegated the question of arbitrability to the arbitral tribunal to decide.
In furtherance of its first argument, ROHM USA argued that the CCCP is ambiguous as to whether its provisions related to international arbitration, or those governing domestic arbitrations, should apply to the dispute, nevertheless, ROHM maintained that the dispute was “purely” domestic. The Court considered ROHM USA’s argument regarding ambiguity, which was based on the premise that CCCP §§ 1297.161 and 1281.2 were in conflict. CCCP § 1297.161 provides that an arbitrator “may rule on its own jurisdiction” in international commercial arbitration and § 1281.2 provides that “the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists.” (Emphasis added.) Here, it was argued that whether court or arbitrator determined this question was left unclear by the CCCP.
Having reviewed the foregoing provisions within their relevant CCCP sections (including Title 9.3 of the CCCP, applicable to international arbitrations), the Court noted that § 1297.161 “supersedes Sections 1280 to 1284.2, inclusive, with respect to international commercial arbitration and conciliation.” (Emphasis added.) The Court further explained that whether the portions of the CCCP dealing with international arbitration, namely § 1297.161, supersede the general provision dealing with motions to compel arbitration, “turns on whether the dispute at issue is an international one” pursuant to § 1297.13,[2] which defines an arbitration as international. Thus the court construed the specific provision in § 1297.161, which pertains to international arbitration, as superseding the more general arbitration provisions in § 1281.2 as it pertains to the question of who, arbitrator or court, should decide issues of arbitrability.
Having rejected ROHM's arguments based on the language of the CCCP, the Court turned to the international nature of the dispute, which is a factual question:“[n]o matter how ROHM USA tries to pigeonhole this action into its ‘domestic action’ moniker … this case is merely one aspect of a sprawling international dispute.” In this regard, the Court observed amongst other things that the license was global in scope and involved internationally operating subsidiaries, and thus under the “broad terms of § 1297.13” compelled a finding that the dispute fell within the provisions of the CCCP governing international arbitration.
ROHM USA advanced one further argument based again on the language of the CCCP. ROHM submitted that even if the dispute was international, the CCCP did not clearly delegate the jurisdiction to determine issues of arbitrability to the arbitrator to decide. In particular, ROHM USA focused on the term “may” in § 1297.161, which states that ‘[t]he arbitral tribunal may rule on its own jurisdiction,’” and argued that such a term “merely allows the parties to agree to waive a court determination, which ROHM USA [did] not want to do.”
Again, the Court of Appeals disagreed, and adopted the view that “may”, as used in § 1297.161 means an arbitral tribunal “may, if arbitrability is disputed” rule on its own jurisdiction. The Court of Appeals further explained that to interpret this section of the CCCP as though it only permitted arbitrators to make such determination upon agreement by the Parties would render the provision meaningless.
In light of its textual interpretation of the CCCP, the Court of Appeals then addressed whether adopting the CCCP into an arbitration clause provided for “clear and unmistakable evidence that the parties agreed the arbitrator would decide arbitrability.” In this regard, the Court affirmed that this was the case:“[i]n contracts between sophisticated parties, it is fair to hold the parties to all provisions of their contract, including those incorporated by reference. To hold otherwise would deprive sophisticated parties of a powerful tool commonly used to simplify their contract negotiations— adoption of provisions established by neutral third parties. And to refuse to give effect to the plain language of the contract, both its incorporation of the CCCP and the CCCP’s delegation of arbitrability to an arbitrator, would ignore a basic premise of contract law—that contracts are written legal instruments and their words are not to be ignored.”
Conclusion
Arbitration is a process that is controlled by what the parties have agreed to do, and it is questionable whether arbitration is best served by incorporating an entire civil procedure code into a clause. Nevertheless, the ROHM Semiconductor USA, LLC v. MaxPower Semiconductor, Inc. case provides a helpful analysis of how the CCCP is to be construed, showing that the provisions on international arbitration are to control when a dispute falls within their ambit, and that those provisions effectively provide for the doctrine of competence-competence in international arbitration.
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[1] Citation: ROHM Semiconductor USA, LLC v. MaxPower Semiconductor, Inc., 17 F.4th 1377 (Fed. Cir. 2021). While normally the U.S. Court of Appeals for the Ninth Circuit would hear appeals from the U.S. District Court, Northern District of California, here the U.S. Court of Appeals for the Federal Circuit, which is in Washington D.C., has “exclusive jurisdiction” to hear appeals “in any civil action arising under … any Act of Congress relating to patents …” 28 U.S.C. § 1295(a)(1).
[2] CCCP § 1297.13 provides that:
An arbitration or conciliation agreement is international if any of the following applies:
(a) The parties to an arbitration or conciliation agreement have, at the time of the conclusion of that agreement, their place of business in different states.
(b) One of the following places is situated outside the state in which the parties have their places of business:
(i) The place of arbitration or conciliation if determined in, or pursuant to, the arbitration or conciliation agreement.
(ii) Any place where a substantial part of the obligations of the commercial relationship is to be performed.
(iii) The place with which the subject matter of the dispute is most closely connected.
(c) The parties have expressly agreed that the subject matter of the arbitration or conciliation agreement relates to commercial interests in more than one state.
(d) The subject matter of the arbitration or conciliation agreement is otherwise related to commercial interests in more than one state.