Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-01318/USCOURTS-azd-2_09-cv-01318-2/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 28:2201 Declaratory Judgment

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

ITEQ Corporation,

Plaintiff, 

vs.

Isola USA Corporation,

Defendant. 

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No. 09-CV-1318-PHX-PGR

 ORDER

Currently before the Court is Defendant Isola USA’s (“Isola”) Motion to Enforce

Alternative Dispute Resolution Procedures Pursuant to the Parties’ Settlement Agreement

and to Stay Proceedings. (Doc. 9.) Defendant Isola is a corporation organized and existing

under the laws of the State of Delaware, having its principal place of business in Chandler,

Arizona. Plaintiff ITEQ Corporation (“ITEQ”) is a corporation organized and existing under

the laws of the Republic of China. The matter currently before the Court involves the

interpretation of a specific paragraph (“Paragraph 5”) of the Settlement Agreement entered

into by the two parties. Isola contends that Paragraph 5 is a binding Alternative Dispute

Resolution (“ADR”) clause, ITEQ disagrees. The matter is fully briefed.

I. Background

The claims asserted in ITEQ’s Complaint are brought pursuant to the Declaratory

Judgment Act, 28 U.S.C. §§ 2201 and 2202, and arise under the patent laws of the United

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1 ITEQ’s underlying infringement contention is that because Claim 1 of the ‘414

patent claims a resin composition that is free from an “allyl network forming compound” and

that the terms “prepregs,” “laminates,” and/or “printed wiring board” are not found in any

claims of the ‘414 patent, a resin composition that contains an “allyl network forming

compound” would not and cannot infringe the ‘414 patent. ITEQ makes a similar argument

for the ‘122 patent. ITEQ has two products at issue in the pending matter, 200DK-1 and

200DK-2, both of which use a resin composition as an impregnant and both of which ITEQ

contends contain allyl network forming compounds. 

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States, 35 U.S.C. §§ 100, et.1 

Isola manufactures and sells wiring boards. More specifically, Isola designs,

manufactures, and sells high performance laminates and copper-clad “prepreg” laminates for

use in the manufacturing of multilayer printed circuit boards. Isola manufactures a variety

of high performance laminates tailored for specific printed circuit board applications,

including lead-free applications. ITEQ is a Taiwan-based rival laminate developer and

manufacturer.

Isola owns U.S. Patent Number 6,509,414 (the “‘414 Patent”) entitled “Epoxy Resin,

Styrene-Maleic Anhydride Copolymer and Co-Crosslinking Agent.” It also owns a

counterpart patent in Taiwan, R.O.C. Invention Patent No. 142122 (the “‘122 Patent”) (the

U.S. and Taiwan patents are collectively referred to herein as the “Patents at Issue”). 

In 2008, Isola filed an action in the International Trade Commission (“ITC”) seeking

to restrict ITEQ from importing into the U.S. its IT200DK laminate, which Isola believed

infringed on the Patents at Issue. Contemporaneously, Isola applied to the Intellectual

Property Court in Taiwan for a preliminary injunction order barring ITEQ from selling and

distributing IT200DK.

In an effort to amicably resolve the patent dispute before the ITC and the Intellectual

Property Court in Taiwan, on November 19, 2008, Isola and ITEQ reached an agreement to

settle their disputes concerning the alleged infringement outside of court thereby ending the

Taiwan litigation and the ITC investigation. The terms of said agreement were memorialized

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in the Settlement Agreement (the “Agreement”), the interpretation of which has now become

the crux of the matter currently before this Court.

In early 2009, shortly after entering into the Agreement, ITEQ informed Isola that it

had reformulated IT200DK-1 and IT200DK-2 and that it sought to import into the United

States the two newly designed products, referred to as 200DK-1 and 200DK-2. ITEQ

informed Isola’s Taiwan counsel, Mr. T. C. Chiang, that it wished to send to Isola for

verification of non-infringement the resin compositions that were used to impregnate the

prepregs for use in making the PWBs. During the course of communication, the parties came

to an impasse regarding the verification process. Consequently, ITEQ filed the case sub

judice and thereafter Isola filed the pending motion.

The Court will not recount the entire content of the string of communication between

the parties, as it is not necessary to resolve the pending matter. Nor will the Court examine,

at this time, the reasonableness of time and efficiency that went into the previously attempted

verification process. The Court will solely address the issue currently before it, whether

Paragraph 5 of the Agreement is a binding ADR clause. Paragraph 5 states:

ITEQ may provide its existing and/or new products and/or other related

documents (e.g., patent infringement assessment report, test report or expert

opinion) to ISOLA so that it can verify whether the products infringe any of

the Patents at Issue. ISOLA shall conduct the verification and provide its

comments in writing to ITEQ at ISOLA’s expense within a reasonable period

not exceeding two months. If ITEQ provides its trade secrets to ISOLA for

the above verification, ISOLA shall sign a nondisclosure agreement to protect

the trade secrets and promise not to use the trade secrets for a purpose other

than verification. If ITEQ cannot agree to ISOLA’s comments and no

consensus can be reached after discussion, the Parties should jointly engage

a third party which is agreed by the Parties to conduct an independent

verification. The Parties shall respect and be subject to the conclusion of the

verification of the third party. The cost of the third party’s verification shall be

shared by the Parties equally.

II. Analysis

Isola contends that Paragraph 5 is a binding ADR clause which this Court should

enforce and compel ITEQ to participate in third party arbitration or mediation with Isola to

resolve their patent infringement issues. Isola alleges that pursuant to Paragraph 5, the

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2 To the extent that ITEQ raises the issue of claim construction and determination in

its responsive brief, the Court will address that issue in a separate order addressing ITEQ’s

Motion for Leave to File a Motion for Claim Determination, as it is not necessary to address

the issue in order to resolve the pending ADR matter. 

3 ITEQ’s argument that Paragraph 13 resembles more of an ADR clause than

Paragraph 5 has no merit. Paragraph 13 is a forum selection clause which sets forth the

specific forums agreed upon by the parties in the event that litigation were to commence

regarding the Agreement. It too is not an ADR clause.

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parties have expressed a “clear intent” to resolve any disputes concerning whether ITEQ’s

products infringe on the Patents at Issue outside the courtroom, first between themselves and

then, if need be, by retention of a third party to conduct an independent testing and

verification. To a certain degree, ITEQ both agrees and disagrees with Isola’s interpretation

of Paragraph 5.2

 ITEQ agrees that the parties intended to retain a third party to verify

noninfringement and conduct independent testing. However, where the parties diverge is that

ITEQ contends that it was the parties’ intent to retain a third party laboratory to verify

infringement and conduct the testing, not to participate in arbitration or mediation. 

The Court has considered the Agreement and the record in its entirety and it does not

find that Paragraph 5 is a binding ADR clause.3

 Paragraph 5 wholly lacks any semblance of

a binding ADR clause. There is no compulsory language binding the parties to ADR, no

mention of mediation, arbitration, or alternative dispute resolution of any kind. Notably,

there do exist significant differences between mediation and arbitration, none of which have

been addressed by Isola in the instant motion or articulated in Paragraph 5. The Agreement

is a legal contract and the Court cannot read into a contract a term that does not exist.

Goodman v. Newman Inv. Co., 421 P.2d 318, (1966)(It is not within the power of the court

to “revise, modify, alter, extend, or remake” a contract to include terms not agreed upon by

the parties.) In the Agreement, the parties agreed to retain a third party to conduct

independent verification and testing. According to the evidence submitted by both parties,

the third party is a laboratory. See infra. The specific details as to which third party will be

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4 Notably, Mr. T.C. Chiang, Isola’s Taiwan counsel, drafted the Settlement

Agreement. It is a fundamental principle of law that a contract will be construed most

strongly against the drafter. Hamberlin v. Townsend, 261 P.2d 1003, 1006 (1953).

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used, however, is not set forth in the Agreement. The Court finds that the parties have

agreed to resolve their disputes outside of court, either between themselves or by retaining

a third party laboratory, and that Paragraph 5 is not a binding ADR clause. 

Furthermore, as noted by ITEQ in its Surreply, in the event that the parties failed to

have a meeting of the minds during the formation of the Agreement, Paragraph 5 would be

rendered void. Hill-Shafer Partnership v. Chilson Family Trust, 165 Ariz. 469, 473 (Ariz.

1990); see also Gifford v. Makaus, 112 Ariz. 232, 236 (1975); Heywood v. Ziol, 91 Ariz.

309, 314 (1962). Isola states in its Reply brief that the term “third party” as used in

Paragraph 5 was intended by both parties to mean “third party arbitrator.” However, ITEQ

has made it abundantly clear that it interprets “third party” to mean “an independent

laboratory.” Having reviewed the evidence, the Court finds that Isola’s original

interpretation was in fact parallel to that of ITEQ’s current and initial interpretation of “third

party.” See Mr. T. C. Chiang’s May 11, 2009 email to Fei-Fei Chao, stating that “(3) If

ITEQ wants to accelerate the verification process, ITEQ may consider proposing several

candidates for the third-party laboratory to conduct the independent verification in

accordance with the terms of the Settlement Agreement.”4

 (Emphasis added). Thus, the Court

finds that there was in fact a meeting of the minds at the time the contract was formed with

regard to the meaning of “third party.” Therefore, Paragraph 5 is not void, it is simply not

a binding ADR clause.

Accordingly,

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IT IS HEREBY ORDERED DENYING Defendant Isola’s Motion to Enforce

Alternative Dispute Resolution Procedures Pursuant to the Parties’ Settlement Agreement

and to Stay Proceedings. (Doc. 9.)

DATED this 19th day of October, 2009.

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