Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-15-01970/USCOURTS-ca13-15-01970-0/pdf.json

Parties Involved:
Ariosa Diagnostics, Inc
Appellee
Board of Trustees of the Leland Stanford Junior University
Not party
Illumina, Inc.
Appellant
Laboratory Corporation of America Holdings
Not party
Verinata Health, Inc.
Not party

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________ 

VERINATA HEALTH, INC., THE BOARD OF 

TRUSTEES OF THE LELAND STANFORD JUNIOR 

UNIVERSITY,

Plaintiffs

ILLUMINA, INC.,

Plaintiff-Appellant

v.

ARIOSA DIAGNOSTICS, INC.,

Defendant-Appellee

LABORATORY CORPORATION OF AMERICA 

HOLDINGS,

Defendant

______________________ 

2015-1970

______________________ 

Appeal from the United States District Court for the 

Northern District of California in Nos. 3:12-cv-05501-SI, 

3:14-cv-01921-SI, Judge Susan Y. Illston.

______________________ 

Decided: July 26, 2016

______________________ 

 EDWARD R. REINES, Weil, Gotshal & Manges LLP, 

Redwood Shores, CA, argued for plaintiff-appellant. Also 

represented by DEREK C. WALTER. 

Case: 15-1970 Document: 43-2 Page: 1 Filed: 07/26/2016
2 VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 

 DAVID ISAAC GINDLER, Irell & Manella LLP, Los 

Angeles, CA, argued for defendant-appellee. Also represented by JOSHUA GORDON, ANDREI IANCU. 

______________________ 

Before REYNA, CLEVENGER, and WALLACH, Circuit 

Judges.

REYNA, Circuit Judge.

Illumina, Inc. (“Illumina”) appeals a district court order denying Illumina’s motion to compel arbitration. 

Illumina and Ariosa Diagnostics, Inc. (“Ariosa”) entered 

into a supply agreement in which the parties agreed that 

certain disputes will be subject to compulsory arbitration. 

The arbitration clause came into dispute when Illumina 

sued Ariosa for patent infringement, and Ariosa counterclaimed for breach of contract on grounds that, under the 

terms of the supply agreement, Ariosa had a license to the 

patent-in-suit. Illumina invoked the arbitration clause of 

the supply agreement and moved to compel arbitration. 

The district court concluded that Ariosa’s counterclaims 

are not subject to arbitration. We affirm the district 

court’s order denying compulsory arbitration.

BACKGROUND

Illumina develops, manufactures, and markets integrated systems and tools for analysis of DNA. J.A. 115. 

Illumina owns U.S. Patent No. 7,955,794 (the “’794 patent”), which covers DNA assay optimization techniques. 

The ’794 patent was filed in 2002 and issued in 2011. 

In late 2009, Ariosa endeavored to develop a noninvasive prenatal diagnostic test for the detection of fetal 

aneuploidies, which can lead to conditions such as Down 

syndrome. J.A. 157. Between 2010 and 2011, Ariosa 

provided Illumina, as a prospective investor in Ariosa, 

Case: 15-1970 Document: 43-2 Page: 2 Filed: 07/26/2016
VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 3

technical information about its product proposals under 

development. J.A. 232. 

In January 2012, seven months after the ’794 patent 

issued, Ariosa entered into a three-year supply agreement 

with Illumina, under which Illumina agreed to exclusively 

supply specific consumables, hardware, and software to 

Ariosa. J.A. 204–05. The agreement provided Ariosa 

with a non-exclusive license to Illumina’s “Core IP Rights 

in Goods,” while excluding from the scope of the license 

Illumina’s “Secondary IP Rights in Goods.” J.A. 205. The 

agreement defines “Core IP Rights in Goods” as follows:

Illumina Intellectual Property Rights that pertain 

to the Goods (and use thereof in accordance with 

their Documentation) other than Secondary Illumina IP Rights in Goods, which are expressly excluded from Core IP Rights in Goods. 

J.A. 202. The agreement defines “Secondary IP Rights in

Goods” as follows: 

the secondary Illumina Intellectual Property 

Rights that pertain to the Goods (and use thereof) 

only with regard to particular field(s) or application(s), and are not common to the Goods in all 

applications and fields. 

J.A. 204. Under the agreement, Ariosa was required to 

“identify and ensure that it has all rights from third 

parties and, with respect to Secondary IP Rights in Goods, 

all rights from Illumina that are necessary for its intended use of Goods.” J.A. 205.

The supply agreement also provided an arbitration 

clause and an exclusion-from-arbitration clause: 

Subject to the terms and conditions of this Section 

31(c), any dispute, claim or controversy arising 

out of or relating to the breach, termination, enforcement, interpretation or validity of this 

Case: 15-1970 Document: 43-2 Page: 3 Filed: 07/26/2016
4 VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 

Agreement, shall be determined by arbitration . . . . This Section 31(c) shall not apply to, and 

no arbitration shall resolve, disputes relating to 

issues of scope, infringement, validity and/or enforceability of any Intellectual Property Rights. 

J.A. 219. Prior to executing the supply agreement, Illumina never suggested to Ariosa that Ariosa needed to 

license the ’794 patent or any other intellectual property

to operate Ariosa’s test.

In March 2012, Ariosa launched a DNA-sequencing 

test called the Harmony Prenatal Test. J.A. 232. The 

test consisted of materials supplied by Illumina. Id. 

In October 2012, Verinata Health, Inc. (“Verinata”) 

and Stanford University sued Ariosa for patent infringement, alleging that the Harmony Prenatal Test infringed 

certain claims of two patents not at issue in this appeal. 

In January 2013, Illumina acquired Verinata, making it a 

wholly owned subsidiary of Illumina.

On January 10, 2014, Illumina sent a letter to Ariosa, 

accusing Ariosa of breaching the supply agreement by 

failing to license Secondary IP Rights in Goods, as defined 

and required by the supply agreement. J.A. 406. Illumina demanded that Ariosa license “Secondary IP Rights 

that [then Verinata, now Illumina] has set out in the 

pending patent litigation against Ariosa.” Id. Illumina 

did not mention the ’794 patent, and Ariosa denied

breaching the agreement. J.A. 145. 

On April 25, 2014, Illumina sued Ariosa in the Northern District of California, alleging that the Harmony 

Prenatal Test infringed certain of the claims of the ’794 

patent. J.A. 116. On June 11, 2014, Ariosa filed an 

amended answer with counterclaims for (1) declaratory 

judgment of invalidity and non-infringement; (2) breach of 

contract; and (3) breach of the covenant of good faith and 

fair dealing. J.A. 125, 149–51. Ariosa raised license and 

Case: 15-1970 Document: 43-2 Page: 4 Filed: 07/26/2016
VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 5

estoppel as affirmative defenses. J.A. 134. Ariosa’s 

counterclaims alleged that Illumina breached the supply 

agreement by “bringing a lawsuit against Ariosa for 

infringement of the ’794 patent” and “by asserting pretextual claims of ‘breach’ of the [supply agreement].” J.A. 

150–51; see also J.A. 245, 247 (same for second amended 

answer and counterclaims). 

In June 2014, Illumina filed a motion to dismiss Ariosa’s counterclaims in view of the arbitration clause in the 

supply agreement. On August 7, 2014, the district court 

denied the motion to dismiss, concluding that Ariosa’s 

counterclaims for breach of contract and the covenant of 

good faith and fair dealing were not subject to compulsory 

arbitration. 

On September 15, 2014, Illumina appealed to this 

Court. See Illumina, Inc. v. Ariosa Diagnostics, Inc., No.

2014-1815 (Fed. Cir. filed Sept. 15, 2014). On June 23, 

2015, we remanded the case to the district court so that 

Illumina could resubmit its motion as a motion to compel 

arbitration. 

On July 20, 2015, Illumina refiled in the district court 

a motion to compel arbitration. J.A. 249. On August 31, 

2015, the district court denied the motion on grounds that 

Ariosa’s defense that it possessed an express or implied 

license was “directly related to whether a patent has been 

infringed.” Verinata Health, Inc. v. Ariosa Diagnostics, 

Inc., No. 12-cv-05501-SI, 2015 U.S. Dist. LEXIS 115701, 

at *10–12 (N.D. Cal. Aug. 31, 2015). 

Illumina appeals. We have jurisdiction under 9 

U.S.C. § 16; 28 U.S.C. § 1292(a)(1), (c). 

STANDARD OF REVIEW

We review de novo a district court’s conclusion as to 

whether the parties have bound themselves to arbitrate. 

We review any factual findings in support of that conclusion for clear error. Promega Corp. v. Life Techs. Corp., 

Case: 15-1970 Document: 43-2 Page: 5 Filed: 07/26/2016
6 VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 

674 F.3d 1352, 1355 (Fed. Cir. 2012). We apply our law to 

substantive and procedural issues unique to and intimately involved in federal patent law, and we apply regional 

circuit law to other substantive and procedural issues. 

Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1365 (Fed. Cir. 

2001) (citing Amana Refrigeration, Inc. v. Quadlux, Inc., 

172 F.3d 8752, 855–56 (Fed. Cir. 1999)). We apply regional circuit law, which in this case is the Ninth Circuit,

when determining whether “non-infringement and invalidity fall within the scope of the arbitration clause of the 

parties’ agreement.” Deprenyl Animal Health, Inc. v. 

Univ. of Toronto Innovations Found., 297 F.3d 1343, 1349 

(Fed. Cir. 2002) (citations omitted). Arbitration agreements are governed by state contract law, except to the 

extent state law is displaced by “federal substantive law 

regarding arbitration.” Promega, 674 F.3d at 1356 (quoting Preston v. Ferrer, 552 U.S. 346, 349 (2008)).

DISCUSSION

The Federal Arbitration Act mandates enforcement of 

valid, written arbitration provisions. See 9 U.S.C. § 2; 

Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111 

(2001). When a party moves to compel arbitration of a 

dispute, a court must determine whether the parties 

agreed to arbitrate that dispute. Mitsubishi Motors Corp. 

v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). 

This inquiry requires a court to determine whether the 

dispute between the parties falls within the scope of the 

arbitration agreement. See Granite Rock Co. v. Int’l Bhd. 

of Teamsters, 561 U.S. 287, 297 (2010). Thus, “a court 

may order arbitration of a particular dispute only where 

the court is satisfied that the parties agreed to arbitrate that dispute.” Id. (emphasis in original). In determining whether an agreement requires arbitration, courts 

must recognize that the Federal Arbitration Act “establishes a national policy favoring arbitration when the 

parties contract for that mode of dispute resolution.” 

Preston, 552 U.S. at 349. “The presumption in favor of 

Case: 15-1970 Document: 43-2 Page: 6 Filed: 07/26/2016
VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 7

arbitrability applies only where the scope of the agreement is ambiguous as to the dispute at hand, and we 

adhere to the presumption and order arbitration only 

where the presumption is not rebutted.” Goldman, Sachs 

& Co. v. City of Reno, 747 F.3d 733, 742 (9th Cir. 2014).

Illumina argues that the district court should have 

compelled arbitration under the supply agreement. 

Illumina asserts that the supply agreement’s arbitration 

clause is ambiguous. Illumina contends that due to this 

ambiguity, it need only demonstrate that the agreement 

is susceptible to an interpretation in favor of arbitration 

and that that interpretation is reasonable. Illumina 

posits three arguments for why the supply agreement is 

susceptible to an interpretation compelling arbitration 

and why that reading is reasonable. 

First, Illumina contends that Ariosa’s contract counterclaims do not involve evaluating the scope of the patent 

or patent infringement because no claim construction or 

infringement analysis is needed to resolve Ariosa’s contract counterclaims. Illumina maintains that the text of

the supply agreement shows that the intent of the exclusion-from-arbitration clause is to insulate the arbitrator 

from resolving questions of patent infringement (or patent 

scope, invalidity, or enforceability), but not whether 

license is a defense. 

Second, Illumina contends that the district court interpreted the term “relating to” too broadly because the 

interpretation fails to give effect to the federal policy in 

favor of arbitration. Illumina explains that under the 

district court’s interpretation, general business issues like 

indemnification and supply disputes could “relate to” 

patent infringement and therefore evade arbitration. 

Observing that the supply agreement used the term

“issues” and not “claims,” Illumina also suggests that the 

parties wanted to exclude only certain issues from being

arbitrated, not that they intended for anything generally 

Case: 15-1970 Document: 43-2 Page: 7 Filed: 07/26/2016
8 VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 

connected to patent infringement to be litigated in district 

court. Illumina emphasizes that the affirmative defense 

of license is not among the issues identified in the supply 

agreement. 

Finally, Illumina asserts that, in the event Ariosa’s 

counterclaims are determined to fall within the exclusionfrom-arbitration clause, the contract counterclaims not 

involving Ariosa’s license defense should be severed and 

sent to arbitration. Illumina points out that contract 

counterclaims are separate and distinct business harms 

from the license defense to patent infringement. 

Ariosa responds that its counterclaims fall within the 

terms of the exclusion-from-arbitration clause. Ariosa 

maintains that the presumption in favor of arbitration 

only applies after a court determines that an ambiguity 

exists as to whether a particular dispute is subject to 

arbitration and the party favoring district court litigation 

fails to rebut that presumption. Ariosa notes that the 

district court has twice concluded that Ariosa’s counterclaims “unambiguously relate to issues of patent infringement” and thus “are outside of the scope of the 

arbitration agreement.” J.A. 6. Ariosa argues that Illumina’s claim of patent infringement is tied to the question 

of whether Ariosa was granted, and continues to enjoy, an 

express or implied license to the ’794 patent. Ariosa 

contends that if it has an express license to the ’794 

patent as falling within the agreed upon Core IP Rights in 

Goods, then Ariosa has a viable counterclaim for breach of 

the supply agreement because Ariosa cannot be liable for 

infringement of that patent. Ariosa also contends that 

the district court correctly interpreted the term “relating 

to” as having broad meaning. Ariosa observes that Illumina has failed to present extrinsic evidence to support 

its narrow interpretation of “relating to,” relying instead 

on attorney argument. Ariosa contends that certain 

issues in Ariosa’s counterclaims cannot be severed as 

separate claims, and that despite filing two motions in the 

Case: 15-1970 Document: 43-2 Page: 8 Filed: 07/26/2016
VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 9

district court arguing that Ariosa’s counterclaims are 

subject to arbitration, Illumina has never made this 

particular severance argument until this appeal. 

We agree that Ariosa’s counterclaims are not subject 

to arbitration. The pertinent language of the arbitration 

provision is unambiguous and makes clear that “disputes 

relating to issues of” patent scope and infringement are 

not subject to mandatory arbitration. J.A. 219. Illumina 

put the scope of licensed patent rights in issue by suing 

Ariosa for patent infringement. The counterclaims at 

issue—declaratory judgment of non-infringement, breach 

of contract, and breach of certain covenants—are predicated on the notion that the infringement allegations 

cannot stand because of the licensing provisions within 

the supply agreement. Endo Pharm., Inc. v. Actavis, Inc., 

746 F.3d 1371, 1374 (Fed. Cir. 2014) (noting that the 

burden of proving license as a defense rests with the 

alleged licensee). The scope of the licensed intellectual 

property rights is germane to whether Ariosa ultimately 

obtained a license to the ’794 patent for goods that it has 

been exclusively purchasing from Illumina under the 

supply agreement. Ariosa’s counterclaims are not about 

licensing or a license defense in the abstract—they are 

centered on whether Ariosa is licensed to use, and thus is 

immunized from infringement of, the asserted claims of 

the ’794 patent. Given the scope of the supply agreement 

term “any Intellectual Property Rights,” it would be an 

odd circumstance to countenance parallel district court 

litigation with license as an affirmative defense, while 

forcing arbitration over counterclaims arising from that 

very license. J.A. 219. 

The arbitration clause applies to issues identified by 

the supply agreement that are not patent-related, such as 

failure of performance and defenses against the enforceability or validity of the supply agreement itself. Illumina’s argument fails to appreciate that the excluded issues 

are about disputes over the scope of the licensed intellecCase: 15-1970 Document: 43-2 Page: 9 Filed: 07/26/2016
10 VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 

tual property—not whether a party lacked capacity to 

contract or failed to ship product under agreed upon 

terms and conditions.

The Ninth Circuit and courts interpreting California 

law have held that the phrase “relating to” should be 

given broad meaning, in contrast to other prefatory 

phrases, such as “arising hereunder.”1 In view of California law and past interpretations of similar clauses, a 

disagreement about the scope of licensed rights does not 

render the clause ambiguous for purposes of invoking the 

presumption in favor of arbitration. To the extent Illumina suggests that the word “issues” narrows the import of 

the exclusion-from-arbitration clause, we disagree because the full phrase links “issues” with the modifier 

“relating to”: “disputes relating to issues of.” J.A. 219. 

 

1

 See, e.g., Cape Flattery Ltd. v. Titan Mar., LLC, 

647 F.3d 914, 922 (9th Cir. 2011) (“Because of the absence 

of the ‘relating to’ language in the arbitration provision, 

we had ‘no difficulty finding that “arising hereunder” is 

intended to cover a much narrower scope of disputes, i.e., 

only those relating to the interpretation and performance 

of the contract itself.’”) (quoting Mediterranean Enters., 

Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 

1983)); Tracer Research Corp. v. Nat’l Envtl. Serv., 42 

F.3d 1292, 1295 (9th Cir. 1994) (noting “[t]he omission of 

the ‘relating to’ language is ‘significant’,” and finding the 

arbitration clause at issue more narrow without that 

language); Izzi v. Mesquite Country Club, 231 Cal. Rptr. 

315, 317 (Cal. Ct. App. 1986) (“where contracts provide 

arbitration for ‘any controversy . . . arising out of or 

relating to the contract . . .’ the courts have held such 

arbitration agreements sufficiently broad to include torts, 

as well as contractual, liabilities so long as the tort claims 

‘have their roots in the relationship between the parties 

which was created by the contract.’”) (citations omitted).

Case: 15-1970 Document: 43-2 Page: 10 Filed: 07/26/2016
VERINATA HEALTH, INC. v. ARIOSA DIAGNOSTICS, INC. 11

Illumina has presented no extrinsic evidence to support 

its narrow interpretation, and instead relies on attorney 

argument. See Yufa v. Lockheed Martin Corp., 575 F. 

App’x 881, 887 (Fed. Cir. 2014) (rejecting attorney argument as evidence); Enzo Biochem, Inc. v. Gen-Probe, Inc., 

424 F.3d 1276, 1284 (Fed. Cir. 2005) (same). 

The district court was correct not to sever the contract 

counterclaims. We do not reach the issue of whether 

Illumina waives its argument that Ariosa’s license defense is subject to the arbitration clause of the Agreement. 

Even so, Illumina fails to articulate how to separate as 

discrete the patent infringement issues involved in the 

contract counterclaims. The nucleus of Ariosa’s counterclaims is the patent infringement lawsuit filed by Illumina. Illumina cannot hijack the counterclaims and make 

them its own for purposes of compelling arbitration. The

counterclaims all rise or fall on the scope determination of 

licensed intellectual property rights, a matter that the 

parties expressly agreed to exempt from arbitration. 

CONCLUSION

The district court correctly concluded that the parties 

did not bind themselves to arbitrate Ariosa’s counterclaims. The district court’s order denying the motion to 

compel arbitration is therefore affirmed. 

AFFIRMED

COSTS

Each party shall bear its own costs. 

Case: 15-1970 Document: 43-2 Page: 11 Filed: 07/26/2016