Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-04718/USCOURTS-cand-3_15-cv-04718-7/pdf.json

Parties Involved:
Aqua Dynamics Systems, Inc.
Defendant
Levi Strauss & Co.,
Plaintiff

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

LEVI STRAUSS & CO.,

Plaintiff,

v.

AQUA DYNAMICS SYSTEMS, INC.,

Defendant.

Case No. 15-cv-04718-WHO 

ORDER GRANTING MOTION TO 

COMPEL ARBITRATION

Re: Dkt. No. 45

 Defendant Aqua Dynamics Systems, Inc., moves to compel this action to arbitration. 

Plaintiff Levi Strauss & Co. opposes, arguing that Aqua lacks standing to enforce the arbitration 

agreement because Aqua is not a signatory to the underlying agreement Levi entered in 1994 with 

different parties. Under that agreement, Levi’s consent to any assignment was required; consent 

was never sought nor obtained in the two transfers of the interest at issue here. Nonetheless, I find 

that Levi waived any breach concerning the first transfer in 1998 to a third party, Ozone, by Levi’s

conduct over several years in treating Ozone as the licensor. And Aqua did not need Levi’s 

consent in 2006 when Aqua succeeded to the interest of Ozone because Aqua was the successor in 

interest to Ozone, not the assignee; accordingly, the prior consent requirement did not apply. 

Aqua is entitled to enforce the arbitration agreement and I GRANT the motion to compel.

BACKGROUND 

I. FACTUAL BACKGROUND 

 To resolve this motion, one must follow the complicated history of the transfers of the 

interests involved. In August 1991, patent-owner Eric Wasinger and Aqua Dynamics Group Corp. 

(“ADGC”) entered into an agreement (“Wasinger Agreement”) that provided ADGC with an 

exclusive license to the Ozone Process patents and development rights in exchange for payment of 

royalties to Wasinger. Declaration of Joyce Long (Dkt. No. 46) ¶ 3; see also Long Decl., Ex. A 

(Wasinger Agreement). In a 1992 amendment to the Wasinger Agreement, ADGC and Wasinger 

agreed that if ADGC breached the agreement and failed to timely cure, then “the license granted to 

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[ADGC] . . . shall terminate, and [ADGC] shall forfeit any further rights to utilize the process, 

inventions and innovations, all rights to which shall revert back to Wasinger.” Long Decl., Ex. D 

(Dkt. No. 46-4) at 12. 

In October 1994, ADGC transferred its interest in the Wasinger Agreement to Bernard 

Blasingame. Long Decl. ¶ 3. Around the same time, Blasingame transferred the same interest to 

Earth Aire Corporation (“EAC”). Id.

 In December 1994, EAC, Eric Wasinger, and plaintiff Levi Strauss & Co. (“Levi”) entered 

a written license agreement (“License Agreement”). Long Decl., Ex. E (Dkt. No. 46-5). The 

License Agreement granted Levi the right to use the Ozone Process. Id. In exchange, Levi agreed 

to pay royalties to EAC. Id. The License Agreement “became effective on December 14, 1994 

and contained a seventeen year term ending on December 14, 2011.” Long Decl. ¶ 5. 

 The License Agreement includes an arbitration provision stating that: 

all disputes, differences of opinion, or controversies which may arise 

between the parties hereto out of or in relation to or in connection 

with this Agreement or the breach thereof, shall be finally settled by 

arbitration in Chicago, Illinois (or such other place as may be agreed 

upon by the parties) by a panel of three (3) arbitrators in accordance 

with the Rules of the American Arbitration Association, in the form 

pertaining at the time the arbitration is initiated. 

License Agreement § 15.2. The License Agreement also includes two assignment clauses. The 

first provides: 

This Agreement may be assigned by LS&CO with EAC’s prior 

written consent, which consent shall not be unreasonably withheld, 

if, and only if, such assignment is made to a single purchaser or to a 

group of purchasers of substantially all the assets used by LS&CO in 

the performance of this Agreement. This Agreement may be 

assigned by EAC with LS&CO’s prior written consent, which 

consent shall not be unreasonably withheld. Subject to such 

restrictions, this Agreement shall be binding upon and inure to the 

benefit of the parties, their successors and assigns. 

License Agreement § 16.2. The second assignment clause, specific to Wasinger, states: 

WASINGER may assign his rights under the Licensed Patents 

subject to the grants and covenants herein to LS&CO and shall 

advise LS&CO promptly if any such assignment has been made. 

License Agreement § 16.3. 

In April 1998, EAC struggled to pay royalties to Wasinger under the Wasinger Agreement. 

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Long Decl. ¶ 8. Consequently, Wasinger and Ozone Engineering, Design and Services Corp. 

(“Ozone”) entered into an agreement providing that if EAC defaulted on its payments to 

Wasinger, Ozone would have 10 days to assume the rights under EAC’s contract with Wasinger 

(e.g., the rights to license the patents). If Ozone exercised that right upon default by EAC, EAC’s 

rights under the License Agreement with Levi would “revert” to Wasinger but simultaneously 

would be assigned by Wasinger to Ozone. Long Decl. ¶ 9; see also Long Decl. Ex. G (Dkt. No. 

46-7). Shortly thereafter, EAC defaulted, Ozone assumed EAC’s interests in the Wasinger 

Agreement, the License Agreement automatically reverted to Wasinger, and the License 

Agreement was simultaneously assigned to Ozone. Long Decl., Ex. H (Dkt. No. 46-8) at 2, Ex. I 

(Dkt. No. 46-9) at 2. 

Correspondence from Ozone notified Levi that Ozone assumed the rights under the 

License Agreement. That correspondence includes a September 14, 1998 letter co-signed and sent 

by the former President of Ozone and President of EAC “to notify Levi of the need to assign the 

rights to the [License Agreement] between [Levi] and [EAC] to [Ozone].” Long Decl., Ex. J (Dkt. 

No. 46-10). There is no evidence that EAC or Ozone requested Levi’s prior written consent for 

this assignment. Likewise, there is no evidence that EAC or Ozone notified Levi of the interim 

“reversion” of the rights in the License Agreement to Wasinger and the simultaneous assignment 

to Ozone. 

Sometime in 1999, Aqua became the sole shareholder of Ozone. Long Decl. ¶ 14. In June 

2000, Levi sent to James Stackhouse (then Vice President of Ozone and current Vice President of 

Aqua) two quarterly reports regarding the patent usage royalties. Long Decl., Ex. K at 8; see also

Motion to Compel (“Mot.”) (Dkt. No. 45 at 13). 

Around January 16, 2001, as part of a negotiation over the alleged misuse of the Ozone patented 

process by an outside contractor of Levi’s, Levi’s attorney sent a letter to Ozone’s attorney 

regarding potential modifications to the License Agreement. Levi’s attorney stated that, as part of 

the discussed modification, the parties to the Agreement needed to be “corrected” and noted, 

“[EAC]’s assignment of the agreement was apparently made without the written consent of [Levi], 

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and accordingly constitutes a technical breach of Article 16.2 of the [License] Agreement.” Id. at 

10. The letter requested “a copy of the documentation establishing the chain of title from [EAC], 

to [Aqua] (or [Ozone], or whoever claims to now be the Licensor).” Id. There is no evidence Levi 

took any further steps with respect to the “technical breach” and the License Agreement was not 

modified. 

In 2004, Levi allegedly stopped paying royalties and issuing officer’s certifications 

corresponding to the royalties. Long Decl. ¶ 16.1 In 2005, Levi received a letter from Fiberzone, 

which asserted that it was “the current owner and licensor” of the Ozone process and requested an 

audit of Levi’s records relating to the use of ozone by Levi and its subcontractors. Declaration of 

Robert A. McFarlane, Exh. B (Dkt. No. 50-2) at 27. In his deposition, Blasingame identified 

Fiberzone Technologies Inc. as a “separate corporate entity” previously owned by his daughter, 

Katherine Blasingame. McFarlane Decl., Ex. A at 3-4.

In August 2006, Ozone was administratively dissolved and all of its assets, including its 

interest in the License Agreement, were transferred to Aqua. Long Decl. ¶ 15. There is no 

evidence that Levi’s prior written consent to this transfer was sought or provided. An October 18, 

2006 letter to Levi from Aqua asks for an accounting and other information from Levi and informs 

Levi that, “Because we have unpaid taxes Internal Revenue Services has attached a lien on all 

Ozone Engineering Design and Services’ assets and instructed us to prepare a liquidation plan, so 

getting the payments and reports current is of extreme urgency.” Long Decl., Ex. M (Dkt. No. 46-

13). Id. The record does not reflect further communication between the parties until the litigation 

commenced. 

II. PROCEDURAL BACKGROUND 

On February 4, 2015, Aqua filed an action against Levi in the United States District Court 

for the Southern District of New York for breach of contract and patent infringement (the “New 

York action”). First Amended Complaint (“FAC”) ¶ 11. Aqua’s New York complaint alleged 

 

1

The parties’ assertions and the correspondence imply that Levi paid royalties until 2004. But 

there is no evidence regarding how much Levi paid in royalties, to whom such payments were 

made, or when those payments were made until they stopped in 2004. 

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that “[i]n or around 2002,” Levi stopped paying royalties, thereby breaching the Agreement. FAC, 

Ex. E. (New York Complaint ¶ 9). Aqua subsequently amended its complaint to drop the patent 

infringement cause of action. FAC, Exs. F, G (New York First Amended Complaint and Second 

Amended Complaint).2 

On August 17, 2015, Aqua and Levi executed an agreement to modify the License 

Agreement’s arbitration provision. Long Decl., Ex. F (Dkt. No. 46-6). The amendment provides: 

AMENDMENT TO ARBITRATION AGREEMENT 

 [ . . . ] 

WHEREAS, Aqua alleges that it is the successor in interest to 

[EAC]; and 

WHEREAS, EAC and LS&Co. are parties to [the Agreement]; and 

WHEREAS, the Agreement contains certain provisions relating to 

Arbitration; and 

WHEREAS, the Parties,3 by their attorneys, wish to vary certain 

terms of the Agreement relating to only the place at which 

arbitration may take place and the organization which shall conduct 

the Arbitration; 

THEREFORE, IT IS AGREED AS FOLLOWS: 

1. This Agreement does not constitute a waiver, abandonment or 

modification of any claim, defense or counterclaim of either Party or 

to LS&Co.’s right to assert that this case is not subject to arbitration, 

but, to the contrary, effects only the provision of paragraph 15.2 

referenced below. 

2. The Parties agree that paragraph 15.2 of the Agreement shall be 

modified only to the extent that the place of arbitration, if any shall 

take place, shall be San Francisco, California, and such arbitration 

shall be conducted before a JAMS panel of three neutral arbitrators 

and pursuant to “JAMS Comprehensive Arbitration Rules & 

Procedures,” effective July 1, 2014. 

3. Except as set forth in paragraph 2 above, the Agreement remains 

unchanged and unmodified. 

Long Decl., Ex. F (Dkt. No. 46-6). 

 

2 On February 10, 2016, Aqua voluntarily dismissed the New York action, stating that “no federal 

question . . . or diversity of citizenship now exists between the parties.” McFarlane Decl. Ex. 1 

(Dkt. No. 34-1). 

3

The amendment defines the “Parties” as Aqua and Levi. Long Decl., Ex. F. 

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On September 15, 2015, Aqua filed a “Demand for Arbitration Before JAMS” seeking to 

arbitrate the same breach of contract dispute at issue in the New York action. FAC, Ex. A. In 

response, Levi filed this action on October 13, 2015, and filed a FAC on January 1, 2016. Dkt. 

Nos. 1, 22. Levi’s FAC contains three causes of action seeking declaratory judgment that: (1) 

Aqua, as a nonsignatory to the license agreement, lacks standing to enforce its arbitration 

provision; (2) Aqua waived its rights, if any, to enforce the arbitration provision; and (3) Levi has 

not breached the license agreement. FAC ¶¶ 42-64. 

 In February 2016, Aqua filed a motion to dismiss for lack of jurisdiction or, in the 

alternative, to dismiss or stay the case pending arbitration. Dkt. No. 30.4

 In April 2016, I denied 

Aqua’s motion to dismiss for lack of subject matter jurisdiction, finding that federal question 

jurisdiction existed. Dkt. No. 37. I also denied Aqua’s alternate request to dismiss or stay the 

case pending arbitration. Id. I concluded that Levi’s waiver argument – that Aqua waived its 

rights to enforce the License Agreement’s arbitration provision by failing to demand arbitration 

until approximately 13 years after the alleged breach commenced, and approximately nine years 

after it sent Levi a Notice of Default in 2006 – was for the arbitrators to decide. Id. at 13-14. 

However, I determined that Levi’s nonsignatory standing argument – that Aqua, as a nonsignatory 

to the license agreement, lacks standing to enforce its arbitration provision – should be resolved by 

me. Id. at 13. The parties subsequently conducted discovery on the nonsignatory issue, and 

Aqua’s motion to compel arbitration followed. Dkt. No. 45.

LEGAL STANDARD 

The Federal Arbitration Act (“FAA”) governs motions to compel arbitration. 9 U.S.C. 

§§ 1 et seq. Under the FAA, a district court determines (1) whether a valid agreement to arbitrate 

exists and, if it does, (2) whether the agreement encompasses the dispute at issue. Lifescan, Inc. v. 

Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). “To evaluate the validity of 

an arbitration agreement, federal courts should apply ordinary state-law principles that govern the 

formation of contracts.” Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) 

 

4

The parties stipulated to stay the arbitration pending my resolution of Aqua’s motion to dismiss 

or stay. Dkt. No. 32. 

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(internal quotations omitted). If the court is satisfied “that the making of the arbitration agreement 

or the failure to comply with the agreement is not in issue, the court shall make an order directing 

the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. § 4. 

“When evaluating a motion to compel arbitration, courts treat the facts as they would when 

ruling on a motion for summary judgment, construing all facts and reasonable inferences that can 

be drawn from those facts in a light most favorable to the non-moving party.” Switch, LLC v. 

ixmation, Inc., No. 15-CV-01637-MEJ, 2015 WL 4463672, at *3 (N.D. Cal. July 21, 2015) 

(internal quotation marks and citations omitted). But any doubts concerning the scope of 

arbitrable issues should be resolved in favor of arbitration. Simula, Inc. v. Autoliv, Inc., 175 F.3d 

716, 721 (9th Cir. 1999). 

DISCUSSION 

 It is undisputed that the License Agreement contains a valid arbitration clause and that the 

underlying dispute at issue — the alleged failure to pay royalties under the License Agreement —

falls within the scope of the arbitration clause. The parties disagree whether Aqua, as a 

nonsignatory to the License Agreement, has standing to invoke the arbitration provision. Aqua 

argues that it has standing because it validly assumed EAC’s interest in the License Agreement. 

Levi responds that the License Agreement’s assignment clause requiring Levi’s prior written 

consent to any assignment by EAC renders the transfer of rights to Aqua invalid. I must decide 

two issues: (i) whether federal or state law governs Aqua’s ability to enforce the arbitration 

provision; and (ii) under the applicable law, whether Aqua has standing to enforce the arbitration 

agreement. 

I. APPLICABLE LAW 

Under both federal and California law, Aqua, as a nonsignatory, bears the burden of 

demonstrating that it is an assignee or otherwise a party to the arbitration agreement. See Britton 

v. Co-op Banking Grp., 4 F.3d 742, 746 (9th Cir. 1993) (“An assignee of a contractual right must 

prove the validity of his ownership claims.”); Jones v. Jacobson, 195 Cal. App. 4th 1, 15 (2011), 

as modified (June 1, 2011) (“[W]hen a nonsignatory seeks to enforce an arbitration 

agreement/provision against a signatory . . . the nonsignatory bears the burden to establish he or 

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she is a party to the arbitration agreement/provision covering the dispute.” (emphasis removed)). 

However, California law and a federal rule set out different standards for determining whether this 

burden is met, and the parties disagree on which standard should apply here. 

A. California Versus Federal Law on Patent License Assignability 

 Aqua argues that California law governs. Mot. at 10. Under California law, “[g]eneral 

contract and agency principles apply in determining the enforcement of an arbitration agreement 

by or against nonsignatories. Among these principles are 1) incorporation by reference; 2) 

assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.” Mundi v. Union Sec. Life Ins. 

Co., 555 F.3d 1042, 1045 (9th Cir. 2009) (internal quotation marks and citations omitted). 

Further, “California law evidences a policy in favor of the free transferability of all types of 

property,” including the assignability of patent licenses. Superbrace, Inc. v. Tidwell, 124 Cal. 

App. 4th 388, 401 (2004) (internal quotation marks and citation omitted). 

 Levi, on the other hand, contends that a federal rule specific to the assignability of patent 

licenses applies. Opposition to Motion to Compel (“Oppo.”) (Dkt. No. 50) at 9. Under the federal 

rule, “agreements granting patent licenses are personal and not assignable unless expressly made 

so.” PPG Industries, Inc. v. Guardian Industries Corp., 597 F.2d 1090, 1093 (6th Cir. 1979); see 

also In re CFLC, Inc., 89 F.3d 673, 680 (9th Cir. 1996) (patent licenses are “personal and 

assignable only with the consent of the licensor”). Decisions following the federal rule have 

strictly construed assignability clauses. See, e.g., PPG Industries, Inc., 597 F.2d at 1092, 1095 

(patent license with assignability clause requiring licensor’s prior written consent could not be 

assigned through merger without licensor’s consent); In re CFLC, Inc., 89 F.3d at 674, 680 

(holding patent license specifying it was “non-transferrable” was “not assumable and assignable in

bankruptcy”). 

B. California Law Applies 

 The United States Supreme Court “has held that a litigant who is not a party to an 

arbitration agreement may invoke arbitration under the FAA if the relevant state contract law 

allows the litigant to enforce the agreement.” Kramer v. Toyota Motor Corp., 705 F.3d 1122, 

1128 (9th Cir. 2013) (citing Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009)). Looking 

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just to this holding, California law would normally apply here to determine whether Aqua, a 

nonsignatory and alleged assignee, may invoke the arbitration provision. 

 But the Ninth Circuit has held that “federal law governs the assignability of patent licenses 

because of the conflict between federal patent policy and state laws, such as California’s, that 

would allow assignability.” In re CFLC, Inc., 89 F.3d at 679.5 The court explained that: 

The fundamental policy of the patent system is to “encourag[e] the 

creation and disclosure of new, useful, and non-obvious advances in 

technology and design” by granting the inventor the reward of “the 

exclusive right to practice the invention for a period of years”. 

Allowing free assignability—or, more accurately, allowing states to 

allow free assignability—of nonexclusive patent licenses would 

undermine the reward that encourages invention . . . . In essence, 

every licensee would become a potential competitor with the 

licensor-patent holder in the market for licenses under the patents 

. . . Thus, any license a patent holder granted—even to the smallest 

firm in the product market most remote from its own—would be 

fraught with the danger that the licensee would assign it to the patent 

holder’s most serious competitor, a party whom the patent holder 

itself might be absolutely unwilling to license. 

Id. (internal citations omitted). In line with the underlying rationale, the court framed the rule in 

terms of limiting attempted assignments by licensees to protect the interests of licensors. See id. at

680 (“[F]ederal law governs the assignability of nonexclusive patent licenses, and . . . makes such 

licenses personal and assignable only with the consent of the licensor[.]”).

 Here Aqua is acting as a licensor of the patent license, as was EAC and Ozone before it. 

Levi is the licensee. I am not aware of any decision that applies the federal rule to limit a 

licensor’s—rather than a licensee’s—ability to assign, as Levi advocates here. Levi cites 

Eastman Kodak Co. v. Cetus Corp., No. CIV. A. 12,249, 1991 WL 255936, at *1 (Del. Ch. Dec. 3, 

1991). There, the parties entered into a patent license agreement that included a non-assignment 

provision and the licensor attempted to sell its rights in the patented technology to the licensee’s 

 

5 California state courts have rejected the Ninth Circuit’s preemption argument and continue to 

apply state law to evaluate the assignability of patent licenses. See, e.g., Superbrace, Inc., 124 

Cal. App. 4th at 401 (after discussing several scholarly articles criticizing the In re CFLC, Inc.

decision, the California Court of Appeal “[chose] to stand steadfastly by [the California] Supreme 

Court’s 1957 ruling . . . that state law, not federal common law, is to be applied when determining 

whether a patent license is assignable.”). 

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competitor. Id. *1-2. The parties decided to arbitrate the issue of assignability and the licensee 

sought a preliminary injunction to prevent the assignment or transfer of assets, pending resolution 

of the arbitration. Id. at *1, 3. In finding that the licensee had established a likelihood of success 

on the merits, the court stated, “The non-assignability provision could plausibly be read to include 

the rights [licensor] retained as well as those rights granted to either party under the Agreement. 

Thus, it would be necessary to ascertain the parties’ intent in order to resolve this issue. Cf. PPG 

Industries, Inc. v. Guardian Industries Corp., 597 F.2d 1090 (6th Cir. 1979).” Id. at *5. I am not 

persuaded that Eastman Kodak’s reference to PPG Industries, which applied the federal rule to 

licensees, justifies application of the federal rule to licensors. 

Levi also argues that “[w]ere the licensor to transfer the patent license to the licensee’s 

most serious competitor, that competitor could gain confidential information from the licensee 

regarding sales figures, costs and pricing, supply chain, and the like, or even terminate the 

license.” Oppo. at 13. But applying the federal rule to licensors does not serve the rule’s purpose: 

encouraging invention. Moreover, where a license agreement is non-exclusive – as the License 

Agreement here is – there is nothing that would prevent a licensor from providing a license to an 

existing licensee’s competitors. See License Agreement § 3.3.1. 

For these reasons, I decline to extend the federal rule to licensors. California state law 

governs the issue of whether Aqua has standing to invoke the arbitration provision of the License 

Agreement. 

II. STANDING TO ENFORCE 

As stated above, under California law, “[g]eneral contract and agency principles apply in 

determining the enforcement of an arbitration agreement by or against nonsignatories. Among 

these principles are 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter 

ego; and 5) estoppel.” Mundi, 555 F.3d at 1045 (internal quotation marks and citation omitted). 

EAC assigned its interest in the License Agreement to Ozone and Aqua argues that Levi, by its 

course of conduct, agreed to that assignment. Aqua then asserts that, as Ozone’s sole shareholder, 

it assumed the interest in the License Agreement after Ozone dissolved and has standing to 

enforce the arbitration provision through: (1) assumption as a corporate successor; (2) equitable 

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estoppel; (3) incorporation by reference; and (4) agency. Levi disagrees, arguing that neither 

Ozone nor Aqua is a signatory to the License Agreement and prior consent was not sought from it 

for any transfers. 

A. Transfer from EAC to Ozone 

Aqua contends that EAC assigned its interest in the License Agreement to Ozone, that 

EAC and Ozone adequately notified Levi of this assignment, and that Levi’s subsequent course of 

conduct waived any objection by Levi based upon the pre-assignment consent provision in the 

License Agreement. Mot. at 10, 12. Levi objects to this characterization, primarily because Levi 

was not notified there were interim transfers from EAC to Wasinger and then from Wasinger to 

Ozone. It argues that because it could have potentially suffered prejudice from the interim or 

subsequent assignments, it cannot be considered to have waived its objection or otherwise ratified 

the assignments. Oppo. at 11. 

An assignment made without contractually-required prior consent is “not void, but 

voidable.” Buchanan v. Banta, 204 Cal. 73, 76 (1928). The party whose consent was required 

must exercise its option to void the contract. Id. at 76-77. A party may waive its right to enforce a 

contract provision through its course of conduct. See Chanan Singh v. Cross, 60 Cal. App. 309, 

317 (Cal. Ct. App. 1922) (waiver of a provision for written notice “may be shown by 

circumstances or a course of acts or conduct”). For waiver to occur, there must be an “intentional 

relinquishment of a known right after knowledge of the facts.” Roesch v. De Mota, 24 Cal.2d 563, 

572 (1944) (finding no waiver of defense of usury because “the availability of such a defense was 

not then within their knowledge”). 

Levi contends that it could not have waived any objection to the assignment of rights 

because “there is no evidence that [Levi] had any knowledge of the transfers from EAC to 

Wasinger or from Wasinger to Ozone.” Oppo. at 13. But Levi did receive notice that Ozone 

asserted that it acquired EAC’s rights under the License Agreement. On September 14, 1998, the 

President of Ozone and the President of EAC co-signed and sent a letter to Levi “to notify Levi of 

the need to assign the rights to the [License Agreement] between [Levi] and [EAC] to [Ozone].” 

Long Decl., Ex. J. The letter stated: 

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[Ozone] acquired the rights to the [Wasinger Agreement] that is 

referenced in the [License Agreement]. Therefore, [Ozone] is the 

rightful owner of the exclusive rights to the processes developed and 

made a part of the [License Agreement] between [Levi] and [EAC]. 

The [License Agreement] should be modified to now include 

[Ozone] as the proper party. [Ozone] shall assume the full rights of 

the [License Agreement] between [Levi] and [EAC]. 

Id. Further, in June 2000, Levi sent to James Stackhouse, the former Vice President of Ozone, 

two quarterly reports regarding Levi’s and its subcontractor’s usage of the patented processes. 

Long Decl., Ex. K at 8. Sending these quarterly reports demonstrates that Levi used the patented 

processes (its right under the License Agreement) and fulfilled at least some of its obligations after 

receiving notice of Ozone’s assumption. See License Agreement § 4.4 (requiring Levi to certify a 

statement of “the number of Licensed Products Received, and the amount of royalty shown to be 

due” for each quarter). Levi, therefore, continued to act pursuant to the License Agreement, 

despite knowing that Ozone asserted it was the licensor. 

 Levi also argues that it objected to the assignment to Ozone. Oppo. at 14. On January 16, 

2001, Levi sent a letter to Ozone’s attorney, William H. Shackelford, Jr., stating, “[EAC]’s 

assignment of the agreement was apparently made without the written consent of [Levi], and 

accordingly constitutes a technical breach of Article 16.2 of the [License] Agreement.” Long 

Decl., Ex. K at 10. Under License Agreement § 10.2, if there is a breach, the non-breaching party 

“shall have the right (but not the obligation) to terminate” the agreement, “effective immediately 

upon written notice to the other party.” Although the January 16, 2001 letter did note a “technical 

breach,” it did not put Ozone on notice that it would terminate the agreement if the breach was not 

cured. Instead, the letter simply requested “a copy of the documentation establishing the chain of 

title from [EAC], to [Aqua] (or [Ozone], or whoever claims to now be the Licensor).” Long Decl., 

Ex. K at 10. Moreover, the identification of the “technical breach” was in the context of the 

parties’ attempt to resolve a dispute over a Levi contractor using the patented ozone process and 

Levi’s suggested “modification” of the License Agreement and the need to “correct” the parties to 

that agreement (presumably to reflect Ozone as the ongoing licensor). In any event, the letter 

establishes that Levi knew of the technical breach but does not show that Levi objected to the 

assignment. 

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 Overall, the correspondence between Levi and Ozone demonstrates that Levi had 

knowledge of Ozone’s position and of its contractual right to object to the assignment to Ozone. 

Levi, however, did not object to the assignment nor did it move to terminate the License 

Agreement. Instead of objecting, Levi continued to act pursuant to the contract. By its course of 

conduct, Levi waived its right to object to the assignment to Ozone.6

C. Transfer from Ozone to Aqua 

Aqua argues that it has standing to enforce the arbitration agreement through its 

assumption of Ozone’s interests in the License Agreement under four theories: (i) successor-ininterest; (ii) equitable estoppel; (iii) incorporation by reference; and (iv) agency. There is no 

reason to address the last three arguments raised by Aqua because the first one entitles it to compel 

arbitration. 

 “Nonsignatory successors and alleged alter egos are entitled to compel arbitration under 

clauses signed by the corporations whose liabilities they are alleged to have assumed.” Prograph 

Int’l Inc. v. Barhydt, 928 F. Supp. 983, 991 (N.D. Cal. 1996). At the time of its administrative 

dissolution, all of Ozone’s assets, including its rights in the License Agreement, were transferred 

to Aqua as Ozone’s sole shareholder. Long Decl. ¶¶ 14-15. Aqua argues that it is therefore 

Ozone’s successor in interest. Levi responds that any purported “transfer” of Ozone’s rights under 

the License Agreement to Aqua is “invalid” without Levi’s consent, regardless of whether the 

“dissolution” of Ozone (under Tennessee law) and the transfer of rights under the License 

Agreement occurred by operation of law, similar to a merger, or by agreement of Ozone and 

Aqua. 

 Levi’s argument fails for several reasons. The case law on which Levi relies is inapposite 

because it deals with the transfer of the “personal” license rights of a patent licensee, not with 

transfer of rights under a License Agreement to a new licensor. Consider Board of Regents of 

 

6

 Levi argues that the chain of title is “further clouded” by the claim made by Fiberzone that it was 

“the current owner and licensor” under the License Agreement in 2005, the time period during 

which Ozone purportedly was the licensor. Oppo. at 6-8; see also McFarlane Decl., Ex. B. This 

does not undermine the finding that Levi’s course of conduct with Ozone waived its right to object 

to Ozone as an assignee. 

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University of Nebraska v. BASF Corp., where the court recognized that, “Federal law has 

established a clear rule that patent licenses are not assignable without express permission by the 

licensor. This rule permits both a patent licensor and its licensee to know precisely how that 

license may be used in the future.” No. 04-cv-3356, 2007 WL 3342406, at *15 (D. Neb. Nov. 6, 

2007). That discussion shows, again, that the interest being protected is the licensor’s. In this 

case, the licensor (Aqua, and Ozone and EAC before it) was free to issue as many licenses as it

desired without Levi’s consent because of the non-exclusive nature of Levi’s license rights under 

the License Agreement. Similarly, Aoki v. Gilbert, No. 11-cv-02797, 2013 WL 1156495 (E.D. 

Cal. Mar. 19, 2013) is distinguishable because it dealt with purported sub-licensee defendants. 

Although the defendants referred to themselves as “successors in interest,” they argued that they 

were covered by the patent license agreement only because of various assignments from prior 

licensees that were ineffective in light of the agreement’s written consent (from the licensor) 

requirement. Id. at *8. 

Pointing out that the federal rule prohibiting transferability of license rights by a patent 

licensee (absent express permission) likewise applies in the copyright context to software licenses 

does not assist Levi in its argument against Aqua, the purported licensor. See, e.g., SQL Sols., Inc. 

v. Oracle Corp., No. C-91-1079 MHP, 1991 WL 626458, at *6 (N.D. Cal. Dec. 18, 1991) (where 

copyright licensee company was reorganized into another company, transfer of rights occurred by 

law but because copyright license was personal and not transferable, “the court finds that an 

illegitimate transfer of copyright license rights occurred when D & N became SQL, and that 

Oracle was legally entitled to termination of the Agreement.”); see also Cincom Sys., Inc. v. 

Novelis Corp., 581 F.3d 431 (6th Cir. 2009) (merger of corporate subsidiary and software licensee 

into another subsidiary resulted in a transfer of software license to the surviving corporate entity, 

the alleged infringer, in violation of license agreement providing that licensee could not transfer 

rights without prior written approval). The federal rule does not apply here and cannot provide 

Levi shelter from the arbitration agreement. 

 Moreover, License Agreement § 16.2 requires consent to “assignments.” It also states,

“Subject to such restrictions [on assignment], this Agreement shall be binding upon and inure to 

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the benefit of the parties, their successors and assigns.” License Agreement § 16.2. The License 

Agreement does not expressly require consent of parties to the passing of rights under the License 

Agreement to a successor licensor. As the very cases on which Levi relies demonstrate, when 

Ozone dissolved, its sole shareholder (Aqua) was not “assigned” rights under the License 

Agreement. Instead, those rights were transferred and “assumed” by Aqua as a matter of law. See

Long Decl., Ex. L (Memorandum for Record, recording “transfer” of the patents and rights under 

License Agreement from Ozone to Aqua); see also PPG Industries, 597 F.2d at 1096 (finding that 

a transfer by operation of law takes place during a merger); Bd. of Regents of Univ. of Nebraska, 

2007 WL 3342406, at *15 (adopting PPG Industries); SQL Solutions, 1991 WL 626458, at *4 

(agreeing with decisions that “held that a transfer of rights is no less a transfer because it occurs by 

operation of law in a merger”); In re Gonzalez, 456 B.R. 429, 435 (Bankr. C.D. Cal. 2011), rev’d 

on other grounds, No. 11-BK-15665, 2012 WL 8262445 (C.D. Cal. June 14, 2012) (“Another 

example [of a transfer by operation of law] is a merger of corporations under California law, 

where the surviving corporation succeeds to all of the disappearing corporation’s property 

‘without other transfer.’”).7 Aqua is entitled to enforce the arbitration provision because it is a 

successor in interest under the License Agreement.

 California law is in agreement. See Trubowitch v. Riverbank Canning Co., 30 Cal. 2d 335, 

344-45 (1947) (“[I]f an assignment results merely from a change in the legal form of ownership of 

a business, its validity depends upon whether it affects the interests of the parties protected by the 

nonassignability of the contract.”). While Levi asserts that it “may have” objected to the 

 

7 Ozone was a Tennessee corporation before it was administratively dissolved. Levi argues that, 

under Tennessee law, an administrative dissolution is different than a merger. In a merger, “all the 

assets and liabilities of the target company are transferred to the acquiring company.” Oppo. at 

15. Because an administratively dissolved corporation’s assets are subject to claims by creditors, 

Levi asserts that the only way Ozone’s rights could have transferred to Aqua was through an 

assignment. Id. This argument holds no weight. Upon its dissolution, Ozone’s assets transferred 

to Aqua “subject to any and all liabilities,” which is similar to a merger. Long Decl., Ex. L. 

Moreover, when an administratively dissolved corporation wishes to terminate its corporate 

existence, it must file articles of termination setting forth “[t]hat all the assets of the corporation 

have been distributed to its creditors and shareholders.” Tenn. Code Ann. § 48-24-205(a)(5). Any 

of Ozone’s assets that did not go to creditors must have been transferred to its sole shareholder,

Aqua. Levi has not demonstrated that Aqua acquired Ozone’s rights in the License Agreement 

through an assignment, rather than a transfer by operation of law as Ozone’s successor in interest. 

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assignment from EAC to Ozone because it had concerns about Ozone’s ability to protect the 

patents, defend Levi from claims of patent infringement, and enforce the patents, Levi has not 

identified any prejudice that it actually faced or actually suffered as a result of the transfer of 

rights from Ozone to Aqua. 

CONCLUSION 

 California law governs whether Aqua, as a non-signatory, has standing to invoke the 

arbitration provision of the License Agreement. As noted in my prior Order, I have not 

determined whether Aqua waived its right to seek arbitration; that issue is for the arbitrator to 

decide. I hold that Levi waived its right to object to the assignment to Ozone through its course of 

conduct and that Aqua is a successor-in-interest to Ozone under the License Agreement. It is 

entitled to enforce the arbitration provision. Aqua’s Motion to Compel Arbitration is GRANTED. 

IT IS SO ORDERED.

Dated: October 18, 2016 

______________________________________ 

WILLIAM H. ORRICK 

United States District Judge 

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