Synopsys, Inc. v. Siemens Industry Software Inc.

2021 | Cited 0 times | N.D. California | April 2, 2021

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

SYNOPSYS, INC.,

Plaintiff, v. SIEMENS INDUSTRY SOFTWARE INC.,

Defendant.

Case No. 20-cv-04151-WHO

ORDER DENYING MOTION TO STAY; DENYING MOTION FOR LEAVE TO FILE SUR-REPLY; AND GRANTING IN PART AND DENYING IN PART MOTIONS TO SEAL Re: Dkt. Nos. 68, 69, 72, 80, 84, 85 INTRODUCTION product of infringing four of

arguing that the most recent updated release of its Aprisa product is covered by a licensing

agreement between the parties and that the parties have agreed to arbitrate any disputes relating to the scope of that license. But as Synopsys argues, the conditions precedent for arbitration set out in the licensing agreement have not yet been met and there is currently no ripe issue referable to arbitration.

1 Siemens may move to stay this action again if and when the conditions precedent to arbitration have been satisfied. In addition, .

BACKGROUND I. PATENT LICENSING & SETTLEMENT AGREEMENT BETWEEN SIEMENS &

SYNOPSYS In June 2018 Synopsys, Siemens AG, the parent company of defendant Siemens, and

1 eave to file a sur-reply is DENIED.

Mentor Graphics, an indirect subsidiary of Siemens AG, entered into a Patent Licensing and milies. See Dkt. No. 68- Id. § 1.17, 1.23.

The PLSA includes the following dispute resolution process for any disputes arising out of the agreement:

10.4.1. If any dispute arises in connection with this Agreement, the responsible representatives of the parties shall attempt, in fair dealing and in good faith, to settle such dispute. Each party can request from the other party that on both sides a senior representative becomes involved in the negotiations. Each party is at any time entitled to terminate the settlement negotiations and to have recourse to an ADR proceeding set forth in Section 10.4.2 through written notification to the other party. 10.4.2. If the parties are not able to reach an amicable settlement pursuant to Section 10.4.1 they shall try to agree on an appropriate alternative dispute resolution (ADR) proceeding (for example mediation, conciliation, expert determination, dispute board, adjudication). If they do not reach agreement on the appropriate ADR proceeding within fourteen (14) days after failure of the settlement negotiations or if the dispute is not settled through ADR proceeding within a period of two (2) months after initiation of the ADR proceeding either party may initiate an arbitration proceeding pursuant to Section 10.4.3. 10.4.3 All disputes arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be finally settled under the January 1, 1998 Rules of Arbitration of the International Chamber of Commerce by three (3) arbitrators, with each party nominating an arbitrator and the third arbitrator, who will act as chairman of the Arbitral Tribunal, nominated by the two (2) arbitrators. The seat of arbitration shall be New York, New York. The procedural law of this seat applicable to international arbitration proceedings shall apply where the Rules are silent. The language to be used in the arbitration proceedings shall be English. Id. §§ 10.4.1, 10.4.2, 10.4.3. II. CURRENT LITIGATION

Aprisa product infringed several Synopsys patents. See Dkt. No. 1. Shortly after this action was

filed, Siemens publicly announced that it had entered into an agreement to acquire Avatar. See Dkt. No. 4. On December 1, 2020, Avatar merged into Siemens and ceased to exist as a stand- alone entity. See Dkt. No. 51. The parties subsequently stipulated to substitute Siemens as defendant for Avatar. See Dkt. Nos. 58, 59.

On December 15, 2020, Siemens released a new version of its newly acquired Aprisa product, version 20.1.rel.1.0. See Dkt. No. 68- Synopsys of its position that the new 20.1.rel.1.0 release, and any future release, was covered by In light of this position, Siemens requested that Synopsys:

claims against Aprisa 20.1.rel.1.0, or subsequent versions, or (2) dismiss without prejudice its claims for ongoing infringement against Aprisa 20.1.rel.1.0., and subsequent versions, or (3) agree to stay the case with respect to such claims pending arbitration. Dkt. No. 68- disputed the 20.1.rel.1.0 release was licensed under the PLSA, that Synopsys

20.1.rel.1.0 and any subsequent products)

Dkt. No. 68- On January 21, 2021, Synopsys requested additional information about Aprisa 20.1.rel.1.0 so that Synopsys could assess and determine whether it fell within the scope of the PLSA. Dkt. No. 68- 2021, Synopsys has been working to review and assess the Aprisa source code.

Siemens filed a motion to stay this action, pending arbitration, on February 12, 2021. See Mot. Synopses filed an opposition to the motion on February 26, 2021, see Dkt. No. 72-4 , and Siemens filed a reply on March 5, 2021, see Dkt. No. 80- 11, 2021, Synopsys moved for leave to file a sur-reply, arguing that a sur-reply was justified

because Siemens raised new arguments and cases in its reply brief. See Dkt. No. 84- - 2

LEGAL STANDARD Und

2 -reply is DENIED. The new arguments and cases It is permissible for Siemens to address these issu do not warrant Synopsys filing a Sur-Reply.

U.S.C. § 3. Section 3 of the FAA states in full:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. Id. See Countrywide Home Loans, Inc., v. Mortgage Guar. Ins.

Corp., 642 F.3

and if it does, (2) whether that agreement encompasses the dispute at issue. If the response is

affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th -law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favo Mundi v. Union Sc. Life Ins. Co., 555 F.3d 1042, 1044 (9th Cir. 2009).

DISCUSSION I. MOTION TO STAY Siemens moves to stay this action under § 3 of the FAA, arguing that there is an arbitrable dispute over whether the 20.1.rel.1.0 release of Aprisa is licensed under the PLSA. Mot. at 9. Synopsys responds that there is not yet any issue referable to arbitration because the parties have pp. at 8-9. Although there is no dispute that the parties have not satisfied the conditions precedent to arbitrate under the PLSA, Siemens asserts that whether the first two steps of the grievance procedures have been satisfied is an issue to be decided in arbitration, not by this court. Reply at 3-5. Many of the key issues relevant to this motion are not in dispute. The parties agree that the

PLSA contains a valid and enforceable arbitration provision. Mot. at 9; Opp. at 5-6. They also appear to agree that any dispute as to the scope of the license, and the extent to which it would cover the 20.1.rel.1.0 release of Aprisa and future versions, should be resolved through the -10; procedures are in progress but have not yet been completed. Mot. at 6, 10; Opp. at 8-9.

The primary question then, is whether I should, or must, stay this action under § 3 of the FAA where (1) the parties have agreed to arbitrate any dispute regarding the scope of the have indisputably not been satisfied. Siemens argues that I must stay the action under these

circumstances because whether the conditions precedent to arbitration under the PLSA have been met is a question for the arbitrator to decide, not this court. Reply at 3. Synopsys argues that where it is clear that conditions precedent to arbitration have not been met, a stay under the FAA is not appropriate. Opp. at 10. stay under the FAA is premature. The Supreme Court has repeatedly held that questions as to

whether the conditions precedent for arbitration are met should be resolved by an arbitrator. See John Wiley & Sons, Inc. v. Livingston have, that the parties are obligated to submit the subject matter of a dispute to arbitration,

f the dispute and bear on its final disposition should be Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (summarizing John Wiley grievance pro BG

Group PLC v. Republic of Argentina On the other hand, courts presume that the parties intend arbitrators, not courts, to decide disputes about the meaning and application

Skivkov v. Artex Risk Sols., Inc., 974 F.3d 1051, 1065 (9th Cir. 2020). But these cases are not directly on point because there is no dispute over whether the conditions precedent to arbitration have been met the parties agree that they have not been met. There is no e or an arbitrator to decide. Cases cited by Snyopsys from the First and Eleventh Circuits, and from one judge in this District, are more on point: They indicate that where it is clear the conditions precedent to an provisions do not apply. In , 290 F.3d 1287, 1291 (11th

Cir. 2002), the Eleventh Circuit held that a stay under the FAA was not appropriate where but neither party had requested a mediation. As the court explained, Id. Similarly, in HIM Portland, LLC v. DeVito Builders, Inc., 317 F.3d 41 (1st Cir. 2003), the First Circuit held that the arbit had requested mediation. As the court held here contracting parties condition an arbitration agreement upon the satisfaction of some condition precedent, the failure to satisfy the specified condition will preclude the parties from compelling arbitration and staying proceedings under the Id. The Hon. Vaughn Walker followed these precedents in Inc., Case No. C 03-5784 VRW, 2004 WL 7338797, at *4 (N.D. Cal. May 27, 2004). In that case, Judge Walker declined to compel arbitration where the parties had failed to satisfy the mediation condition precedent to arbitration. Id. As he stat ecause the parties in this case have included mediation as a condition precedent to arbitration, their failure to attempt to mediate the Id. As in these cases, I agree that here, where there is no dispute that the parties have not completed good faith negotiation and ADR grievance procedure steps, which are conditions precedent to

arbitration, the arbitration provision is not triggered and a stay is not appropriate under the FAA. Siemens makes several attempts to distinguish Kemiron, HIM Portland, and Mostowfi, none of which is convincing. First, Siemens argues that these cases do not control because they

fail to acknowledge John Wiley, Howsam, or BG Group. It notes that a Fourth Circuit case, Chorley Enterprises , 807 F.3d 553, 565 n. 14 (4th Cir. 2015), endorsed this argument, holding that Kemiron and HIM Portland Howsam and BG Group However, as explained above, the John Wiley, Howsam, and BG Group cases all grapple with whether a court or an arbitrator should resolve issues or disputes regarding whether conditions precedent to an arbitration agreement have been met. It is not clear why these cases would apply to the circumstance at issue in Kemiron, HIM Portland, or here, where there is no dispute that the conditions precedent to arbitration have not been met. I disagree that these cases contradict the holdings in Kemiron, HIM Portland, or Mostowfi or render them unpersuasive in these circumstances.

efendant may seek to stay a case pending arbitration without pursuing arbitration. Reply at 4. It is not clear to me how this critique is relevant. While I agree that a stay is a valid remedy under the FAA, regardless of whether a party is actively pursuing arbitration, this does not help resolve the question of whether the arbitration provision in the PLSA has been triggered. Third, Siemens argues that the three cases Synopsys cites are distinguishable because in those cases the parties made no attempt to satisfy the conditions precedent to arbitration, but here

Siemens highlights that the parties are actively negotiating and have decided that mediation would be appropriate if negotiations fail. Id. at 6. These facts do not create a meaningful distinction. In Id. at 5. Where the conditions for seeking arbitration are clearly not

See Mostowfi v, 2004 WL 7338797 at *4. While I am encouraged that the parties are complying with their agreement to actively negotiate and attempt to resolve this issue pursuant to the grievance procedures, their ongoing cooperation does not make a strong case for staying the case now under

the FAA. Fourth, Siemens argues that denying its motion to stay would be contrary to the goals and

Mercury Constr. Corp., 460 U.S. 1

e -to pre- alternative to litigation for parties But it is t -selected grievance procedures that pose a current bar to arbitration, not this court. The purpose of the FAA is not to move parties out of court generally, but to promote Moses H. Cone, 460

arbitration, and because those conditions have not been satisfied, remedies under the FAA are not yet appropriate.

been triggered and that a stay under the FAA is therefore premature. When the preconditions have been satisfied, Siemens may renew this motion if Synopsys refuses to arbitrate. II. MOTIONS TO SEAL

The parties move to seal a number of documents associated with their briefing on See Dkt. Nos. 68, 72, 80, 84. Under Ninth Circuit law a party must - Ctr. for Auto Safety v. Chrysler Grp., 809 F.3d 1092, 1096-

version 20.1.rel.1.0 and subsequent versions of Aprisa are licensed under the PLSA. Case 3:20-cv-04151-WHO Document 95 Filed 04/02/21 Page 8 of 14 a court record might be used to

gratify private spite or promote public scandal, to circulate libelous statements, or as sources of Ctr. for Auto Safety, 809 F.3d at 1097.

Here, the information the parties seek to seal falls into two main categories: (1) and (2) technical details regarding Aprisa release 20.1.rel.1.0. As to the first category, courts have found compelling reasons to seal confidential contracts, contract negotiations, and trade secrets where their Federal Trade Commission v. Qualcomm Inc., Case No. 17-CV-00220-LHK, 2019 WL 95922, at *3 (N.D. Cal. Jan. 3, 2019). The parties

financial information such as damage caps, bank account information, and negotiated ore be sealed in its entirety. See Dkt. No. 84 at 2. They also note that the parties agreed that the PLSA, as well as information related to its negotiation, Id.

I agree that portions of the PLSA appear commercially sensitive, but seal the entire PLSA, and any reference or acknowledgement of it, is not realistic. It is not existence and discussing the grievance procedures and arbitration provision the parties agreed to.

Further, disclosure of this information is not likely to cause competitive harm to the parties. The parties themselves publicly acknowledge and reference the PLSA and some of its contents, including the parties to the agreement, in their motions to seal. See e.g. Dkt. No. 68 at 3; Dkt. No. 72 at 2. In addition, implicitly, that there is an arbitration agreement between the parties. Disclosure of the specific are not likely to cause the parties competitive harm.

to seal are DENIED as to basic facts regarding the PLSA

including the existence and name of the agreement, the date of the agreement, and the parties to the agreement. The motions are also DENIED as to any references to or quotations from Section 10.4 GRANTED as to the remaining terms of the PLSA because the document reflects a confidential

contract between the parties, disclosure of which could cause competitive harm to the parties, and because these terms are not material to resolution of the motion to stay. Further details on how this ruling impacts the specific documents filed under seal are provided in the chart below.

Siemens also seeks to seal specific technical details regarding Aprisa release 20.1.rel.1.0 including release notes and source code that it argues contain confidential business and trade secret information regarding the Aprisa technology. See Dkt. No. 68 at 4. Siemens notes that it only provides release notes to customers who sign a confidentiality agreement and that disclosure and enable competitors to reverse engineer or otherwise utilize the confidential Aprisa

functionality. Id. at 4-5. It further argues that Aprisa source code is kept confidential and is a trade secret Id. at 5. I agree that disclosure of these technical details regarding the Aprisa technology could cause competitive harm to Siemens and that there are compelling reasons to seal this information. Further, this information is not key to understanding the issues raised by Order. otions to seal are GRANTED as to information related to the Aprisa release notes and source code.

Full details regarding my rulings and how this impacts the sealing of specific documents are reflected in the below chart. The parties will have 15 days from the date of this order to file any documents where I have indicated new redacted versions are required. The clerk will unseal the indicated documents on the docket.

Document Sealed

Portion

Sealing Justification

Designating Party

Ruling

Dkt. No. 68-8 Motion to Stay Pending Arbitration

Redacted excerpts

Confidential contract terms and business information.

Siemens DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Siemens to refile a new redacted version of the motion to stay in line with this ruling.

Dkt. No. 68-9 Exhibit 3 to Mot. PLSA

All Confidential

contract terms and business information.

Siemens DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Siemens to refile a new redacted version of the PLSA in line with this ruling

Dkt. No. 68-10 Exhibit 6 to Mot. Aprisa Release Notes

All Confidential

release notes

Siemens GRANTED

Dkt. No. 68-11 Exhibit 7 to Mot. Jan 7, 2021 Letter from Siemens Counsel to Synopsys Counsel

Redacted excerpts

Confidential contract terms and business information.

Siemens DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Siemens to refile a new redacted version of the letter in line with this ruling

Dkt. No. 68-12 Exhibit 8 to Mot. Jan 8, 2021 Letter from Siemens Outside Counsel to Synopsys Outside Counsel

Redacted excerpts

Confidential contract terms and business information.

Siemens DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Siemens to refile a new redacted version of the letter in line with this ruling

Dkt. No. 68-13 Exhibit 9 to Mot. Jan 21, 2021 Letter from Synopsys Outside Counsel to Siemens Outside Counsel

Redacted excerpts

Confidential contract terms and business information.

Siemens DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Siemens to refile a new redacted version of the letter in line with this ruling

Dkt. No. 68-14 Exhibit 11 to Mot. Feb. 3, 2021 Letter from Siemens Outside Counsel to Synopsys Outside Counsel

Redacted excerpts

Confidential contract terms and business information; technical details regarding Aprisa.

Siemens DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement and technical details regarding Aprisa. Siemens to refile a new redacted version of the letter in line with this ruling

Dkt. No. 72-4 s Opposition to Motion to Stay Pending Arbitration

Redacted excerpts

Confidential contract terms and business information

Synopsys DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Synopsys to refile a new redacted version of its opposition in line with this ruling.

Dkt. No. 72-6 Pursley Decl. ISO Opp.

Redacted excerpts

Confidential contract terms and business information

Synopsys DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Synopsys to refile a new redacted version of the declaration in line with this ruling.

Dkt. No. 72-8 Pursley Decl. Ex. 1

Redacted excerpts

Confidential contract terms and business information

Synopsys DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Synopsys to refile a new redacted

version of the letter in line with this ruling.

Dkt. No. 72-10 Singh Decl. ISO Opp.

Redacted excerpts

Confidential contract terms and business information

Synopsys GRANTED

Dkt. No. 72-12 Singh Decl. Ex. 1

Redacted excerpts

Confidential contract terms and business information

Synopsys GRANTED

Dkt. No. 80-3 Reply ISO Motion to Stay

Redacted excerpts

Confidential contract terms and business information

Siemens DENIED as to information

relating to (1) existence of PLSA; and (2) Section 10.4; GRANTED as to other terms of the agreement. Siemens to refile a new redacted version of the Reply in line with this ruling

Dkt. No. 84-4 Admin Motion to File Sur- Reply

Redacted excerpts

Confidential contract terms and business information

Synopsys DENIED

Dkt. No. 84-4 to be unsealed on the docket.

Dkt. No. 84-6 Proposed Sur- Reply

Redacted excerpts

Confidential contract terms and business information

Synopsys DENIED

Dkt. No. 84-6 to be unsealed on the docket.

CONCLUSION For the reasons discussed FAA is DENIED. Siemens may renew its motion to stay this action if the parties exhaust the other grievance procedures outlined in the PLSA and a dispute remains. leave to file a sur- GRANTED IN PART as reflected in the above chart. The parties will have 15 days from the date

of this order to file any new redacted versions of the sealed documents where so ordered.

IT IS SO ORDERED. Dated: April 2, 2021

William H. Orrick United States District Judge

Back to top