  United States Court of Appeals for the Federal Circuit

                                        2007-1317

                                 DATATREASURY CORP.,

                                                      Plaintiff-Appellee,
                                             v.

               WELLS FARGO & COMPANY and WELLS FARGO BANK, N.A.,

                                                      Defendants-Appellants,
                                            and

      BANK OF AMERICA CORPORATION, BANK OF AMERICA, N.A., U.S. BANCORP,
           U.S. BANK, N.A., WACHOVIA CORPORATION, WACHOVIA BANK, N.A.,
            SUNTRUST BANKS, INC., SUNTRUST BANK, BB&T CORPORATION,
            BRANCH BANKING AND TRUST COMPANY, BANCORPSOUTH, INC.,
       BANCORP SOUTH BANK, COMPASS BANCSHARES, INC., COMPASS BANK,
              CULLEN/FROST BANKERS, INC., THE FROST NATIONAL BANK,
       FIRST HORIZON NATIONAL CORPORATION, FIRST TENNESSEE BANK, N.A.,
             HSBC NORTH AMERICA HOLDINGS, INC., HSBC BANK USA, N.A.,
        HARRIS BANKCORP, INC., HARRIS, N.A., NATIONAL CITY CORPORATION,
                    NATIONAL CITY BANK, ZIONS BANCORPORATION,
              ZIONS FIRST NATIONAL BANK, BANK OF NEW YORK CO., INC.,
           THE BANK OF NEW YORK CO., INC., UNIONBANCAL CORPORATION,
      UNION BANK OF CALIFORNIA, N.A., BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
             CITIZENS FINANCIAL GROUP, INC., COMERICA INCORPORATED,
          COMERICA BANK & TRUST, N.A., FIRST CITIZENS BANCSHARES, INC.,
                  FIRST CITIZENS BANK & TRUST COMPANY, KEYCORP,
          KEYBANK NATIONAL ASSOCIATION, LASALLE BANK CORPORATION,
                     DEUTSCHE BANK TRUST COMPANY AMERICAS,
               LASALLE BANK, N.A., M&T BANK CORPORATION, M&T BANK,
              THE PNC FINANCIAL SERVICES GROUP, INC., PNC BANK, N.A.,
                SMALL VALUE PAYMENTS COMPANY, LLC, REMITCO, LLC,
                   THE CLEARING HOUSE PAYMENTS COMPANY, LLC,
                FIRST DATA CORPORATION, TELECHECK SERVICES, INC.,
               ELECTRONIC DATA SYSTEMS CORP., UBS AMERICAS, INC.,
         THE BANK OF NEW YORK, and VIEWPOINTE ARCHIVE SERVICES, LLC,

                                                      Defendants.

       Karl A. Rupp, Provost Umphrey, L.L.P., of Dallas, Texas, argued for plaintiff-
appellee.

       Jay F. Utley, Baker & McKenzie LLP, of Dallas, Texas, argued for defendants-
appellants. With him on the brief were John G. Flaim, Kevin M. O’Brien, Nathan A.
Engels, and W. Barton Rankin. Of counsel was Kevin J. Sullivan.

Appealed from: United States District Court for the Eastern District of Texas

Judge David J. Folsom
 United States Court of Appeals for the Federal Circuit

                                       2007-1317


                               DATATREASURY CORP.,

                                                              Plaintiff-Appellee,
                                            v.


           WELLS FARGO & COMPANY and WELLS FARGO BANK, N.A.,

                                                              Defendants-Appellants,

                                           and

  BANK OF AMERICA CORPORATION, BANK OF AMERICA, N.A., U.S. BANCORP,
      U.S. BANK, N.A., WACHOVIA CORPORATION, WACHOVIA BANK, N.A.,
       SUNTRUST BANKS, INC., SUNTRUST BANK, BB&T CORPORATION,
   BANCORP SOUTH BANK, COMPASS BANCSHARES, INC., COMPASS BANK,
         CULLEN/FROST BANKERS, INC., THE FROST NATIONAL BANK,
   FIRST HORIZON NATIONAL CORPORATION, FIRST TENNESSEE BANK, N.A.,
        HSBC NORTH AMERICA HOLDINGS, INC., HBSC BANK USA, N.A.,
    HARRIS BANKCORP, INC., HARRIS, N.A., NATIONAL CITY CORPORATION,
               NATIONAL CITY BANK, ZIONS BANKCORPRATION,
         ZIONS FIRST NATIONAL BANK, BANK OF NEW YORK CO., INC.,
      THE BANK OF NEW YORK CO., INC., UNIONBANCAL CORPORATION,
   UNION BANK OF CALIFORNIA, N.A., BANK OF TYKYO-MITSUBISHI UFJ, LTD.,
        CITIZENS FINANCIAL GROUP, INC., COMERICA INCORPORATED,
      COMERICA BANK&TRUST, N.A., FIRST CITIZENS BANCSHARS, INC.,
             FIRST CITIZENS BANK & TRUST COMPANY, KEYCORP,
      KEYBANK NATIONAL ASSOCIATION, LASALLE BANK CORPORATION,
                DEUTSCHE BANK TRUST COMPANY AMERICAS,
          LASALLE BANK, N.A., M&T BANK CORPORATION, M&T BANK,
         THE PNC FINANCIAL SERVICES GROUP, INC., PNC BANK,N.A.,
           SMALL VALUE PAYMENTS COMPANY, LLC, REMITCO, LLC,
           FIRST DATA CORPORATION, TELECHECK SERVICES, INC.,
          ELECTRONIC DATA SYSTEMS CORP., USB AMERICAS, INC.,
     THE BANK OF NEW YORK, and VIEWPOINTE ARCHIVE SERVICES, LLC,

                                                              Defendants.

Appeal from the United States District Court for the Eastern District of Texas in case no.
2:06-CV-72, Judge David J. Folsom.
                            __________________________

                               DECIDED: April 16, 2008
                            __________________________


Before MAYER, and BRYSON, Circuit Judges, and FOGEL, ∗ District Judge.

FOGEL, District Judge.

      Wells Fargo & Company (“WFC”) and Wells Fargo Bank, N.A. (collectively,

“Appellants”) appeal an order of the United States District Court for the Eastern District

of Texas denying Appellants’ motion to dismiss or stay litigation pending arbitration

brought by Datatreasury Corp. (“Appellee”).       This Court heard oral argument on

November 6, 2007. Because the parties are not bound by the operative arbitration

clause, we affirm.

I.

      In December 2003, one of WFC’s subsidiaries, Wells Fargo Services Corp.

(“WFSC”) entered into a software license agreement with e-Banc LLC (“e-Banc”) and

WMR e-Pin LLC (“WMR”). This agreement, the Software License Agreement Schedule

2 (“Schedule 2"), provided WFSC with rights to certain software, including software that

“provides ability to provide net settlement services.” 1 Schedule 2 also memorialized the

following side agreement:



      ∗
             Honorable Jeremy Fogel, District Judge, United States District Court for
the Northern District of California, sitting by designation.
      1
             The Patent License Agreement defines “net settlement services” as:

      national net settlement services, including, without limitation, data
      collection, member profile capabilities, settlement, billing, reports,
      enhancements, and other functions described in Schedule 2, and all
      attending, accompanying and other services, functions, capabilities, rights,


2007-1317                                   2
      WMR . . . shall sign a side agreement representing and warranting that it
      has the rights to license its Central Check Clearing System patent relating
      to national net settlement (No. 5,265,008) (“Patent”) and shall grant Wells
      Fargo a royalty free license to . . . use such Patent for the term of the
      License hereunder . . . .

In 2004, WFSC entered into a Patent License Agreement (“PLA”) with WMR. The PLA

between WFSC and WMR contained six clauses that are relevant to this case:

      (1) PLA License Grant

      WMR hereby grants Wells Fargo a non-exclusive, fully paid-up, royalty
      free worldwide right and license under and to the Patent, and any rights
      that may be embodied in the Patent, for the purpose of enabling Wells
      Fargo, or any of its Affiliates, to use or utilize the Licensed Products for
      providing and performing, directly or indirectly, any Net Settlement
      Services (the “License”).


      (2) PLA Definition of the Patent Being Licensed

      “Patent” means the U.S. Patent No. 5,265,007, entitled “Central Check
      Clearing System,” issued on or about November 23, 1993, and all
      applications and patent disclosures related thereto, and all provisionals,
      reissuances, continuations, continuations-in-part, divisionals, revisions,
      renewals, extensions, substations, conversions, and reexaminations
      thereof, and all foreign and international counterparts and equivalents
      thereof.

      (3) Successorship Clause

      This agreement shall be binding upon and inure to the benefits of the
      Parties and their respective successors.

      (4) Anti-Assignment Clause

      [N]either Party may assign or transfer this Agreement, or any part thereof,
      without prior written consent of the other Party, which consent shall not be
      unreasonably withheld.



      and uses permitted or granted under or pursuant to the Software License
      Agreement and schedules.



2007-1317                                  3
       (6) Covenant Not to Sue Clause

       WMR covenants, for itself an on behalf of all of its Affiliates, not to sue or
       initiate or threaten any claim, action, litigation, arbitration or other
       proceeding against, and releases from liability, Wells Fargo or any of its
       Affiliates or Permitted Assignees . . . or users or beneficiaries of any Net
       Settlement services in any jurisdiction or under any laws anywhere in the
       world in connection with Wells Fargo’s [or] Affiliates or Permitted
       Assignees’ . . . use or utilization of or benefit from (i) the Licensed
       Products or (ii) any Net Settlement Services, or (iii) any rights granted
       under the Software License Agreement and the Schedule 2.

       (7) Arbitration Clause

       Any dispute or disagreement arising between WMR and Wells Fargo
       concerning the applicability or interpretation of this License Agreement
       shall be resolved in accordance with the dispute resolution procedures
       specified in the software License Agreement.

The PLA also provides expressly “this agreement will be governed by and interpreted in

accordance with the laws of the state of Minnesota.” Neither Appellant nor Appellee is a

party to the PLA.

       In February 2006, WMR assigned four patents to Appellee: U.S. Patent No.

5,265,007 (“the ‘007 patent”) and U.S. Patents Nos. 5,583,759; 5,717,868; and

5,930,778 (collectively, “patents-in-suit”).       On February 24, 2006, Appellee filed a

complaint in the Eastern District of Texas accusing Appellants of infringing the patents-

in-suit. On January 8, 2007, Appellants moved to dismiss or, in the alternative, stay

pending arbitration. Appellants asserted that the PLA prohibits Appellee from bringing

an infringement action against them. Appellants argued that the term “patent” should be

interpreted broadly under the PLA. Based on this interpretation, Appellants argued that

as an assignee of the patents-in-suit, Appellee is bound by the PLA, including the

covenant not to sue and the arbitration clause.

       On April 24, 2007, the district court denied the motion to dismiss or stay. It



2007-1317                                      4
determined two issues: (1) whether Appellee may be compelled to arbitrate under the

terms of the PLA; and (2) whether the patents-in-suit are within the scope of the PLA.

Applying Minnesota law, the district court concluded that Appellee is not a party that

may be bound by the PLA’s arbitration clause, either in its own right or as a “successor”

of WMR. The district court also held that a plain reading of the PLA did not support the

conclusion that the word “patent” encompasses the patents-in-suit.

II.

         “In a case involving the arbitrability of a claim, [the Federal Circuit] review[s] the

district court’s determination that the parties have contractually bound themselves to

arbitrate disputes de novo, and its factual findings for clear error.” Cont’l Ins. Co. v.

Polish S.S. Co., 346 F.3d 281, 282 (Fed. Cir. 2003). Regional circuit law is applied to

contractual disputes, including disputes involving license agreements.              McCoy v.

Mitsubishi Cutlery, 67 F.3d 917, 920 (Fed. Cir. 1995) (“[W]hether express or implied, a

license is a contract governed by ordinary principles of state contract law.”). When

determining the scope of an arbitration clause, the Fifth Circuit applies the state law that

governs the agreement. Wash. Mut. Fin. Group v. Bailey, 364 F.3d 260, 264 (5th Cir.

2004).

         In determining whether parties have agreed to arbitrate a particular dispute,

courts in the Fifth Circuit consider: “(1) whether a valid agreement between the parties

exists; and (2) whether the dispute in question falls within the scope of that arbitration

agreement.” OPE Int’l LP v. Chet Morrison Contractors, Inc., 258 F.3d 443, 445 (5th

Cir. 2001); see also Pennzoil Exploration & Prod. Co., 139 F.3d 1061, 1064 (5th Cir.

1998) (noting that “[a]rbitration is a matter of contract between the parties, and a court




2007-1317                                      5
cannot compel a party to arbitrate a dispute unless the court determines the parties

agreed to arbitrate the dispute in question”). “[T]he question of whether a party is bound

by an agreement containing an arbitration provision is a threshold question for the Court

to decide.” Microchip Tech. Inc. v. U.S. Philips Corp., 367 F.3d 1350, 1357 (Fed. Cir.

2004) (internal quotations omitted).    Because in deciding whether there is a valid

agreement between the parties, the Fifth Circuit applies state law, see Fleetwood

Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002), the question of

arbitrability in the instant case turns on whether, under Minnesota law, there is a valid

agreement to arbitrate between Appellant and Appellee.

       “[F]ederal policy favoring arbitration does not apply to the determination of

whether there is a valid agreement to arbitrate between the parties; instead ordinary

contract principles determine who is bound.” Id. Applying basic principles of contract

law, courts in Minnesota have held that a party is not bound by an arbitration clause

unless it is a signatory to the underlying contract. See, e.g., State v. Cross Country

Bank, Inc., 703 N.W. 2d 562, 569 (Minn. Ct. App. 2005) (“Arbitration is a matter of

contract, and a party that has not agreed to arbitrate a dispute cannot be required to

arbitrate.”); see also Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 353 (5th Cir.

2003) (“In order to be subject to arbitral jurisdiction, a party must generally be a

signatory to a contract containing an arbitration clause.”); Westmoreland v. Sadoux, 299

F.3d 462, 465 (5th Cir. 2002) (“[I]t is well and good if the parties to a private agreement

wish to choose an alternative dispute system, but [the Fifth Circuit] is wary of choices

imposed after the dispute has arisen and the bargain has long since been struck.”).




2007-1317                                   6
       Appellants seek to enforce the arbitration provision of the PLA despite the fact

that none of the parties involved in this litigation was a signatory to that agreement.

Under Minnesota law, a non-signatory can enforce an arbitration clause in limited

circumstances.   For instance, a non-signatory may be compelled to arbitrate under

theories of equitable estoppel, agency and third-party beneficiary. See Cross Country

Bank, 703 N.W. 2d at 570. Likewise, in Bridas the court recognized six theories that

may be asserted to bind a party that has not signed an arbitration agreement: (1)

incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; (5)

estoppel; and (6) third-party beneficiary. Id. at 357. Appellants do not contend that any

of these theories applies in the instant case. Instead, they assert that Appellee is bound

by the arbitration clause because it “runs with the patent.” 2 However, Appellants cite no

persuasive authority for their argument.

       Appellants rely on cases standing for the general proposition that because the

owner of a patent cannot transfer an interest greater than that which it possesses, an

assignee takes a patent subject to the legal encumbrances thereon. See, e.g., Worley

v. Tobacco Co., 104 U.S. 340 (1881) (holding that where an inventor’s public use

invalidated his patent assignee did not have title to a valid patent); Sanofi, S.A. v. Med-

Tech Veterinarian Prods., 565 F. Supp. 931 (D.N.J. 1983) (holding that a patentee who

had licensed the exclusive right to distribute his product in the United States could not

subsequently assign that right because a patentee cannot transfer a right greater than it

       2
               The parties dispute the scope of the PLA. Appellants assert that the PLA
applies to the patents-in-suit because they: (1) are “related” to the ’007 patent and
therefore are within the meaning of the PLA’s patent definition; and (2) are patents for
“net settlement services” subject to the covenant not to sue. Because the order of the
district court may be affirmed for the reasons discussed in this opinion, we do not reach
these issues.

2007-1317                                   7
possesses). However, the legal encumbrances deemed to “run with the patent” in these

cases involved the right to use the patented product, not a duty to arbitrate. The cases

do not support a conclusion that procedural terms of a licensing agreement unrelated to

the actual use of the patent (e.g. an arbitration clause) are binding on a subsequent

owner of the patent.

       As viewed by the Fifth Circuit, requiring a non-signatory party to arbitrate solely

on the basis of an arbitration clause in a license agreement between signatory parties

would be inconsistent with basic principles of contract law and the Federal Arbitration

Act, 9 U.S.C. § 2 et seq. (“FAA”). “Arbitration under the FAA is a matter of consent, not

coercion.” Equal Employment Opportunity Comm’n v. Waffle House, Inc., 534 U.S. 279,

299 (2002). The Fifth Circuit has explained:

       [W]e will read the reach of an arbitration agreement between parties
       broadly, but that is a different matter from the question of who may invoke
       its protections. An agreement to arbitrate is a waiver of valuable rights
       that are both personal to the parties and important to the open character
       of our state and federal judicial systems-an openness this country has
       been committed to from its inception. It is then not surprising that to be
       enforceable, an arbitration clause must be in writing and signed by the
       party invoking it.


Westmoreland, 299 F.3d at 465.

       Neither party in this litigation signed the PLA or participated in negotiating any of

its terms. 3   Accordingly, the dispute between these parties is not subject to the

arbitration clause of that agreement. As this court previously has recognized, “a party

cannot be compelled to arbitrate if an arbitration clause does not bind it.” Microchip,




3
 WFSC and WMR are the signatories of Schedule 2. The record does not reflect a
corporate affiliation between Appellee and either of the signatories.


2007-1317                                    8
367 F.3d at 1357. Accordingly, the district court’s order denying Appellants’ motion to

dismiss or stay pending arbitration is affirmed.

                                       AFFIRMED




2007-1317                                    9
