Copyright infringement and DMCA claims subject to arbitration clause in software license

Packeteer, Inc. v. Valencia Systems, Inc., No. 06-7342, 2007 WL 707501 (N.D.Cal. March 6, 2007)

Valencia Systems developed customized software and licensed it to Packeteer. Valencia began to suspect that Packeteer had reverse engineered some of Valencia’s proprietary source code, so it filed a demand for arbitration, claiming copyright infringement and violation of the anticircumvention provisions of the Digital Millennium Copyright Act (“DMCA”).

The development and license agreement between the parties provided, among other things, that “any dispute concerning [the] Agreement … shall be resolved by binding arbitration before one single arbitrator … under the rules of the American Arbitration Association.”

Packeteer filed a declaratory judgment action in the U.S. District Court for the Northern District of California, asking the court to make a determination that arbitration of the copyright infringement and DMCA claims was improper. Valencia moved to dismiss, arguing in favor of the arbitrability of the copyright and DMCA claims. The court granted the motion to dismiss, holding that arbitration of the claims was proper.

The court first gave a nod to the “long established” principle that when a contract contains an arbitration clause, there is a presumption of arbitrability, “in the sense that an order to arbitrate [a] particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.”

Valencia argued that because the agreement incorporated the rules of the American Arbitration Association, the agreement was sufficiently broad to give the arbitrator the authority to determine arbitrability of issues. (The AAA rules give the arbitrator the authority to make such a determination. See, e.g., Rule R-7(a): “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”)

The court agreed with Valencia’s assertion that the claims were subject to arbitration. It also rejected Packeteer’s assertions that arbitration would be improper given that Congress had provided the federal courts with exclusive jurisdiction over copyright and DMCA matters. See 28 U.S.C. 1338(a). With little analysis, the court looked to a number of cases, including Lorber Industries of California v. Los Angeles Printworkers, Corp., 803 F.2d 523, 525 (9th Cir.1986), McMahan Securities Co. v. Forum Capital Markets, 35 F.3d 82, 89 (2d Cir.1994), and Saturday Evening Post Company v. Rumbleseat Press, Inc., 816 F.2d 1191, (7th Cir.1987) to hold that “someone other than a federal court [may] determine a copyright claim.”