Antitrust Law Daily Wrap Up, TOP STORY—WDWash: Arbitration Award Enforcing Exclusive License Withstands Monopoly Objections, (Oct 22, 2012)

By Jeffrey May, J.D.

An arbitration award was not vacated by the federal district court in Seattle on the ground that the arbitrator manifestly disregarded provisions of the Washington State Constitution and the Sherman Act by creating a monopoly for the sale of fire retardant chemicals to treat wooden shakes and shingles sold in California (Global Building Products, Ltd. v. Chemco, Inc., October 18, 2012, Martinez, R.). Judgment was entered confirming the arbitrator’s award reinstating the provisions of the contract granting an exclusive license in perpetuity.

The arbitration award was issued in a dispute between Global Building Products, Ltd.—a firm that treats Western Red Cedar shakes and shingles with fire retardant chemicals and then sells these treated products to various customers in multiple markets—and Chemco, Inc.—a specialty manufacturer of fire retardant chemicals. Chemco and Global had entered a series of licensing agreements, under which Global obtained the exclusive right to use a fire retardant chemical for wood roofing purposes, that at the time was the only approved product for wood shakes and shingles in the State of California. Global brought a demand for arbitration, claiming that Chemco breached the contract by supplying fire retardant chemicals to a competitor of Global for wood shakes and shingles.

Chemco contended that the arbitrator manifestly disregarded the law because the restrictions in the provisions, combined with Global's exclusive license, granted a monopoly to Global for the production, sale, and distribution of all fire retardant chemicals used on wooden shakes and shingles to be sold in California. It argued that the award violated the Washington State Constitution's prohibition on monopolies and Sec. 2 of the Sherman Act.

In order to prevail, Chemco had to show that the arbitrator recognized the law regarding “monopoly”; and then ignored it when constructing the award. However, the arbitrator had concluded that a monopoly had not been created by the exclusive licensing agreement because Chemco was unable to establish the required elements of a monopoly. Because the arbitrator recognized the law, directly addressed its applicability, and found that the facts did not establish a violation of the law, there no evidence of a manifest disregard of the law.

The court also rejected Chemco's argument that the award violated public policy because it “enforce[d] an illegal monopoly.” In order to find a violation of public policy, the court had to first find that the award created an unlawful monopoly. Because the court found that the defendant failed to establish that the contract, and thus the award, created a monopoly, there was no violation of public policy.

The case is 2:12-cv-01017-RSM.

Randolph C Foster (Stoel Rives) for Global Building Products Ltd. Charles E. Newton (Cairncross & Hempelmann) for Chemco Inc.

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