Cameron International Corp. v. Vetco Cray, Inc. (Tex.App.- Houston [14th Dist.] Mar. 31,
2009)(Anderson) (contract interpretation, confirmation of an arbitrator’s award, unambiguous contract)
M E M O R A N D U M O P I N I O N
This is a contract interpretation case. Appellant, Cameron International Corporation f/k/a Cooper
Cameron Corporation, appeals the trial court’s confirmation of an arbitrator’s award and the granting of
summary judgments construing the language of an unambiguous contract. Finding no error, we affirm.
Factual and Procedural Background
A Christmas tree is a device, made up of a series of valves and pipes, which regulates the flow of oil and
gas produced by subsea wells. There are four primary manufacturers of subsea Christmas trees
worldwide: appellant, appellee, Vetco Gray Inc., Kvaerner Oilfield Products, Inc. ("Kvaerner”), and FMC
Technologies, Inc. ("FMC”). Originally, Christmas trees were vertical. Maintenance on subsea wells was
an expensive and time-consuming process because the entire vertical Christmas tree had to be removed
first. In 1996, appellant patented a new design of Christmas tree, a horizontal tree, which appellant called
the SpoolTree. The SpoolTree design was superior to the old vertical tree design because it allowed
maintenance to be performed while the tree remained in place and provided better protection against
leakage that could endanger workers and harm the environment.
After it patented the SpoolTree, appellant sent notice of its patent to its three competitors: appellee,
Kvaerner, and FMC. In addition, appellant invited each of the three competitors to negotiate a license to
use the SpoolTree design. Of the three competitors, only appellee entered into negotiations with
appellant for a license. Kvaerner and FMC entered into litigation with appellant over the design. In 1997
appellee’s negotiations with appellant were successful and they entered into a contract, the Cross-
License Agreement. Pursuant to the Cross-License Agreement, appellee agreed to pay appellant a
royalty rate of 6.5 percent of all revenue obtained from selling products covered by appellant’s patents
retroactive to August 1996. In addition, appellee gave appellant a cross-license for several of appellee’s
products and received a $3 million credit to be applied to its royalty payments to appellant. In addition, to
protect appellee’s status as the first to obtain a SpoolTree license, the Cross-License Agreement includes
a Amost-favored licensee” clause that requires appellant to promptly notify appellee of any SpoolTree
licenses appellant might grant to a third party. In addition, paragraph 5.2 of the Cross-License
Agreement provides:
In the event the ROYALTY TERMS of such third-party license are, as a whole, more favorable to the other
PARTY than are provided in this CROSS LICENSE AGREEMENT, then for so long as the third-party
license is in effect, the other PARTY shall be entitled to elect the more favorable ROYALTY TERMS from
the date of notice to the third party or the date of marking, whichever is earlier.
To address the possibility that future SpoolTree licenses might not have an explicit royalty percentage
such as appellee’s 6.5 percent, the parties included paragraph 5.6 in the Cross-License Agreement,
which provides:
In the event the PARTIES cannot agree on the ROYALTY TERMS of a third party license, the PARTIES
shall select within fifteen (15) days after written request by a PARTY one economic evaluator by mutual
agreement, which agreement shall not be unreasonably withheld. The PARTIES shall submit in writing to
the economic evaluator the issue of the ROYALTY TERMS for the third party license. Each PARTY shall
be allowed one written submission and neither party shall be allowed a responsive or other written
submission unless specifically requested in writing by the economic evaluator. There shall be no ex parte
contact with the economic evaluator concerning the subject matter. The economic evaluator’s decision,
which must be made within one month of the final submission, shall be binding upon the PARTIES. The
PARTIES shall share the cost of the economic evaluator.
Eventually, appellant resolved its litigation and negotiated license agreements with both Kvaerner and
FMC. The Kvaerner license involved a fixed sum royalty for each Christmas tree sold using appellant’s
patents as well as two supply agreements. On August 22, 2003, appellee sent appellant notice of its
election of the Kvaerner royalty rate. In response, appellant refused to acknowledge appellee’s election,
threatened to terminate appellee’s license by declaring appellee in default, and refused appellee’s
requests to take the matter to an economic evaluator. Appellant then initiated the current litigation asking
the trial court to declare, among other things, (1) that any election by appellee of the Kvaerner royalty
rate must be based upon the economic value exchanged as a whole, and (2) the determination of the
effective percentage rate of the Kvaerner royalty rate must take the economic value appellant received
from the two Kvaerner supply agreements into account.[1]
While the current litigation was in progress, appellant, on March 7, 2004, entered into a license
agreement with FMC (the A2004 FMC License”). The 2004 FMC License required FMC to make a lump
sum payment of $6 million to appellant. In addition, the 2004 FMC License included a cross-license
granting appellant a license to certain FMC patents and a supply agreement. Under the 2004 FMC
License, once it had paid the $6 million lump sum, FMC had no royalty obligations going forward. After
reviewing the 2004 FMC License, appellee notified appellant of its election of the 2004 FMC License’s
royalty terms and appellant Aacknowledg[ed] and accept[ed] [appellee’s] election.” Despite that
acknowledgment and acceptance, the litigation between appellant and appellee continued as the dispute
widened to include the 2004 FMC License.
In March 2005, appellant moved to abate the litigation and send the dispute over the royalty rates to
arbitration. The trial court granted appellant’s motion and ordered the parties to arbitration. The parties
selected Professor Paul M. Janicke, a law professor at the University of Houston Law Center, as the
neutral arbitrator. Based on the terms of the Cross-License Agreement and the trial court’s arbitration
order, Professor Janicke was to determine the Aroyalty terms” of the 2004 FMC License and the Kvaerner
license.
In October 2005, Professor Janicke issued his report. In his report, Professor Janicke found the 2004
FMC License had an effective royalty rate of .76 percent and the Kvaerner license had an effective
royalty rate of 6.46 percent, making both more favorable than appellee’s 6.5 percent royalty rate.
Appellant moved to vacate the arbitration award while appellee asked the trial court to confirm it. On
November 18, 2005, the trial court granted appellee’s motion and confirmed the arbitration award.
Following the arbitration, appellant and FMC entered into an amended and restated cross-license
agreement (the A2005 FMC License”). Appellant then notified appellee that since the 2004 FMC License
had been replaced, appellee had lost the .76 percent royalty rate and its royalty rate had reverted back to
the original 6.5 percent. This issue was then added to the ongoing litigation.
All remaining issues related to the construction of the Cross-License Agreement were resolved through a
series of motions for partial summary judgment filed by appellee and which were granted by the trial
court. On July 20, 2006 the trial court granted appellee’s motion for partial summary judgment contending
it had not breached the Cross-License Agreement when it applied the $14 million credit resulting from the
arbitrator’s award to any amounts due to appellant for the use of appellant’s SpoolTree patents. On
September 8, 2006 the trial court granted appellee’s motion for partial summary judgment asserting any
credit generated by appellee’s election of the 2004 FMC royalty rate remained in place regardless of the
continuing validity or existence of the 2004 FMC License. Finally, on November 22, 2006 the trial court
granted appellee’s motion for partial summary judgment asserting (1) the Cross-License Agreement was
not ambiguous, and (2) that once appellee had elected the 2004 FMC royalty terms, nothing in the
language of the Cross-License Agreement allowed appellee’s royalty terms to revert back to the original
6.5 percent rate. After the parties dismissed their remaining claims, the trial court entered a final
judgment incorporating its prior orders. This appeal followed.
Discussion
Appellant raises two issues in this appeal. In its first issue, appellant contends the trial court erred in its
construction of the Cross-License Agreement when it determined that once appellee had elected the
2004 FMC royalty terms, nothing in the language of the Cross-License Agreement allowed appellee’s
royalty terms to revert back to the original 6.5 percent rate. Within that first issue, appellant also argues
the Cross-License Agreement is ambiguous. In the second issue, appellant asserts the trial court erred
when it confirmed Professor Janicke’s arbitration award. We address each in turn.
I. Did the trial court err in its construction of the Cross-License Agreement?
A. The standard of review.
The movant for summary judgment has the burden to show there is no genuine issue of material fact and
is entitled to judgment as a matter of law. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex.
1985). In determining whether there is a genuine fact issue precluding summary judgment, evidence
favorable to the non-movant is taken as true and the reviewing court makes all reasonable inferences and
resolves all doubts in the non-movant’s favor. Id. at 548-549. If there is no genuine issue of material fact,
summary judgment should issue as a matter of law. Hasse v. Glazner, 62 S.W.3d 795, 797 (Tex. 2001).
We review a trial court’s summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656,
661 (Tex. 2005).
B. Contract construction.
In construing a written contract, the primary concern of the court is to ascertain the true intentions of the
parties as expressed in the instrument. Id. at 662. Ordinarily, the writing alone is sufficient to express the
parties’ intentions for it is the objective, not subjective, intent that controls. Matagorda Hosp. Dist. v.
Burwell, 189 S.W.3d 738, 740 (Tex. 2006)(per curiam). To achieve this, we examine and consider the
entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will
be rendered meaningless. Valence Operating Co., 164 S.W.3d at 662. Contract terms are given their
plain, ordinary, and generally accepted meanings unless the contract itself shows them to be used in a
technical or different sense. Id. We construe contracts from a utilitarian standpoint bearing in mind the
particular business activity sought to be served and will avoid when possible and proper, a construction
which is unreasonable, inequitable, and oppressive. Frost Nat’l Bank v. L & F Distributors, Ltd., 165 S.W.
3d 310, 312 (Tex. 2005). However, courts are not authorized to rewrite agreements to insert provisions
parties could have included or to imply terms for which they have not bargained. Tenneco, Inc. v.
Enterprise Products Co., 925 S.W.2d 640, 646 (Tex. 1996). In other words, courts cannot make contracts
for the parties. HECI Exploration Co. v. Neel, 982 S.W.2d 881, 888 (Tex. 1998).
Whether a contract is ambiguous is a question of law. Fein v. R.P.H., Inc., 68 S.W.3d 260, 265 (Tex.App.-
Houston [14th Dist.] 2002, pet. denied) (citing Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121
(Tex. 1996)). If, after the pertinent rules of construction are applied, the contract can be given a definite
or certain legal meaning, it is unambiguous and we construe it as a matter of law. Frost Nat’l Bank, 165 S.
W.3d at 312. On the other hand, a contract is ambiguous if it is susceptible to more than one reasonable
interpretation. Id. However, courts should not strain to find an ambiguity in a contract if such an exercise
would defeat the parties’ probable intent. In re Credit Suisse First Boston Mortgage Capital, L.L.C., 257 S.
W.3d 486, 490 (Tex.App.- Houston [14th Dist.] 2008, orig. proceeding). If a contract is ambiguous, there
is a fact issue on the parties’ intent and we must reverse the trial court’s summary judgment. Fein, 68 S.
W.3d at 265 (citing Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.
1996)).
Disagreement over the interpretation of an instrument does not automatically make it ambiguous. Medical
Towers, Ltd. v. St. Luke’s Episcopal Hospital, 750 S.W.2d 820, 822 (Tex.App.- Houston [14th Dist.] 1988,
writ denied). Nor does uncertainty or a lack of clarity in the language chosen by the parties suffice to
render a contract ambiguous. Id. In addition, parol evidence is not admissible for the purpose of creating
an ambiguity. National Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Industries, Inc., 907 S.W.2d 517, 520
(Tex. 1995). Instead, parol evidence is only admissible to ascertain the true intentions of the parties after
a contract has already been found to be ambiguous. Friendswood Dev. Co. v. McDade & Co., 926 S.W.
2d 280, 283 (Tex. 1996).
C. The trial court correctly construed the Cross-License Agreement.
In its first issue, appellant argues the trial court erred in its construction of paragraph 5.2 of the Cross-
License Agreement when it determined appellee’s election of the 2004 FMC royalty rate would remain in
effect for the remaining duration of the Cross-License Agreement. Instead of creating a window of time in
which appellee could elect the 2004 FMC royalty rate, appellant contends on appeal that the phrase
Athen for so long as the third-party license is in effect, the other PARTY shall be entitled to elect the more
favorable ROYALTY TERMS” creates not only a window of time to choose, but also a limit on the duration
of the election. Appellee responds that appellant’s construction is not reasonable as it flies in the face of
the plain meaning and structure of the language the parties chose. We agree with appellee.
1. Is appellant’s construction of the Most-Favored-Licensee Clause reasonable?
There is nothing in the plain language of the Cross-License Agreement to support appellant’s position
that an election of a more favorable royalty rate, when made in the proper time period, lasts only as long
as the third-party license remains effective. For appellant’s interpretation of paragraph 5.2 of the Cross-
License Agreement to be reasonable, we would have to either (1) insert additional language limiting the
duration of appellee’s election and providing for a reversion to the original 6.5 percent royalty rate; or (2)
rearrange the existing language.[2] We can do neither. See Tenneco, Inc., 925 S.W.2d at 646; see also
Fein, 68 S.W.3d at 267 (stating courts are not at liberty to redraft the terms of a contract while professing
to construe it); see also Lambert v. Affiliated Foods, Inc., 20 S.W.3d 1, 6 (Tex.App.- Amarillo 1999), aff’d,
44 S.W.3d 544 (Tex. 2001) (stating courts are not permitted to draft a new contract between parties,
"regardless of whether one or more of the parties contracted wisely or foolishly, or created a hardship for
himself”). Instead, we conclude the phrase Athen for so long as the third-party license is in effect”
modifies the phrase "the other PARTY shall be entitled to elect the more favorable ROYALTY TERMS.”
The meaning of the verb Aelect” is Ato select by vote (as for office or membership)” or "choose, pick.”
The Meriam Webster Dictionary New Edition (2004). Accordingly, we hold the only reasonable
construction of paragraph 5.2 of the Cross-License Agreement is that it created a window of time in which
appellee could choose the 2004 FMC royalty rate and once chosen, the new rate would remain in effect
for the remaining duration of the Cross-License Agreement. Because we have determined there is only
one reasonable construction of the Cross-License Agreement, it is not ambiguous. Frost Nat’l Bank, 165
S.W.3d at 312.
2. Is appellant’s suggested purpose of the Most-Favored Licensee Clause correct?
In an effort to avoid the effect of the plain language of the Cross-License Agreement, appellant contends
the purpose of the Cross-License Agreement, as well as industry custom[3], support its proffered
interpretation of paragraph 5.2. According to appellant, the purpose of a "most-favored-licensee” clause
such as the one found in paragraph 5.2, is to protect the first licensee from a competitive disadvantage
resulting from more favorable terms being granted to a later licensee. Therefore, appellant continues,
construing paragraph 5.2 to create a window of time for appellee to elect the more favorable rate, rather
than a duration for the elected rate to continue, defeats that purpose because, rather than preventing a
competitive disadvantage, it actually gives appellee a competitive advantage.
In support of its position that the purpose of a most-favored-licensee clause is to avoid a competitive
disadvantage, appellant calls this court’s attention to the testimony of its intellectual property counsel
explaining his interpretation of the Most-Favored-Licensee clause at issue here. However, because we
have determined the Cross-License Agreement is not ambiguous, parol evidence is not admissible "to
vary the terms or to show the construction placed thereon by the parties at the time or subsequent to the
making thereof.” Murphy v. Dilworth, 137 Tex. 32, 35, 151 S.W.2d 1004, 1005 (1941); see also In re H. E.
Butt Grocery Co., 17 S.W.3d 360, 369 (Tex.App.- Houston [14th Dist.] 2000, orig. proceeding) ("The parol
evidence rule precludes consideration of extrinsic evidence to contradict, vary or add to the terms of an
unambiguous written agreement absent fraud, accident or mistake.”).
In addition, appellant cites Studiengesellschaft Kohle m.b.H. v. Novamont Corp., 704 F.2d 48, 53 (2nd Cir.
1983), in support of its argument that the purpose of every most-favored-licensee clause is to avoid a
competitive disadvantage. However, while the court in Novamont did conclude the purpose of the most-
favored-licensee clause at issue in that case was to avoid a competitive disadvantage, the Novamont
clause differs from paragraph 5.2 in two important ways. First, the most-favored-licensee clause in
Novamont had a specific reversion clause providing that the elected royalty terms would revert back to the
original terms if the third party license terminated. See Studiengesellschaft Kohle m.b.H. v. Novamont
Corp., 518 F.Supp. 557, 565 (S.D.N.Y. 1981) aff’d in part, rev’d in part, 704 F.2d 48 (2nd Cir. 1983).
Second, the Novamont most-favored-licensee clause also had a section providing that the licensor had no
obligation to repay to the licensee any royalties the licensee had previously paid. Id. The most-favored-
licensee clause at issue here does not have a reversion clause and specifically provides that when
appellee elected a more favorable royalty rate, it was entitled to a retroactive credit on all royalties paid
since the inception of the Cross-License Agreement. Because the Novamont most-favored-licensee
clause differs in these two important respects, the fact the Second Circuit concluded the purpose of that
clause was to avoid a competitive disadvantage does not mandate the same result here.
Appellant’s proffered construction of the most-favored-licensee clause is further undermined by the
retroactive nature of appellee’s election of a more favorable royalty rate. By agreeing to make the newly
elected royalty rate retroactive to the beginning of the Cross-License Agreement, a period when appellee
was not at a competitive disadvantage because there was not a more favorable royalty rate,
demonstrates the parties, through paragraph 5.2, rather than avoiding a competitive disadvantage,
instead sought to ensure that appellee, the party with the most-favored-licensee status, actually had the
best royalty rate throughout the life of the Cross-License Agreement.
3. Is the effect of the Most-Favored Licensee Clause economically irrational and unsound?
Finally, appellant argues construing the Most-Favored-Licensee clause to create a window of time for
appellee to elect a more favorable royalty rate, which would then remain in effect until the Cross-License
Agreement expires, leads to an economically irrational and unsound result. While it may be true that a
court, when faced with two interpretations of a contract, one where the effect is an economically rational
result, and the other where it is not, the court will reject the irrational interpretation. However, appellant
has not explained how the trial court’s construction of the Most-Favored-Licensee clause leads to an
irrational or unsound result.[4] While appellant may not like the effect of the trial court’s construction, that
alone does not make the Cross-License Agreement irrational or unsound. Ashcraft v. Lookadoo, 952 S.
W.2d 907, 911 (Tex.App.- Dallas 1997), pet. denied, 977 S.W.2d 562 (Tex. 1998) (citing Provident Fire
Ins. Co. v. Ashy, 139 Tex. 334, 339, 162 S.W.2d 684, 687 (1942)) (observing that because the parties
make their own contract, courts Alack the power to vary those terms to protect one of them from the
unforeseen consequences of their agreement”).
Because the trial court correctly construed the Cross-License Agreement, we overrule appellant’s first
issue.
II. Did the trial court err when it confirmed the arbitrator’s award?
In its second issue, appellant contends the trial court erred when it confirmed Professor Janicke’s award.
Within this issue appellant mounts a three-pronged attack on the award. First, appellant asks this court to
adopt a new standard for reviewing an arbitrator’s award by using the rules for reliability of expert
testimony as a guide. Next, appellant asks this court to vacate the award because the arbitrator allegedly
refused to hear appellant’s evidence. Finally, appellant asks for the arbitration award to be vacated
because, in appellant’s view, the arbitrator exceeded his powers under the Cross-License Agreement.
A. The standard of review.
The Federal Arbitration Act ("FAA”) applies to any contract involving interstate commerce, to the full
extent of the Commerce Clause of the United States Constitution. See 9 U.S.C. ' 2 (1999); Citigroup
Global Markets, Inc. v. Brown, 261 S.W.3d 394, 399 (Tex.App.- Houston [14th Dist.] 2008, no pet.). The
parties agree the FAA applies.
A court of appeals reviews de novo a trial court’s decision to confirm an arbitration award under the FAA.
Tanox, Inc. v. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 105 S.W.3d 244, 250 (Tex.App.- Houston [14th
Dist.] 2003, pet. denied). This review, even though de novo, is extraordinarily narrow. Id. The court of
appeals may not review the arbitrator’s decision on the merits even if it is alleged the decision is based on
factual error or misinterprets the parties’ agreement. Id. It is presumed under the FAA that arbitration
awards will be confirmed. Id. Therefore, disputes that are committed by contract to the arbitral process
almost always are won or lost at the arbitration stage, not the appeal. Id. Accordingly, successful court
challenges to an arbitration award are few and far between. Id.
B. An arbitrator is not an expert witness.
Initially, appellant invites this court to invent a new, common law, standard of review of an arbitrator’s
award. Appellant suggests we should treat the arbitrator in this case as a "jointly retained expert” and
apply the standards governing the reliability of expert opinions. According to appellant, we should vacate
the arbitrator’s award if the arbitrator’s analysis would be deemed inadmissible under expert-witness
rules. Even without considering the total lack of authority supporting appellant’s proposition, we choose
not to adopt this standard of review.
An arbitrator does not function as an expert witness, but instead is the functional equivalent of a judge.
Pullara v. American Arbitration Assoc., 191 S.W.3d 903, 906 (Tex.App.- Texarkana 2006, pet. denied).
Any attempt to impose an expert-witness reliability standard on an arbitrator would be completely counter
to this special status and provides sufficient reason to reject appellant’s suggestion outright. However, if
additional support is needed to reject the idea of treating an arbitrator like an expert witness, one need
only look to the Supreme Court’s recent opinion in Hall St. Assocs., L.L.C. v. Mattel, Inc. --- U. S.---, 128 S.
Ct. 1396, 1405 (2008). In Hall St., the Supreme Court held that section 10 of the FAA provides the
exclusive means for vacating an arbitrator’s award. According to the Supreme Court, Aany other reading
opens the door to the full-bore legal and evidentiary appeals that can >rende[r] informal arbitration merely
a prelude to a more cumbersome and time-consuming judicial review process.’” Id. (quoting Kyocera
Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (C.A. 9 2003)). If we were to adopt
appellant’s proposed standard of review, we would open the door on the type of cumbersome and time-
consuming judicial review of arbitration awards the Supreme Court has expressly prohibited. Therefore,
we follow the suggestion of the Supreme Court, and instead of fighting against the strong national policy
in favor of speedy resolution of arbitrated disputes, we decline to accept appellant’s request for a legal
and factual sufficiency review of the arbitration award.
C. The arbitrator did not refuse to hear evidence.
Citing section 10(a)(3) of the FAA, appellant contends the arbitration award must be vacated because
Professor Janicke did not give appellant an adequate opportunity to present evidence and arguments.
However, there is nothing in the record on appeal that demonstrates the arbitrator refused to postpone
the hearing or refused to hear evidence pertinent and material to the controversy. What the record does
show is that under the terms of the Cross-License Agreement, appellant and appellee were each entitled
to a single written submission to the arbitrator. Under the Cross-License Agreement, neither party was
allowed a "responsive or other written submission unless specifically requested in writing by the economic
evaluator.” There is no dispute appellant was allowed that single submission. Instead, appellant asks this
court to vacate the arbitration award because, following the issuance of his award, the arbitrator refused
to allow appellant to file a written submission requesting that the arbitrator reconsider the evidence in the
light of new arguments. An arbitrator’s refusal to reconsider an arbitration award is not the same as the
refusal to hear evidence pertinent and material to the controversy in the first place. Therefore, section 10
(a)(3) of the FAA does not apply to the circumstances present here and does not provide a basis for
vacating the arbitration award. See 9 U.S.C. ' 10(a)(3).
D. The arbitrator did not exceed his powers.
The only other statutory basis put forward by appellant for vacating the arbitration award is the arbitrator
exceeded his powers. See 9 U.S.C. ' 10(a)(4). The authority of arbitrators is derived from the arbitration
agreement and is limited to a decision of the matters submitted therein either expressly or by necessary
implication. Gulf Oil Corp. v. Guidry, 160 Tex. 139, 143, 327 S.W.2d 406, 408 (Tex. 1959). Arbitrators
therefore exceed their powers when they decide matters not properly before them. Barsness v. Scott,
126 S.W.3d 232, 241 (Tex.App.- San Antonio 2003, pet. denied). To meet this requirement, an
arbitration award must have a basis that is at least rationally inferable, if not obviously drawn, from the
letter or purpose of the agreement. JJ-CC, Ltd. v. Transwestern Pipeline Co., No. 14-96-1103-CV, 1998
WL 788804, at *4 (Tex.App.- Houston [14th Dist.] Nov. 12, 1998, no pet.) (not designated for publication).
The award must, therefore, in some logical way, be derived from the wording or purpose of the contract.
Id. In making this inquiry, the reviewing court is not limited to the arbitrator’s explanation for the award.
Id. Rather, the reviewing court looks to the result reached and determines whether the award, however
arrived at, is rationally inferable from the contract. Id. A mistake of fact or law in the application of
substantive law is insufficient to vacate an arbitration award. Jamison & Harris v. National Loan Investors,
939 S.W.2d 735, 737 (Tex.App.- Houston [14th Dist.] 1997, writ denied).
After examining the Cross-License Agreement and the arbitrator’s award, there is no doubt Professor
Janicke followed his contractual instructions and his award falls within the permitted scope of the Cross-
License Agreement. The Cross-License Agreement called for the arbitrator to determine the royalty rate
and base of the third-party licenses and that is what he did. Appellant does not claim otherwise, instead it
argues the arbitrator made numerous mistakes of fact and judgment and thereby exceeded his powers.
[5] A complaint that the evidence does not support the arbitrator’s award, however, is not a complaint that
the arbitrator exceeded his powers. Pheng Investments, Inc. v. Rodriguez, 196 S.W.3d 322, 330 (Tex.App.
- Fort Worth 2006, no pet.). Professor Janicke may have made mistakes of fact or law (an issue we do
not reach), but he did not exceed his authority because he decided only those issues submitted to him by
the parties’ contract. We overrule appellant’s second issue on appeal.
Conclusion
Having overruled both of appellant’s issues on appeal, we affirm the trial court’s judgment.
/s/ John S. Anderson
Justice
Panel consists of Justices Anderson, Seymore, and Hudson.[6]
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[1] Appellee answered and filed a counterclaim for breach of contract. Eventually, the trial court
realigned the parties making appellee the plaintiff. Through the course of the litigation the parties would
add additional causes of action and issues to the litigation. None of these additional causes of action are
relevant to this appeal.
[2] We note that in appellant’s brief, in making its argument for its interpretation of paragraph 5.2 of the
Cross-License Agreement, appellant consistently moved the phrase "for so long as the third-party license
is in effect” from its position before the word "elect” to after. For example, appellant argues: "Here, by its
express terms, the most-favored licensee clause allows [appellee] to elect the royalty terms of another
license 'for so long as the third-party license is in effect.’” We decline appellant’s invitation to rewrite the
Cross-License Agreement in such a manner. See Tenneco, Inc. v. Enterprise Products Co., 925 S.W.2d
640, 646 (Tex. 1996).
[3] While it is true parol evidence may be admitted to explain technical or other terms as used in a
particular business or industry, there are no such terms found in the Cross-License Agreement.
Accordingly, we need not consider industry custom in our analysis. Royal Indemnity Co. v. Marshall, 388
S.W.2d 176, 180 (Tex. 1965).
[4] Appellant’s irrational result argument is based in part on their contention that under the trial court’s
construction of the Cross-License Agreement, the newly elected royalty rate would "last forever.” This
simply is not the case. According to its own terms, the Cross-License Agreement and any election made
by appellee, would terminate when the last of the patents involved in the Cross-License Agreement
expired, which, during oral argument, the parties indicated would occur in 2013.
[5] To the extent appellant’s second issue on appeal can be construed as a complaint that Professor
Janicke made a material miscalculation of figures in his award, this does not change the result as, even if
it were true, it would only support a modification of the award and not a vacatur. See 9 U.S.C. ' 11(a).
Because appellant never raised the issue of modification of the arbitration award with the trial court, the
issue is waived. Tex. R. App. P. 33.1(a).
[6] Senior Justice Harvey Hudson sitting by assignment.