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March 2015: Arbitration Win for Japanese Textile Machinery Manufacturer

March 2015

Quinn Emanuel represented a Japanese textile manufacturer against a U.S. company purportedly specializing in the growth and manufacture of carbon nanotube fibers in a dispute over the joint development of machinery for the spinning of carbon nanotube yarns. In a 2007 contract, the two parties agreed to work together exclusively and share their technology, expertise, and raw materials to develop cutting-edge carbon nanotube spinning machines. The U.S. company represented to Quinn Emanuel’s client that it had developed proprietary methods for growing high-quality carbon nanotubes and pulling them into individual fibers with more desirable qualities (e.g., strength, flexibility, conductivity) than had ever been recorded. Quinn Emanuel’s client was enlisted to use its textile expertise to develop machinery to spin these individual fibers into yarn on a commercial scale. Had this arrangement been successful, the carbon nanotube yarn produced with this machinery would have had myriad commercial and industrial applications and been the source of massive profit for both companies.

Once the agreement was signed, however, Quinn Emanuel’s client discovered its ostensible partner did not have any of the technology or capabilities that had been the basis for the contract. It could not provide raw materials, technological information, or development support. Quinn Emanuel’s client put in its best efforts for over two years, but ultimately decided to terminate the agreement and proceed with development independently. The U.S. company, based on a 20-year exclusivity provision in the contract that explicitly survived termination, refused to release Quinn Emanuel’s client from its obligations. Instead, it threatened litigation if Quinn Emanuel’s client sold carbon nanotube spinning machinery to anyone else during the agreement’s 20-year term.

Facing the prospect of being unable to release its carbon nanotube spinning technology to the public, Quinn Emanuel’s client demanded arbitration, claiming fraud and material breach by its former collaborator. Quinn Emanuel’s client sought rescission of the agreement or a finding of material breach, either of which would release it from any remaining obligations. After a three-day hearing, the arbitrator awarded the requested relief. The reasoned award enumerated virtually every factual finding in Quinn Emanuel’s client’s favor, found that the U.S. company had materially breached the contract, and issued declaratory relief specifically stating that Quinn Emanuel’s client was no longer bound by the exclusivity provision in the contract. The sole arbitrator found that the U.S. company had knowingly deceived Quinn Emanuel’s client about its capabilities. Quinn Emanuel’s client is now able to freely develop and sell carbon nanotube machinery; all barriers to its technological innovation have been lifted.