A California semiconductor manufacturer cannot pursue in court its claims of trade secret misappropriation against a rival company while simultaneously arbitrating the same claims against the allegedly larcenous employee, a state appeals court recently found.

In Mattson Technology, Inc. v. Applied Materials, Inc., a California Court of Appeal ruled that the trial court erred by not staying Applied Materials’ trade secret misappropriation claims against rival Mattson Technology while Applied pursued in arbitration the linked misappropriation claims against the ex-employee who allegedly absconded with confidential information to Mattson.

Both Mattson and the ex-employee, who signed an arbitration agreement with Applied as part of his employment contract with the company, had moved to compel to arbitration Applied’s claims against them, with differing levels of success. The trial court granted the ex-employee’s motion but not Mattson’s. The trial court also denied Mattson’s motion to stay the litigation against it while Applied’s claims against the ex-employee continued in arbitration.

The appeals court agreed with the trial court’s ruling that Mattson could not compel Applied’s claims against it to arbitration, as Mattson was not a party to Applied’s arbitration agreement with the ex-employee. However, the appeals court found the trial court erred by not staying those claims until the ex-employee’s arbitration was resolved.

Section 1281.4 of the Code of Civil Procedure requires a court to stay an action or proceeding where the court “has ordered arbitration of a controversy which is an issue involved in an action or proceeding” unless the controversy is “severable.” The appeals court disagreed with the trial court’s determination that Applied’s claim against Mattson was independent of and therefore “severable” from Applied’s claim.

We will continue to monitor this case for any updates.