St. Paul Mercury Ins. Co. v. Tessera, Inc.

ST. PAUL MERCURY INSURANCE COMPANY, Plaintiff, v. TESSERA, INC., Defendant.

Case No. 12-cv-01827-RMW

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

June 21, 2016

ORDER RE CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT

Re: Dkt. Nos. 74-3, 78

Redacted Public Version

On April 12, 2012, plaintiff St. Paul Mercury Insurance Company filed this action against defendant Tessera, Inc. Dkt. No. 1. Plaintiff seeks a declaratory judgment that St. Paul had no duty to defend Tessera in an underlying action, Powertech Technology Inc. v. Tessera, Inc., Case No. 11-06121, and reimbursement of the amounts that St. Paul paid in defending Tessera pursuant to a reservation of rights. Id. Tessera asserts counterclaims against St. Paul, seeking for declaratory judgment that St. Paul had a duty to defend and damages for breach of the insurance contract and breach of the implied covenant of good faith and fair dealing in the insurance contract. Dkt. No. 11.

On October 26, 2012, the parties filed cross-motions for partial summary judgment on the question of whether St. Paul had a duty to defend. Dkt. Nos. 29, 30. The court granted partial summary judgment for St. Paul, holding that none of PTI's allegations in the underlying action could possibly give rise to any "personal injury" claim covered by the insurance policy. Dkt. No 48. Finding no duty to defend, the court did not reach the issue of whether the intellectual property exclusion in the St. Paul policy relieved St. Paul of a defense obligation. Tessera appealed the ruling, and the Ninth Circuit reversed and remanded the case to this court "to consider in the first instance whether the intellectual property exclusion applies. Id.

On May 13, 2016, the parties filed partial cross-motions for summary judgment. Dkt. Nos. 74-3, 78. St. Paul moves for summary judgment on St. Paul's claim for declaratory judgments, as well as Tessera's counterclaims for declaratory judgment, Tessera's counterclaim for breach of contract, and Tessera's counterclaim for breach of implied covenant of good faith and fair dealing. Dkt. No. 74-3 at 1. Tessera moves for summary judgment on St. Paul's claim for declaratory judgment and Tessera's counterclaim for declaratory judgment. Dkt. No. 78 at 1. The court heard argument on June 17, 2016. Having considered the submissions of the parties, the court finds that the intellectual property exclusion does not negate an obligation of St. Paul to defend Tessera against PTI's claims in Powertech. The court grants Tessera's motion for partial summary judgment and denies St. Paul's motion for partial summary judgment.

I. BACKGROUND

On October 20, 2003, PTI and Tessera entered into the Tessera Compliant Chip License Agreement ("TCC License"). See Dkt. No. 79-2, Stipulation Regarding Undisputed Facts ("SUF") Ex. D, Appendix A at T-UND000095-123. REDACTED

In December 2007, Tessera initiated an ITC Investigation 337-TA-630, accusing several companies of infringing Tessera's patents by importing and selling semiconductor packages. See SUF Ex. D, Appendix B at T-UND0000124-238. PTI was not named as a respondent in the ITC action. Id. at T-UND000128-30. The parties do not dispute, however, that PTI customers were among the respondents.

On December 6, 2011, PTI filed suit against Tessera in the Northern District of California, Powertech Technology Inc. v. Tessera, Inc., Case No. 4:11-cv-06121-CW, asserting three causesof action: 1) declaratory judgment concerning PTI's right to terminate the TCC license, 2) breach of the TCC License, and 3) breach of the implied covenant of good faith and fair dealing. See SUF ¶ 4, Ex. D. In the complaint, PTI alleged that Tessera breached the TCC License "by requesting, participating in, and maintaining an ITC investigation accusing PTI-packaged products" and by seeking "exclusion orders that would have excluded PTI-packaged products from the United States." SUF Ex. D ¶¶ 5-8. PTI also alleged that Tessera had "interfered with, disrupted, and frustrated PTI's relationship with PTI's customers by accusing PTI-packaged products and naming PTI's customers as respondents" in the ITC action. SUF Ex. D ¶ 15.

On February 12, 2012, Tessera tendered the defense and indemnity of the Powertech to St. Paul. SUF ¶ 5. Tessera was insured by St. Paul for the period between May 1, 2007 and August 15, 2009. See SUF ¶¶ 1-3, Exs. A-C. The policy includes a duty to defend "against any claim or suit for injury or damage covered" by the agreement. SUF Ex. A at P000000075-76. Among the "personal injury" offenses covered by the policy is "[m]aking known to any person or organization covered material that disparages the business, premises products, services, work, or completed work of others." Id. at P000000075. The policy also includes an intellectual property exclusion clause:

We won't cover injury or damage or medical expenses that result from any actual or alleged infringement or violation of any of the following rights or laws:

• Copyright.

• Patent.

• Trade dress.

• Trade name.

• Trade secret.

• Trademark.

• Other intellectual property rights or laws.

Nor will we cover any other injury or damage or medical expenses alleged in a claim or suit that also alleges any such infringement or violation.

Id. at P000000090. St. Paul agreed to participate in Tessera's defense against PTI on March 19, 2012, but reserved the right to contest its duty to defend and to seek reimbursement in the future. SUF ¶ 7, Ex. F. On June 3, 2012, PTI added three more causes of action to its complaint in the underlying action: 4) fraud and deceit, 5) patent misuse, and 6) declaratory judgment interpreting the TCC license. See SUF ¶ 9, Ex. H. On August, 10, 2012, the district court dismissed PTI's claim seeking royalties for patent misuse on the grounds that patent misuse is an affirmative defense, rather than an independent cause of action. SUF ¶ 11, Ex. J at 9-13. The court granted PTI leave to amend to seek declaratory judgment on the affirmative defense of patent misuse, and PTI amended its complaint accordingly. SUF Ex. J at 13, Ex. K ¶¶ 109-120. PTI filed two more amended complaints to add factual allegations, but PTI did not add any other causes of action. See SUF ¶¶ 13,15, Exs. L, N. On September 10, 2012, Tessera asserted counterclaims against PTI for 1) breach of contract, 2) breach of the implied covenant of good faith and fair dealing, 3) fraud and deceit, 4) negligent misrepresentation, 5) declaratory judgment of indemnification, and 6) declaratory judgment regarding termination of the TCC license. See SUF ¶ 14, Ex. M. The underlying action thereafter was resolved by settlement between the parties. See SUF ¶¶ 17-18, Ex. P.

In the instant case, both parties seek declarations regarding whether St. Paul had a duty to defend Tessera in the underlying action. See Dkt. Nos. 1, 11. St. Paul policy had a duty to defend "against any claim or suit for injury or damage covered" by the insurance contract. SUF ¶ 1, Ex. A at P000000075-76. However, injury or damage "that results from any actual or alleged infringement or violation" of an intellectual property right or law is excluded from coverage. Id. at P000000090. The Ninth Circuit has already determined that the facts alleged in PTI's complaint could potentially allege a claim for product disparagement, which would be covered under the policy as a personal injury claim. See Dkt. No. 67. The question before this court, therefore, is whether the intellectual property exclusion clause relieves St. Paul of its duty to defend.

II. ANALYSIS

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Because the scope of coverage under a written insurance policy is solely a matter for judicial interpretation, an insurer's duty to defend under a policy is an issue amenable to resolutionon summary judgment." Grange Ins. Ass'n v. Lintott, 77 F. Supp. 3d 926, 933 (N.D. Cal. 2015) (citations omitted). The court must determine whether the underlying action includes a claim for "injury or damage" that "result[s] from any actual or alleged infringement or violation" of an intellectual property right or law.

The interpretation of an insurance policy follows the general rules of contract interpretation. MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 647 (2003), as modified on denial of reh'g (Sept. 17, 2003) (citing Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18 (1995)). The "mutual intention of the parties at the time the contract is formed" governs and should be inferred, if possible, solely from the written provisions of the contract. Id. at 647 (citing Cal. Civ. Code §§ 1636, 1639). Contract terms are interpreted in their "ordinary and popular sense," unless the terms are "used by the parties in a technical sense or a special meaning is given to them by usage." Id. at 647-48 (citing Cal. Civ. Code § 1644). "If contractual language is clear and explicit, it governs." Bank of the W. v. Superior Court, 2 Cal. 4th 1254, 1264-65 (1992). If there is any ambiguity, an insurance policy "must be read in conformity with what the insurer believed the insured understood thereby at the time of formation and, if it remains problematic, in the sense that satisfies the insured's objectively reasonable expectations." Buss v. Superior Court, 16 Cal. 4th 35, 45 (1997) (citations omitted).

"[I]nsurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured, whereas exclusionary clauses are interpreted narrowly against the insurer." MacKinnon, 31 Cal. 4th at 648 (citations omitted). "The burden is on the insured to establish that the claim is within the basic scope of coverage and on the insurer to establish that the claim is specifically excluded." Id.; see also Staefa Control-Sys. Inc. v. St. Paul Fire & Marine Ins. Co., 847 F. Supp. 1460, 1467 (N.D. Cal. 1999) ("to prevail...