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Freescale Semiconductor v. Chipmos Technologies


March 30, 2012


The opinion of the court was delivered by: Jeremy Fogel United States District Judge

**E-Filed 3/30/3012**


Defendant/Counterclaimant ChipMOS Technology, Inc. ("ChipMOS") seeks reconsideration of orders issued by the Court on August 3, 2010 and September 8, 2011. Plaintiff/Counterdefendant

Freescale Semiconductor, Inc. ("Freescale") opposes the motion. The Court has considered the 22 parties' submissions and the record as a whole. For the reasons discussed below, the motion will be 23 denied with respect to the August 2010 Order and granted in part with respect to the September 24 2011 Order.*fn2

ChipMOS and Freescale's predecessor-in-interest, Motorola, Inc. ("Motorola"). The Agreement 4 provides that each party is immune from suit for infringement of the other's patents relating to ball 5 grid array ("BGA") package technology. The Agreement requires ChipMOS to make royalty 6 payments with respect to certain BGA packages that it makes and ships during a calendar quarter. 7

Motorola assigned its rights and obligations under the Agreement to Freescale. In March 2006, an 8 independent audit led Freescale to believe that ChipMOS owed royalty payments under the 9


The orders in question interpret an Immunity Agreement ("the Agreement") entered into by Agreement. Freescale notified ChipMOS that it considered failure to pay to be a material breach of 10 the Agreement, but ChipMOS did not make payment. Freescale terminated the Agreement and filed suit in the Santa Clara Superior Court asserting a claim for breach of contract. On August 12, 2009, ChipMOS removed the action to this Court on the basis of diversity of citizenship, and it also filed counterclaims for breach of contract and for a judicial declaration that certain of Freescale's patents 14 are invalid and not infringed by ChipMOS's products.

On April 22, 2010, this Court issued an order stating that "the Court will stay patent related discovery pending judicial interpretation of the Agreement, which cannot occur until the record is 17 more fully developed." Dkt. Entry 34, April 22, 2010 Order at 4. On May 3, 2010, Freescale filed a 18 motion for summary judgment as to the parties' competing claims for breach of the Agreement and 19 as to ChipMOS's defense of patent misuse. See Dkt. Entry 38. In response, ChipMOS filed both 20 substantive opposition and a request for a continuance pursuant to Rule 56(f) of the Federal Rules of 21

Civil Procedure.*fn3 See Dkt. Entry 51. ChipMOS noted that virtually no discovery had been 22 completed at that time, and it identified several outstanding discovery requests that it had 23 propounded to Freescale. See Dkt. Entry 51-2, Mot. for Cont. at 2-5. ChipMOS also identified 24 eight individuals whom it would seek to depose regarding issues relating to the alleged total-sales 25 royalty provision of the Agreement. Id. at 6. 26

Freescale's alleged patent misuse and related issues and denying the motion as to interpretation of 3 the Agreement. In the same order, the Court granted partial summary judgment in favor of Agreement provides for a "total-sales royalty," i.e., a royalty based on the total sales of ChipMOS's ChipMOS's products come within the scope of the Agreement; ChipMOS failed to make royalty 8 payments; and thus ChipMOS cannot establish its own performance under the Agreement, a 9 necessary element of its contract claim. The August 2010 Order left unresolved the validity of the defenses to Freescale's claim for breach of contract.

The parties subsequently filed cross-motions for summary judgment as to the remaining issues, including Freescale's claim for breach of contract and ChipMOS's contract defenses. See

On August 3, 2010,*fn4 the Court issued an order granting ChipMOS's Rule 56(f) motion as to Freescale with respect to ChipMOS's counterclaim for breach of contract, concluding that: the BGA packages, irrespective of whether the specific BGA packages are covered by any patent;

Agreement in light of ChipMOS's counterclaim of patent misuse, as well as certain of ChipMOS's Dkt. Entries 82, 100. On September 8, 2011, the Court issued an order concluding that ChipMOS 15 had failed to demonstrate the existence of a triable issue of material fact as to any of its contract 16 defenses and granting summary judgment for Freescale on its claim for breach of the Agreement. 17

ChipMOS seeks reconsideration of both the August 2010 Order and the September 2011

See Dkt. Entry 146. 18


22 of a judgment adjudicating all the claims and all the parties' rights and liabilities." Fed. R. Civ. P. 23

54(b). "Reconsideration is appropriate if the district court (1) is presented with newly discovered 24 evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an 25 intervening change in controlling law." School Dist. No. 1J, Multnomah County v. ACandS, Inc., 5 26


Interlocutory orders such as those at issue here "may be revised at any time before the entry F.3d 1255, 1263 (9th Cir. 1993).

4 motion for summary judgment based upon an asserted need to take discovery regarding the proper 5 interpretation of the Agreement. Specifically, ChipMOS claimed that it needed to seek additional 6 evidence as to whether the Agreement contained a total-sales royalty provision. The Court 7 concluded that such discovery was unnecessary because the Agreement was unambiguous on its 8 face. ChipMOS argues that this ruling was erroneous, citing among other cases the recent Federal 9


A. August 2010 Order

As is discussed above, ChipMOS sought a continuance with respect to Freescale's first Circuit decision Powertech Technologies, Inc. v. Tessera, Inc., 660 F.3d 1301 (Fed. Cir. 2011). In 10 holding that "[i]n light of the fact that no discovery has been conducted, the district court's contract interpretation was clearly premature." Id. at 1309 n.7. The court noted that under applicable California law, "courts can consider evidence apart from the contract to explain the meaning of 14 terms that are otherwise unambiguous." Id. ChipMOS argues that Illinois law, which controls 15 here,*fn5 likewise provides for the admission of extrinsic evidence under the "doctrine of extrinsic 16 ambiguity." See Commonwealth Inc. Co. v. Titan Tire Corp., 398 F.3d 879, 885 (7th Cir. 2004) 17

("Under the doctrine of extrinsic ambiguity, a party may present evidence to show the existence of 18 an ambiguity even though the contract appears clear on its face because, in certain situations, the 19 real-world context shows that the contract does not actually mean what it appears to mean."). 20

ChipMOS contends that in light of Powertech, this Court should not have interpreted the Agreement 21 without first permitting ChipMOS to take discovery. 22

After reviewing the pleadings and other papers that were filed in connection with Freescale's

23 first motion for summary judgment, as well as the applicable case law, the Court concludes that it 24 did not err in denying ChipMOS's request for a continuance with respect to issues of contract 25 interpretation. While Illinois law does embrace the doctrine of extrinsic ambiguity in some 26 circumstances, the Illinois Supreme Court made clear in Air Safety, Inc. v.Teachers Realty Corp,185 27

Powertech, the circuit court reversed the district court's dismissal of a declaratory relief action, Ill.2d 457 (1999), that the doctrine does not apply to integrated contracts. In Air Safety, the court 2 discussed traditional principles of contract interpretation requiring that the meaning of the contract 3 be gleaned from the "four corners" of the document. Id. at 462. The court noted the existence of 4 the extrinsic ambiguity doctrine, but it concluded that "the four corners rule precludes the 5 consideration of extrinsic evidence where a contract contains an integration clause and is facially 6 unambiguous." Id. It is undisputed that the Agreement at issue here contains an integration clause. 7

10. Accordingly, a continuance to allow ChipMOS to obtain extrinsic evidence as to the 9

This Court has concluded that the Agreement is unambiguous on its face. See August 2010 Order at 8

Agreement's meaning was not warranted, because any such evidence would have been 10 inadmissible.*fn6 ChipMOS's motion for reconsideration therefore will be denied as to the August 2010 Order.*fn7

ChipMOS's assertion that Freescale impermissibly "conditioned" the Agreement upon ChipMOS's 15 payment of royalties on BGA packages that do not use the teaching of the subject patents. The 16

Court concluded that ChipMOS had failed to raise a triable issue as to whether such conditioning in 17 fact occurred. See Sept. 2011 Order at 5. ChipMOS asserts that this conclusion was erroneous. 18

B. September 2011 Order

In addressing the parties' second round of summary judgment motions, the Court considered


Wisconsin, Inc., No. 08-C 5151, 2010 WL 744275, at *5 (N.D. Ill. Feb. 26, 2010) ("Under Illinois law, courts finding an explicitly integrated, facially clear, written contract do not consider extrinsic 23 evidence -- and the language of the contract binds the parties.") (internal quotation marks and citation omitted). 24

2 the Court concludes that ChipMOS's argument is well-taken. The governing authority is Zenith 3

After reviewing its September 2011 Order, the applicable case law, and the record evidence,

Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969). Zenith holds that a patentee may not 4 use the leverage of its patent to obtain royalties on products that do not use the teaching of the 5 patent. Id. at 135. However, the case also recognizes that a situation might arise in which "the 6 licensee as well as the patentee would find it more convenient and efficient from several standpoints 7 to base royalties on total sales than to face the burden of figuring royalties based on actual use." Id. 8 at 138. "If convenience of the parties rather than patent power dictates the total-sales royalty 9 provision, there are no misuse of the patents and no forbidden conditions attached to the license." 10

evidence sufficient to create a triable issue of material fact as to whether Freescale had misused its

patent power in order to coerce ChipMOS into agreeing to a total-sales royalty provision. In

concluding that ChipMOS had not done so, the Court focused upon the absence of evidence that 14

Court did not give sufficient consideration to ChipMOS's evidence that as a matter of company 16 policy Freescale simply did not negotiate material aspects of its standard immunity agreement. 17

30(b)(6) witnesses and documentary evidence of Freescale's refusal to negotiate other material 19 terms of its standard agreement,*fn8 the Court concludes that if all inferences are drawn in ChipMOS's 20 favor a reasonable trier of fact could find for ChipMOS on the issue of conditioning. Accordingly, 21 the Court will grant reconsideration as to this aspect of its September 2011 Order. 22

23 exhaustion by failing to raise it in response to Freescale's first motion for summary judgment, see 24

September 2011 Order at 5, and in failing to address its affirmative defenses based on license and 25 mutual mistake. The Court now clarifies that its determination with respect to waiver was intended 26 to apply to these affirmative defenses, and that reference to the defenses was omitted from the order 27

Id. This Court's task on summary judgment was to determine whether ChipMOS had presented ChipMOS or other assembly houses attempted to negotiate the total-sales royalty provision. The 15

Upon further review of the record, including in particular the deposition testimony of Freescale's 18

ChipMOS also claims that the Court erred in concluding that it waived its defense of patent inadvertently. In making its ruling, the Court relied upon Pandrol USA, LP v. Airboss Ry. Products, 2

Inc., 320 F.3d 1354 (Fed. Cir. 2003). In that case, the circuit court held that when the plaintiffs 3 moved for summary judgment of infringement, "they implicitly asserted ownership of the patent, 4 which is a necessary prerequisite to winning a judgment of infringement." Id. at 1367. Despite the 5 fact that the plaintiffs did not raise the issue of ownership expressly, the court concluded that in 6 opposing the motion for summary judgment, "it was incumbent upon the defendants to raise the 7 issue of lack of patent ownership." Id. Because the defendants failed to do so, the court held that 8 they had waived the defense of lack of ownership. Id. 9

Here, Freescale's first motion for summary judgment sought an adjudication that ChipMOS

10 breached the Agreement by failing to pay royalties on sales of its FBGA packages. See Dkt. Entry

42, Mot. for SJ at 13. That motion directly implicated ChipMOS's defenses of patent exhaustion,

license, and mutual mistake. Accordingly, under Pandrol, it was incumbent upon ChipMOS to

argue those defenses in opposition to Freescale's motion. Having determined that ChipMOS failed 14 to do so, the Court concluded that the defenses were waived. ChipMOS requests that the Court 15 reconsider this ruling, arguing that in fact it did raise its defenses in opposition to Freescale's first 16 motion for summary judgment. This is not precisely accurate, as ChipMOS's reference to its license 17 and mutual mistake defenses was limited to a description of the operative pleadings in the 18 background section of its opposition to Freescale's summary judgment motion. See Dkt. Entry 51, 19

Opp. at 4 ("ChipMOS answered the complaint and asserted affirmative defenses of, inter alia, 20 failure to state a claim, plaintiff's breach, anticipatory breach, mutual mistake, lack of consideration, 21 license and patent exhaustion."). While ChipMOS did reference its exhaustion defense in the body 22 of its brief, it did not discuss the merits of the defense in any meaningful way. See id. at 17-18. 23

24 as a whole. ChipMOS's opposition to Freescale's first motion for summary judgment must be 25 viewed in the context of its concurrent motion for a continuance under Rule 56(f). ChipMOS 26 observes correctly that it was not in a position to offer substantive argument with respect to its 27 defenses because Freescale filed its first summary judgment motion before relevant discovery had 28 been produced. The Court acknowledges that its order granting ChipMOS's motion for a

The Court nonetheless has reconsidered its waiver determination after reviewing the record continuance was not a model of clarity, as it did not address expressly ChipMOS's defenses to 2

Freescale's contract action. See August 2010 Order at 17 (denying the motion for summary 3 judgment without prejudice "with respect to ChipMOS's counterclaim for patent misuse and 4

Order will be granted to the extent that the order holds or implies that ChipMOS's defenses of 6 patent exhaustion, license, and mutual mistake are waived. The Court expresses no opinion as to the 7 applicability or merits of any of these defenses. 8

9 part to reflect that triable issues of material fact exist as to whether ChipMOS breached the 10

affirmative defenses of patent exhaustion, license, and mutual mistake have not been waived. The

Court notes that the parties presented substantive arguments with respect to these defenses that were

not addressed as a result of the Court's initial ruling on the parties' cross-motions. The Court has 14 considered whether it might be able to offer additional substantive rulings in the context of the 15 present motion. However, the issues presented are somewhat complex, and the Court's notes from 16 the hearing reflect that the parties' oral argument did not focus at all on ChipMOS's defenses of 17 license and mutual mistake. Accordingly, the Court is of the opinion that the better course would be 18 to clarify the scope of the case going forward without prejudice to the filing of future, focused 19 motions addressing ChipMOS's affirmative defenses of patent exhaustion, license, and mutual 20 mistake. The Court is not inclined to entertain future dispositive motions with respect to patent 21 misuse in light of its conclusion that there are triable issues of material fact as to that 22 counterclaim/defense. 23

Good cause therefor appearing,

The motion for reconsideration is GRANTED IN PART AND DENIED IN PART as Freescale's claim for breach of contract"). Accordingly, reconsideration of the September 2011

For the reasons discussed above, reconsideration of its September 2011 Order is granted in Agreement by failing to pay Freescale royalties on sales of its FBGA packages and that ChipMOS's

(1) the motion is DENIED with respect to the August 2010 Order;

(2) the motion is GRANTED with respect to the September 2011 Order as set forth above. 8

Because the undersigned judge has undertaken a long-term assignment outside the district,

2 the Clerk of Court is directed to reassign this action for any further proceedings. 3 4

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