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Freescale Semiconductor, Inc v. Chipmos Technologies


January 24, 2013


The opinion of the court was delivered by: Edward J. Davila United States District Court

United States District Court For the Northern District of California


The above-entitled suit is a contract and patent dispute between Plaintiff Freescale Semiconductor, Inc. ("Plaintiff" or "Freescale") and Defendant ChipMOS Technologies, Inc. 20 ("Defendant" or "ChipMOS"). Presently before the Court are two motions filed by Plaintiff: 21 Plaintiff's Renewed Motion for Summary Judgment (Docket Item No. 183) and Plaintiff's 22 Renewed Motion to Strike (Docket Item No. 186). Having carefully considered the moving, 23 opposing, and reply papers for both motions as well as the arguments of counsel from the hearing 24 on these matters, the Court grants both motions. 25 26 27 28 4 summary of the undisputed facts of this case: 5

Agreement ["the ChipMOS Agreement"] effective April 1, 1999. [Decl. of Lee Chastain, Docket Item No. 39, Ex. A.] Motorola's rights and obligations under the Agreement were assigned to Freescale on September 1, 2005. [Chastain Decl. Ex. C.] While the construction of key aspects of the Agreement is in dispute, the Agreement effectively cross-licenses patents covering ball grid array ("BGA") package technology between ChipMOS and Freescale [Motorola's assignee to the Agreement], granting immunity from suit under each other's patents relating to BGA packages and enhancements thereto. [Chastain Decl. Ex. A § 1.4 (defining "BGA PACKAGE"), § 1.5 (defining "MOTOROLA PATENTS"), § 1.6 (defining [CHIPMOS] PATENTS), § 3.1 (granting immunity from suit under MOTOROLA PATENTS), and § 3.2 (granting immunity from suit under [CHIPMOS] PATENTS).] The Agreement requires ChipMOS to make royalty payments based on certain BGA packages that it makes and ships during a calendar quarter. [Chastain Decl. Ex. A § 4.] The specifics of these royalty payments are the subject of the instant dispute.

In March 2006, an independent audit led Freescale to believe that ChipMOS owed royalty payments for ChipMOS's FBGA products. [Chastain Decl. Ex. D.] ChipMOS asserts that the Agreement does not require royalty payments for the FBGA products, but Freescale considers the failure to pay such royalties to be a material breach of the Agreement. [Chastain Decl. §16; see also id. Ex. A § 5.2.] Freescale claims that it provided notice to ChipMOS of its belief that there had been a material breach, that ChipMOS did not cure the breach within forty-five days of notice, and that it exercised its right to terminate the Agreement. [Chastain Decl. ¶ 17; see also id. Ex. A § 5.2.] ChipMOS disputes Freescale's right to terminate the Agreement and continues to pay royalties on certain BGA packages into an escrow account.

Freescale Semiconductor, Inc. v. ChipMOS Techns., Inc., No. 09-3689-JF, at 2--3 (N.D. Cal. Aug. 22 Motion for Partial Summary Judgment (Docket Item No. 43); granting in part and denying in part 24 File Supplemental Declaration (Docket Item No. 58)). In addition, relevant to the current motion is 26


A.Factual Background

The Court will refer to a previous order by District Court Judge Jeremy Fogel to provide a ChipMOS and Motorola, Inc. ("Motorola") entered into the [Immunity]*fn1 3, 2010) (hereinafter "Aug. 3, 2010 Order") (granting in part and denying in part Freescale's 23 ChipMOS's Motion for a Continuance (Docket Item No. 58); and granting ChipMOS's Motion to 25 the fact that on June 9, 2005, Plaintiff and Micron Technology, Inc. ("Micron") entered into a 2 patent agreement (hereinafter "Micron Agreement") in which Plaintiff agreed to license to Micron 3 certain patent rights. See Decl. of Greg L. Lippetz in Supp. of Pl.'s Renewed Mot. for Summ. J. 4

Ex. 2. 5 6

12, 2009, Defendant removed the action to this Court on the basis that this Court has original 10 jurisdiction under 28 U.S.C § 1332 based on diversity of the citizenship of the parties.*fn2

Counterclaims. See Docket Item No. 5. This pleading contained eleven affirmative defenses; the 13 affirmative defenses relevant to the present motions include the following: mutual mistake, license, 14 and patent exhaustion. Id. ¶¶ 36, 40, 41. Defendant also alleged the following counterclaims: 15 declaratory judgment of non-infringement and invalidity of three of the Motorola patents that were 16 subject to the ChipMOS Agreement; patent misuse; and breach of the ChipMOS Agreement. Id. 17

Answer to Defendant's Counterclaims. See Docket Item No. 40. 19

20 filed by Plaintiff. See Aug. 3, 2010 Order. As a result of this Order several issues were decided as a 21 matter of law. Among these issues, the Court held that the Agreement provides for a total sales 22 royalty. Id. at 10. The Court also granted Plaintiff's motion with regard to Defendant's 23 counterclaim for breach of contract. Id. at 11. 24 25

B.Procedural History

On July 13, 2009, Plaintiff filed a Complaint for Breach of Contract against Defendant in

Santa Clara County Superior Court. See Notice of Removal, Docket Item No. 1, Ex. A. On August 9

United States District Court

For the Northern District of California

On August 19, 2009, Defendant filed an Answer to Complaint with Jury Demand and The Answer also included a demand for a trial by jury. Id. at 17. On May 6, 2010, Plaintiff filed its 18

On August 3, 2010, this Court issued an order in response to a summary judgment motion 4014466 (N.D. Cal. Sept. 8, 2011) (hereinafter "Sept. 8, 2011 Order"), Docket Item No. 146. In 4 this Order, the Court concluded that Defendant failed to demonstrate the existence of a triable issue 5 of material fact as to any of its contract defenses and granted summary judgment in favor of 6 March 30, 2012, the Court granted in part Defendant's Motion for Reconsideration of the Sept. 8, 8 1094644 (N.D. Cal. Mar. 30, 2012) (hereinafter Mar. 30, 2012 Order"), Docket Item No. 175. The 10 [Plaintiff] royalties on sales of its FBGA packages and that [Defendant's] affirmative defenses of 13 patent exhaustion, license, and mutual mistake have not been waived." Id. at *5. The Court also 14 noted the following: 15 case going forward without prejudice to the filing of future, focused motions addressing [Defendant's] affirmative defenses of patent exhaustion, license, and mutual mistake. The Court is not inclined to entertain future dispositive motions with respect to patent misuse in light of its conclusion that there are triable issues of material fact as to that counterclaim/defense.

Id. at *5. On April 2, 2012, this case was reassigned to Judge Edward J. Davila. See Docket Item 20 Plaintiff filed the two motions presently before the Court on July 27, 2012. In its Renewed Motion for Summary Judgment, Plaintiff seeks the granting of summary judgment with regard to 23 Item No. 183. In its Renewed Motion to Strike, Plaintiff moves the Court to strike Defendant's 25 demand for a jury to decide Defendant's counterclaim of patent misuse as well as its affirmative 26 27 28

On September 8, 2011, this Court granted Plaintiff's Motion for Partial Summary Judgment. Freescale Semiconductor, Inc. v. ChipMOS Techns., Inc., No. 09-3689-JF, 2011 WL 3 Plaintiff with regard to Plaintiff's claim for breach of the ChipMOS Agreement. Id. However, on 7 2011 Order. Freescale Semiconductor, Inc. v. ChipMOS Techns., Inc., No. 09-3689-JF, 2012 WL 9 Court granted reconsideration of the Sept. 8, 2011 Order to reflect that "triable issues of material fact exist as to whether [Defendant] breached the [ChipMOS] Agreement by failing to pay 12 the Court is of the opinion that the better course would be to clarify the scope of the No. 177. 21 22 Defendant's affirmative defenses of license, patent exhaustion, and mutual mistake. See Docket 24 defenses of license, patent exhaustion, and mutual mistake. See Docket Item No. 186. The Court 2 will address each motion in turn. 3 4

7 material fact and the movant is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(a); 8

II.Renewed Motion for Summary Judgment

A.Standard of Review

A motion for summary judgment should be granted if "there is no genuine dispute as to any Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). The moving party bears the 9 initial burden of informing the court of the basis for the motion and identifying the portions of the 10 pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 12

13 to go beyond the pleadings and designate "specific facts showing that there is a genuine issue for 14 trial." Fed. R. Civ. P. 56(e); Celotex, 477 U.S. at 324. The court must regard as true the opposing 15 party's evidence, if supported by affidavits or other evidentiary material. Celotex, 477 U.S. at 324. 16

However, the mere suggestion that facts are in controversy, as well as conclusory or speculative 17 testimony in affidavits and moving papers, is not sufficient to defeat summary judgment. See 18

Thornhill Publ'g Co. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). Instead, the non-moving 19 party must come forward with admissible evidence to satisfy the burden. Fed. R. Civ. P. 56(c); see 20 also Hal Roach Studios, Inc. v. Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990). 21

22 reasonable jury, viewing the evidence in the light most favorable to that party, could resolve the 23 material issue in his or her favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248--49 (1986); 24

Barlow v. Ground, 943 F.2d 1132, 1134--36 (9th Cir. 1991). Conversely, summary judgment must 25 be granted where a party "fails to make a showing sufficient to establish the existence of an 26 27 28

If the moving party meets this initial burden, the burden then shifts to the non-moving party A genuine issue for trial exists if the non-moving party presents evidence from which a element essential to that party's case, on which that party will bear the burden of proof at trial." 2 Celotex, 477 U.S. at 322. 3 4

7 the United States, subsequent purchasers inherit the same immunity under the doctrine of patent 8 exhaustion." Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1105 (Fed. Cir. 2001); see 9 also Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed. Cir.1993) ("The law is well 10 settled that an authorized sale of a patented product places that product beyond the reach of the


1.Patent Exhaustion and License Defenses

Under the doctrine of patent exhaustion, "when a patented device has been lawfully sold in patent."). As such, the exhaustion of a patent depends on "whether or not there has been such a 12 disposition of the article that it may fairly be said that the patentee has received his reward for the 13 use of the article." United States v. Masonite Corp., 316 U.S. 265, 278 (1942). Similarly, the 14 defenses of license requires a showing of "[a]ny language used by the owner of the patent, or any 15 conduct on his part exhibited to another from which that other may properly infer that the owner 16 consents to his use of the patent in making or using it, or selling it . . ." Barnes & Noble. Inc. v. LSI 17

States, 273 U.S. 236, 241 (1927)); see also Wang Labs., Inc. v. Mitsubishi Elecs. Am., Inc., 103 19 F.3d 1571, 1580--82 (Fed. Cir.1997) ("[I]mplied licenses arise by acquiescence, by conduct, by 20 equitable estoppel (estoppel in pais), or by legal estoppel."). 21 Corp., 849 F. Supp. 2d 925, 943 (N.D. Cal. 2012) (quoting De Forest Radio Tel. Co. v. United 18

These defenses apply to so-called "have-made" rights: "[B]y exercising their rights to 'have [licensed products] made,' licensees can shield the unlicensed manufacturer who makes the 23 products for them and subsequently sells the products to them from infringement liability by 24 impliedly licensing the otherwise infringing actions." Intel Corp. v. Broadcom Corp., 173 25 F. Supp. 2d 201, 232 (D. Del. 2001). This notion is derived from the rule that "[t]he right to 'make, 26 use, and sell' a product inherently includes the right to have it made by a third party, absent a clear 27 28 indication of intent to the contrary." CoreBrace LLC v. Star Seismic LLC, 566 F.3d 1069, 1072--73 2 (Fed. Cir. 2009). 3

4 license rests on the party that raises the defense. See Jazz Photo Corp., 264 F.3d at 1102. In this 5 case, therefore, to support its affirmative defenses of patent exhaustion and license, Defendant has 6 the burden of proving that Plaintiff's patent had been exhausted or that Defendant had an implied 7 license by showing that Plaintiff has already received compensation under the same patent rights of 8 the same product or by some other means. Id.; Wang Labs, Inc., 103 F.3d at 1580--82. 9 § 2.3. The "Semiconductor Products" are defined as "discrete and integrated circuit devices . . . 13 whether or not incorporated into more comprehensive systems, products or equipment, whether or 14 not packaged . . . together with all materials, compounds, methods, processes, instructions, and 15 software that are incorporated or embodied in such Semiconductor Products." Id. § 1. Defendant 16 argues that the BGA products fall under this definition. Def.'s Opp'n to Pl.'s Renewed Mot. for 17

"have-made" rights in that it grants Micron the right to have Semiconductor Products made for 19

Micron by a third-party assembler. Id. As such, Defendant argues, the assembly services Defendant 20 provides to Micron with regard to the BGAs are covered by this covenant not to sue. Id. at 7. This 21 line of reasoning is the foundation of Defendant's patent exhaustion and license defenses: 22

Defendant argues that the patent-exhaustion and implied license doctrine shields Defendant from 23 liability for assembling products covered by the Micron Agreement. Id. 24 Pl.'s Renewed Mot. for Summ. J. 10--11. As such, Plaintiff argues, patent exhaustion would be no 27 28

Like with all patent-based affirmative defenses, the burden of proving patent exhaustion or Defendant bases its defenses of patent exhaustion and license on the Micron Agreement. Under this Agreement, Plaintiff covenanted not to sue Micron for "the manufacture, use, sale, offer for sale, or importation of Semiconductor Products by or for . . . Micron . . . ." Micron Agreement 12 Summ. J 6. Defendant also argues that the language in § 2.3 of the Micron Agreement provides for 18 In support of its Renewed Motion for Summary Judgment, Plaintiff first argues that the Micron Agreement's definition of Semiconductor Products does not include the BGA Packages. 26

defense to Defendant's assembling the BGA Packages for Micron since the Agreement does not 2 cover these items and therefore cannot grant "have made" rights with regard to them. Id. at 10--11. 3

Agreement confers the "have-made" rights to Micron necessary to Defendant's defenses. Id. at 11-- 5

The Court agrees with Plaintiff that Defendant as not met its burden of proving these 7 defenses. The reasoning follows Plaintiff's first argument, that the Micron Agreement's definition 8 of Semiconductor Products does not include the BGA Packages which are at the subject of the 9 current litigation. In support of its defense Defendant points to the Micron Agreement itself as well 10 as deposition testimony by a former Freescale employee. Both of these pieces of evidence belie

Agreement's definition of "Semiconductor Products" does not include the BGA Packages.

Contrary to Defendant's assertion that this definition "clearly includes the housing, or packaging of 14 the products," see Def.'s Opp'n to Pl.'s Renewed Mot. for Summ. J. 6, the definition encompasses 15 "discrete and integrated circuit devices . . . whether or not packaged," Micron Agreement § 1. It is 16 the devices themselves, not the packaging, that were meant to be covered by the Micron 17 Decl. of Vidya R. Bhakar in Supp. of Def.'s Opp'n Ex. 2, Dep. of Robert Rodriguez, at 121--27. 19 Defendant's introduction of this testimony neither satisfies Defendant's burden of proving its 20 defense, nor does it introduce a question of material fact so as to defeat Plaintiff's summary 21 judgment motion in light of the plain reading of the Micron Agreement. 22

23 regard to Defendant's patent exhaustion and license defenses. 24 25 26 27 28 Second, Plaintiff argues that Defendant has failed to show that Section 2.3 of the Micron 4 Defendant's argument. A plain reading of Section 1 of the Micron Agreement reveals that the 12

Agreement. The deposition testimony that Defendant points to confirms this interpretation. See 18 Accordingly, the Court grants Plaintiff's Renewed Motion for Summary Judgment with 3 may be rescinded due to a mutual mistake of fact. Gunthorp v. Golan, 184 Ill.2d 432, 439--40 4

"were reasonable in their inconsistent interpretations." Praxair, Inc. v. Hinshaw & Culbertson, 235 6 2.Mutual Mistake Defense

Under Illinois law, which governs the interpretation of the ChipMOS Agreement, a contract (1998). This doctrine is limited to cases in which both contracting parties made a mistake and 5 F.3d 1028, 1034 (7th Cir. 2000). Unilateral misinterpretation of contractual terms does not justify 7 or warrant rescission. Id. "To invalidate a contract because of mutual mistake, a party must show 8 by clear and convincing evidence that a mistake has been made by both parties relating to a 9 material feature of the contract." Village of Oak Park v. Schwedtner, 288 Ill. App. 3d 716, 718 10 12 the ChipMOS Agreement to contain a total-sales royalty term. Def.'s Opp'n to Pl.'s Renewed Mot. 13 for Summ. J. 8. The Court disagrees. First, the Court notes that it has already found that "the 14 language of the instant Agreement is unambiguous, and the only reasonable interpretation of the 15

Agreement is that it requires a total-sales royalty." Aug. 3, 2010 Order, at 10. Secondly, and 16 notwithstanding whether Defendant was actually mistaken about the total-sales royalty term, 17

Motorola, the party that initially entered into the Agreement-was also mistaken about that term. 19

As such, Defendant has not been able to establish that the purported mistake about the contractual 20 term was mutual. Accordingly, the Court grants Plaintiff's Renewed Motion for Summary 21

Judgment with regard to Defendant's mutual mistake defense. 22 23 25 initial matter, the Court notes that since it has granted Plaintiff's Renewed Motion for Summary 26

Judgment with regard to Defendant's affirmative defenses of license, patent exhaustion, and mutual 27 28 (1997).

Defendant's support for its mutual mistake defense is its assertion that it did not understand Defendant has not presented sufficient evidence to show that Plaintiff or Plaintiff's predecessor- 18

III.Motion to Strike

The Court now turns to Plaintiff's Renewed Motion to Strike Defendant's jury demand. As an mistake, Plaintiff's argument that Defendant is not entitled a jury to hear those defenses has been 2 rendered moot. Accordingly, the Court will only address Plaintiff's Motion to Strike with regard to 3 the issue of whether Defendant is entitled a jury on its patent misuse counterclaim. 4

5 must be by jury unless . . . the court, on motion or on its own, finds that on some or all of those 6 issues there is no federal right to a jury trial." Fed. R. Civ. Proc. 39(a)(2). The Seventh Amendment 7 provides that, "[i]n Suits at common law, where the value in controversy shall exceed twenty 8 dollars, the right of trial by jury shall be preserved." U.S. Const. Amend. VII. In determining 9 whether a right to jury trial on a cause of action exists, a court looks to: (1) "the nature of the right" 10 and (2) whether the remedies provided "are legal or equitable in nature." Spinelli v. Gaughan, 12 F.3d 853, 855 (9th Cir. 1993), citing Tull v. United States, 481 U.S. 412, 417 (1987). It is well 12 recognized that the second prong of the test is more important than the first. Spinelli, 12 F.3d at 13 855--56; see also Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989). Where the only 14 requested relief is equitable, there is no right to a jury trial. See, e.g., In re Tech. Licensing Corp., 15 Water Co., 299 F.3d 643, 648 (7th Cir. 2002). Similarly, "[a] litigant is not entitled to have a jury 17 resolve a disputed affirmative defense if the defense is equitable in nature." Granite State Ins. Co. 18

The Court agrees with Plaintiff that Defendant is not entitled to a jury trial on its patent 20 misuse counterclaim. Patent misuse arises from the equitable doctrine of unclean hands and is 21 considered to be an equitable defense and claim. C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 22 1372; Qualcomm Inc. v. Broadcomm Corp., 548 F.3d 1004, 1025 (Fed. Cir. 2008). This is not a 23 notion disputed by Defendant. See Def.'s Opp'n to Pl.'s Mot. to Strike 9 (characterizing this 24 counterclaim as an "equitable counterclaim of patent misuse"). As such, patent misuse, whether 25 raised as a defense or a counterclaim, does not entitle Defendant to a jury trial. See Inland Steel 26 27 28

When a jury trial has been demanded under Rule 38 "[t]he trial on all issues so demanded 423 F.3d 1286, 1289--90 (Fed. Cir. 2005); Marseilles Hydro Power, LLC v. Marseilles Land & 16 v. Smart Modular Techs., Inc., 76 F.3d 1023, 1027 (9th Cir. 1996). 19 Prods. Co. v. MPH Mfg. Corp., 25 F.R.D. 238, 247 (N.D. Ill. 1959) ("[P]atent misuse claims are 2 not triable of right by jury."). Accordingly, the Court grants Plaintiff's Renewed Motion to Strike. 3

IV.Conclusion and Order

For the aforementioned reasons, Plaintiff's Renewed Motion for Summary Judgment is GRANTED, and Plaintiff's Motion to Strike Defendant's Jury Demand is GRANTED. 7 8


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