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

          ORDER RE CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT RE: DKT. NOS. 74-3, 78

          Ronald M. Whyte United States District Judge

         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. In exchange for royalty payments, Tessera granted PTI “a world-wide, non-exclusive, non-transferable, non-sublicensable, limited license” to certain Tessera semiconductor packaging patents so that PTI could assemble, use, and sell semiconductor integrated circuit packages. Id. at T-UND000100.

         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 causes of 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 ¶ 000000075-76. 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 ...