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Tessera, Inc. v. Toshiba Corp.

United States District Court, N.D. California, San Jose Division

October 8, 2019

TESSERA, INC., Plaintiff,
v.
TOSHIBA CORPORATION, Defendant.

          REDACTED ORDER (1) GRANTING TESSERA'S MOTION FOR PARTIAL SUMMARY JUDGMENT, (2) DENYING TOSHIBA'S MOTION FOR SUMMARY JUDGMENT, AND (3) GRANTING IN PART AND DENYING IN PART TOSHIBA'S MOTION TO STRIKE [RE: ECF 318, 378, 380]

          BETH LAB SON FREEMAN United States District Judge.

         Plaintiff Tessera, Inc. (“Tessera”) and Defendant Toshiba Corporation (“Toshiba”) have brought counter suits against each other seeking to resolve their dispute as to the proper measure of royalty payments due under their license agreement and its addenda. Before the Court are the parties' second round of cross motions for summary judgment and Toshiba's motion to strike two of Tessera's expert reports. For the reasons discussed below, the Court GRANTS Tessera's motion for partial summary judgment, DENIES Toshiba's motion for summary judgment, and GRANTS IN PART and DENIES IN PART Toshiba's motion to strike.

         I. BACKGROUND

         A. Factual Background

         In 1999, Tessera and Toshiba signed the patent-infringement-based Tessera Compliant Chip (“TCC”) Licensing Agreement (the “1999 Agreement” or “Agreement”) whereby Tessera granted Toshiba “a non-exclusive, non-transferable, non-sublicensable, limited license to the Tessera Patents to package and/or assemble [integrated circuits (‘ICs')] into TCCs and use or sell such TCCs world wide.” 1999 Agreement, Decl. of Amy K. Liang (“Liang Decl.”) Ex. 1, at 1, ECF 380-2, 403-6. The 1999 Agreement defined “Tessera Patent” as “Patent(s) or claims within such Patent(s) for the design, manufacture, and/or assembly of TCCs . . . owned by Tessera prior to expiration or termination of th[e] Agreement.” 1999 Agreement ¶ I.D. The Tessera Patents “consist[ed] of those issued Patents set forth in Attachment A, ” which was to be “amended from time to time to include further issued Patents directly related to the scope of the license grant.” 1999 Agreement ¶ I.D.

         In addition to the license fee, Toshiba also agreed to pay Tessera “running royalties . . . during the term of this Agreement . . . per Billable Pin for TCCs made by [Toshiba].” 1999 Agreement ¶ III.B. The 1999 Agreement was to “remain in full force until the expiration of the last to expire of any Tessera Patent.” 1999 Agreement ¶ X.A. Notwithstanding, Toshiba could terminate the agreement “by reasons of non-use of relevant Tessera Patents licensed hereunder.” 1999 Agreement ¶ X.A.

         Around 2001, Tessera received a favorable claim construction for claims on two Tessera Patents: U.S. Patent Nos. 5, 679, 977 (the “‘977 Patent”) and 5, 852, 326 (the “‘326 Patent”). Toshiba Opp'n to Tessera's Mot. for Partial Summ. J. (“Toshiba Opp.”) at 2, ECF 403-4, 404-2. In 2002, following the favorable claim construction, the parties amended the 1999 Agreement (the “2002 Amendment”) to clarify that Toshiba's F-µBGA Packages were covered by the Agreement. 2002 Amendment, Decl. of A. Matthew Ashley (“Ashley Decl.”) Ex. 11, at 1, ECF 405-23, 406-27; see Toshiba Opp. at 2. The 2002 Amendment further defined F-µBGA Packages as

a type of TCC which incorporates at least one IC device having electrical contacts on a front surface of such IC device, where such contact bearing front surface faces away from a package substrate, the substrate being attached to the IC device with a die attach material and having at least one substrate terminal within the periphery of the IC device and such at least one substrate terminal being electrically connected to one of the electrical contacts by a bonding wire.

2002 Amendment ¶ K. In addition, the 2002 Amendment included four examples of F-µBGA Packages (Type 1 to Type 4 F-µBGA) that Toshiba produced at that time and the parties agreed were covered by the Agreement.[1] 2002 Amendment ¶ K. The 2002 Amendment further provided that Toshiba would “pay running royalties for its exercise of the license granted . . . for F-µBGA Packages.” 2002 Amendment ¶ 5.C.

         In 2005, the parties executed a second amendment to the 1999 Agreement (the “2005 Amendment”) “to resolve the then-existing dispute regarding Toshiba's past due royalties under the [1999 Agreement].” 2005 Amendment, Ashley Decl. Ex. 12, at 1, ECF 405-24, 406-28. Among other things, the 2005 Amendment affirmed that Toshiba would pay royalties for F-µBGA Packages and capped the number of Billable Pins for Type 3 and Type 4 F-µBGA Packages. 2005 Amendment ¶ C.c.

         On February 12, 2016, Toshiba sent a letter to Tessera terminating the Agreement pursuant to Section X.A, which provided that “[Toshiba] may terminate th[e] Agreement by reason of non-use of the relevant Tessera Patents licensed hereunder.” Termination Letter, Lee Decl. Ex. 40, at 1, ECF 403-47, 404-4. The parties disagree whether Toshiba properly terminated the Agreement. See Order re First Mots. for Summ. J. (“First MSJ Order”) at 19-20, ECF 232.

         B. Procedural Background

         On November 7, 2016, this Court ruled on the parties' first round of cross motions for summary judgment, holding that the royalty obligations under the 1999 Agreement and the 2002 Amendment are triggered by patent infringement. First MSJ Order at 18-19. The Court, therefore, found that Toshiba only owes royalties if Toshiba practices the claims of an unexpired, valid, and enforceable licensed Tessera Patent. First MSJ Order at 21. In addition, the Court found that “[u]nder the 2002 Amendment, Toshiba gave up the fight over the royalties due, put the F-µBGA Packages under the umbrella of the 1999 Agreement, and, upon the expiration of the patents, Toshiba would no longer be obligated to pay royalties.” First MSJ Order at 18. The Court, furthermore, denied Toshiba's motion for partial summary judgment as to the meaning of “relevant Tessera Patents” and the issue of whether Toshiba properly terminated the 1999 Agreement. First MSJ Order at 20.

         On November 17, 2016, given the Court's summary judgment order, Magistrate Judge Nathaniel M. Cousins ordered that the Patent Local Rules (“PLRs”) would apply to the discovery process. ECF 243. On November 29, 2016, the Court clarified that “to prove breach of contract, Tessera must prove that Toshiba infringes or infringed the patents covered by the contract.” Order re Joint Status Report at 1, ECF 253. Tessera stated that it did not intend to present patent infringement contentions, but the Court nevertheless set a December 2, 2016 deadline for Tessera to identify any asserted patents and provide disclosures pursuant to the PLRs. Order re Joint Status Report, at 2. Tessera did not identify any asserted patents by the December 2, 2016 deadline. On January 20, 2017, Tessera served the expert reports of Dr. John C. Bravman (the “Bravman Report”) and Jeffrey H. Kinrich (the “Kinrich Report”). ECF 282, 283.

         C. Motions Before the Court

         The parties now submit their second round of summary judgment motions, and Toshiba moves to strike the Bravman and Kinrich Reports. First, Tessera seeks summary judgment on Toshiba's fourth cause of action (Covenant of Good Faith and Fair Dealing) to the extent that Toshiba seeks a refund of previously-paid royalties. Tessera Mot. For Summ. J. (“Tessera MSJ”) at iv, ECF 377-4, 378. Toshiba opposes the motion, arguing that the 1999 Agreement is unenforceable after September 24, 2010, Tessera breached the implied covenant of good faith and fair dealing, Tessera was unjustly enriched, Toshiba's royalty payments were involuntary, and Toshiba's claim for refund payments is timely. Toshiba Opp. at 5-15.

         Second, Toshiba moves for summary judgment as to Tessera's first two causes of action (Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing) regarding Toshiba's royalty obligations, the audit provision, and Toshiba's termination of the 1999 Agreement. Toshiba Mot. for Summ. J. (“Toshiba MSJ”) at 1, ECF 376-4, 380. In addition, Toshiba moves for summary judgment as to its second and third counterclaims for declaratory judgment regarding dispute resolution of the financial audits and its termination of the 1999 Agreement for non-use of the relevant Tessera Patents. Toshiba MSJ at 1. Tessera opposes the motion, arguing that the statute of limitations has been tolled for its claims and summary judgment is not appropriate because there are disputed issues of material facts. Tessera Opp. to Toshiba MSJ (“Tessera Opp. to MSJ”) at 3-14, ECF 405-4, 406.

         Lastly, Toshiba moves to strike the Bravman and Kinrich Reports, arguing that the expert reports contain infringement analysis and Tessera cannot allege patent infringement because Tessera did not comply with the PLRs. See generally Toshiba Mot. to Strike (“Mot. to Strike”), ECF 317-2, 318. Tessera counters that it did not need to comply with the PLRs to serve its expert reports because Toshiba admitted that its products infringed certain Tessera Patents under the 2002 Amendment. See generally Tessera Opp. to Mot. to Strike (“Tessera Opp. to Strike”), ECF 407-4, 408.

         The Court addresses each motion in turn.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 56 governs motions for summary judgment. Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “Partial summary judgment that falls short of a final determination, even of a single claim, is authorized by Rule 56 in order to limit the issues to be tried.” State Farm Fire & Cas. Co. v. Geary, 699 F.Supp. 756, 759 (N.D. Cal. 1987). The moving party “bears the burden of showing there is no material factual dispute, ” Hill v. R Carriers, Inc., 690 F.Supp.2d 1001, 1004 (N.D. Cal. 2010), by “identifying for the court the portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). In judging evidence at the summary judgment stage, “the Court does not make credibility determinations or weigh conflicting evidence, and is required to draw all inferences in a light most favorable to the nonmoving party.” First Pac. Networks, Inc. v. Atl. Mut. Ins. Co., 891 F.Supp. 510, 513-14 (N.D. Cal. 1995). For a court to find that a genuine dispute of material fact exists, “there must be enough doubt for a reasonable trier of fact to find for the [non-moving party].” Corales v. Bennett, 567 F.3d 554, 562 (9th Cir. 2009).

         III. TESSERA'S MOTION FOR PARTIAL SUMMARY JUDGMENT

         Tessera seeks summary judgment as to Toshiba's claim that it should receive a refund for its royalty payments that were made after the expiration of the ‘977 and ‘326 Patents.

         A. Background

         Under the 1999 Agreement and its addenda, Toshiba paid royalties to Tessera for its products that practiced the ‘977 and ‘326 Patents. Toshiba Opp. at 3. On September 24, 2010, the ‘977 Patent and ‘326 Patent expired. Liang Decl., Decl. of Sean Y. Lee (“Lee Decl.”) Ex. 25 ¶ 5, ECF 403-31, 404-3. On November 27, 2013, Toshiba informed Tessera that it ceased paying royalties under the 1999 Agreement because “Toshiba d[id] not believe any Toshiba product [wa]s covered by a claim of any valid, unexpired ‘Tessera Patent.'” Toshiba Royalty Letter, Decl. of Michael Harbour (“Harbour Decl.”) Ex. 4, at 1, ECF 377-8, 379-4. Toshiba also requested that “Tessera refund all royalties paid for [Toshiba's] sales after October 1, 2010, when the last of the ‘Tessera Patents' covering Toshiba products expired.” Toshiba Royalty Letter at 1. Tessera did not refund any of Toshiba's royalty payments that were paid after October 1, 2010. See Toshiba Amend. Ans., Counterclaim ¶¶ 29-35, ECF 90-1.

         In its amended answer, Toshiba brings a counterclaim against Tessera to recoup these payments. Specifically, Toshiba alleges that Tessera breached the implied warranty of good faith and fair dealing by retaining Toshiba's royalty payments paid for large-pitch package products after the expiration of certain Tessera Patents. Toshiba Amend. Ans., Counterclaim ¶¶ 29-35. According to Toshiba, it overpaid royalties to Tessera and is entitled to a refund because: (1) Toshiba mistakenly paid royalties for certain large-pitch packaging products that were not covered by the Agreement, and (2) “Tessera . . . demanded that Toshiba continue making royalty payments after the expiration of certain patents” and assured Tessera that it had evidence that a valid, unexpired, and enforceable patent under the 1999 Agreement covered Toshiba's products. Toshiba Amend. Ans., Counterclaim ¶¶ 33-34.[2]

         Tessera now moves for partial summary judgment on Toshiba's request for a refund of royalty payments. See generally Tessera MSJ. Tessera argues that Toshiba's request should be denied because (1) Toshiba's claims are barred by federal patent law, (2) Toshiba's payments were voluntarily made, (3) Toshiba's refund claims are untimely, and (4) Tessera's actions did not constitute a breach of the implied covenant of good faith. Tessera MSJ at 4-11. The Court agrees that Toshiba's refund request is barred by federal patent law, and therefore the Court does not address Tessera's remaining arguments. For the reasons stated below, Tessera's Motion for Partial Summary Judgment on Toshiba's Request for a Refund of Royalty Payments is GRANTED.

         B. Federal Patent Law

         “It is well settled law that a determination that a patent which is the subject matter of a License Agreement is invalid does not entitle the licensee to recoup royalties already paid.” Applied Elastomerics, Inc. v. Z-Man Fishing Prod., Inc., 521 F.Supp.2d 1031, 1039 (N.D. Cal. 2007) (quoting Wang Labs., Inc. v. Ma Labs., Inc., No. C 95-2274 SC, 1995 WL 729298, at *11 (N.D. Cal. Dec. 1, 1995)); see Bristol Locknut Co. v. SPS Techs., Inc., 677 F.2d 1277, 1283 (9th Cir. 1982). This rule is based on policy considerations:

The possibility of obtaining a refund of all royalties paid might induce a manufacturer to accept a license based on a patent of doubtful validity, derive the benefits of suppressed competition which the patent affords, and challenge validity only after the patent's expiration. The licensee would have a chance to regain all the royalties paid while having enjoyed the fruits of the license agreement.

St. Regis Paper Co. v. Royal Indus., 552 F.2d 309, 314 (9th Cir. 1977). “This rationale applies equally to a licensee's ability to recoup . . . past royalties if the products made under the license agreement are later determined to be non-infringing.” Applied Elastomerics, 521 F.Supp.2d at 1039.

         The Ninth Circuit, therefore, has held that a licensee is not entitled to a refund of royalties paid before it challenges the patent's validity, id., or ‚Äútakes an affirmative step that would prompt the early adjudication of the validity of the patent, such as . . . notifying the licensor that the payments were being ...


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