District Court Rules That Intellectual Property Exclusion Does Not Bar Duty To Defend Patent-Holder For Allegedly Making False Accusations Of Infringement
St. Paul Mercury Ins. Co. v. Tessera, Inc., 2016 U.S. Dist. LEXIS 81464 (N.D. Cal. June 21, 2016)
Categories: Duty to Defend – Personal Injury Coverage – Intellectual Property Exclusion
In St. Paul v. Tessera, the district court decided on cross-motions for partial summary judgment that the insurer had a duty to defend an underlying lawsuit alleging that the insured had falsely accused others of violating its patent and breaching related licensing agreements, notwithstanding a policy exclusion for actual or alleged infringement or violation of intellectual property rights.
The insured and the claimant had entered into a patent licensing agreement for semiconductor chips, pursuant to which the claimant sold chips to its customers. The insured initiated an investigation of the claimant’s customers with the International Trade Commission, alleging that the customers infringed the insured’s patents. The claimant was not named in the investigation. In response, the claimant filed suit against the insured, alleging claims for breach of the licensing agreement, fraud, patent misuse, and declaratory relief.
The insurance policy at issue afforded coverage in connection with certain “personal injury” offenses, including “[m]aking known to any person or organization covered material that disparages the business, premises[,] products, services, work, or completed work of others.” In prior proceedings, it had been determined that the underlying action triggered such coverage. The issue at hand was whether a duty to defend was, nevertheless, precluded by an intellectual property exclusion stating: “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: … Patent … 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.”
The district court ruled that the exclusion did not preclude the insurer’s duty to defend. First, the district court stated, “an action for breach of the terms of [a] patent license agreement arises under state contract law, rather than patent law or any other intellectual property law.” Second, the district court asserted, “patent misuse” is not a claim for patent infringement but, instead, is an equitable defense to a claim to patent infringement to restrain anticompetitive practices that draw strength from the patent. Third, the court concluded, the exclusion did not apply to the allegations that the insured falsely accused others of infringement: “PTI does not claim ‘injury or damage’ resulting from any infringement or violation – actual or alleged. Rather, PTI alleges that it was harmed by Tessera’s false allegations of infringement. PTI’s claims do not depend on infringement claims – they depend on Tessera’s false allegations of infringement. … The clear language of the exclusion requires that the claimed ‘injury or damage or medical expenses’ result from the actual or alleged infringement or violation – not just that the claim results in some attenuated sense from actual or alleged infringement or violation.” On this latter point, the district court found distinguishable PTC, Inc. v. Charter Oak Fire Ins. Co., 123 F. Supp. 3d 206 (D. Mass. 2015) in which a court concluded that the phrase “personal injury arising out of any actual or alleged infringement or violation” includes personal injury arising out of alleged infringement by a third party.
Finding the intellectual property exclusion did not apply, the court concluded that the insurer had a duty to defend and entered summary judgment in favor of the insured.
© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result.