A California district court pushed back on the restrictive interpretation of a standard intellectual property exclusion and found coverage for a policyholder’s patent related lawsuit. The United States District Court (Northern District of California) recently ruled that claims asserting (1) the breach of a patent license agreement and (2) patent misuse were covered under a commercial insurance policy, and not subject to the policy’s intellectual property exclusion. Moreover, the court found that the mere fact that claims are related to assertions of infringement does not preclude coverage unless the claims assert injuries as a result of that infringement.
The Underlying Action
Policyholder Tessera initiated an International Trade Commission (ITC) investigation, accusing several companies of infringing its patents by importing and selling semiconductor packages. Several of these companies were customers of Powertech Technology Inc. (PTI), a company that had obtained a license agreement from Tessera. In December 2011, PTI sued Tessera on several claims and defenses relating to Tessera’s ITC investigation, including breach of the licensing agreement, fraud and deceit, and patent misuse. In February 2012, Tessera tendered the defense and immunity of these claims under three commercial insurance policies issued by St. Paul Mercury Ins. Co. (St. Paul), which accepted the tender of defense under a full reservation of rights, but disputed coverage. After initial motion practice, Tessera and PTI resolved the action by settlement.
The Coverage Action
In April 2012, St. Paul initiated an action for declaratory relief against Tessera, claiming that the standard intellectual property exclusion in its policy excluded from coverage the claims asserted against Tessera. The exclusion at issue bars coverage for: “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….” The exclusion also bars coverage for “any other injury or damage or medical expenses alleged in a claim or suit that also alleges any such infringement or violation.”
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