Tessera, Sony Reach 11th-Hour Deal In $93M Royalties Fight
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Law360, San Francisco (October 28, 2013, 6:46 PM ET) -- Tessera Inc. and Sony Corp. reached an eleventh-hour settlement Monday over claims that the Japanese giant violated a patent license with Tessera covering semiconductor technology between the two and failed to pay $92.6 million in royalties, the companies announced on the eve of trial.
The terms of the deal remained confidential Monday, although Tessera officials said in a statement that they would provide more details once the companies sign off on the settlement.
Attorneys for Tessera declined to comment further on the settlement Monday. Attorneys for Sony did not respond to requests for comment.
The case was launched in Santa Clara County Superior Court in May 2011, when Tessera's parent company, Tessera Technologies Inc., went after Sony for allegedly breaching an October 1997 contract in which Sony licensed Tessera's portfolio of hundreds of patents, as well as other technology. Sony removed the case to California federal court that September, court records show.
Sony is one of several companies — including Intel, Texas Instruments and SK Hynix — to license Tessera's technology, which includes semiconductors and microelectronics for “next-generation” electronic devices. Under those license agreements, Tessera has the right to conduct audits related to the amounts of money its licensees might owe. A 2010 audit conducted by third-party auditor Connor Group was greeted with resistance on Sony's part, according to a pretrial statement.
“Sony refused to cooperate with the auditors’ requests for information. ... Despite Sony’s breach of its obligation to cooperate, the auditors ultimately determined that Sony owed Tessera millions of dollars in unpaid royalties for royalty-bearing products made by or for Sony under the agreement,” Tessera said. Once those sums were determined, Sony refused to pay, court documents said.
But after reverse-engineering a number of Sony products, Tessera discovered that Sony was selling hundreds of items that it had never reported to Tessera, but for which Sony was required to pay Tessera royalties under their contract, court documents said.
Sony, however, said in pretrial statements that Tessera had changed direction in recent years, converting itself from a semiconductor technology company to one that would “eviscerate Tessera’s R&D and rely instead on hyper-aggressive patent troll-style litigation to build revenues,” allegedly quoting one of Tessera's leaders.
Following that strategy, Tessera sued Sony over products that weren't subject to the royalties part of the companies' agreement, Sony argued. Tessera only required Sony to pay royalties on chips made for or by Sony, but the technology dug up by the Connor Group didn't fit into those categories, Sony said in court documents.
In the trial, Tessera would have sought monetary damages equaling the royalties Sony allegedly owed but hadn't paid; monetary damages resulting from Sony's other alleged breaches, including not cooperating with the audit provision; and damages associated with Sony's breach of the covenant of good faith and fair dealing, according to pretrial statements.
Tessera Inc. is represented by Morgan Chu, Melissa R. McCormick, Benjamin W. Hattenbach and Lisa S. Glasser at Irell & Manella.
Sony Corp. is represented by Eileen R. Ridley, Matthew B. Lowrie, Aaron W. Moore, Lucas I. Silva and Ruben J. Rodrigues at Foley & Lardner LLP.
The case is Tessera, Inc. v. Sony Corp., case number 5:11-cv-04399, in the U.S. District Court for the Northern District of California.
--Additional reporting by Jacqueline Bell. Editing by Jeremy Barker
