Tessera’s $100M Toshiba Royalty Row Lacks IP Claims: Judge
By Dorothy Atkins
Law360, San Jose (February 23, 2017, 7:15 PM EST) -- Tessera Technologies sought Thursday to appeal an early ruling over claims Toshiba Corp. owes more than $100 million in royalties for using its integrated circuit technology in 7,000 products, facing a skeptical California federal judge who noted its “garden variety” contract suit might have been stronger with patent infringement claims.
U.S. District Judge Beth Freeman said at the start of a hearing in San Jose on Tessera's motion for default judgment that if she were to grant Tessera’s request, she would be essentially sending one interpretation of one element of a 1999 licensing agreement between Toshiba and Tessera to the Ninth Circuit “piecemeal.” It wasn't an appropriate time to issue an appealable final judgment in light of the fact Toshiba's motion for summary judgment was pending, she said.
Judge Freeman was also critical of Tessera's suit, noting that the licensing agreement involves 46 patents across thousands of products. Had Tessera alleged patent infringement, its attorneys would have had to "dance awfully fast" before the jury to prove its case, which "we could have all wanted to see,” she said. But without an infringement contention, the case might not be as strong, she said.
“What you have now, is a garden variety breach of contract case here absence evidence of infringement,” Judge Freeman said.
Tessera filed the suit against Toshiba in the Santa Clara County Superior Court in May 2015, and it was later removed to federal court. The suit alleged that Toshiba failed to pay Tessera royalties on its patented integrated circuit technology — called F-µBGA packages and marketed as the “Tessera Compliant Chip” — which Tessera licensed to Toshiba in 1999.
Under the licensing agreement, Toshiba agreed to let a third party regularly audit its records and determine royalties owed to Tessera. But in 2011, the suit claims Toshiba refused to give the auditor access to its data to perform the audit, and in November 2013 Toshiba sent Tessera a letter indicating that it would no longer pay the company royalties. Last year, Toshiba sought to terminate the contract, claiming its products don’t use Tessera’s patented technology, according to court documents.
The complaint asserted breach of contract claims and breach of good faith dealing claims. It also asked the court to declare that Toshiba is required to pay royalties on Tessera's F-µBGA packages, that it’s required to be audited and that it never terminated its contract with Tessera.
In July, Tessera moved for partial summary judgment on the declaratory relief claims, arguing that the royalties owed under the agreement were based on the product and not patent infringement.
Meanwhile, Toshiba argued that the license agreement was infringement-based and that the patents at issue expired in September 2010. Toshiba said that Tessera actually owes it a refund for its overpayments, because Toshiba continued to pay Tessera through 2013. Tessera’s continued demands for royalty payments were “dishonest, harassing, abusive and based upon a falsification of facts,” Toshiba said.
In November, Judge Freeman sided with Toshiba, finding that the agreement was product-based.
On Thursday, Tessera urged Judge Freeman to issue a final order on the declaratory relief claim related to the issue, so it could appeal the interpretation of the contract to the Ninth Circuit. Tessera attorney Matt Ashley of Irell & Manella LLP argued that his request for default judgment wasn’t premature and that the claim at issue is “pivotal” to the outcome of the case. The declaratory relief claim determines if the licensing agreement calculates owed royalties with or without proof of patent infringement, he said.
“It’s a fundamental issue that permeates other facts in the case,” Ashley said.
Ashley also conceded that the breach of contract suit was “much less complex” than if Tessera had pursued patent infringement claims. Still, Ashley argued that it was not beyond Judge Freeman’s discretion to rule on the claim, and that if she decided the issue, both parties would avoid incurring costs associated with fighting Toshiba’s pending motion for summary judgment.
Meanwhile, Toshiba attorney G. Hopkins Guy III of Baker Botts LLP argued that the judge should at least wait until she rules on Toshiba’s motion for summary judgment before she decides Tessera’s default judgment motion. That way, she won’t be sending rulings to the appellate court piecemeal, he said.
At the end of the hearing, Judge Freeman said she would take the arguments under submission, but said that Ashley had convinced her to give the default judgment motion more serious consideration.
Tessera never explicitly indicated in its amended complaint how much it is seeking, and instead only asked for owed royalties plus damages decided at trial. In court documents, Toshiba accused Tessera of trying to "obfuscate" the amount in dispute as a failed attempt at keeping the case in state court. But during the hearing Thursday, Guy said that the amount had “dramatically increased” beyond $100 million that Tessera originally sought.
Tessera is represented by Matt Ashley, Morgan Chu, Benjamin W. Hattenbach, Lisa S. Glasser and Ellisen S. Turner of Irell & Manella LLP.
Toshiba is represented by G. Hopkins Guy III, Jeffrey Liang, Amy K. Liang, Tina Jing Yang, Fangzhou “Fred” Qiu, Michael Hawes, Scott Partridge, Ali Dhanani and David M. Genender of Baker Botts LLP and Lawrence J. Siskind and Anna P. Chang of Siskind Boyd LLP.
The case is Tessera Inc. v. Toshiba Corp., case number 5:15-cv-02543, in the U.S. District Court for the Northern District of California.
--Editing by Bruce Goldman.
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