Freescale Semiconductor, Inc. v. Chipmos Technologies Inc

Filing 146

ORDER (1) GRANTING 82 FREESCALE'S MOTION FOR PARTIAL SUMMARY JUDGMENT; AND (2) DENYING 100 CHIPMOS'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT. Signed by Judge Jeremy Fogel on 9/8/2011. (jflc2, COURT STAFF) (Filed on 9/8/2011)

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**E-Filed 9/8/2011**

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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FREESCALE SEMICONDUCTOR, INC.,
Plaintiff,

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v.

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CHIPMOS TECHNOLOGIES, INC.,

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Defendant,
_________________________________________

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Case No. 5:09-cv-3689-JF
ORDER1 (1) GRANTING
FREESCALE’S MOTION FOR
PARTIAL SUMMARY JUDGMENT;
AND (2) DENYING CHIPMOS’S
CROSS-MOTION FOR PARTIAL
SUMMARY JUDGMENT
[re: dkt. entries 82, 100]

AND RELATED COUNTERCLAIMS.

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Plaintiff/Counterdefendant Freescale Semiconductor, Inc. (“Freescale”) seeks partial

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summary judgment with respect to its contract claim as well as the patent misuse counterclaim

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asserted by Defendant/Counterclaimant ChipMOS Technology, Inc. (“ChipMOS”). ChipMOS

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opposes the motion and seeks partial summary judgment with respect to Freescale’s contract

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claim and with respect to a number of its counterclaims.

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This disposition is not designated for publication and may not be cited.

Case No. 5:09-cv-3689-JF
ORDER (1) GRANTING FREESCALE’S MOTION FOR PARTIAL SUMMARY JUDGMENT ETC.
(JFLC2)

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I. BACKGROUND
The facts underlying this lawsuit are well-known to the parties and need not be recited in

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full here. The parties’ dispute arises out of an Immunity Agreement (“the Agreement”) entered

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into by ChipMOS and Freescale’s predecessor-in-interest, Motorola, Inc. (“Motorola”). In

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essence, the Agreement cross-licenses patents covering ball grid array (“BGA”) package

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technology, as it provides that each party is immune from suit for infringement of the other’s

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patents relating to BGA packages. The Agreement requires ChipMOS to make royalty payments

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with respect to certain BGA packages that it makes and ships during a calendar quarter.

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Motorola assigned its rights and obligations under the Agreement to Freescale. In March 2006,

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an independent audit led Freescale to believe that ChipMOS owed royalty payments under the

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Agreement. Freescale notified ChipMOS that it considered failure to pay to be a material breach

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of the Agreement. ChipMOS failed to make payment within forty-five days, and Freescale

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exercised its right to terminate the Agreement. Freescale then filed the instant action in the Santa

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Clara Superior Court, asserting a claim for breach of contract. On August 12, 2009, ChipMOS

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removed the action to this Court on the basis of diversity of citizenship, and it also filed

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counterclaims for breach of contract and for a judicial declaration that certain of Freescale’s

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patents are invalid and not infringed by ChipMOS’s products.

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On April 22, 2010, this Court stayed the litigation with respect to patent-related issues

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pending disposition of certain contract-related issues. On August 3, 2010, the Court granted

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partial summary judgment for Freescale with respect to ChipMOS’s counterclaim for breach of

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contract. The Court concluded as follows: the Agreement provides for a “total-sales royalty,”

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i.e., a royalty based on the total sales of ChipMOS’s BGA packages, irrespective of whether the

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specific BGA packages are covered by any patent; ChipMOS’s products fall within the scope of

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the Agreement; ChipMOS failed to make royalty payments; and thus ChipMOS cannot establish

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its own performance under the Agreement, a necessary element of its contract claim. With

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respect to Freescale’s contract claim, the Court concluded that Freescale had established its own

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performance, breach by ChipMOS, and resulting injury. The only unresolved question was the

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validity of the Agreement in light of ChipMOS’s counterclaim of patent misuse; the Court
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Case No. 5:09-cv-3689-JF
ORDER (1) GRANTING FREESCALE’S MOTION FOR PARTIAL SUMMARY JUDGMENT ETC.
(JFLC2)

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concluded that ChipMOS was entitled to take additional discovery with respect to these issues.

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Freescale now renews its motion for partial summary judgment, seeking an adjudication

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that the Agreement is valid and enforceable and that ChipMOS’s patent misuse counterclaim is

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without merit. ChipMOS has filed a cross-motion for summary judgment, seeking an

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adjudication that the Agreement is invalid and unenforceable as a result of Freescale’s patent

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misuse, and specifically, Freescale’s alleged “conditioning” of licenses upon royalty payments

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for products not covered by its patents. ChipMOS also seeks judgment based upon its defense of

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patent exhaustion.

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II. LEGAL STANDARD

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The standard applied to a motion seeking partial summary judgment is identical to the

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standard applied to a motion seeking summary judgment with respect to the entire case. See

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Urantia Foundation v. Maaherra, 895 F. Supp. 1335, 1335 (D. Ariz. 1995). A motion for

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summary judgment should be granted if there is no genuine issue of material fact and the moving

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party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Anderson v. Liberty

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Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of

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informing the Court of the basis for the motion and identifying the portions of the pleadings,

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depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of

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a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the

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moving party meets this initial burden, the burden shifts to the non-moving party to present

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specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); Celotex, 477

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U.S. at 324. A genuine issue for trial exists if the non-moving party presents evidence from

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which a reasonable jury, viewing the evidence in the light most favorable to that party, could

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resolve the material issue in his or her favor. Anderson, 477 U.S. 242, 248-49; Barlow v.

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Ground, 943 F.2d 1132, 1134-36 (9th Cir. 1991).

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III. DISCUSSION
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“Conditioning”

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“A patentee has the exclusive right to manufacture, use, and sell his invention.” Zenith

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Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969). “But there are established
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Case No. 5:09-cv-3689-JF
ORDER (1) GRANTING FREESCALE’S MOTION FOR PARTIAL SUMMARY JUDGMENT ETC.
(JFLC2)

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limits which the patentee must not exceed in employing the leverage of his patent to control or

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limit the operations of [a] licensee.” Id. at 136. “[T]he patent’s leverage may not be used to

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extract from the licensee a commitment to purchase, use, or sell other products according to the

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desires of the patentee.” Id. “[N]either can that leverage be used to garner as royalties a

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percentage share of the licensee’s receipts from sales of other products; in either case, the

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patentee seeks to extend the monopoly of his patent to derive a benefit not attributable to use of

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the patent’s teachings.” Id. “[C]onditioning the grant of a patent license upon payment of

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royalties on products which do not use the teaching of the patent does amount to patent misuse.”

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Id. at 135.

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However, a situation easily might arise in which “the licensee as well as the patentee

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would find it more convenient and efficient from several standpoints to base royalties on total

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sales than to face the burden of figuring royalties based on actual use.” Zenith Radio, 395 U.S. at

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138. “If convenience of the parties rather than patent power dictates the total-sales royalty

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provision, there are no misuse of the patents and no forbidden conditions attached to the license.”

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Id.

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ChipMOS claims that Freescale conditioned the Agreement upon ChipMOS’s payment of

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royalties on BGA packages that do not use the teaching of the subject patents (“Motorola

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patents”). However, ChipMOS concedes that it did not raise the implications of the total-sales

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royalty provision during negotiation of the Agreement. ChipMOS has not presented any

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evidence that Motorola misrepresented the royalty provision or that ChipMOS resisted the

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provision or suggested alternatives that Motorola refused. Rather, ChipMOS’s theory is that

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Motorola had such a firm, non-negotiable policy of requiring a total-sales royalty provision that

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the policy amounted to the unacceptable coercion described in Zenith Radio. ChipMOS offers

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evidence that Motorola used a form of the total-sales royalty agreement at issue in this case as its

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“standard agreement” with all assembly houses. ChipMOS claims that its evidence establishes

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that the total-sales royalty was the only way to obtain a license or immunity agreement from

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Motorola, and that numerous licensees attempted to negotiate this provision but Motorola refused

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to deal.
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Case No. 5:09-cv-3689-JF
ORDER (1) GRANTING FREESCALE’S MOTION FOR PARTIAL SUMMARY JUDGMENT ETC.
(JFLC2)

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After examining carefully all of the deposition transcripts and other evidence offered by

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ChipMOS, the Court concludes ChipMOS’s showing is insufficient to raise a genuine issue of

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material fact. While it does appear that Motorola used a form of the Agreement as its “standard”

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agreement, and that some assembly houses pushed back on other aspects of the Agreement, the

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record is devoid of evidence from which a trier of fact could conclude that any of the assembly

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houses asked Motorola to replace the total-sales royalty provision with one based upon only

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patented products. There is no evidence that Motorola rode roughshod over the desires of the

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assembly houses by insisting on a percentage-of-sales royalty, regardless of use, or by rejecting

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proposals to pay only for actual use.

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B.

Patent Exhaustion
“The longstanding doctrine of patent exhaustion provides that the initial authorized sale

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of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG

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Electronics, Inc., 553 U.S. 617, 625 (2008). Thus a patentee’s attempts to collect royalties from

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two different parties on the same products violates the exhaustion doctrine. See PSC Inc. v.

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Symbol Technologies, Inc., 26 F. Supp. 2d 505, 510 (W.D.N.Y. 1998).

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ChipMOS argued initially that it was asked to pay royalties on products that it assembled

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for Micron, which also had a license with respect to the Motorola patents and was asked to pay

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royalties on the same products. ChipMOS now argues that in June 2005, Motorola entered into a

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settlement agreement with Micron under which the parties granted to each other royalty-free,

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fully-paid, non-exclusive, worldwide licenses under the patents in question. If this is true,

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Freescale is not collecting “double” royalties, because it is not collecting royalties from Micron at

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all. ChipMOS nonetheless argues that under these circumstances its exhaustion defense

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precludes Freescale from recovering royalties on products that ChipMOS assembled for Micron.

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The Court concludes that ChipMOS has failed to demonstrate that the Micron settlement

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agreement covers the same patents as those at issue in this case. Moreover, ChipMOS waived

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this defense by failing to raise it in response to Freescale’s earlier motion for summary judgment.

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See Pandrol USA, LP v. Airboss Ry. Products, Inc., 320 F.3d 1354, 1367 (Fed. Cir. 2003)

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(holding that defendant in patent suit waived a defense by failing to raise it in opposition to
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Case No. 5:09-cv-3689-JF
ORDER (1) GRANTING FREESCALE’S MOTION FOR PARTIAL SUMMARY JUDGMENT ETC.
(JFLC2)

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plaintiff’s motion for summary judgment).2

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IV. ORDER
(1)

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Freescale’s motion for partial summary judgment is GRANTED with respect to its
contract claim and ChipMOS’s patent misuse counterclaim; and

(2)

ChipMOS’s motion for partial summary judgment is DENIED.

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DATED: 9/8/2011

___________________________
JEREMY FOGEL
United States District Judge

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The Court notes that even if ChipMOS were to prevail on its exhaustion defense, at
most Freescale’s contract damages would be reduced – Freescale still would prevail on its breach
of contract claim.
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Case No. 5:09-cv-3689-JF
ORDER (1) GRANTING FREESCALE’S MOTION FOR PARTIAL SUMMARY JUDGMENT ETC.
(JFLC2)