Linear Technology v. Applied Materials

• Decision Date: 18 June 2007
• Docket Number: No. H028343.,H028343.
• Court: California Court of Appeals Court of Appeals
• Parties: LINEAR TECHNOLOGY CORP., Plaintiff and Appellant, v. APPLIED MATERIALS, INC., et al., Defendants and Respondents.

61 Cal.Rptr.3d 221

152 Cal.App.4th 103

LINEAR TECHNOLOGY CORP., Plaintiff and Appellant, v. APPLIED MATERIALS, INC., et al., Defendants and Respondents.

No. H028343.

Court of Appeal, Sixth District.

June 18, 2007.

Ruby & Schofield, Allen Ruby and Steven A. Ellenberg, San Jose, for Plaintiff and Appellant.

Skadden, Arps, Slate, Meagher & Flom and Jeffrey G. Randall, Palo Alto, for Defendant and Respondent Applied Materials, Inc.

Duane Morris, Daniel J. Herling and Minh T. Hoang, San Francisco, for Defendant and Respondent Tokyo Electron Ltd.

Irell & Manella, Morgan Chu, Jonathan S. Kagan, Lisa Sharrock Glasser and Laura Brill, Los Angeles, for Defendant and Respondent Novellus Systems, Inc.

ELIA, J.

In this action plaintiff Linear Technology Corporation (Linear) alleged that three equipment manufacturers had sold it equipment that was the source of a patent infringement claim against Linear by a third party. The trial court sustained the demurrers of the three defendants, finding insufficient facts to state a cause of action for fraud or unfair competition and lack of subject matter jurisdiction on the causes of action for breach of contract, implied equitable indemnity, breach of statutory warranty, and breach of the covenant of good faith and fair dealing.

On appeal, Linear maintains that all of its claims were erroneously dismissed because they were properly brought in state court and stated viable causes of action. We agree with the superior court's ruling on the claims of fraud and unfair competition but find merit in Linear's jurisdictional arguments. Accordingly, we will reverse the judgment and remand for further proceedings on the contract-related claims.

Background

Because this appeal arises from the sustaining of a demurrer, we set out the underlying facts as alleged in the operative pleading as well as the procedural history of the litigation. Linear is in the business of designing, manufacturing, marketing, and selling semiconductors and integrated circuits. According to Linear's fifth amended complaint, it purchased semiconductor processing equipment from respondents Applied Materials, Inc., Novellus Systems, Inc. (Novellus), and Tokyo Electron Ltd. (TEL) between July of 1996 and August of 2000.

On January 6, 2001, Texas Instruments, Inc. (abbreviated as "TI" by the parties) brought suit against Linear in the United States District Court, alleging infringement of three of TI's patents. The first two, pertaining to the operation of an automated assembly line, had previously been found "valid, enforceable, and infringed" by a jury in a lawsuit brought in May 1998 by TI against Hyundai Electronics Industries Co., Ltd. (Hyundai). The third patent, according to TI's complaint, was related to the first two. For each of the three TI specifically alleged that Linear was infringing the patent by "using the invention" and "by importing into the United States and making, offering to sell, selling, and using within the United States products made by processes covered by the ... patent, all without authority." TI sought injunctive relief, damages, and attorney fees.

On March 2, 2001, Linear filed third-party complaints in the federal district court against respondents, seeking a defense and indemnification of all liability resulting from TI's action as well as damages for breach of contract, fraud, breach of "warranty against intellectual property claims," and breach of warranty under Commercial Code sections 2714 and 2715. Linear alleged that the equipment it had purchased from respondents subject to a "warranty of non-infringement" was "the subject of TI's underlying patent infringement claims," and that Linear had been using this equipment as the parties had anticipated in the purchase transaction.

TI moved to sever Linear's third-party claims from its lawsuit. TI argued that Linear's cross-action involved different issues, pertained to agreements and events of no interest to TI, and did not relate to TI's claims, which "focus[ed] specifically on Linear's conduct — that is, the way in which Linear manufactures its semiconductor products." TI emphasized that it had not named and did not intend to add any other entities as defendants "because no other parties can provide TI with the complete relief it seeks — a cessation of Linear's use of TI's patented methods." Linear opposed the motion, arguing that the subject patents related to how respondents' wafer-manufacturing equipment operated to move wafers from place to place. Those operations, according to Linear, were designed and built by respondents, whereas Linear's processing of the wafers had nothing to do with the patents at issue.

The district court granted the motion to sever, ruling that none of Linear's causes of action "relate to the question before the Court in the instant case, which is whether the Subject Patents are infringed by [Linear's] processes." The district court further noted that, according to TI, respondents — unlike Linear — "`do not manufacture semiconductor products at all; they only manufacture equipment and machinery.'" The court subsequently clarified that its order was without prejudice as it did not preclude any separate action Linear might bring against respondents.

Linear did not file any further complaints against respondents in the federal district court. On March 12, 2002, however, Linear initiated the present action against respondents in superior court. Six months later, it settled the lawsuit brought by TI, along with other actions TI had brought against it for patent infringement.

Respondents demurred to Linear's complaint, and to the succeeding amended versions. Finally, the superior court sustained respondents' demurrers to the fifth amended complaint without further opportunity to amend. The court specifically determined that it lacked subject matter jurisdiction to adjudicate the first, second, third, and fifth (contract-related) causes of action and that the facts alleged in the fourth and sixth (fraud and unfair competition) were insufficient to constitute a cause of action. In the ensuing judgment, the court ordered the fourth and sixth causes of action dismissed with prejudice and the remaining claims dismissed without prejudice to Linear's refiling them in an appropriate federal court. This appeal followed.

Discussion

1. Standard and Scope of Review

On appeal from a dismissal following the sustaining of a demurrer, this court reviews the complaint de novo to determine whether it alleges facts stating a cause of action under any legal theory. (Kamen v. Lindly (2001) 94 Cal.App.4th 197, 201, 114 Cal.Rptr.2d 127.) We "give the complaint a reasonable interpretation by reading it as a whole and all its parts in their context." (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479; Kamen v. Lindly, supra, 94 Cal.App.4th at p. 201, 114 Cal.Rptr.2d 127.) We assume the truth of all properly pleaded factual allegations as well as matters that may be judicially noticed. (Haggis v. City of Los Angeles (2000) 22 Cal.4th 490, 495, 93 Cal. Rptr.2d 327, 993 P.2d 983; Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1007, 36 Cal.Rptr.3d 592.)

The plaintiff bears the burden of demonstrating error by the superior court. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 880, 6 Cal.Rptr.2d 151.) Our only task is to determine whether the complaint states a cause of action as a matter of law. (Garcia v. Superior Court (1990) 50 Cal.3d 728, 732, 268 Cal.Rptr. 779, 789 P.2d 960; Easton v. Sutter Coast Hospital (2000) 80 Cal.App.4th 485, 490, 95 Cal.Rptr.2d 316.) To show entitlement to reversal the plaintiff must show that the complaint alleged facts sufficient to establish every element of each cause of action. Whether the plaintiff will be able to prove these allegations is not relevant. (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496, 86 Cal.Rptr. 88, 468 P.2d 216.) If the plaintiff failed to plead, or if the defendants negated, any essential element of a particular cause of action, this court should uphold the sustaining of the demurrers. (Kamen v. Lindly, supra, 94 Cal.App.4th at p. 201,114 Cal.Rptr.2d 127.)

2. Subject-Matter Jurisdiction

At issue is the applicability of 28 United States Code section 1338, subdivision (a) (hereafter "section 1338(a)"), which provides that the federal district courts "shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases." The primary question presented by respondents' demurrer is whether the first, second, third, and fifth causes of action in the fifth amended complaint ("FAC") arise under patent law such that the case may be heard only in federal court.

The parties appropriately recognize the standard described in Christianson v. Colt Industries Operating Corp. (1988) 486 U.S. 800, 108 S.Ct. 2166, 100 L.Ed.2d 811 (Christianson). There the United States Supreme Court held that the jurisdiction described in section 1338(a) extends "only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiffs right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims." (Id. at p. 809, 108 S.Ct. 2166; see also Franchise Tax Bd. of State of Cal. v. Construction Laborers Vacation Trust for Southern California (1983) 463 U.S. 1, 13, 103 S.Ct. 2841, 77 L.Ed.2d 420 [even if state law creates appellant's causes of action, case might still "arise under" the laws of the United States if a well-pleaded complaint established that its right to relief under state law requires...