National Union Fire Ins. Co. v. Siliconix Inc.

• Decision Date: 07 June 1989
• Docket Number: No. C-88-2488 EFL.,C-88-2488 EFL.
• Citation: 729 F. Supp. 77
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff, v. SILICONIX INCORPORATED, et al., Defendants.
• Court: U.S. District Court — Northern District of California

729 F. Supp. 77

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff, v. SILICONIX INCORPORATED, et al., Defendants.

No. C-88-2488 EFL.

United States District Court, N.D. California.

June 7, 1989.

Norman J. Roger, Owen, Melbye & Rohlff, Redwood City, Cal., for plaintiff.

Richard E. Sherwood, David E. Killough, O'Melveny & Myers, Los Angeles, Cal., for defendant Intern. Rectifier Corp.

Larry D. Langley, Palo Alto, Cal., for defendant Hartford Fire Ins.

Guy O. Knorblum, Christina J. Imren, Michael A. Papuc, Kornblum & McBride, San Francisco, Cal., for defendant Siliconix, Inc.

ORDER RE SUMMARY JUDGMENT

LYNCH, District Judge.

This action arises out of a suit in which Siliconix, the insured, was charged with patent infringement by International Rectifier Corp. ("IRC"). Siliconix seeks coverage from National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), the insurer. National Union has moved for partial summary judgment seeking a declaration that it is not obligated under its insurance policy to indemnify Siliconix in the underlying action, No. CV-86-4196 WJR (JRX). Defendant Siliconix has opposed this motion. National Union's motion for partial summary judgment was heard on December 16, 1988. For the reasons stated below, plaintiff's motion for partial summary judgment is granted.

COVERAGE FOR ADVERTISING INJURY

Neither plaintiffs nor defendant argue that patent infringement injury is covered under the grant of coverage for bodily injury or property damage. However, the parties dispute whether the coverage offered in the policy for "advertising injury" encompasses coverage for patent infringement. The Court finds this a difficult question. However, having gone back and forth on the issue, the Court concludes that it does not.

The insuring agreement under which Siliconix seeks indemnification contains the following language:

II. PERSONAL INJURY AND ADVERTISING INJURY LIABILITY COVERAGE

(A) The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... advertising injury to which this insurance applies.

. . . . .

(D) Additional Definitions

"Advertising Injury" means injury arising out of an offense committed during the policy period occurring in the course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan.¹

a. Definition of "Piracy"

The initial question before this Court is whether the term "piracy," as used in the policy, encompasses patent infringement. This term is not defined in the policy.

Coverage clauses are interpreted broadly to afford the greatest possible protection to the insured. State Farm Mutual Auto Ins. Co. v. Partridge, 10 Cal.3d 94, 101, 109 Cal.Rptr. 811, 514 P.2d 123 (1973). All ambiguities are construed against the insurer-draftsman to protect the insured's reasonable expectations of coverage. Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal.3d 903, 912, 226 Cal.Rptr. 558, 718 P.2d 920 (1986). Whether contract language is ambiguous is a question of law. Id. A provision is ambiguous if it is capable of two or more reasonable constructions. Id. Policy language must be read in its ordinary sense; ambiguity cannot be based on a strained reading of the policy language. Id.

The Court holds that the term "piracy" is ambiguous and is capable of at least two definitions. Read in its ordinary sense, it must be found to include patent infringement. Four of the eight dictionaries cited by the parties define it as such. Because this term is susceptible to two reasonable interpretations, one encompassing patent infringement and one not, the Court must construe it in favor of coverage for the insured. Therefore, the Court finds that "piracy" encompasses patent infringement.²

b. Did the Injury Complained of Occur in the Course of the Insured's Advertising Activities?

Having concluded that "piracy" encompasses patent infringement, the Court must next resolve the question of whether injury arising out of patent infringement "occurs in the course of" advertising activities. The policy extends coverage to "advertising injury," which is defined as "injury arising out of an offense committed during the policy period occurring in the course of the named insured's advertising activities, if such injury arises out of ... piracy ..."

The Court construes this coverage grant as follows in regards to this case: 1) IRC's injury must be due to Siliconix' patent infringement, 2) the patent infringement must have occurred during the policy period, and 3) the patent infringement must have occurred in the course of Siliconix' advertising activities.

In this case it is clear that IRC's injuries are alleged to have been caused by patent infringement. For the purposes of this argument, it will be assumed arguendo that the infringement took place during the policy period. The Court must then determine whether the alleged patent infringement occurred in the course of Siliconix' advertising activities.

The parties agree that mere advertising, without more, cannot constitute actionable patent infringement. Ling-Temco-Vought v. Kollsman Instrument Corp., 372 F.2d 263 (2d Cir.1967); Merry Mfg. Co. v. Burns Tool Co., 206 F.Supp. 53, 62 (D.C.Ga.1962), aff'd, 335 F.2d 239 (5th Cir.1964). 35 U.S.C. section 271 provides that, except as otherwise provided, "whoever without authority makes, uses or sells any patented invention ... infringes the patent." Thus, it appears that the infringing act is the making, using, or selling of a patented invention, not the mere advertising of the invention.

Siliconix argues that advertising is part and parcel of selling, and therefore the selling of an infringing product is an infringement occurring in the course of advertising. Defendant argues that the injury need not be caused by advertising, but must bear some relationship in time, place or circumstance. In other words, there must have been some act of advertising in connection with the infringing invention. It is undisputed that Siliconix did, in fact, advertise the products which form the basis of the underlying patent infringement action.

Although defendant's argument is facially appealing, it contains a fundamental flaw in that it reads the requirement that the infringement occur in the course of advertising out of the policy. Taken to its extreme, this argument would lead to the conclusion that any harmful act, if it were advertised in some way, would fall under the grant of coverage merely because it was advertised. Under this rationale, for instance, injury due to a defective product which is sold as a result of advertising activity and which later harms a consumer, may fall within the coverage grant. The definition of "advertising" is quite broad and may encompass a great deal of activity.³ Thus, a great many acts may fall within the ambit of advertising, extending advertising injury coverage far beyond the reasonable expectations of the insured.

The Court must attempt to give meaning to each clause of the policy, including the clause which requires...