PTC, Inc. v. Charter Oak Fire Ins. Co.
| Decision Date | 21 August 2015 |
| Docket Number | CIVIL ACTION NO. 14-14056-DPW |
| Citation | 123 F.Supp.3d 206 |
| Parties | PTC, Inc., Plaintiff, v. Charter Oak Fire Insurance Company, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Jane M. Guevremont, Steven L. Schreckinger, Anderson & Kreiger, LLP, Cambridge, MA, for Plaintiff.
Michael F. Aylward, Morrison Mahoney LLP, Boston, MA, for Defendant.
PTC, Inc. moves for judgment on the pleadings against Charter Oak Fire Insurance Company in this insurance coverage action as a way to answer the question whether Charter Oak was required to defend PTC under the terms of a general liability policy despite the existence of an intellectual property ("IP") exclusion in the policy. I conclude that the exclusion applies and consequently will enter the judgment adverse to PTC.
PTC was named as a defendant in Flextronics Int., Ltd ., v. PTC, Inc. , Civil Action No. 13-0034, in the Northern District of California on or about January 3, 2013. Compl. ¶ 5, Ex. A.1 Flextronics alleged that PTC, which licenses software to Flextronics, "is engaged in the unauthorized and illegal practice of accessing, monitoring, obtaining, using, and transferring confidential and proprietary data and information ... from Flextronics' computers without Flextronics' consent and in violation of the master agreement governing the parties' relationship." Flex Compl. ¶ 1, see also ¶¶ 25-46. Flextronics contended that this was "part of an ongoing scheme to boost PTC's revenue" by "making knowingly false and/or reckless accusations of copyright infringement and/or unlicensed use of PTC software in [an] effort to extort payments from its customers/licensees," id. ¶ 2, and that PTC advanced this scheme by "conceal[ing] embedded technology in its licensed software that without notice, permission or authorization, accesses, monitors, obtains, and transfers confidential and proprietary data and information from Flextronics' computers and purportedly enables PTC to, among other things, detect instances of unlicensed software use." Id. ¶ 3.
Flextronics alleged that PTC's embedded software inaccurately identified licensed uses of PTC software as unlicensed use, thereby reporting piracy when there was none. Id. at ¶ 55. Flextronics' claimed injuries included money and resources expended by Flextronics in its effort to investigate PTC's unwarranted allegations that Flextronics was using unauthorized copies of PTC's software, allegations which were themselves based on information collected through the unlawfully embedded technology, and in its efforts to investigate the unauthorized technology. Id. ¶ 47-54.
Flextronics asserted claims in six causes of action against PTC: (1) Violation of 18 U.S.C. § 1030, the Computer Fraud and Abuse Act; (2) Violation of Cal. Penal Code § 502, Computer Data Access and Fraud Act; (3) Declaratory Judgment under the Copyright Act, 17 U.S.C. § 106, et seq. ; (4) Declaratory Judgment as to Breach of Contract; (5) Trespass to Chattels; and (6) Conversion. As to Count Three, seeking a declaratory judgment under the Copyright Act, Flextronics contended that "[a]n actual, substantial, live, exigent, and justiciable controversy exists between PTC and Flextronics with respect to whether or not Flextronics has violated the Copyright Act ..." and that Flextronics sought a declaration that "(a) Flextronics has not infringed upon PTC's U.S. copyrights and (b) Flextronics' use of PTC's Pro/ENGINEER software is consistent with Flextronics' licensing rights under the Enterprise Agreement." Id. ¶ 80-82.
As part of PTC's defense, it asserted two counterclaims against Flextronics for (1) Copyright Infringement and (2) Breach of Contract.2 The first counterclaim alleged that Flextronics used PTC's copyrighted software in a manner that constituted copyright infringement under 17 U.S.C. § 501. Flex Counterclaim ¶¶ 47-51.
Charter Oak had issued a series of general liability policies to PTC that were effective between November 1, 2009, and November 1, 2014. Compl. ¶ 15. The policy from 2009-2010 is attached to the complaint in this matter and the parties agree that the 2009-10 policy is identical in all relevant respects to the policy in effect through 2014. Compl. ¶ 17, Charter Oak Answer ¶ 17. The policy states that Charter Oak will "pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies" and imposes the "duty to defend the insured against any ‘suit’ seeking those damages." Compl. ¶¶ 18-19.
The policy includes a provision (the "IP exclusion") that excludes coverage for:
"Personal injury" or "advertising injury" arising out of any actual or alleged infringement or violation of any of the following rights or laws, or any other "personal injury" or "advertising injury" alleged in any claim or "suit" that also alleges any such infringement or violation: (1) Copyright ...
Compl. ¶ 23.
PTC tendered the defense of the Flextronics Action to Charter Oak. In a letter dated June 6, 2014, Charter Oak disclaimed coverage and, relying upon the IP exclusion, refused to defend PTC. In a subsequent letter on September 3, 2014, Charter Oak reiterated its refusal to defend PTC in the Flextronics Action, stating that "[t]here is no requirement in the [IP] exclusion that the infringement or violation of intellectual property laws be committed by the policyholder for the Intellectual Property exclusion to be triggered, but only that it is alleged in the same claim or suit." Compl. ¶ 28.
PTC filed this action against Charter Oak in Suffolk Superior Court on October 9, 2014. PTC seeks a declaratory judgment that Charter Oak was obligated to defend PTC in the Flextronics Action, judgment on a breach of contract claim awarding actual and consequential damages, with interest, as a result of Charter Oak's refusal to defend PTC, and attorneys' fees and costs for prosecution of this action. Charter Oak filed a petition for removal of the case to this court pursuant to 28 U.S.C. § 1446(b) based on the parties' diversity of citizenship, because PTC is a citizen of Massachusetts and Charter Oak is a citizen of Connecticut. PTC now moves for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure on Count One, seeking a declaratory judgment that the IP exclusion does not apply here and that Charter Oak is therefore not excused from its duty to defend PTC in the Flextronics Action.3
PTC seeks leave for judgment on the pleadings pursuant to Rule 12(c) solely on the issue of the scope of the IP exclusion and whether Charter Oak was relieved of its duty to defend under the insurance policy's IP exclusion. A motion for judgment on the pleadings may be filed after the pleadings are closed, Fed. R. Civ. P. 12(c), but is otherwise treated similarly to a Rule 12(b)(6) motion to dismiss, Sim mons v. Galvin, 575 F.3d 24, 30 (1st Cir.2009). To survive a Rule 12(c) motion, a complaint must contain factual allegations that, if assumed to be true, "raise a right to relief above the speculative level." Id. (quoting Pérez – Acevedo v. Rivero – Cubano, 520 F.3d 26, 29 (1st Cir.2008) ).
Charter Oak objects that PTC's claims rely on facts not contained in the underlying pleadings, but does not identify any facts that are outside the pleadings or the documents attached to PTC's complaint, which include the pleadings from the Flextronics action and the insurance policy. Charter Oak argues that, if anything, I must consider the motion as a Rule 56 motion for summary judgment, but that summary judgment is premature because disputes of material fact remain. The disputes identified by Charter Oak concern delayed notice of the suit provided to Charter Oak, the distinction between offensive and defensive efforts, and which fees have been covered by another insurer.
Those questions, however, reach beyond the scope of the motion for judgment on the pleadings before me, which is narrowly tailored to provide an adjudication of the meaning of the IP exclusion in the insurance policy and its applicability to the allegations in the pleadings of the Flextronics Action. "The interpretation of an exclusion in an insurance contract presents a question of law." Finn v. National Union Fire Ins. Pittsburgh, 452 Mass. 690, 896 N.E.2d 1272, 1275 (2008). While an insurer may consider limited facts outside the pleadings, see Billings v. Commerce Ins. Co., 458 Mass. 194,936 N.E.2d 408, 414 (2010), no such facts have been identified by either party as bearing on the applicability of the IP exclusion to the Flextronics Action. Factual disputes alluded to by Charter Oak would have no bearing on the question of the applicability of the IP exclusion itself. The purely legal issue of the scope of the IP exclusion and whether it applies in this case is ripe for determination on the pleadings,4 and in making that determination I disregard allusions to factual matters by either party that are outside of the pleadings themselves.
The duty of insurers to defend claims is a broad one. "It is axiomatic that an insurance company's duty to defend is broader than its duty to indemnify." Boston Symphony Orchestra, Inc. v. Commercial Union Ins Co., 406 Mass. 7, 545 N.E.2d 1156, 1158 (1989) ; see also Open Software Foundation, Inc. v. U.S. Fidelity and Guar. Co., 307 F.3d 11, 14 (1st Cir.2002). Interpretations of insurance contracts are guided by three fundamental principles:
(1) an insurance contract, like other contracts, is to be construed according to the fair and reasonable meaning of its words; (2) exclusionary clauses must be strictly construed against the insurer so as not to defeat any intended coverage or diminish the protection purchased by the insured; and (3)...
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