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PTC, Inc. v. Charter Oak Fire Ins. Co.

United States District Court, D. Massachusetts

August 21, 2015

PTC, INC., Plaintiff,
v.
CHARTER OAK FIRE INSURANCE COMPANY, Defendant

Page 207

          For PTC, Inc., Plaintiff: Jane M. Guevremont, Steven L. Schreckinger, LEAD ATTORNEYS, Anderson & Kreiger, LLP, Cambridge, MA.

         For Charter Oak Fire Insurance Company, Defendant: Michael F. Aylward, LEAD ATTORNEY, Morrison Mahoney LLP, Boston, MA.

Page 208

          MEMORANDUM AND ORDER

         DOUGLAS P. WOODLOCK, UNITED STATES DISTRICT JUDGE.

         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.

         I. BACKGROUND

         A. The Underlying Allegations

         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

Page 209

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.

         B. The Policy Coverage

         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:

Page 210

" 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.

         C. The Instant Litigation

         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]

         II. ANALYSIS

         A. Ripeness of a Motion for ...


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