United States District Court, D. Massachusetts
PTC, Inc., Plaintiff: Jane M. Guevremont, Steven L.
Schreckinger, LEAD ATTORNEYS, Anderson & Kreiger, LLP,
Charter Oak Fire Insurance Company, Defendant: Michael F.
Aylward, LEAD ATTORNEY, Morrison Mahoney LLP, Boston, MA.
MEMORANDUM AND ORDER
P. WOODLOCK, UNITED STATES DISTRICT JUDGE.
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.
The Underlying Allegations
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. Flextronics alleged that PTC, which
licenses software to Flextronics, " is engaged in the
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.
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.
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.
of PTC's defense, it asserted two counterclaims against
Flextronics for (1) Copyright Infringement and (2) Breach of
Contract. 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.
The Policy Coverage
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. ¶
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.
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.
The Instant Litigation
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
Ripeness of a Motion for ...