A commercial general liability insurer had no duty to defend its insured against a competitor’s antitrust lawsuit alleging fraudulent conduct in obtaining a patent. (Travelers Property Casualty Co. of America v. KLA-Tencor Corp. (2020) 45 Cal.App.5th 156)
Facts
Xitronix Corp. (Xitronix) and KLA-Tencor Corp. (KLA) are business competitors in the semiconductor equipment industry. The two companies have been involved in numerous prior lawsuits with each other.
In 2014, Xitronix filed an antitrust lawsuit against KLA in federal court. In the antitrust lawsuit, Xitronix alleged that KLA fraudulently prosecuted a patent application before the United States Patent and Trademark Office (USPTO), and then used the fraudulently-obtained patent to attempt to monopolize the market and preclude Xitronix from competing. Xitronix’s complaint contained a single cause of action against KLA for “Attempted Monopolization” in violation of the Sherman Act and the Clayton Act.
KLA was the named insured on commercial general liability policies issued by Travelers Property Casualty Company of America (Travelers). The Travelers policies covered KLA for damages because of various “personal injury” offenses, including “malicious prosecution.” KLA requested that Travelers defend KLA against Xitronix’s antitrust lawsuit, but Travelers refused.
Travelers later filed a state court declaratory relief action against KLA, seeking a ruling that Travelers had no duty to defend KLA in Xitronix’s antitrust lawsuit. The state court entered summary judgment in favor of Travelers, finding that Travelers had no duty to defend KLA. KLA appealed.
Holding
The California Court of Appeal affirmed, and held that Travelers did not have any duty to defend KLA in Xitronix’s antitrust lawsuit.
KLA argued that Xitronix’s claim that KLA fraudulently prosecuted a patent application before the USPTO was tantamount to a claim that KLA had committed “malicious prosecution,” which was a covered “personal injury” offense. The appellate court disagreed. The appellate court acknowledged that for purposes of insurance coverage, the term “malicious prosecution” is broad enough to encompass a claim for “abuse of process.” (See Lunsford v. American Guarantee & Liability Ins. Co. (9th Cir. 1994) 18 F.3d 653, 655.) However, malicious prosecution claims and abuse of process claims are both premised on one party’s actions against another party in a judicial proceeding. Here, Xitronix’s claim was premised on KLA’s alleged fraud committed on the USPTO itself in a nonjudicial proceeding. It was not objectively reasonable for KLA to expect that the policies’ coverage for “malicious prosecution” would extend to KLA’s alleged fraudulent prosecution of a patent application before the USPTO. As such, Travelers had no duty to defend KLA against Xitronix’s antitrust lawsuit.
Comment
Xitronix’s antitrust lawsuit against KLA was a so-called Walker Process lawsuit. Such lawsuits derive their name from Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp.(1965) 382 U.S. 172, in which the United States Supreme Court recognized an antitrust cause of action under the Sherman Act and the Clayton Act for using a fraudulently procured patent to attempt to monopolize the market.
Note that the Travelers policies also contained an “intellectual property” exclusion. However, because the appellate court found that Xitronix’s claim against KLA was not covered by the policies’ basic insuring agreement, the court did not address whether the intellectual property exclusion applied.