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Transcore, LP v. Caliber One Indemnity Co.

April 27, 2009

TRANSCORE, LP, F/K/A TRANSCORE, INC., TRANSCORE HOLDINGS, INC., AND AMTECH SYSTEMS, LLC, F/K/A AMTECH SYSTEMS CORPORATION, APPELLEES
v.
CALIBER ONE INDEMNITY COMPANY, PMA REINSURANCE CORPORATION AND PMA CAPITAL CORPORATION, APPELLANTS



Appeal from the Judgment entered November 5, 2007 In the Court of Common Pleas of Philadelphia County, Civil, No. 002657.

The opinion of the court was delivered by: Klein, J.

BEFORE: KLEIN, SHOGAN, JJ. and McEWEN, P.J.E.

OPINION

¶ 1 In this declaratory judgment action, Caliber One Indemnity Company (Caliber) appeals from the judgment ordering it to reimburse TransCore, LP, F/K/A TransCore, Inc., TransCore Holdings, Inc, and Amtech Systems, LLC, F/K/A Amtech Systems Corporation (Amtech)*fn1 $822,981.95 for legal fees Amtech incurred in defending itself against a patent infringement claim brought not by a customer, but by another vendor. The insurance policy issued by Caliber covered, in relevant part, professional liability. For two reasons, we reverse and direct that judgment be entered in Caliber's favor. First, because we find that a patent infringement action brought by another vendor is not a "professional liability" action under the terms of the policy. Second, this is an action for inducing a third party to violate a patent, not a direct patent infringement action. Because that patent action can only be brought if the violation is knowing, and there is an exclusion in the police for "knowing" actions, there is no coverage for this action.

Background

¶ 2 Amtech supplied and installed*fn2 transponders and readers that are used to automatically record and bill highway tolls in an E-Z Pass type system. In the underlying action, X-Cyte sued Amtech for patent infringement, alleging that Amtech induced others into patent infringement by installing the infringing technology. See Complaint, 3/21/01, at ¶ 7.*fn3 The claim was subsequently presented to Caliber with a request to defend and, if necessary, indemnify Amtech. Caliber declined coverage. Amtech then hired its own counsel and defended the action, ultimately winning the underlying lawsuit. Amtech then filed this declaratory judgment action, claiming Caliber improperly declined coverage and seeking reimbursement for its legal fees.

¶ 3 The trial court determined that under Mendenhall v. Astec Indus., 14 U.S.P.Q.2d 1134 (E.D. Tenn. 1988), 1988 WL 193214, installation and instruction on use constitutes inducing infringement under the Patent Act, 35 U.S.C. § 271(b).*fn4 The trial court further reasoned that the policy required coverage for "any act.in the rendering of professional services." Caliber One Insurance Policy, 9/3/00, Coverage P(1)(A), at 11. The trial court also noted that the policy contained no specific exclusion for a patent infringement claim. Without specific analysis, the trial court determined that installation was a professional service and therefore the claim required coverage.

Discussion

1. A Patent Infringement Action brought by a Third Party is not Professional Liability

¶ 4 We begin by noting that a professional liability insurance policy is not designed for claims brought by third parties, such as contract or patent infringement claims. Professional liability typically encompasses those claims made by entities that have a professional relationship with the insured. Thus, if a company doing business with Amtech suffered a loss because it could not use or needed to replace equipment supplied by Amtech because of a determination that the Amtech technology infringed upon a patent, that claim may be covered by professional liability. In this hypothetical situation, Amtech and the buyer have a professional relationship. In the matter before us, however, Amtech and X-Cyte had no relationship whatsoever. It would seem self-evident that professional liability insurance is designed to cover those actions undertaken and losses incurred within a professional relationship. In the same way a plaintiff cannot convert a general liability policy into a performance bond or to cover a breech of contract claim, see Redevelopment Auth. of Cambria County v. International Ins. Co., 685 A.2d 581 (Pa. Super. 1996)(en banc), a plaintiff should not convert a professional liability policy into a patent infringement policy.*fn5

¶ 5 The concept of converting one type of insurance into another is generally frowned upon in this Commonwealth. Often, this type of improper conversion is found in automobile coverage. Other examples include: Bombar v. West American Ins. Co., 932 A.2d 78 (Pa. Super. 2007) (may not convert underinsured motorist coverage into liability coverage); Kromer v. Reliance Ins. Co., 677 A.2d 1224 (Pa. Super. 1996) (may not convert excess umbrella coverage into uninsured motorist coverage); and Hart v. Nationwide Ins. Co., 663 A.2d 682 (Pa. 1995) (may not convert underinsured or uninsured motorist coverage into liability coverage).

¶ 6 Our decision today rests on more than the oft affirmed notion that one type of insurance should not be converted into another type of available coverage. The trial court noted that there is no specific exclusion for patent infringement. While it is true that the words "patent infringement" do not appear in any exclusion found in the policy that does not mean that a patent infringement claim is not excluded any more than a contract claim with a supplier who needs to provide an element to be used in the installation of the E-Z Pass-type system.

2. The only Patent Infringement Act Violation Claimed is for Knowingly Inducing Another to Violate the Patent, and the Policy Contains an Exclusion for Knowing Acts

¶ 7 It is beyond debate that a patent infringement claim represents an allegation that the Patent Act has been violated. Specifically, patent infringements are, in relevant part, found at 35 U.S.C. § 271. Thus, a claim of patent infringement is a claim that federal law has been violated. Exclusion D of the policy in question denies coverage to ...


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