California Court Allows Claim of Failure to Indemnify for Patent Action to Proceed in State Rather Than Federal Court

Case: Linear Technology Corp. v. Applied Materials, No. H028343 (Cal. App. 6th Dist. 6/18/07)

The One Sentence Summary: Plaintiff could pursue claims of breach of contract and failure to indemnify in state rather than federal court against sellers of equipment who refused to indemnify plaintiff against patent infringement claims, but plaintiff did not state a claim on fraud, deceit and Bus. & Prof. Code § 17200 unfair competition claims.


What They Were Fighting About: Linear had been sued by TI in federal court for patent infringement arising out of Linear's use of equipment sold by the defendants in this case. Linear's third party federal court complaint against the defendants sought indemnity, but was dismissed in federal court as not related to TI's patent suit. Linear brought the claim again in state court, and defendants successfully demurrered, claiming the breach of contract suit had to be brought in federal court because it involved patent law questions, and the fraud deceit and unfair competition claims failed to state a cause of action.

Cal. Sixth District Holdings:

• The trial court erred in granting the demurrer on the failure to indemnify claims. The breach of contract and indemnity issues could be resolved without requiring the state court to rule on a necessary issue of federal patent law. Thus, 28 U.S.C. § 1338 did not require the indemnity claims to be brought exclusively in federal court.
  
• The trial court properly dismissed the claims for fraud and deceit and unfair competition under the UCL, California Business and Professions Code § 17200. Defendants had no duty to disclose the existence of earlier patent litigation in selling their equipment to TI. As to the UCL claims, Linear had no standing as a corporate plaintiff to pursue unfair competition claims on behalf of other corporations that could assert their own rights.