Disk drive giant Seagate Technology settled a patent fight with Cornice Inc. two years ago. Problem is, according to Seagate, its insurer won't pick up the tab for its lawyers at Fish & Richardson.
With the company now suing its insurer, Seagate said in a filing Tuesday that National Union Fire Insurance Co. of Pittsburgh has paid only $4 million of the $10 million it spent on the case.
Seagate originally filed patent infringement claims against Cornice over its tiny disk drives in the International Trade Commission and in Delaware federal court in 2004. Cornice responded with counterclaims that Seagate's patents were invalid and that the lawsuit disparaged its products.
Seagate, represented by Orrick, Herrington & Sutcliffe's Robert Freitas in the insurance fight, said that National Union gave it the green light to defend against Cornice's counterclaims. National Union paid out more than $4 million, but refused to cough up the additional $6 million, Seagate said in Tuesday's pretrial statement.
National Union, represented by Drinker Biddle & Reath, fired back that it plans to file breach of contract counterclaims against Seagate. The insurer says the tech company didn't comply with the "Liability Deductible Plan Endorsement" in the policy or the payment agreement.
Seagate's lawyers had earlier dismissed the insurer's reasons for not paying as "arbitrary and unreasonable 'billing guidelines' and other pretexts." Seagate claims that National Union imposed "artificially low" billing rates and misclassified defense work as not being part of the defense.
David Halbreich, an insurance lawyer with Reed Smith who normally represents policyholders, said that while insurers have to cover counterclaims just like any lawsuit, it can get a little dicey figuring out what is defense work and what's not.
"How do you separate the attorneys' fees incurred in bringing the action and in defending against the counterclaims, that's the question," Halbreich said.
Lawyers for Scotts Valley, Calif.-based Seagate and National Union didn't return calls and e-mails seeking comment.
Seagate and National Union failed to settle the matter during a couple of mediations, the most recent occurring last month. With a trial now pending, National Union said in court papers that its counterclaims should push the dispute into arbitration instead of the courtroom.
The original patent cases have been settled. The ITC case was settled in 2005 with Cornice agreeing to stop making the disk drives (pdf) at issue. Then in 2006, the federal case in Delaware also settled. A Fish & Richardson partner who worked on the case declined to comment Tuesday evening.
