Microsoft captive loses effort to recoup chip payment

This story has been corrected to reflect that Cypress Insurance Co. is the captive insurer of Microsoft Corp.

A federal jury has ruled against Microsoft Corp.’s captive insurer in its effort to recover $150 million it paid to Microsoft over a chip company’s alleged failure to deliver its product under its contract.

Microsoft entered into an agreement in 2004 to have San Jose-based Hynix Semiconductor America, which is now known as SK Hynix America Inc., to deliver an “uninterrupted supply” of its Dynamic Random Access Memory chips, according to the March 2017 complaint, which was filed in U.S. District Court in Seattle in Cypress Insurance Co. v. SK Hynix America Inc.

In September 2013, SK Hynix informed Microsoft it would not comply with the terms of its agreement and provide the DRAM chips as required, according to the complaint. 

Because of this, Microsoft was forced to secure alternate chip sourcing at a higher price to support its shipment requirements, according to the complaint.

In response to the alleged damages, Cypress, Microsoft’s Arizona-based captive insurer, paid $150 million to Microsoft.  It then filed the complaint against SK Hynix seeking “the full extent” of its payment as Microsoft’s subrogee.

SK Hynix denied the allegations in the lawsuit in its response to the complaint.

The court entered judgment in SK Hynix’s favor Friday following Thursday’s jury verdict.

“Obviously, we’re thrilled with the verdict. We feel like our client has been vindicated,” said SK Hynix attorney Timothy B. Yoo, a principal with Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow P.C. in Los Angeles. “They really did nothing wrong.”

A Cypress attorney had no comment.

In March, Taiwan's Foxconn Technology Co. Ltd. responded to a patent infringement lawsuit filed against it by Microsoft Corp., saying that as a contract manufacturer, it has never needed to pay royalties for the U.S. company's software.