Intellectual property accounts for the majority of all property owned by modern corporations. Because of its value, liability for alleged infringement is a major risk facing businesses today. Companies of all sizes may encounter lawsuits for a variety of intellectual property disputes, including patent infringement, trademark or trade dress infringement, copyright infringement, trade secret misappropriation, unfair competition, and privacy violations, just to name a few.
Businesses confronted with such lawsuits should look to their Comprehensive General Liability (“CGL”) policies for “advertising injury” coverage. For the most part, insurance companies continue to take a narrow view of what constitutes “advertising injury.” Despite that fact, however, courts around the Country have found coverage for various intellectual property claims under “advertising injury” provisions.
Advertising injury provisions may cover liabilities from allegations of trademark and “trade dress” infringement, which occur when one party commercially uses the mark of another without authorization in such a way that the use is likely to cause confusion among consumers. Some courts have held that insurance companies have a duty to defend such claims as “advertising injury.”
Advertising injury provisions may also cover allegations of patent infringement. Although courts frequently find that patent infringement is not covered, insurance coverage may be available depending on the particular facts. Recently, the United States Court of Appeals for the Ninth Circuit (which includes Arizona, Nevada and California, among other western states), found coverage for patent infringement claims under the advertising injury provisions of the insurance policy.
In April 2010, the Ninth Circuit held that an insurer was obligated to provide defense coverage under a general liability policy, because the alleged patent infringement constituted “advertising injury” as defined in the policy. Specifically, in Hyundai Motor Am. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. 08-56527 (9th Cir. Apr. 5, 2010), Hyundai brought suit against its insurer after Hyundai was denied defense coverage in a patent infringement claim. The underlying lawsuit was based upon allegations that Hyundai's website had features that violated certain patents. The plaintiff in that action brought suit against Hyundai and numerous other automobile retailers, claiming that the implementation of patented web site features constituted patent infringement.
After being sued, Hyundai sought to tender defense to its insurer, claiming that the allegations of the complaint sought damages based on a type of “advertising injury,” as defined in the insurance policy. The policy defined “advertising injury” as injury arising out of one or more of the following offenses:
- Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
- Oral or written publication of material that violates a person's right of privacy;
- Misappropriation of advertising ideas or style of doing business; or
- Infringement of copyright, title, or slogan.
Because Hyundai was accused of misappropriating patented “advertising ideas,” it argued that the claims should be covered as advertising injury. The insurer disagreed and denied all coverage. As a result, Hyundai paid for its own defense and was ultimately found liable for patent infringement (with a resulting $34 million damage award that was later overturned). Hyundai then sued its insurer to recover the cost of its defense. The District Court found in favor of the insurer. The Ninth Circuit, however, reversed on appeal, finding that the insurer owed Hyundai a defense under the “advertising injury” provision of the insurance policy.
In doing so, the Ninth Circuit found that an insurance carrier “must defend a suit which potentially seeks damages within the coverage of the policy,” and that coverage can only be excused where there is no conceivable theory under which coverage could arise. The Ninth Circuit further concluded that Hyundai's website constituted an “advertisement” because it was marketed to the public at large. The court noted that patent infringement may constitute an advertising injury where “an entity uses an advertising technique that is itself patented.” As such, the Ninth Circuit concluded that the insurer should have provided a defense.
Despite some insurance carriers’ narrow interpretation of “advertising injury” clauses, policyholders should work with their legal counsel to determine whether there may be “advertising injury” coverage for accusations of intellectual property infringement.