Two recent appellate decisions, one in the Fifth Circuit and one in Illinois, highlight the value to policyholders from the aggressive pursuit of insurance coverage in claims arising from allegations of the infringement of intellectual property rights. In most insurance policies that afford advertising injury coverage, coverage is generally excluded for injuries “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” In other words, the policies, on their faces do not provide coverage for the infringement itself. However, this exclusion from coverage does not apply when the infringement is in the policyholder’s “advertisement.” In other words, a claim to coverage, both for the cost of defense and indemnification for settlement or judgment, can be developed to the extent that an argument can be made that the infringement at issue is actually found in the “advertising.” By taking expansive approaches to what constitutes an “advertisement,” the policyholders in Kipp Flores Architects and Creation Supply obtained insurance coverage for their infringement of intellectual property rights by pointing to the use of the infringement in the marketing of the product.
Kipp Flores arose from a copyright infringement claim asserted by the architects that licensed 11 different designs for houses to a homebuilder. The homebuilder infringed the architect’s copyrights by building hundreds of copies of the houses in violation of the licenses granted to it. The homebuilder used pictures of the infringing designs in its web-based marketing, printed marketing materials, and used model homes built from the infringing plans in its marketing. The insurance policy at issue defined “advertisement” as “a notice that is broadcast or published to the general public or specific market segments about your goods, products, or services for the purpose of attracting customers or supporters.” The insurer contended that the homebuilder’s use of photographs and tours of homes built based on the infringing plans were not “advertisements” arguing that a house cannot be “broadcast” or “published.” Rejecting that argument, the Court noted that the policy did not define “notice” and that the dictionary definition of “notice” includes the imparting of information. Consequently, found that the use of homes built according to the infringing designs constituted “advertisements.” The homebuilder filed for bankruptcy prior to trial, and the insurance carrier was found responsible both for the costs of defense and for the substantial adverse judgment.
Creation Supply arose from a trade dress infringement claim asserted by the manufacturer of a felt tipped marker with a distinctive design. The policyholder in Creation Supply argued that the product, itself, was an “advertisement.” Its unique packaging was effectively an advertisement for the product. Alternatively, the policyholder argued that a floor-stand display that it distributed for use in the sale of its product was “advertising” and that since it included a depiction of the product, was an insured “advertisement.” As in Kipp Flores, the Court in Creation Supply found itself consulting the dictionary to determine the meaning of “advertisement.” While the Kipp Flores Court might have accepted the argument that the product, itself, could constitute the advertisement, the Creation Supply Court rejected that argument. However, it found that the use of a floor display incorporating a picture of the infringing product supplied to stores constituted an “advertisement” and found insurance coverage for the intellectual property infringement claims at issue.
Tours of model homes and floor displays supplied to stores are hardly novel forms of marketing. Yet, in each case, the insurance carrier contended that the use of the infringing product in the marketing did not constitute “advertisements.” The insurers each argued for a far narrower construction of what constitutes an “advertisement.” And it is clear that advertising has evolved at a time when marketing can include the use of social media for product placements as well as a host of alternative ways of giving “notice” of the attributes and value of a product. Thus, by taking an aggressive approach to “advertising” at a time when advertising is evolving, a policyholder can shape a claim to coverage for claims relating to the infringement of intellectual property rights. The value of such coverage cannot be overstated. The takeaway from these two cases is that policyholders should not be too quick to accept “no” from their insurance carriers and should be as creative in their approaches to insurance coverage as they are in marketing their products.