IP Litigators Face Several Key Questions
Litigating an Intellectual Property dispute raises important questions: When does an insurer have to pay for a defense? Who should notify insurers and when – and which insurers? What if the insurers all say no? What kinds of policies make for favorable recovery prospects?
How to Notify Insurers
Who to inform and when, and whether to use brokers for notice, will depend upon specific case facts. Other forms of coverage for “claims made and reported” may require notification before the termination date of the policy (or reporting). Courts have noted that “the relevant inquiry is whether the insureds know at the time they entered the insurance policy that they were engaging in activities for which they could possibly be found liable.”1 Policyholders risk a denial of coverage if they fail to timely disclose such a liability when entering into the policy.2
Delays in Communicating Details with Claimant May Cost Policyholders
In California, a policyholder only has the right to receive policy benefits once the insurer knows that alleged facts trigger coverage. Lawsuits are not static in this sense; a claim that begins with no such facts may develop into a covered one as facts arise. This makes it imperative that defendant policyholders communicate with plaintiffs clarify the nature and scope of the claims as early in litigation as possible, so that any defense due under the policy comes into play. It would be a mistake to wait for the crucial facts to reveal themselves downstream in the course of the suit.
Focusing on Facts Beyond the Complaint at the Earliest Opportunity Is Critical
“The insurer must provide a defense when it has actual knowledge of the facts establishing potential coverage.”3 Contention interrogatories and other forms of discovery can elicit facts that establish potential grounds of coverage which do not require awaiting the denouement of the lawsuit as it will come forth at the time of the pretrial conference statement.4
Commercial General Liability (CGL) Coverage and IP
The Preferred Insurance Service Office (“ISO”) policy language, which has been the same from 1998 through 2013 versions,5 defines key terms:
- “Advertisement” means a notice that is broadcast or published to the general public or specific marketing segments about your goods, products or services for the purpose of attracting customers or supporters.6
. . .
- “Personal and advertising injury” means injury . . . arising out of . . .:
- Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, product, or services;
- Oral or written publication, in any manner, of material that violates a person’s right of privacy;
- The use of another’s advertising idea in your “advertisement”. . . .
- Infringing upon another’s copyright, trade dress or slogan in your “advertisement.”
“Personal and Advertising Injury” Coverage
Applying “Personal and Advertising” Coverage requires three things:
- A claim that falls within one or more enumerated “advertising injury” offenses;
- An “advertisement” for the offenses of “use of another’s advertising in your advertisement” or “infringing upon another’s copyright, trade dress or slogan in your “advertisement””; and
- A causal nexus between the “advertising injury” offense and the “advertisement” so that they occur “in your “advertisement.””
For these purposes, “advertisement” means 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.
One court found that a company’s logo and brand name affixed to a surfboard was an “advertisement” for the company.7 Another declined to find that an “advertisement” existed, noting:[The term] “specific market segments,” is only a means of relieving an insured of the burden of showing that its advertising was directed to the general public, as opposed to some defined market . . . . The term “specific market segments” does not relieve an insured of the burden of demonstrating that it was engaged in relatively wide dissemination of its advertisements even if the distribution was focused on recipients with particular characteristics or interests. . . . Neither the breakfast meeting Rombe hosted nor any solicitation which occurred there involved the broad dissemination of information which AMCO’s policy required.8
The causal nexus must be between the “offense” and the “advertising activity,” not between the “injury” and such activity. The trigger of coverage is whether conduct alleged (or known to the insurer) potentially fell within an enumerated “advertising injury” offense, not whether the insured’s advertisement caused “injury” or “damage.” Injury need only “arise out of” (i.e., be connected with) an “advertising injury” offense evidencing a causal relationship, but not one of proximate causation.
Attorneys’ Fees Awardable Against the Claimant Are “Damages”
It is also important to note that where the policy covers “damages because of personal and advertising injury,” attorneys’ fees are covered, as illustrated in two cases:
- Nat’l, Cas. Co. v. Coastal Dev. Servs. Found., 171 Fed. App’x 680, 685 (9th Cir. (Cal.) 2006) (CGL) (“[A] demand for attorneys’ fees and costs is a “CLAIM” for “DAMAGES”. . . ”). See Golden Eagle Ins. Co. v. Ins. Co. of the West, (“[T]he indemnitee’s attorney fees and costs are sums the insured becomes “legally obligated to pay as damages because of covered tort claims.””) (emphasis in original).
- United States Liab. Ins. Co. v. A&B. Mkt. Plus, Inc., 2019 U.S. Dist. LEXIS 81372, *15-16 (S.D. Cal. May 13, 2019) (D&O) (Attorney’s fees were a form of damages. Prayer for “other relief” implicated “[t]he fees award in the underlying litigation is a “remunerative payment made to an aggrieved party.””).
Types of IP Claims Covered Under “Advertising Injury”
The offenses that are covered in the typical policy include:
- Trademark Infringement/Disparagement
- Offense (d) (“Oral or written publication of material that… disparages [another’s] goods, product or services”)
- Trademark Infringement/False Advertising/Unfair Competition
- Offense (f) (“Use of Another’s Advertising Idea In Your “Advertisement.””)
- Trade Dress Infringement
- Offense (g) (“Infringement of… Trade Dress In Your “Advertisement.””)
- Slogan Infringement
- Offense (g) (“Infringement of… Slogan In Your “Advertisement.””)
Exclusions Insurers Frequently Rely On
- “First Publication” Exclusion
- “This insurance does not apply to: (1) advertising injury: (b) arising out of oral or written publication of material if the first publication took place before the beginning of the policy.”
- “Knowledge of Personal or Advertising Injury”
- “This insurance does not apply to “personal or advertising injury” that was caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury.””
- “Failure of Goods, Products or Services to Conform”
- “This insurance does not apply to “Personal and advertising injury” arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your “advertisement.””
- “Unauthorized Use of Another’s Name or Product”
- “”Personal and advertising injury” arising out of the unauthorized use of another’s name or product in your e-mail address, domain name or metatag or other similar tactics to mislead another’s potential customers”
- Intellectual Property Exclusions
- “This insurance does not apply to . . . “advertising injury” arising out of . . . infringement, violation or defense of any of the following rights or laws: . . . 2. Patent. . .”
There are many issues to navigate in securing insurance coverage for intellectual property claims. With the help of experienced counsel, however, you may be able to navigate these issues and find coverage in situations where you otherwise would not.
About the blogpost author:
David Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. He also serves as an expert witness on insurance coverage issues and represents policyholders and their counsel on a range of fee dispute issues with their insurers. Mr. Gauntlett can be reached at email@example.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.
- Matagorda Ventures, Inc. v. Travelers Lloyds Ins. Co., 208 F. Supp. 2d 687, 693 (S.D. Texas 2001)
- See, e.g., Id. (denying coverage because insurance was purchased after a receipt of a demand letter which was not disclosed); Frankenmuth Mut. Ins. Co. v. Hockey Cup, LLC, 2019 U.S. Dist. LEXIS 160278 *12 (N.D. Ill. Sept. 20, 2019) (applying New York law) (denying coverage where at least 16 months elapsed between the policyholder’s awareness of claims against them and disclosure to the insurer).
- High Point Design LLC v. LMI Ins. Corp., 911 F.3d 89, 98 (2nd Cir. (N.Y.) 2018).
- The Joint Final Pretrial Order (“JFPTO”), pursuant to F.R.Civ.P. 16(e), “supersedes the pleadings”. Petree v. Victor Fluid Power, Inc., 831 F.2d 1191, 1194 (3rd Cir. (N.J.) 1987); Atlanta Pharma AG v. Teva Pharm. USA, Inc., 2010 U.S. Dist. LEXIS 146151 at *20 (D.N.J. July 15, 2010).
- For information on policies to avoid, see David A. Gauntlett, Insurance Coverage For Intellectual Property Risks (May 7, 2021) https://www.linkedin.com/posts/davidgauntlett_insurance-coverage-for-intellectual-property-activity-6796509135522398208-2KOJ/.
- 2013 ISO CGL Policy Form CG 00 01 04 13, Section V – Definitions.
- Street Surfing, LLC v. Great Am. E&S Ins. Co., 776 F.3d 603, 611 (9th Cir. Cal. 2014).
- Rombe Corp. v. Allied Ins. Co., 128 Cal. App. 4th 482, 492, 493 (2005).