United States: Insurance Coverage For Intellectual Property Disputes

If your business is sued for infringement of a third party's copyright, trademark, or patent, one of the first calls you make should be to your business insurance carrier. This article briefly discusses some of the steps that policyholders can take to collect insurance coverage in the event of such infringement.

A number of different types of insurance policies may provide coverage for intellectual property disputes, including:

• general liability insurance policies;
• directors' and officers' liability policies;
• umbrella and excess insurance policies; and
• intellectual property-specific policies.

Additionally, all policies in effect should be carefully examined, including those dating back several years. As soon as a policy is located, the insurance carrier should be notified.

2. Prompt Notification Of Insurance Carriers

As a precondition to coverage, many policies require policyholders to give prompt notice of any claim or occurrence for which coverage is sought. Therefore, it is very important for policyholders to notify their insurance carriers upon learning of a potential dispute.¹ However, coverage may still be available for policyholders that have not given prompt notice, because many courts have ruled that insurance companies may not deny coverage without proof of prejudice due to a policyholder's late notice.

At a minimum, a notice letter to an insurance carrier should identify:

1. the policies at issue;
2. the underlying claim(s);
3. contact people for future communications; and
4. outside counsel, if counsel has already been retained in the underlying case.

Additionally, a notice letter should: (a) assert that the policyholder believes that the policy provides coverage; (b) request or demand that the insurance company defend and/or indemnify the policyholder with regard to the underlying claim; and (c) assert that the policyholder will protect its interests with regard to coverage for the claims.

3. Analysis Of Potential Claims For Coverage

In 1976, the insurance industry introduced the Comprehensive General Liability Insurance (CGL) policy - a standard-form liability insurance policy touted as providing the broadest coverage ever available. A crucial part of this new CGL policy was "advertising injury" coverage, which remains an important part of liability insurance coverage purchased by most policyholders.

One of the more common definitions of "advertising injury" includes:

Another common definition includes "[o]ral or written publication of material that violates a person's right of privacy; . . . [m]isappropriation of advertising ideas or style of doing business; or . . . infringement of copyright, title or slogan." (Emphasis added)

Most litigation over coverage for intellectual property disputes focuses on two issues: (a) whether the alleged claims constitute "advertising injury" offenses, and (b) whether the claims arose out of the policyholder's advertising activities.

Virtually every type of intellectual property claim has, at one time or another, been deemed by a court to be included within the definition of "advertising injury." Coverage issues addressing the three most common types of intellectual property claims - patent, trademark, and copyright - are addressed more fully below.

Patent Infringement Claims

Most courts have held that patent infringement claims are not covered under typical "advertising injury" provisions of CGL insurance policies.² Some courts have found that such policies do cover patent infringement claims.³ Because the law with respect to patent infringement coverage is unsettled or unfavorable in many jurisdictions, in some situations it may be preferable to purchase insurance coverage that specifically enumerates patent infringement claims.

Trademark Infringement Claims

Policyholders have prevailed in most cases addressing coverage for trademark infringement claims. Such cases address whether trademark infringement falls under the policy terms "misappropriation of style of doing business," or "infringement of title or slogan." Most courts have held that infringement of a trademark fits squarely within the policy coverage for "misappropriation of style of doing business."⁴

Copyright Infringement Claims

The law in this area is unsettled, although the better-reasoned decisions have held that advertising activities include any form of solicitation, whether directed to one individual, or as part of a marketing campaign directed at many people.⁶ Some courts have ruled that when a policyholder claims that there is some relationship between the advertising activity and the injury, the insurance company must cover the cost of the suit.⁷ Other courts have taken a more narrow view by requiring that the advertising activity must have actually caused the alleged injury.⁸ The analysis of whether a particular claim arose out of an "advertising activity" is highly fact-specific.

Conclusions

There are no absolute tests for determining whether a claim arose out of a policyholder's advertising activities, and analysis of the issue varies from one jurisdiction to another. Many courts have found that trademark and copyright infringement suits are covered under "advertising injury" provisions of standard-form CGL insurance policies where some or all of the infringement resulted from the policyholder's advertising activities. In contrast, the majority of courts have ruled that patent infringement claims are not covered under "advertising injury" provisions of CGL insurance policies. However, if the policy is ambiguous on the issue of coverage this does not necessarily preclude coverage. A basic principle of insurance law holds that because the insurance companies themselves draft the policies, ambiguities are construed in favor of policyholders. Nevertheless, when intellectual property litigation appears likely, it is always prudent to purchase a policy that specifically enumerates all common types of intellectual property claims, including infringement of patents, copyrights, and trademarks.

1 See Amerisure Ins. Co. v. Laserage Technology Corp., 2 F. Supp.2d 296 (W.D.N.Y. 1998) (denying coverage for intellectual property claim based on fail-ure to give timely notice of suit).

2 See, e.g., Novell, Inc. v. Federal Ins. Co., 141 F.3d 983 (10th Cir. 1998); Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219 (9th Cir. 1996), cert. denied, 117 S.Ct. 388 (1996); St. Paul Fire & Marine Ins. Co. v. Advanced Interventional Sys., 824 F. Supp. 583 (E.D. Va. 1993), aff'd, 21F.3d 424 (4th Cir. 1994); Davila v. Arlasky, 857 F. Supp. 1258 (N.D. Ill. 1994), dismissed without op., 47 F.3d 1182 (Fed. Cir. 1995).

3 See, e.g., Elan Pharmaceutical Research Corp. v. Employers Ins. of Wausau, 144 F.3d 1372 (11th Cir. 1998); Union Ins. Co. v. Land & Sky, Inc., 529 N.W.2d 773 (Neb. 1995), citing Atlantic Mut. Ins. Co. v. Brotech Corp., 857 F.Supp. 423 (E.D. Pa.1994), aff'd, 60 F.3d 813 (3rd Cir. 1995).

4 See Dogloo v. Northern Ins. Co. of New York, 907 F. Supp. 1383 (C.D. Ca. 1995). See also A Touch of Class Imports, Ltd. v. Aetna Casualty & Surety Co., 901 F. Supp. 175 (S.D.N.Y. 1995) (coverage provided because phrase used in sale of jewelry was held to be a "title or slogan").

5 See, e.g., Tri-State Ins. Co. v. B&L Products Inc., 964 S.W.2d 402 (Ark. Ct. App. 1998) (rejecting argument that one-on-one sales solicitation does not con-stitute advertising injury).

6 See, e.g., John Deere Ins. Co. v. Shamrock Indus. Inc., 696 F. Supp. 434 (D. Minn. 1988), aff'd, 929 F.2d 413 (8th Cir. 1991).

7 Id. See also Doron Precision Systems Inc. v. United States Fidelity & Guaranty Co., 963 P.2d 363 (Idaho 1998) (defense provided where copyright infringement activities were related to or connected with advertising).

8 See Novell Inc. v. Federal Ins. Co., 141 F.3d 983 (10th Cir. 1998)