Something to Think About:
“Personal and Advertising Injury” Coverage and
Intellectual Property Infringement Claims
Daniel I. Graham, Jr.
Bates Carey Nicolaides LLP
191 N. Wacker Drive Chicago, IL 60606
Daniel I. Graham, Jr.’s practice is focused on advising and representing insurance
companies in coverage disputes throughout the country, with an emphasis on
intellectual property infringement and unfair business practice claims. His articles
and training materials have been published by the
Journal of Reinsurance
, the
Illinois Institute of Continuing Legal Education, and the Chicago Bar Association,
and he often speaks on technology-related insurance coverage matters. Daniel was
recognized by
Chambers USA
in the category of Insurance: Dispute Resolution as
an Up and Coming Individual in 2011 and 2012, and an Associate to Watch in 2010,
and by
Super Lawyers
magazine as an Illinois Rising Star in 2010.
Something to Think About:
“Personal and Advertising Injury” Coverage and
Intellectual Property Infringement Claims
I. Introduction ...197
II. Doesn’t “Property Damage” Coverage Extend to IP Claims? ...197
III. An Introduction to “Personal and Advertising Injury” Coverage ...197
A. Infringing upon Another’s Copyright, Trade Dress or Slogan ...198
1. Copyright Infringement ...198
2. Trade Dress Infringement ...198
3. Slogan Infringement ...198
B. The Use of Another’s Advertising Idea ...199
1. Trademark Infringement ...200
2. Patent Infringement ...200
3. Trade Secrets ...201
C. The “Advertisement” Nexus ...202
IV. Common Policy Exclusions ...203
A. Intellectual Property Exclusion ...203
B. Unauthorized Use of Name/Product Exclusion ...203
C. Knowing Violation/Knowledge of Falsity Exclusions ...204
D. First Publication Exclusion ...204
V. Conclusion ...204
Something to Think About:
“Personal and Advertising Injury” Coverage and
Intellectual Property Infringement Claims
These materials update and expand upon topics discussed in Daniel’s article “COVERAGE IN AN ‘IDEAL’ WORLD: An Introduction to Intellectual Property Infringement Claims and Coverage B’s Advertis-ing idea offense,” which appeared in Covered Events, the Newsletter of DRI’s Insurance Law Committee, 2012 Issue 9 (November 5, 2012).
I. Introduction
Intellectual property litigation is hotly contested, expert-intensive, and in many instances, very expensive. Given the stakes involved, corporate insureds defending such legal battles are eager to look for financial sources to support or defray their litigation costs. And an increasing number of them are looking to their liability policies’ “personal and advertising injury” coverage as a potential source to fund not only defense costs, but any judgment or settlement that emanates from the litigation, as well. But are these insureds looking in the right place? Does the “personal and advertising injury” coverage even encompass the intellec-tual property at issue in such litigation?
These materials will introduce readers to how courts have addressed the scope of “personal and advertising injury” coverage in the context of intellectual property infringement claims (“IP claims”). As a threshold matter, they will explain why a liability policy’s “property damage” coverage generally does not extend to IP claims. Next, they will provide a general overview of the “personal and advertising injury” cov-erage’s historical development. The materials will then acquaint readers with some IP claims insureds have argued fall within the scope of “personal and advertising injury” coverage, and discuss how receptive courts have been to such arguments. Lastly, they will identify certain exclusions that could impact coverage for IP claims.
II. Doesn’t “Property Damage” Coverage Extend to IP Claims?
It should be noted preliminarily that courts generally agree that “property damage” liability cover-age does not apply to IP claims. In order to potentially involve the “property damcover-age” covercover-age, most policies require that the claim involve a “physical injury to tangible property” or a “loss of use of tangible property that is not physically injured.” Intellectual property, in contrast, is not tangible property. Rather, it is a “[c]ategory of intangible rights protecting commercially valuable products of the human intellect.” Black’s Law Diction-ary 1808 (9th ed. West 2009) (emphasis added). Consequently, IP claims are often deemed to fall outside the scope of the “property damage” coverage. See, e.g., Greenwich Ins. Co. v. RPS Products, Inc., 882 N.E.2d 1202, 1209 (Ill. App. Ct. 2008) (emphasizing patent infringement claims could not implicate “property damage” cov-erage because it is “black letter law that patent rights encompass intangible, incorporeal rights”).
III. An Introduction to “Personal and Advertising Injury” Coverage
The “personal and advertising injury” coverage emanates from two type of insurance coverage: “per-sonal injury” and “advertising injury.” The Insurance Services Office (“ISO”) first introduced an endorsement to provide insureds “advertising injury” coverage in the 1970s. See Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, 50 Cal. App. 4th 548, 558 (1996); State Farm Fire and Cas. Co. v. Steinberg, 393 F.3d 1226,
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1231 n.2 (11th Cir. 2004). ISO incorporated the “advertising injury” coverage into its standard liability insur-ance forms in 1986. Steinberg, 393 F.3d at 1231 n.2. At that time, ISO redefined “advertising injury” as injury arising out of four enumerated offenses, including the “infringement of copyright, title or slogan” and the “misappropriation of advertising ideas or style of doing business.” Lebas, 50 Cal. App. 4th at 558.
In the late 1990s, ISO combined the “personal injury” and “advertising injury” coverage to create “personal and advertising injury” coverage. The scope of “personal and advertising injury” coverage can vary from policy to policy. However, to potentially implicate coverage in the first instance, most polices require that the alleged injury arise out of one of the offenses enumerated in the definition of “personal and advertis-ing injury.” For purposes of IP claims, insureds generally look to two of the enumerated offenses, in particu-lar: “infringing upon another’s copyright, trade dress or slogan in [the named insured’s] ‘advertisement’” (the “copyright/trade dress/slogan offense”); and “the use of another’s advertising idea in [the named insured’s] ‘advertisement’” (the “advertising idea offense”).
A. Infringing upon Another’s Copyright, Trade Dress or Slogan
By its express terms, the scope of the copyright/trade dress/slogan offense is expressly limited to infringement claims involving three specific types of intellectual property: copyright, trade dress, and slogan.
1. Copyright Infringement
The Federal Copyright Act, 17 U.S.C.A. §101 et. seq., extends federal copyright protection to “origi-nal works of authorship fixed in any tangible medium of expression.” 17 U.S.C. §102(a). These works can be literary, musical, dramatic, choreographic, visual, and architectural in nature. Id. The owner of the copyright is entitled to the exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phonorecords of the copyrighted work, to perform the copyrighted work publicly, or to display the copyrighted work publicly. 17 U.S.C. §106. The act preempts all legal or equitable rights that are created under state statute or common law. 17 U.S.C. §301(a)
2. Trade Dress Infringement
Trade dress is generally regarded as a type of intellectual property that falls under the umbrella of trademark law. Central Mut. Ins. Co. v. Stunfence, Inc., 292 F. Supp.2d 1072, 1079 (N.D. Ill. 2003). It often refers to a product’s overall appearance and image in the marketplace (i.e., shape, color, visible features, packag-ing, labeling), but it may also encompass particular sales techniques. Australia Unlimited, Inc. v. Hartford Cas. Ins. Co., 198 P.3d 514 (Wash. Ct. App. 2008). To be considered protectable trade dress, the design of a product must be non-functional and have a distinctiveness that serves to identify the product with its manufacturer.
Eppendorf-Netheler-Hinz GMBH v. Ritter GMBH, 289 F.3d 351, 355 (5th Cir. 2002). Under federal law, a per-son may be liable for trade dress infringement where that perper-son uses in commerce “any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading descrip-tion of fact, or false or misleading representadescrip-tion of fact, which is likely to cause confusion, or to cause mis-take, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person.” 15 U.S.C. §1125.
3. Slogan Infringement
Many liability policies do not define “slogan.” Accordingly, in assessing whether an IP claim involves an infringement of slogan, some courts have considered dictionary definitions. See, e.g., Palmer v. Truck Ins. Exch., 988 P.2d 568, 576 (Cal. 1999) (looking to definitions contained in Webster’s Collegiate Dictionary (10th
ed. 1993) and American Heritage College Dictionary (3d ed. 1993), court construed “slogan” to mean “a brief attention-getting phrase used in advertising or promotion or a phrase used repeatedly, as in promotion”).
The Second District Court of Appeals, applying New York law, concluded that, for insurance coverage purposes, a “trademarked slogan” constitutes a promotional phrase used to promote a house mark. See, e.g., Hugo Boss Fashions, Inc. v. Federal Ins. Co., 252 F.3d 608 (2d Cir. 2001). In Hugo Boss, a manufacturer was sued for its use of the term “BOSS.” The manufacturer sought a defense under the “infringement of trademarked or service marked slogans” offense against the federal and common law trademark infringement, unfair compe-tition, and dilution claims that had been asserted against it. The insurer denied coverage.
In the ensuing coverage action, the trial court opined that the product mark conveyed a mean-ing that the products on which the mark was placed were “were of first rate quality” and that the wearer was “‘above the rest’ or ‘in control.’” It therefore reasoned that the “BOSS” mark constituted a slogan. The Sec-ond Circuit disagreed, concluding that the “unspoken, but nevertheless clear” understanding is that the term “trademarked slogan” referred to phrases used to promote or advertise a house or product mark, in contradis-tinction to the house or product-mark, itself. The court explained:
It would be odd indeed to say that the trademarked name of a brand, product, or company constitutes a “trademarked slogan” merely because it “remind[s] the consumer of the brand.” For under this definition, all house, product, or brand names would qualify as slogans. Thus, it seems clear that a “slogan” must be something, other than the house mark or product mark itself, that provides such a reminder.
Id. at 619. Because “BOSS” was the product mark, the Second Circuit concluded it could not also be a “trade-marked slogan.” Several courts have similarly since concluded that slogans must encompass promotional phrases other than the product named or mark. See, e.g., James River Ins. Co. v. Bodywell Nutrition, LLC, 2012 WL 360494 (S.D. Fla. 2012); Citizens Ins. Co. of America v. Uncommon, LLC, 812 F. Supp.2d 905 (N.D. Ill. 2011).
B. The Use of Another’s Advertising Idea
In evaluating the types of exposures the advertising idea offense encompasses, one court explained, “the policy covers an underlying suit only when [the insured] is alleged to have misused an ‘advertising idea.’ ‘Advertising’ is not a noun in the phrase ‘misappropriation of advertising ideas;’ it is an adjective, and it is employed in the sentence to describe the kind of idea that must be misappropriated or misused in order for there to be coverage…” Applied Bolting Tech. Products, Inc. v. U.S.F. & G., 942 F. Supp. 1029, 1033-1034 (E.D. Pa. 1996), aff’d, 118 F.3d 1997 (3d Cir. 1997) (Vermont law).
Most liability insurance forms do not define the phrase “advertising idea.” Some insureds have argued that the phrase is ambiguous on that basis. Nevertheless, numerous courts have found the phrase to be non-technical and defined by case law and general usage. Continental Cas. Co. v. Consolidated Graphics, Inc., 656 F. Supp.2d 650, 658 (S.D. Tex. 2009). Giving “advertising idea” its plain and ordinary meaning, courts have found “advertising idea” to encompass “‘any idea or concept related to the promotion of a product to the public.’” Pizza Magia Intern., LLC v. Assurance Co. of Am., 447 F. Supp.2d 766, 772 (W.D. Ky. 2006) (internal citations omitted). Other courts have opined that an “advertising idea” is an idea for advertising that is “novel and new,” and “definite and concrete,” such that it is capable of being identified as having been created by one party and stolen or appropriated by another. Clarcor, Inc. v. Columba Cas. Co., 2010 WL 5211607, * 12 (M.D. Tenn. Dec. 16, 2010) (quoting Sorbee Intern’l Ltd. v. Chubb Custom Ins. Co., 735 A.2d 712, 714 (Pa. Super. Ct. 1999)). As one court emphasized, the offense’s application is limited to those instances in which an insured is liable to a third party whose advertising idea has been used without permission. Rose Acre Farms, Inc. v. Columbia Cas. Co., 662 F.3d 765, 768 (7th Cir. 2011).
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It is against this backdrop that courts have been called upon to evaluate whether the advertising idea offense potentially encompasses claims for the infringement of trademark, trade dress, and patent, and in some instances, trade secret misappropriation. And their responses have varied from jurisdiction to jurisdiction.
1. Trademark Infringement
Whether the advertising idea offense encompasses trademark infringement is an insurance coverage question that has been litigated throughout courts across the country since the “misappropriation of advertis-ing ideas” offense was first introduced. A trademark is a word, name, symbol or device (or a combination of them) that is used in trade with goods to indicate the goods’ source and to distinguish them from the goods of others. 15 U.S.C. §1127. A person infringes another’s trademark where that person, without the consent of the trademark registrant, copies or colorably imitates in commerce a registered mark in connection with the sale and advertising of goods and services, or copies or colorably imitates in commerce the mark and uses it in labels, signs, prints, packages, wrappers, receptacles or advertisements in connection with the sale or advertis-ing of goods and services, and in so doadvertis-ing is likely to cause confusion, mistake, or deception. 15 U.S.C. §1114.
A majority of courts presented with the question have concluded that advertising idea at least poten-tially encompasses a trademark. See, e.g., Lebas, 50 Cal. App. 4th at 560-67. For example, in finding that a claimant’s DRAKKAR and DRAKKAR NOIR trademarks potentially constituted advertising ideas, the Lebas
court reasoned that the intrinsic purpose of a trademark is to “identif[y] a product’s origin . . . [and] guaran-tee[] the product’s unchanged quality.” Id. at 557. The court also opined that “‘[a] trademark is but a species of advertising, its purpose being to fix the identity of the article and the name of the producer in the minds of the people who see the advertisement …” Id. (quoting Northam Warren Corp. v. Universal Cosmetic Co., 18 F.2d 774, 774 (7th Cir. 1927)). See also Tom Kelley Studios, Inc. v. State Farm Gen. Ins. Co., 462 Fed. Appx. 740, 741, 2011 WL 6396441, * 1 (9th Cir. 2011) (observing that California courts have construed advertising idea to encompass trademarks for insurance coverage purposes); State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co., 343 F.3d 249 (4th Cir. 2003) (North Carolina law) (trademark believed to potentially be an adver-tising idea because trademarks play an important role in adveradver-tising); Stunfence, Inc., 292 F. Supp.2d at 1079 (interpreting Illinois law, court reasoned that, because a trademark is a designation used to identity a prod-uct’s source, it “easily qualifies as an ‘advertising idea’”); General Cas. Co. of Wisconsin v. Wozniak Travel, Inc., 762 N.W.2d 572 (Minn. 2009) (insured’s alleged use of term “hobbit” in its website content and domain names deemed to involve an advertising idea).
Nevertheless, not all courts agree that a trademark is an advertising idea. See, e.g., Sport Group, Inc. v. Columbia Cas. Co., 335 F.3d 453 (5th Cir. 2003). Rejecting the notion that a trademark is a species of adver-tising, the Fifth Circuit Court of Appeals, applying Texas law, opined that a trademark does not in and of itself promote a product. The court emphasized that, unlike advertising media such as a billboard, newspaper notice, signpost, or television or radio commercial, a trademark’s primary purpose is to identify and distin-guish products rather than promote them. Based on this reasoning, the court concluded that a trademark did not constitute an advertising idea for insurance coverage purposes.
2. Patent Infringement
A patent is the grant of an intellectual property right to an inventor to exclude others from making, using, offering for sale, selling or importing an invention. A person infringes a patent where that person with-out authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent. 35 U.S.C. §271.
In recent years, some courts have found the advertising idea offense to potentially encompass patent infringement claims where the patent involves a process or invention that could reasonably be considered an
advertising idea. See, e.g., Amazon.com, Inc. v. Atlantic Mut. Ins. Co., 2005 WL 1711966 (W.D. Wash. July 21, 2005) (Washington law); Dish Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010 (10th Cir. 2011) (Colo-rado law). In making those determinations, these courts appear to contemplate the commercial nature/uses of the patented inventions.
For example, in Amazon, the court held that the advertising idea offense encompassed the infringe-ment of various patents – among them, a patent pertaining to an electronic catalog system that enabled customers to obtain updated product data over the Internet; an electronic system and method that “person-alized” electronic news, advertising, and product recommendations directed at a website visitor using a cus-tomer profile; and technology that provided website cuscus-tomers a “virtual shopping cart” to process items they wished to purchase and monitored the frequency and duration of customers’ access to various web pages – because of the commercial nature of the patented inventions.
Similarly, in Dish Network, the Tenth Circuit Court of Appeals concluded that an insured’s alleged infringement of a patented telephony-communication system potentially involved the advertising idea offense because the insured allegedly misappropriated a patented means for providing product information to cus-tomers. Dish Network, 659 F.3d at 1023. See also Amazon.com Int’l, Inc. v. American Dynasty Surplus Ins. Co., 85 P.3d 974 (Wash. Ct. App. 2004) (invention that facilitated preview of music for purchase over Internet deemed to be an advertising idea); Hyundai Motor Am. v. National Union Fire Ins. Co., 600 F.3d 1092, 1100-1101 (9th Cir. 2010) (California law) (court reasoned that patented invention could “reasonably” be consid-ered an advertising idea because it was a patented “method of displaying information to the public at large for the purpose of facilitating sales, i.e., a method of advertising”).
Other courts have rejected the premise that certain technology constitutes an advertising idea sim-ply because it can be used to transmit advertising. See, e.g., Discover Fin. Servs. LLC v. National Union Fire Ins. Co., 527 F. Supp.2d 806, 824 (N.D. Ill. 2007). For example, the Discover Financial court observed that:
[u]sing or selling automated telephone systems that have the ability to advertise goods or serv-ices or solicit business does not itself involve any elements of advertising. In other words, the mere fact that [the insured’s] allegedly infringing telephone systems, like many other technologies, are capable of advertising goods or carrying promotional messages, does not transform the technol-ogy into an advertising idea.
Discover Fin., 527 F. Supp.2d at 824 (emphasis added). The court held that the patent infringement claims did not involve an advertising idea because there was no basis from which it could conclude that the patent owner was injured because the insured had taken the claimant’s advertising. See also Illinois Nat’l Ins. Co. v. Walgreens Co., No. 07 CH 16703 (Cir. Ct. Cook Cty., Ill. July 8, 2008) (patented technology’s ability to trans-mit advertising did not transform the technology’s infringement into a “misappropriation of advertising ideas”).
3. Trade Secrets
Trade secrets are another species of intellectual property that insureds have argued constitutes adver-tising ideas for purposes of implicating an insurance policy’s liability coverage. The Uniform Trade Secrets Act (the “UTSA”), which was developed by the National Conference of Commissioners on Uniform State Laws and has since been adopted by various states, defines “trade secret” as information that (i) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. <http://www.uniformlaws.org/shared/docs/ trade percent20secrets/utsa_final_85.pdf>.
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Courts are generally not inclined to find that a trade secret infringement claim potentially involves an advertising idea where the disputed trade secrets are technical or scientific in nature. See, e.g., Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999) (Pennsylvania law) (trade secrets concerning manu-facture of product did not constitute an advertising idea); Zurich Ins. Co. v. Sunclipse, Inc., 85 F. Supp.2d 842 (N.D. Ill. 2000) (California law) (advertising idea did not encompass trade secrets pertaining to claimant’s technology).
In contrast to technical or scientific trade secrets, where the disputed trade secrets concern market-ing-related information, some courts have found the misappropriation of such trade secret claims to poten-tially involve the advertising idea offense. See, e.g., Air Engineering, Inc. v. Indus. Air Power, LLC, 2013 WL 28271 (Wis. Ct. App. 2013) (insured’s alleged copying of claimant’s Internet customer communication system implicated advertising idea offense); Kinko’s, Inc. v. Shuler, 2002 WL 1308174 (Wis. Ct. App. 2002) (advertis-ing idea encompassed trade secrets concern(advertis-ing promotional strategies and market(advertis-ing plans); Continental Cas. Co. v. Consolidated Graphics, Inc., 656 F. Supp.2d 650 (S.D. Tex. 2009) (claimant’s information regarding past product promotions deemed to be an advertising idea).
It should be noted that, although some courts have found allegations of an insured’s wrongful taking of another’s marketing strategies to involve the advertising idea offense, an insured’s alleged theft of a customer list, alone, may not be sufficient to involve the advertising idea offense. See, e.g., American Family Mut. Ins. Co. v. Bea-sley, 2012 WL 395707 (D. Nev. 2012). Rejecting an argument that a customer list allegedly taken by the insured constituted an advertising idea, the Beasley court reasoned “‘that a confidential customer list is a trade secret, not an idea about advertising.’” Id, 2012 WL 395707, *6 (quoting Steinberg, supra, 393 F.3d at 1234). See also Sentex Sys., Inc. v. Hartford Acc. & Indem. Co., 93 F.3d 578, 580-81 (9th Cir. 1996) (California law) (expressing misgiv-ings that allegations of misappropriation of a customer list alone potentially involves an advertising idea).
C. The “Advertisement” Nexus
In order to potentially involve the “personal and advertising injury” coverage, the copyright/trade dress/slogan and advertising idea offenses each require that the wrongful infringement or use is committed in an “advertisement.” This requirement distinguishes these offenses from the others enumerated in the defini-tion of “personal and advertising injury.”
“Advertisement” is generally defined as a notice that is broadcast or published to the general public or specific market segments about the named insured’s goods, products or services for the purpose of attract-ing customers or supporters. Notably, many policies provide that, for purposes of the definition, notices that are published include material placed on the Internet or on similar electronic means of communication. See Ohio Cas. Ins. Co. v. Cloud Nine, LLC, 464 F. Supp.2d 1161, 1167 (D. Utah 2006) (finding insured’s website “cer-tainly” would satisfy definition of “advertisement”).
While the copyright/trade dress/slogan and advertising idea offenses can encompass a variety of IP claims, such claims will not potentially involve the “personal and advertising injury” coverage unless the wrongful infringement or use is committed (or allegedly committed) in an “advertisement.” Compare Acuity v. Ross Glove Co., 817 N.W.2d 455 (Wis. Ct. App. 2012) (duty to defend trade dress infringement claim existed where allegations suggested infringement was committed in an “advertisement”) withFeldman Law Group, P.C. v. Liberty Mut. Ins. Co., 2012 WL 1323966 (2d Cir. 2012) (no duty to defend copyright infringement claim where complaint did not allege infringement committed in an “advertisement,” as defined by subject policy)
and Hartford Cas. Ins. v. Softwaremedia.com, 2012 WL 965089 (D. Utah 2012) (no duty to defend insured against copyright infringement and slogan infringement claims predicated on insured’s alleged fraudulent sale of software, rather than as a consequence of advertising activity).
Courts have disagreed on what types of communications will constitute an “advertisement.” Some have concluded that the definition’s terms do not require that the promotional material be widely distributed.
See, e.g., Citizens Ins. Co. v. Pro-Seal Service Group, Inc., 730 N.W.2d 682, 688 n. 6 (Mich. 2007) (court contem-plated a notice broadcast to “even a single customer” could constitute “advertisement”); The Ohio Cas. Ins. Co. v. Albers Med., Inc., 2005 WL 2319820 (W.D. Mo. 2005) (court believed requirement that announcement be communicated to “specific market segment” demonstrated that “advertisement” “need not be distributed to the public at large”). However, other courts have concluded that the terms “broadcast” and “publish” require that an “advertisement” be widely disseminated to its intended audience, regardless of whether the audience is the general public or a specific market segment. See, e.g., Rombe Corp. v. Allied Ins. Co., 128 Cal. App. 4th 482 (Cal. Ct. App. 2005) (invitation to assembled group of guests to become customers did not constitute “adver-tisement”); Santa’s Best Craft, L.L.C. v. Zurich Am. Ins. Co., 941 N.E.2d 29 (Ill. App. Ct. 2010) (“advertisement” did not encompass insured’s customer presentations in showroom).
IV. Common Policy Exclusions
Even if the copyright/trade dress/slogan and advertising idea offenses are deemed to encompass a particular IP claim, certain policy provisions may nevertheless limit or otherwise defeat an insurer’s defense or indemnity obligation. We discuss below certain exclusions that are often raised in the context of IP claims.
A. Intellectual Property Exclusion
Many recent liability policies contain an exclusion that precludes coverage for “personal and advertising injury” arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights (the “IP exclusion”). So that the exclusion can be reconciled with the copyright/trade dress/slogan offense, the exclusion states that it does not apply to infringement, in the named insured’s “advertisement,” of copyright, trade dress or slogan. In addition, some policies further amend the IP exclusion, stating that other intellectual property rights do not include use of another’s advertising idea in the named insured’s “advertisement.”
Courts have construed the IP exclusion to preclude coverage for infringement claims involving the enumerated categories of intellectual property, in addition to any derivative claims premised upon the same conduct. See, e.g., Industrial Indem. Co. v. Apple Computer, 79 Cal. App. 4th 817 (Cal. Ct. App. 1999) (exclu-sion “plainly and unambiguously” barred coverage where claims were based on conduct solely constituting trademark infringement); Greenwich Ins. Co., supra, 882 N.E.2d at 1212 (duty to defend patent and trademark infringement claims precluded by exclusion); American Family Mut. Ins. Co. v. Roth, 886 N.E.2d 1149 (Ill. App. Ct. 2008) (Illinois law) (exclusion extinguished duty to defend where injury allegedly arose from trade-mark or trade secret); T.C. Dev. and Design, Inc. v. Discount Ramps.com, LLC, 2011 WL 1297521 (E.D. Wis. 2011) (Wisconsin law) (because claims were predicated on insured’s alleged infringement of claimant’s patent and trademark, they fell “squarely” within IP exclusion); Superformance Intern. Inc. v. Hartford Cas. Ins. Co., 332 F.3d 215 (4th Cir. 2003) (Virginia law) (exclusion precluded insurer’s duty to defend because underlying claims all emanated from trademark infringement); Parameter Driven Software, Inc. v. Massachusetts Bay Ins. Co., 25 F.3d 332 (6th Cir. 2002) (Michigan law) (exclusion precluded insurer’s duty to defend insured where all claims arose from insured’s use of another trademark).
B. Unauthorized Use of Name/Product Exclusion
Many recent liability policies exclude coverage for “personal and advertising injury” arising out of the unauthorized use of another’s name or product in the named insured’s e-mail address, domain name or metatag, or any other similar tactics to mislead another’s potential customers. Courts have found this
exclu-204 ■ Insurance Coverage and Claims ■ April 2013
sion to address allegations of an insured’s wrongful use of the Internet to misdirect customers. See, e.g., Sand-erson v. Zurich Am. Ins. Co., 792 F. Supp.2d 1291 (M.D. Fla. 2010) (insured’s alleged use of laserspecialist.com domain name (and corresponding copyright violations) to mislead and divert claimant’s prospective custom-ers deemed to fall within exclusion’s scope).
C. Knowing Violation/Knowledge of Falsity Exclusions
Various policies exclude coverage for “personal and advertising injury” that was caused by or at the direc-tion of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury” (“the knowing violation exclusion”) and that arises out of the oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity (“the knowledge of falsity exclu-sion”). On occasion, courts have found these exclusions to preclude an insurer’s duty to defend where the insured is alleged to have intentionally and willfully infringed a third party’s intellectual property rights. See, e.g., T.C. Dev. and Design, supra, 2011 WL 1297521 (Wisconsin law) (knowing violation and knowledge of falsity exclusions pre-cluded coverage for infringement claims predicated on “deliberate and willful” conduct).
Generally, however, courts will not apply the knowing violation and knowledge of falsity exclusions where the claimant has asserted a cause of action on which it could obtain damages from the insured without proving that the insured intended the alleged injury. See, e.g., Bridge Metal Indus., L.L.C. v. Travelers Indem. Co., 812 F. Supp.2d 527 (S.D.N.Y. 2011) (New York law) (despite allegations of willful conduct, knowing violation exclusion did not apply because insured could have been found liable under Lanham Act without any finding of intentional conduct); Federated Mut. Ins. Co. v. Power Lift, 152 F.3d 925 (9th Cir. 1998) (California law) (“mere allegations” of knowing wrongdoing not enough to exonerate insurer’s duty to defend insured in trademark dis-pute because intentional wrongdoing is not a necessary element of a trademark infringement claim).
D. First Publication Exclusion
Another exclusion often raised in the context of IP claims precludes coverage for “personal and adver-tising injury” arising out of oral or written publication of material whose first publication took place before the beginning of the policy period (the “first publication exclusion”). The first publication exclusion has been held to preclude an insurer’s duty to defend where the insurer establishes that the insured’s first publication of the infringing intellectual property was committed before the inception of the subject policy. See, e.g., Kim Seng Co. v. Great Am. Ins. Co. of N.Y., 179 Cal. App. 4th 1030 (Cal. Ct. App. 2009) (first publication exclusion precluded duty to defend where insured first published disputed trademarks before beginning of insurer’s policy period).
V. Conclusion
To be sure, whether an IP claim potentially involves an enumerated offense is only one part of an insurance coverage analysis. In evaluating whether an insurer has any coverage obligations owing an insured with respect to a particular IP claim, insurance law practitioners will be careful to review all of the terms, con-ditions, limitations, and exclusions of the particular insurance policy under which coverage is sought. Only then can the practitioner determine whether there is support for his or her coverage assessment.
These materials, which express the opinions of the author and do not necessarily reflect the views of Bates Carey Nicolaides LLP or its clients, illustrate how courts construe “personal and advertising injury” cov-erage in the context of IP claims. The analyses these courts apply can vary from jurisdiction to jurisdiction. Consequently, insurance law practitioners will want to be mindful of choice-of-law considerations as they evaluate the coverage implications of IP claims and stay abreast of developments in the evolving legal land-scape.
