Insurance Coverage Alert
April 2010
Authors:
Christopher C. French
chris.french@klgates.com
+1.412.355.6238
Patrick J. McElhinny
patrick.mcelhinny@klgates.com
+1.412.355.6334
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
Ninth Circuit Requires Insurers to Defend
Patent Infringement Claim Under “Advertising
Injury” Coverage of Liability Insurance Policy
Companies concerned about the costs of defending against patent infringement
claims and other intellectual property claims such as trademark and trade dress
infringement and unfair competition should take note of a recent Ninth Circuit
decision that sets a significant and encouraging precedent for coverage claims for
intellectual property infringement cases. In Hyundai Motor America v. National
Union Fire Ins. Co. of Pittsburgh, PA, No. 08-56527, 2010 WL 1268234 (9th Cir.
Apr. 5, 2010), the Ninth Circuit, applying California law, held that the insurers had a
duty to defend a patent infringement case brought against the policyholder because
the claim potentially was covered under the “advertising injury” clause in a liability
insurance policy.
The Facts of the Hyundai Case
In Hyundai, the automobile manufacturer had a “build your own vehicle” feature on
its website that allowed potential customers to view customized vehicle pictures,
features, and pricing information. Customers who used the feature were asked a
series of questions about their preferences, and their responses determine what
pictures, features and prices pop up.
Orion, a patent-holding company, sued Hyundai for patent infringement. Orion
holds a patent for a “method of generating customized product proposals for
potential customers of an automobile dealer.… Based upon the customer’s answers
to…queries, the system selects the appropriate picture and text building blocks to fill
in proposal templates.” Consequently, Orion alleged that Hyundai’s “build your own
vehicle” feature on its website infringed Orion’s patent.
The “Advertising Injury” Clause in the Policy
The commercial general liability insurance policy issued by National Union Fire
Insurance Company and American Home Assurance Company to Hyundai provided
coverage for, among other things, “‘[a]dvertising injury’ caused by an offense
committed in the course of advertising [the policyholder’s] goods, products or
services.” The policy contained the standard form definition of “advertising injury”
set forth in the 1986 version of the Insurance Services Office, Inc.’s commercial
general liability policy form:
“Advertising injury” means injury arising out of one or more of the following
offenses:
a. Oral or written publication of material that slanders or libels a person or
organization’s goods, products, or services;
b. Oral or written publication of material that violates a person’s right of
privacy;
c.
Misappropriation of advertising ideas or style of doing business; or
Insurance Coverage Alert
d. Infringement of copyright, title or slogan.
The Ninth Circuit’s Ruling
Hyundai sought a defense of the suit from its
insurers, arguing that the patent infringement suit
alleged a misappropriation of advertising ideas.
When the insurers denied coverage, Hyundai filed a
declaratory judgment action against its insurers in
the U.S. District Court for the Central District of
California seeking a declaration from the court that
the insurers had a duty to defend the Orion patent
infringement case under the “advertising injury”
coverage of the policy.
The District Court ruled against Hyundai, holding
that patent infringement is not an advertising injury
and that Hyundai had failed to show a causal
connection between any advertising on its part and
Orion’s alleged injury. The Ninth Circuit reversed,
holding that the patent infringement claim contained
allegations of “misappropriation of advertising
ideas” for purposes of insurance coverage.
In reaching its holding, the Ninth Circuit rejected the
insurers’ argument that the “build your own vehicle”
feature was more like a solicitation than advertising
because the feature created “customized proposals,
specific to an individual user” after that individual
user had provided input regarding his/her personal
preferences. Because the “build your own vehicle”
feature was available to the public at large via
Hyundai’s website, the Ninth Circuit concluded that
the feature was a form of advertising. With this
conclusion, and the allegations in Orion’s complaint
that Hyundai’s website infringed Orion’s patented
marketing methods and marketing systems, the
court held that the patent infringement claim
potentially was covered under the policy, and thus
the insurers had a duty to defend.
Conclusion
The Ninth Circuit’s decision in Hyundai serves as a
reminder to policyholders that they may have
coverage for intellectual property infringement
claims, including claims of patent, trademark and
trade dress infringement, as well as unfair
competition claims, under the “advertising injury”
provisions of their general liability insurance
policies. Consequently, when infringement claims
are asserted against them, policyholders and their
counsel may wish to review the “advertising injury”
provisions of their policies closely to determine
whether coverage may be available.
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GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market
participants and public sector entities. For more information, visit www.klgates.com.
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©2010 K&L Gates LLP. All Rights Reserved.
April 2010
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