Trends in Insurance Coverage for Intellectual Property Disputes

Transcription

1 Trends in Insurance Coverage for Intellectual Property Disputes Presented By Caroline Spangenberg Brent W. Brougher Kilpatrick Stockton LLP June 5,

2 Importance of Insurance for IP Claims Can Not Be Overstated Large Verdicts In 2006, NTP, Inc. secured the largest patent infringement settlement of its kind from Research In Motion Ltd. (RIM), the maker of BlackBerry wireless devices $612.5 million 2

3 Importance of Insurance for IP Claims Can Not Be Overstated Large Verdicts In May 2008, a jury in Portland issued the largest trademark infringement verdict ever $30.6 MM + $137 MM + $137 MM = $304.6 Million Source: Jury Issues Largest Trademark Infringement Verdict on Record, 9-9 Mealey s Litig. Rep. Trademarks 1 (2008). 3

4 Importance of Insurance for IP Claims Can Not Be Overstated Increasing Number of Cases Total Patent & Trademark Cases Cases Year Patents Trademarks Total Patent and trademark infringement cases have almost doubled since 1991 Copyright cases doubled from 2004 to 2005, and remain above historic levels (Source: PWC Advisory, Crisis Management, 2007 Patent and Trademark Damages Study, (Source: Meeting_Speaker_Papers/200717/Ratliff-paper.pdf) 4

5 Overview Coverage Under Commercial General Liability Policies Advertising Injury Coverage Under Other Policies (E&O, PLI, D&O, Internet/Technology, and Special Media Policies) As Damages / Loss Infringement Policies Questions & Answers 5

6 Commercial General Liability Policies Most common business liability policy Provides coverage, inter alia,, for damages because of an advertising injury offense committed during the policy period, regardless of when the suit is filed May impose an obligation on insurer to defend lawsuits or arbitrations seeking such damages Form language changes over time, so which policy form you have greatly impacts coverage available for intellectual property claims 6

7 Elements Required for IP Risk Coverage Under a CGL Policy 1. Timely notice to insurer 2. Complaint alleges listed advertising injury offense 3. Injury arises in the course of advertising activities or in the course of advertising your goods, products or services or in your advertisement 4. Plaintiff seeks monetary relief as damages because of such injury, and 5. No exclusion applies (e.g., coverage for broadcasters or publishers is often excluded) 7

8 Provide Prompt Notice to Insurers Notice of the offense, offense, claim, claim, and/or the suit In many jurisdictions, failure to promptly notify an insurer vitiates iates coverage Consequences of late notice depend on the jurisdiction. Three theories predominate: Carrier must prove prejudice Rebuttable presumption of prejudice Prejudice irrelevant Even in those jurisdictions where an insurer must show prejudice in occurrence-based policies, failure to notify during a claims-made made policy period (or extended reporting period) can be fatal RULE: If any potential for coverage exists, provide immediate notice to all carriers. 8

9 Advertising Injury Offense Language Changes Over Time Continuously includes [i]nfringement of copyright, title or slogan or [i]nfringement of copyrighted advertising materials Continuously includes libel, slander, defamation Pre-1986 Included unfair competition and piracy Excluded trademark, service mark or trade name, other than titles s and slogans Post-1986 Included misappropriation of advertising ideas or style of doing business Deleted unfair competition and piracy Omitted trademark exclusion 1998 The use of another s s advertising idea in your advertisement Infringing upon another s s copyright, trade dress or slogan in your advertisement 2001 and 2007 Excludes all IP except infringement in your advertisement of copyright, trade dress or slogan 9

10 What is Advertising Pre-1998: policies do not define advertising activities or advertisement Direct, one-on on-one one solicitations may constitute advertising depending on your jurisdiction. See John Deere v. Monumental Life Insurance Co.,, 696 F. Supp. 434 (D. Minn. 1988) Many jurisdictions construe advertising to require widespread publication of material using mass media. See Monumental Life Ins. Co. v. United States Fid. & Guar. Co.,, 617 A.2d 1163 (Md. Ct. Spec. App. 1993) 1998: Advertisement defined as a a notice that is broadcast or published to the general public or specific market segments about your goods, products ducts or services for the purpose of attracting customers or supporters and 2007: Advertisement defined as a a notice that is broadcast or published to the general public or specific market segments about t your goods, products or services for the purpose of attracting customers or supporters. For the purpose of this definition: a. Notices that are published include i material placed on the Internet or on similar electronic means of communication; cation; and b. Regarding web-sites, only that part of a web-site that is about your goods, products or services for the purposes of attracting customers or supporters is considered an advertisement. 10

11 Copyright Infringement Pre-1986 Generally covered if it occurs in the course of advertising activities 1986 Generally covered if it occurs in advertising [the insured s] s] goods, products or services 1998 Onwards Generally covered if it occurs in the insured s advertisement 11

12 Copyright Infringement Illustrative Case Law Duty to Defend: Bear Wolf, Inc. v. Hartford Ins. Co.,, 819 So. 2d 818 (Fla. App. 4 th Dist. 2002) (insurer had duty to defend under 1998 ISO Form for public display of copyrighted work at trade show) AMCO Inc. Co. v. Lauren-Spencer, Inc.,, 500 F. Supp. 2d 721 (S.D. Ohio) (insurer had duty to defend under 1998 ISO Form for alleged copyright infringement of dog breed costume jewelry) Interface Inc. v. Standard Fire Ins. Co.,, 1:99-cv cv-1485-mhs, 2000 US Dist. LEXIS at *10-11, 11, 2000 WL (N.D. Ga. 2000) (insurer had duty to defend under 1986 ISO Form for alleged copyright infringement by carpet manufacturer) (Kilpatrick Stockton LLP represented plaintiff insured) No Duty to Defend: Robert Bowden, Inc. v. Aetna Cas. & Sur. Co.,, 977 F. Supp (N.D. Ga. 1977) (insurer had no duty to defend under 1986 ISO Form due to lack of nexus to advertising) 12

13 Trademark Infringement 1973: Excluded advertising injury arising out of infringement of trademark 1986: Omitted the trademark exclusion, so trademark infringement generally covered 2001: Specifically excludes trademark infringement This insurance does not apply to: Personal and advertising injury arising out of the infringement of trademark rights. However, this exclusion does not apply to infringement, in your advertisement, advertisement, of copyright, trade dress or slogan 13

14 Trademark Infringement Illustrative Case Law General Rule: Trademark claim covered under older policy forms. CAT Internet Servs., Inc. v. Providence Washington Ins. Co.,, 333 F.3d 138 (3 rd Cir. 2002) (insurer had duty to defend under 1986 ISO Form trademark infringement allegations as they constitute, misappropriation of an advertising idea or style of doing business ) State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of Am.,, 343 F.3d 249 (4 th Cir. 2003) (insurer had duty to defend under 1986 ISO Form infringing inging use of Nissan s s trademark on competing website) Pizza Magia Int l, LLC v. Assurance Co. of Am.,, 447 F.Supp.2d 766 (W.D. Ky. 2006) (under 1986 ISO Form, trade dress constituted an advertising idea or style of doing business ) Big exception: One line of cases disagrees. Advance Watch Co. v. Kemper National Ins. Co., 99 F.3d 795, 803 (6 th Cir. 1996) (under 1986 ISO Form, insurer had no duty to defend alleged trademark infringement due to lack of sufficient nexus to advertising) Sholodge Inc. v. Travelers Indem. Co., 168 F.3d 256 (6 th Cir. 1999) (accepting Advance Watch) ) (insurer had no duty to defend or indemnify service mark infringement allegations under 1986 ISO Form) 14

15 Trade Dress Infringement 1976: Dispute whether trade dress claims fell within trademark exclusion 1998: Expressly covers trade dress infringement in your advertisement 2001: Specifically excludes infringement of trademark or other intellectual property rights except for infringement of copyright, trade dress or slogan in the insured s s advertisement 15

16 Trade Dress Infringement Illustrative Case Law Hyman v. Nationwide Mut. Fire Ins. Co.,, 304 F.3d 1179, (11 th Cir. 2002) (rejecting Advance Watch) ) (trade dress could be misappropriation of either advertising idea or style of doing business under 1986 ISO Form) Westfield Ins. Co. v. Factfinder Marketing Research, Inc.,, 168 Ohio App.3d 391, 401, 860 N.E.2d 145, 152 (2006) (rejecting Advance Watch) (duty to defend under 1986 ISO form for trade dress infringement claim) Pizza Magia Int l, LLC v. Assurance Co. of Am.,, 447 F.Supp.2d 766 (W.D. Ky. 2006) (under 1986 ISO Form, trade dress constituted an advertising idea or style of doing business ) Westfield Cos. v. O.K.L. Can Line,, 155 Ohio App. 3d 747, 804 N.E.2d 45, 47 (2003) (trade dress infringement covered under 1998 ISO Form) R.C. Bigelow, Inc. v. Liberty Mut. Ins. Co.,, 287 F.3d 242 (2d Cir. 2002) (trade dress infringement covered under 1998 ISO Form) 16

17 Patent Infringement 1976: Must be an advertising injury Majority view: Not covered, usually because it did not occur in the course of advertising activities Some courts found coverage as unfair competition or piracy 1986 Potentially covered as misappropriation of style of doing business Post offer to sell amendments (35 U.S.C. sec. 271, as amended, effective January 1, 1996), the decisions are mixed 1998, 2001 and 2007 Specifically excluded from coverage 17

18 Patent Infringement Illustrative Case Law Amazon.com, Inc. v. Atlantic Mut. Ins. Co., No. C RSM, 00719RSM, 2005 WL (W.D. Wash., July 21, 2005) (duty to defend found for a number of distinct business method claims under misappropriation of advertising ideas language in 1986 ISO Form) Simply Fresh Fruit, Inc. v. Continental Ins. Co.,, 94 F.3d 1219, 1222 (9 th Cir. 1996), cert. denied,, 519 U.S. 965 (1996) (no duty to defend patent infringement claims under 1986 ISO Form) Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135 (9 th Cir. 2003) ( misappropriation of an advertising idea or style of doing business in 1986 ISO Form could not be read to include underlying patent infringement action) Green Machine Corp. v. Zurich-American Ins. Group, 313 F.3d 837, 841 (3d Cir. 2002) (rejecting concrete cutting business methods coverage but implying possible coverage of banner ad patents) 18

19 Trade Secrets 1976: Some trade secret claims potentially covered as unfair competition and piracy 1986: Infringement of Title Misappropriation of Advertising Ideas A manufacturing trade secret likely lacks the required nexus with advertising 1998, 2001 and 2007 Specifically excluded from coverage 19

20 Trade Secret Illustrative Case Law Trade secrets potentially covered as unfair competition and piracy Home Ins. Co. v. National Union Fire Ins. Co.,, 658 N.W.2d 522, (Minn. 2003) (in dicta) Infringement of Title No: State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226 (11 th Cir. 2004) (rejecting the notion that a trade secret could be protected as infringement of title ) ) (1986 ISO Form) Yes: Merchants Co. v. Am Motorists Ins. Co., 794 F. Supp. 611, 618 (S.D. Miss. 1992) (duty to defend customer list theft claim as infringement of title ) ) (1986 ISO Form) Misappropriation of Advertising Ideas Sentex Systems, Inc. v. Hartford Acc. & Indem. Co., 93 F.3d 578, 580 (9 th Cir. 1996) (trade secret allegations were covered advertising injury as it constituted a misappropriation of advertising ideas ) (1986 ISO Form) Manufacturing trade secret lacks advertising nexus Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219 (9 th Cir. 1996) (no duty to defend trade secret claim for lack of advertising nexus) (1986 ISO Form); Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 747 (3d Cir. 1999) (distinguished Sentex) (no duty to defend trade secret claim for lack of advertising nexus) (1986 ISO Form) 20

21 Libel / Slander / Defamation Continuously Covered 1976: Included offense in definition of advertising injury 1986: Included offense of [o]ral or written publication of material that slanders or libels a person or organization or disparages a person s s or organization s goods, product s s or services in definition of advertising injury 2001: Included offense of [o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person s s or organization s s goods, product s s or services in definition of advertising injury 21

22 Libel / Slander / Defamation Illustrative Case Law Mulberry Square Productions, Inc. v. State Farm Fire and Cas. Co.,, 101 F.3d 414, 421 (5 th Cir. 1996) (where there is no publication, publication, insurer had no duty to defend defamation claim) (1986 ISO Form) Erie Ins. Group v. Sear Corp.,, 102 F.3d 889 (7 th Cir. 1996) (defamation must be made in course of advertising to trigger coverage) (1986 ISO Form) 22

23 Right of Privacy 1976: Included offense in definition of advertising injury 1986: Included offense of oral or written publication of material that violates a person s right of privacy 2001: Included offense of oral or written publication, in any manner, of material that violates a person s s right of privacy 23

24 Right of Privacy Illustrative Case Law MGM, Inc. v. Liberty Mut. Ins. Co.,, 17 Kan. App. 2d 492, 839 P.2d 537 (1992) (surreptitious taping of employees telephone conversations did not occur in the course of advertising activities ) ) (1976 ISO Form) Junk Fax Cases as Invasion of Privacy: Hooters of Augusta, Inc. v. Am. Global Ins. Co.,, 157 Fed. Appx. 201 (11 th Cir. 2005) (Telephone Consumer Protection Act ( TCPA( TCPA ) ) claim was within advertising injury coverage) (1986 ISO Form) Am. Home Assur. Co. v. McLeon USA, Inc.,, 475 F.Supp.2d 766 (N.D. Ill. 2007) (insurer had duty to defend TCPA claim) Valley Forge Ins. Co. v. Swiderski Electronics, Inc.,, 223 Ill. 2d 352, 307 Ill. Dec. 653, 860 N.E. 2d 307 (2006) (TCPA claim was within advertising injury coverage - transmission was intrusion on seclusion) (2001 ISO Form) 24

25 Piracy and Unfair Competition 1976 Onward: Included offense in definition of advertising injury Post-1976 : No longer included as an offense in definition of advertising injury Generally included only in older policies and excess/ umbrella policies. 25

26 Unfair Competition Illustrative Case Law Bank of the West v. Superior Court, 2 Cal. 4 th 1254 (1992). Policyholder who engaged in fraudulent loan program sought coverage under advertising injury provisions in connection with settlement of a consumer class action Supreme Court of California held that allegations arising under the California Unfair Business Practice Act ( UCL,( UCL, Unfair Competition Law or section 17200) did not amount to unfair competition covered under the advertising injury provision Consumer claims not covered Statutory claims not covered Unfair competition limited to common law tort of passing-off Disgorgement of profits not damages BUT: The true basis for the decision derives from California public policy 26

27 Other Advertising Injury Issues Prior Publication Exclusion Knowledge of Falsity Exclusion See Vector Products, Inc. v. Hartford Fire Ins. Co., No (11 th Cir. Jan. 26, 2005) (certifying questions to Florida Supreme Court) (settled ed before Florida Supreme Court decided point of law) See also Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, (11 th Cir. 2002) (rejecting knowledge of falsity exclusion in Lanham Act A unfair competition case, citing Interface with approval), and Interface Inc. v. Standard Fire Ins. Co., 1:99-cv cv-1485-mhs, 2000 US Dist. LEXIS at *10-11, 11, 2000 WL (N.D. Ga. 2000) (rejecting exclusions in copyright coverage c case) Coverage for Willful Violations Often excludes willful violation of a penal statute Willfulness under 35 U.S.C. sec. 101, et al., or Lanham Act not necessarily equivalent of willfulness for insurance purposes 27

28 Overview Coverage Under Commercial General Liability Policies Advertising Injury Coverage Under Other Policies (E&O, PLI, D&O, Internet/Technology, and Special Media Policies) As Damages / Loss Infringement Policies Questions & Answers 28

29 Coverage Under Other Policies Errors & Omissions Policies (E&O) Professional Liability Policies (PLI) Directors & Officers Policies (D&O) Internet/ Technology Policies Special Media Policies 29

30 Occurrence vs. Claims-Made Policies Occurrence policy is triggered when injury or damage occurs during its policy period and at any time thereafter; Claims-made policy is not triggered unless the claim is first made during the policy period. Source: Commerical Insurance Contracts, available at presentations/ch023_nh_377rev.ppt#304,1,chapter 23 30

31 E&O and PLI Policies Typically written on a claims-made basis Often cover any alleged negligent act, error or omission or defined Wrongful Act Typically cover economic losses no requirement for property damage or bodily injury More commonly available in the financial and professional services arena Often include specific exclusions for unfair and deceptive trade practices, antitrust, consumer and unfair competition claims, and sometimes include express exclusions for trademark or patent infringement Often contain a Return of Profits exclusion 31

32 E&O Policies Illustrative Case Law Westport Ins. Corp. v. Tuskegee Newspapers, Inc., 402 F.3d 1161 (11 th Cir. 2005) (coverage under E&O endorsement for defamation claim) American Century Services Corp. v. American Intern. Specialty Lines Ins. Co., 2002 WL , *6 (S.D.N.Y. 2002) (patent infringement claim may come within scope of E&O policy) 32

33 D&O Policies Often exclude bodily injury and property damage Sometimes provide broad form entity coverage Sometimes limit entity coverage to cases where an individual insured is also named as a defendant Sometimes provide only indemnity coverage to the entity Often contain Return of Profits exclusion Sometimes contain express IP exclusions 33

34 Internet / Technology Policies Exposures and gaps in traditional policies have created a market for cyber-risk insurance policies Designed to address insurance needs of technology companies and businesses operating in cyberspace Market is still relatively new, so policy forms and the scope of coverage vary greatly Typically provide coverage for offenses or alleged violations of IP rights stemming from information disseminated by the insured in covered media or advertising activities 34

35 Special Media Policies Usually claims-made policies may create gaps in coverage with prior occurrence -based policies Traditionally written for newspaper and media companies Named offenses include coverage for copyright infringement and related offenses arising from insured s publication of matter or material Typically exclude BI & PD and contractual liabilities, as well as willful and criminal acts and patent infringement. Sometimes also exclude unfair competition or unfair and deceptive trade practices 35

36 Overview Coverage Under Commercial General Liability Policies Advertising Injury Coverage Under Other Policies (E&O, PLI, D&O, Internet/Technology, and Special Media Policies) As Damages / Loss Infringement Policies Questions & Answers 36

37 As Damages / Loss Most policies provide coverage for loss or damages arising from a covered claim Insurers frequently challenge coverage for settlements and judgments, arguing that they constitute restitution or disgorgement, disgorgement, not damages It is essential to examine the policy definition of loss or damages For example, punitive damages are often excluded from policy s definition of loss Sometimes include a most favored nations clause Matters deemed uninsurable under applicable law California Ins. Code sec. 533 Multiplied portion of a damages award, or fines and penalties often excluded 37

38 As Damages / Loss Illustrative Case Law Level 3 Communications, Inc. v. Federal Ins. Co., 272 F.2d 908 (7 th Cir. 2001) (settlement of underlying securities fraud suit brought against insured was not a "loss" within meaning of policy) Limelight Productions, Inc. v. Limelite Studios, Inc., 60 F.3d 767, 769 (11 th Cir. 1995) (ill-gotten profits recovered from insured were damages ) CNL Hotels & Resorts, Inc. v. Houston Cas. Co., 2007 WL , *1 (M.D. Fla.) (establishment of settlement fund did not constitute "loss" within meaning of D & O policy, since it was in nature of disgorgement) 38

39 Overview Coverage Under Commercial General Liability Policies Advertising Injury Coverage Under Other Policies (E&O, PLI, D&O, Internet/Technology, and Special Media Policies) As Damages / Loss Infringement Policies Questions & Answers 39

40 Infringement Policies Also known as Intellectual Property Defense policies Cover costs of defending, indemnifying and prosecuting patent infringement and other IP infringement actions Typically issue only after an exhaustive audit and due diligence of insured s s products and rights In actions for prosecution of IP rights, generally require sharing of prosecution costs Issues of control Pricing / Market share 40

41 Questions & Answers 41

42 THANK YOU Caroline Spangenberg Phone Brent Brougher BBrougher@KilpatrickStockton.com Phone