Insurance Coverage for PATENT Disputes: A QUICK HIT. Presented By Caroline Spangenberg Kilpatrick Stockton LLP December 16, 2010

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1 Insurance Coverage for PATENT Disputes: A QUICK HIT Presented By Caroline Spangenberg Kilpatrick Stockton LLP December 16, 2010

2 Overview Coverage Under Commercial General Liability Policies Advertising Injury or Personal and Advertising Injury Coverage Under Other Policies (E&O, PLI, D&O, Internet/Technology, and Special Media Policies) Infringement Policies Questions & Answers 2

3 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 3

4 Elements Required for 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 4

5 Provide Prompt Notice to All Insurers In most policies, must give notice of the offense likely to give rise to a claim as well as a claim and/or suit 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 policy period (or extended reporting period) can be fatal. RULE: If any potential for coverage exists, provide immediate notice to all carriers all layers, all time periods. 5

6 What is Advertising Pre-1998: policies do not define advertising activities or advertisement Direct, one-on-one solicitations may constitute advertising depending on your jurisdiction. See John Deere Ins. Co. v. Shamrock Indus., Inc.., 696 F. Supp. 434 (D. Minn. 1988), aff d, 929 F.2d 413 (8 th Cir. 1991). Many jurisdictions construe advertising to require widespread publication of material using mass media. See Monumental Life Ins. Co. v. U.S. Fid. & Guar. Co., 617 A.2d 1163 (Md. Ct. Spec. App. 1993) 1998: Advertisement defined as 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 and 2007: Advertisement defined as 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. For the purpose of this definition: a. Notices that are published include material placed on the Internet or on similar electronic means of communication; 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. 6

7 Recent Developments re Patent Infringement Hyundai Motor America v. Nat l Union Fire Ins. Co., 600 F.3d 1092 (9th Cir. 2010), the Ninth Circuit applying California law held covered claims that Hyundai infringed two methods patents by utilizing applications on its website that permitted users (1) to build your own vehicle ("BYO" technology) and (2) to find parts for a vehicle by navigating a series of menus to choose the applicable model, engine system, etc. Id. at Amazon.com Int l, Inc. v. Am. Dynasty Surplus Lines Ins. Co., 120 Wash. App. 610, 85 P.3d 974 (2004) (applying Washington law) similarly found coverage for patent infringement by Amazon.com s musicpreview technology on its website. 7

8 Food for thought regarding Patent Marking Claims No reported decisions to date. Many cases have found advertising injury coverage for trade dress infringement, trade mark infringement, false advertising and false designation of origin claims as misappropriation of advertising ideas or style of doing business or infringement of title or slogan. E.g., Am. Simmental Ass n. v. Coregis Ins. Co., 282 F. 3d 582, 587 (8 th Cir. 2002) (false advertising of cattle as full-blood ), Pennfield Oil Co. v. Am. Feed Indus. Ins. Co. Risk Retention Grp., No. 8:05CV315, 2007 WL , at *8 (D. Neb. Mar. 12, 2007) (falsely claiming FDA approval), Gen l Cas. Co. of Wis. v.. Wozniak Travel Inc., 762 N.W. 2d 572 (Minn. 2009) (Hobbit Travel) and Poof Toy Prods., Inc. v. U.S. Fid. & Guar.Co., 891 F. Supp (E.D. Mich. 2005) (trademark infringement). Santa s Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F. 3d 339 (7 th Cir. 2010) found coverage for, inter alia, advertising of Patent-pending Stay-On feature keeps bulbs lit as infringement of slogan. A claim that the defendant falsely claimed to have invented a snowmobile electronic fuel injection system was found covered as piracy, unfair competition or idea misappropriation during the course of advertising activities in Polaris Indus., L.P. v. Cont l Ins. Co., 539 N.W. 2d 619,622 (Minn. Ct. App. 1995). Although piracy and unfair competition are not currently found in domestic standard primary general liability policies, they sometimes appear in non-standard, umbrella or overseas policies. In Land & Sky, Inc. v. Union Ins. Co., 247 Neb. 696 (1995) the Nebraska Supreme Court found patent infringement covered in part because the excess/umbrella policy insured infringement of title or slogan (other than a patent.) 8

9 Other Advertising Injury Issues Prior Publication Exclusion Knowledge of Falsity Exclusion See Vector Prods., Inc. v. Hartford Fire Ins. Co., No , slip op. at 2 (11 th Cir. Jan. 26, 2005) (certifying questions to Florida Supreme Court) (settled 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 unfair competition case, citing Interface with approval), and Interface Inc. v. Standard Fire Ins. Co., 1:99-cv-1485-MHS, 2000 US Dist. LEXIS at *10-11, 2000 WL (N.D. Ga. Aug. 15, 2000) (rejecting exclusions in copyright coverage 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 9

10 BEWARE WebXend ENDORSEMENT Travelers has introduced a new WebXtend endorsement that, although styled as an extension of coverage, substantially reduces it by eliminating misappropriation of advertising ideas and restricting privacy coverage to oral, written or electronic publication that appropriates a person s likeness, unreasonably places a person in a false light or gives unreasonable publicity to a person s private life. 10

11 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 products and rights In actions for prosecution of IP rights, generally require sharing of prosecution costs Issues of control Pricing / Market share 11

12 CONCLUSION: HELPFUL HINTS Notify, notify, notify Consider all policies from date of alleged first infringing or wrongful act Consider all policies all layers umbrella policies often have broader coverage and a drop-down obligation Do not accept WebXtend endorsement. In fact, it is always a good idea to examine carefully any endorsement offered for free Negotiate improvements to standard exclusions Do not accept insurers denials without consulting knowledgeable counsel 12

13 THANK YOU Caroline Spangenberg Phone