insurance coverage 101 for ip litigants (2)

S K G F. C O M © 2015 Sterne, Kessler, Goldstein & Fox P.L.L.C. All Rights Reserved.

Insurance Coverage 101 for Intellectual Property

LitigantsKrishan Y. Thakker

October 6, 2015

S K G F. C O M © 2015 Sterne, Kessler, Goldstein & Fox P.L.L.C. All Rights Reserved.2

Agenda

I. Introduction

II. Specialized IP Coverage: Policy Types & Nuances

III. CGL Policies: “Advertising Injury” Insurance

1) Dish Network Corp. (10th Cir.) (patent)

2) Hyundai Motor Am. (9th Cir.) (patent)

3) Cases where CGL Coverage Denied

4) CGL Coverage over Copyright/Trademark Infringement

IV. Practice-Based Considerations


Introduction

IP infringement claims in district court litigation can implicate insurance issues.

The key to success in seeking coverage for liabilities stemming from IP litigation is either:

a) finding policies without an IP exclusion, such as specialized IP coverage; or

b) assessing whether the accused infringing activity is covered by provisions in CGL policies e.g. “advertising injury” provisions.


Types of Specialized IP Coverage

There are currently 2 types of specialized IP insurance policies available for litigants:

1) IP Abatement (enforcement, assertion or pursuit insurance)

Helps offset the costs of enforcement litigation and when defending counterclaims

2) IP Liability (infringement defense insurance)

Helps offset the costs of defense, settlements, asserting patent invalidity as a defense, and inter partes review


Nuances in Specialized IP Liability Policies

Typically does not cover damages. Additional coverage may need to be purchased

Defense costs and damages likely count against the limits of IP policies

IP infringement liability policies are usually “claims made-and-reported”: Courts reluctant to enforce strict within policy-period reporting requirements Policies ordinarily provide short grace period (can be unenforceable if

insurer accept prior notice of claims)

Initial exclusionary period

Retroactive coverage


Specialized IP Policy Coverage Exclusions

Specialized IP liability policies currently underwritten typically contain five (5) standard exclusions:

1) fines or penalties, including punitive, exemplary, treble, or multiple damages;

2) actual known infringement by the insured prior to the policy period;

3) losses or expenses arising from willful infringement, though this exclusion often requires final adjudication by a judicial body;

4) any counterclaims, retaliatory lawsuits, or administrative proceedings, including proceedings before the International Trade Commission; and

5) prior authorization from the insurer for an appeal should the insured not prevail in the initial lawsuit.

Exclusions (3) - (5) are unique to IP infringement policies, and policyholders could negotiate their removal or modification.


CGL Coverage Over IP Liability

In 2002, the Insurance Services Organization created a standard exclusion in boilerplate CGL policies for copyright, patent, and trademark infringement – but subsequent cases

have carved out an exception to the exclusion for “advertising injury.”

Under CGL policies, an insurer typically has two principal duties:

1) A duty to defend; and2) A duty to indemnify.


CGL Coverage Over Defense Costs

Insurers could claw back defense costs if:

(i) defendant-insured is unsuccessful in underlying suit; and (ii) judicial finding of no coverage for certain alleged acts/omissions

(despite underlying liability) • Based on theory of unjust enrichment (if indemnity

triggered)

Minimizing defense costs e.g., invalidating the patent early in the proceeding at PTAB, via Rule 12 motion, or summary judgment, reduces the chance of disputes with insurers over defense costs.

Depending on policy language, one potential covered claim might trigger defense obligations over all alleged counts


“Advertising Injury” Provisions: DISH Network

Dish Network v. Arch Specialty Ins. Co., 659 F.3d 1010 (10th Cir. 2011) Dish sued CGL carriers in district court for coverage of underlying patent

infringement action relating to call center technology, contending patent claims covered a method of advertising a product

Patents involved telephone interface system allowing customers to complete multiple tasks over the phone, including PPV program orders

Court held underlying complaint did not allege “advertising injury” under policies

10th Cir. reversed, reasoning that although “numerous cases do, indeed, categorically rule out “advertising injury” coverage for patent infringement … where an advertising technique itself is patented, its infringement may constitute advertising injury.”

patent infringement claims might qualify as advertising injury if patent “involve[s] any process or invention which could reasonably be considered an ‘advertising idea.’”


“Advertising Injury” Provisions: DISH Network

Out of 23 patents-in-suit, and hundreds of claims, 10th Circuit focused on only 1 claim covering “[a] telephone interface system … wherein said selective operating format involves advertising a product for sale.”

10th Cir. held that underlying complaint alleged a count involving misappropriation of a product designed for advertising purposes:

“[w]hile we agree with the district court’s conclusion that patent infringement may, under certain circumstances, constitute “misappropriation of advertising ideas,” we disagree with its ruling that the patented means of conveying advertising content at issue here could not be “advertising ideas” within the meaning of Dish’s commercial general liability policies.”


“Advertising Injury” Provisions: Hyundai

Hyundai Motor v. Nat’l Union Fire Ins. Co., 600 F.3d 1092 (9th Cir. 2010) Hyundai was sued for patent infringement over web site features, such as a “build-

your-own” vehicle feature and a parts catalogue feature.

Insurer denied defense cost coverage so Hyundai paid for own defense and ultimately was held liable for infringement. Hyundai sued insurer to recover only cost of defense. C.D. Cal. found for insurer.

9th Circuit reversed, holding insurer “must defend a suit which potentially seeks damages within the coverage of the policy,” applying Four Corners Rule.

3 elements to establish duty to defend:1) the policyholder was engaged in “advertising” during the policy period when

the alleged “advertising injury” occurred;2) the patentee’s allegations created a potential for liability under one of the

covered offenses (i.e., misappropriation of advertising ideas); and3) a causal connection existed between the alleged injury and the

“advertising.”


“Advertising Injury” Provisions: Hyundai

Policy defined “advertising injury” as injury arising out of, among other things, the misappropriation of advertising ideas or style of doing business.’

As Hyundai accused of misappropriating patented “advertising ideas,” it argued claims should be covered.

9th Cir. held “[w]hen the advertisement itself infringes on the patent, the causal connection requirement is met.” (third prong)

Court noted that patent infringement may constitute advertising injury where “entity uses an advertising technique that is itself patented”; here, website = “advertisement”, as marketed to public.


No Coverage via “Advertising Injury” Provisions

Courts rejected coverage where only nexus to advertising is the allegedly infringing product is advertised or wrongfully taken and

offered for sale, or where infringement claims fail to supply requisite causal connection to “advertising injury”

Travelers Indem. v. Levi Strauss, 30 F. 3d 140 (9th Cir. 1994)

• Maker of “stone- washed” jeans argued infringement was “closely connected to advertising than in other cases” because patent covered actual distinctive look of jeans, independent of process

• 9th Cir. reiterated that patent infringement claims based solely on use or sale of patented product, and not on how it is advertised

• For coverage, 9th Cir. required infringement allegations to make reference to advertising of product, but here claims not do so.


No Coverage via “Advertising Injury” Provisions

Green Mach. Corp. v. Zurich- Am. Ins. Grp., 313 F.3d 837 (3d Cir. 2002) (neither insured’s advertising of patented method it allegedly stole, thus inducing others to

infringe, nor insured’s taking of patented method for cutting concrete, were “misappropriation of advertising ideas” and thus not “advertising injury”)

Techmedica v. Vanguard Underwriters Ins. Co., 59 F. 3d 176 (9th Cir. 1995) (no duty to defend/indemnify manufacturer of custom-made prosthetic hip replacement

device, based on “advertising injury” clause, because irrespective of advertisement involving a customer-specific “order form,” infringement stemmed from manufacture and

sale of product, not reading and use of advertisements)

Discover Fin. Servs. v. Nat’l Union Fire Ins. Co. of Pittsburgh527 F. Supp. 2d 806 (N.D. Ill. 2007)

(patent infringement action concerning automated phone system technology not allege injuries attributable solely to insured's advertising activities or that insured misappropriated

patentee’s advertising ideas or style of doing business)


“Advertising Injury” & Copyright/Trademark Infringement

Hudson Ins. Co. v. Colony Ins. Co., 624 F.3d 1264 (9th Cir. 2010) (“Steel Curtain,” in reference to the Pittsburg Steelers, could be deemed a slogan

invoking advertising injury coverage);

St. Surfing, LLC v. Great Am. E&S Ins. Co., 776 F.3d 603 (9th Cir. 2014) (term “Streetsurfer” in advertisement could, but did not, constitute slogan infringement to invoke advertising injury coverage, due to lack of evidence of insured’s “use” as a

slogan).

Mid-Continent v. Kipp Flores Architects, 602 Fed. App’x 985 (5th Cir. 2015) (found underlying defendant-homebuilder’s CGL policy covered copyright damages

award to underlying plaintiff-architectural firm; affirmed insurer must cover “advertising injury” damages to Kipp from copyright infringement suit against Hallmark)


Review non-CGL policies (media; E&O; specialized IP) Availability of coverage for IP lawsuits requires policy without IP

exclusion. Review current + historical insurance of corporate-successor. Look to coverage under “additional/co- insured” provisions of partner/JV

companies’ policies. Consider specialized IP policies or obtaining provisions in CGL policies

that may be useful if your company faces IP infringement actions.

For potential CGL coverage, carefully analyze: (1) all provisions; (2) state contract laws; (3) complaint allegations; (4) IP parameters (e.g. patent claims); & (5) accused infringing activity, particularly advertising injuries, even if non-covered claims included.

Practice-Based Considerations


Practice-Based Considerations

“Advertising injury” coverage is one of the least recognized tools available to companies faced with IP infringement claims

Work with IP and coverage counsel to determine whether coverage is available for accusations of IP infringement, particularly those implicating advertising activity;

• Minimizing defense costs e.g., invalidating the patent early in the proceeding at PTAB, via Rule 12 motion, or summary judgment, reduces the chance of disputes with insurers over defense costs.

• In light of proposed congressional patent law reform (e.g. H.R. 9, Innovation Act), “loser-pays” may become a reality.

Presumption of fees and burden on non-prevailing party. Market for legal expense insurance could evolve in U.S. similar to UK:

traditional legal expense coverage; “after the event” coverage

insurance coverage 101 for ip litigants (2)

Documents