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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
Litigants
Krishan 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; and
2) 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.’”

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.”

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); and
3) a causal connection existed between the alleged injury and the
“advertising.”

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 Pittsburgh
527 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

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