Strategic Considerations for IP Litigators and Corporate Counsel Prosecuting and Defending IP Disputes: Securing Coverage Despite Limited Intellectual Property Coverage
| Author | David A. Gauntlett |
| Position | David A. Gauntlett is principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. He also serves as an expert witness on insurance coverage issues and represents policyholders and their counsel on a... |
| Pages | 12-66 |
Published in Landslide® magazine, Volume 11, Number 2, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
10 LANDSLIDE n November/December 2018
Strategic Considerations
for IP Litigators and
Corporate Counsel
Prosecuting and
Defending IP Disputes
Securing Coverage
Despite Limited
Intellectual
Property Coverage
By David A. Gauntlett
Image: Getty Images
Published in Landslide® magazine, Volume 11, Number 2, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Intellectual property (IP) insurance can be a quagmire. This
article navigates the slender path to securing coverage for a
variety of IP claims, with a principal focus on commercial
liability policies under Insurance Services Ofce (ISO) forms
for “advertising injury” offenses that intersect with IP claims.
More expansive IP coverage arises under directors and of-
cers (D&O) and errors and omissions (E&O) policies for IP
claims against individual ofcers or directors. While E&O pol-
icies include more targeted and less restrictive IP exclusions,
suggestions on how to plead inside or outside of coverage are
presented. Finally, how coverage benets are accessed that best
serve the needs of defense and claimant’s counsel is explained.
Intellectual Property Insurance Coverage
The preferred commercial general liability (CGL) policy
language insures against “personal and advertising injury,”
which includes: (1) “[o]ral or written publication, in any man-
ner, of material that slanders or libels a person or organization
or disparages a person’s or organization’s goods, product
or services”; (2) “[t]he use of another’s advertising idea in
your ‘advertisement’”; and (3) “[i]nfringing upon another’s
copyright, trade dress or slogan in your ‘advertisement.’”1
ISO’s policy form,2 like Hartford’s,3 excludes under Cover-
age B “‘[p]ersonal and advertising injury’ arising out of the
infringement of copyright, patent, trademark, trade secret or
other intellectual property rights. Under this exclusion, such
other intellectual property rights do not include the use of
another’s advertising idea in your ‘advertisement’. However,
this exclusion does not apply to infringement, in your ‘adver-
tisement’, of copyright, trade dress or slogan.”
Problematic CGL policies include similarly restrictive
policies issued by both Hartford and Travelers that provide,
via endorsement: “there is no coverage under personal and
advertising injury or damage alleged in any claim or suit that
alleges infringement or violation of any intellectual property
right,”4 and “this insurance does not apply to . . . ‘advertis-
ing injury’ arising out of . . . infringement or violation of any
of the following rights or laws . . . [p]atent.”5 Both these pol-
icy forms are under attack as they fail to advise the insured of
the diminution in coverage from the duty to defend all claims
of a lawsuit of any one claim rule, which universally applies
pursuant to coverage law nationally.6
Similarly objectionable are CGL policies that preclude
coverage for claims of “unfair competition, unfair trade prac-
tices, or other similar practices,” or that provide no relevant
offense-based coverage beyond “libel or slander.”7
Opportunities to Secure CGL Policy Benets
Once the available policy language is located, the next task is to
determine when asserted IP claims (whether in a cease and desist
letter or in a lawsuit) implicate potential coverage. At this point,
ve considerations are germane:
First, IP tort claims, including those for patent as well as
trademark infringement, may fall within a CGL policy. So
long as the contractual statute of limitations has not expired
after the nal resolution of the underlying action, the earli-
est policy period implicated may not include any, or at least a
less problematic, IP exclusion.
Second, assuming a policy form with an IP exclusion,
claims for relief implicating coverage for disparagement, def-
amation, or unfair competition proceeding under a variety of
causes of action conjoined with an excluded IP claim such as
patent infringement may give rise to a defense.
Third, where an insurer issues a variant policy form that ren-
ders the pursuit in litigation of an excluded IP claim a ground
for denying coverage, a defense may still arise where the claims
asserted are not IP violations, such as “patent misuse.”8
Fourth, the best protection may be a standard CGL policy
with a broader umbrella policy, still available in some markets.
Fifth, tender early. Unlike automobile accidents, IP
infringement is driven by a company’s particular competitive
circumstance by which it distinguishes itself in the market-
place. This may not pose an ongoing risk of further litigation
once brand confusion issues are addressed.
D&O and E&O Policies
While D&O policies typically include an IP exclusion, it only
applies to claims against the insured organization under the Side
A difference in conditions (DIC) policies. Individual ofcers
and directors are covered under Side B, which does not typically
include an IP exclusion so that mere allegations of “wrongful
acts,” which necessarily include IP torts, are covered. Signi-
cant recovery has arisen for patent infringement lawsuits under
this form of coverage. For example, in Acacia Research Corp. v.
National Union Fire Insurance Co. of Pittsburgh, PA, the insured
secured a judgment of $31,070,981.62 plus $310,492.99 (the
present value of future royalty payments) that was due to the
insurer’s improper delay and denial of a defense.9
A variety of E&O policy forms exist. Many embrace cov-
erage for IP or unfair competition torts. Some, but not all,
exclude claims for trade secret misappropriation, patent
infringement, and antitrust violations.
Several cases involving E&O policies provide a pathway
to coverage or reveal when it will be unavailable. In Research
Corp. v. Westport Insurance Corp., “allegations of conver-
sion, fraudulent concealment, and breach of duciary duties
raised claims of ‘wrongful acts.’”10 In Transcore, LP v. Cali-
ber One Indemnity Co., however, “[i]nducement of patent
infringement . . . is an intentional act . . . and therefore is spe-
cically excluded from coverage.”11
No policy benets were due in American Century Services
Corp. v. American International Specialty Lines Insurance Co.,
where wrongful acts included patent infringement, but exclusion
for “actual or alleged gaining of prot or advantage to which the
Insured is not legally entitled” precluded settlement for “past or
future use of a valuable technology in the course of its business.”12
The logic of these later cases is questionable in light of sub-
sequent Federal Circuit authority culminating in Global-Tech
David A. Gauntlett is principal of Gauntlett & Associates and
represents policyholders in insurance coverage disputes regarding
intellectual property, antitrust, and business tort claims, as well as
in the underlying actions. He also serves as an expert witness on
insurance coverage issues and represents policyholders and their
counsel on a range of fee dispute issues with their insurers. He can
be reached at dag@gauntlettlaw.com.
Published in Landslide® magazine, Volume 11, Number 2, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Appliances, Inc. v. SEB S.A.13 It allows inducement of pat-
ent infringement liability to attend without evidence of actions
undertaken with an intention to harm a competitor. Subsequent
case law has rened this standard to extend inducement liabil-
ity to circumstances when the defendant is “willfully blind.”
Why Insurer Denials of IP Claims May Not Be Well
Taken
First, insurers rarely consider all the potential bases for cov-
erage factually implicated by the underlying lawsuits they
address. For example, in DISH Network Corp. v. Arch Spe-
cialty Insurance Co., the “[i]nsurers concede[d] that at least
six of the claims [the insured] may have infringed explicitly
mention advertising or product promotion.”14
Second, narrow fact constructions of allegations often lead
insurers to underassess potential coverage for offense-based
coverage, as these “categories of wrongdoing” often proceed
under a bewildering variety of labeled causes of action. In
DISH Network, “[w]hen the technology’s patented advertis-
ing capabilities are considered in conjunction with the vague
factual assertions made in the complaint, the allegations are
sufciently broad to encompass ‘distribution of promotional
materials,’ ‘dissemination of information to promote a prod-
uct,’ or ‘calling something to the attention of the public.’”15
Third, the insurer’s ability to appreciate a potential for
coverage requires an ongoing and “neutral assessment” of
developments in coverage case law. The DISH Network court
observed that the insurers misapprehended the applicable
legal standard. Determining that the question “is not whether
the complaint unequivocally spells out the specic adver-
tising activities [the insured] engaged in, but rather whether
‘the alleged facts even potentially fall within the scope of
coverage,’” the court concluded that it was “not clear from
the complaint whether or not [the insured] is alleged to have
infringed advertising-related claims in [the patentee’s] patents
by conveying promotional information.”16
Fourth, when case law favorable to policyholders arises,
it is not disseminated with appropriate instruction to caution
claims personnel to its signicance.17
Fifth, “willful blindness” may arise for case developments
antithetical to claims representatives understanding their
rights to investigate coverage and control the defense. As to
investigating coverage, the DISH Network court observed:
Although the cases are rare in which an allegedly infringed
patent is itself an advertising idea rather than merely an
advertised product, we nd persuasive the Hyundai and
Amazon courts’ approach to this unusual situation. Constru-
ing ambiguous policy language in favor of coverage, as we
must under Colorado law, we hold that “[d]epending on ‘the
context of the facts and circumstances of th[e] case,’ patent
infringement can qualify as an advertising injury if the patent
‘involve[s] any process or invention which could reasonably
be considered an “advertising idea.”’”18
How to Plead Outside of Coverage under a CGL
Policy
Limiting the scope of what is covered is complex. Damages
can encompass attorney fees or a prayer for “such other and
further relief.” For example, a compensatory damages rem-
edy may arise for “unlawful, unfair, and fraudulent business
acts and practices alleged above.” Neither attorney fees19 nor
compensatory damages,20 however, are available for violation
of California Business and Professions Code (BPC) sec-
tion 17200. The claimants’ prayer for “such other and further
relief” could create potential coverage where discovery in the
underlying action reveals that the claimants are preserving their
right to recover damages for the alleged unlawful, unfair, and
fraudulent business acts dependent on proof at trial.21
By clarifying that damages are “any amount that the
insured shall be legally required to pay because of judgment
rendered against the insureds or for settlements negotiated
with the written consent of the company,” an award of attor-
ney fees would constitute damages under this denition.
Where unfair competition is expressly alleged, but limited
to a BPC section 17200 claim,22 disgorgement of ill-gotten
gains has been held not to be damages. By waiving any recov-
ery of damages and not pleading claims for “such other and
further relief” or recovery of attorney fees or prejudgment
interest, claimants can avoid triggering the “as damages” pro-
vision and the defendants’ rights. But, no similar limitation
applies to BPC section 17500 or violations of the Consumers
Legal Remedies Act, Civil Code sections 1770 et seq.23
In Limelight Productions, Inc. v. Limelite Studios, Inc., the
court found that “ill-gotten prots” are equivalent to “lost prof-
its,” which were fully recoverable under the asserted Lanham
Act claims.24 The mere characterization of damages sought as
“disgorgement of ill-gotten gains” did not bar a defense.
How to Plead within Coverage under a CGL Policy
What Are the Facts in Analyzing Insurance Coverage?
In reciting what constitutes facts for coverage analysis pur-
poses, the California Supreme Court in Scottsdale Insurance
Co. v. MV Transportation concluded that “the duty to defend
[arises] where, under the facts alleged, reasonably inferable,
or otherwise known, the complaint could fairly be amended
to state a covered liability.”25 Also germane is the view that
Insurers rarely
consider all the
potential bases for
coverage factually
implicated by
the underlying
lawsuits.
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