Patent Infringement and Advertising Injury in the Age of the Internet

January 11, 2013

Insurance LawNearly a century ago, Oliver Wendell Holmes reminded lawyers and judges that the legal consequences of the words in a document can change as the setting in which they are used changes. Employing a literary style found throughout his opinions, Justice Holmes stressed that “[a] word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used.”  Towne v. Eisner, 245 U.S. 418, 425, 38 S.Ct. 158, 159 (1918).

Justice Holmes’s observation rings particularly true for insurance coverage attorneys who must apply the “Advertising Injury” provisions of Commercial General Liability (CGL) policies to claims for patent infringement in the rapidly evolving world of e-commerce. Historically, courts have not been receptive to attempts to obtain “advertising injury” liability insurance coverage for patent infringement claims.

Their unwillingness to allow coverage for such claims stems from the nature of most patents and patent infringement suits, which typically allege that the insured’s product, not the insured’s advertising, infringed a patent on something other than an advertising idea. However, in recent years, the expanding universe of e-commerce and web-based products and services, and the patents directed toward that universe, has resulted in a new set of circumstances that have caused courts to reexamine their position that patent infringement cannot constitute “advertising injury” within the meaning of a CGL policy.

Music Preview Technology International, Inc. v. American Dynasty Surplus Lines Insurance Co., 120 Wash.App. 610, 85 P.3d 974 (2004), involved’s use of music-preview technology on its website. The court explained that patented music-preview technology is “in essence” an “advertising technique.”

“Build-Your-Own” (BYO) Websites

Hyundai Motor Company v. National Union Fire Insurance Company of Pittsburgh, 600 F.3d 1092 (9th Cir. 2010), address coverage for infringement of a computerized method of generating customized product proposals for potential customers of an automobile dealer. The court determined that “the use of the BYO feature in the website [was] itself an infringement because it is the use of the BYO feature that violates the patent (and not the design of the car, for instance, or the method of manufacturing the car, or the car’s engine, or anything related to the car for sale).”600 F.3d at 1103.  (Emphasis in original.)

Interactive Phone Systems

Dish Network Corporation v. Arch Speciality Insurance Company, 659 F.3d 1010 (10th Cir. 2011), found potential coverage for the insured’s alleged infringement of a patent on interactive phone systems. While applying Hyundai, the Dish Network opinion goes further (or follows Hyundai to its logical conclusion). In finding a potential for coverage, the court flatly rejected the district court’s position that patent infringement qualifies as misappropriation of an advertising idea only if the insured incorporates patented technologies as a substantive element of its communications and interactions with customers.