C L A I M D E N I E D January 2006 A publication of the Lowenstein Sandler Insurance Law Practice Group Patent Infringement as Advertising Injury: Amazon.com v. Atlantic Mutual By Julia M. Clinton, Esq. istorically, patent infringement is advertising injury when the advertising because it existed for the purpose of H not an offense covered by technique itself is patented. promoting products for sale to the standard advertising injury provisions. public. The insured’s use of patented The three underlying lawsuits at issue However, as the Western District of technology on its website was therefore in Amazon.com alleged patent Washington held recently in misappropriation of advertising ideas as infringement based on the insured’s Amazon.com v. Atlantic Mutual defined in the policies, and it was the use of patented technology for Insurance Company , 2:05-cv-00719- insured’s advertising activities which electronic catalog systems, customized RSM (W .D. Wash. July 21, 2005), caused the injuries alleged by the electronic identification, and virtual patent infringement may constitute patent holders. Because the patent shopping carts on its website. The holders’ complaints alleged facts policies in effect at the time defined Inside sufficient to trigger the policies, the “advertisement” as “a notice that is Court held that the insurer had a duty DEFENSE COSTS - WILL YOU broadcast or published to the general HAVE TO PAY BACK YOUR to defend the claims. INSURER? public or specific market segments The insurance industry has been about your goods, products or services N.J.M. INS. CO. V . DELTA cutting back on advertising injury for the purpose of attracting customers PLASTICS CORP ., INSURANCE coverage for several years, both by or supporters.” The insurer refused to COVERAGE FOR WORKERS defining advertising more narrowly defend the claims, arguing that there COMPENSATION CLAIMS and by including specific website and was no causal connection between the NEW JERSEY SUPREME COURT Internet restrictions. Therefore, patent infringements and the insured’s RESTRICTS SCOPE OF ABSOLUTE many policies no longer have the advertising activities. POLLUTION EXCLUSION TO broad language at issue in TRADITIONAL ENVIRONMENTAL The Court disagreed, finding that the Amazon .com . Some insurers have POLLUTION SCENARIOS insured’s website was itself advertising gone even farther, adding partial or This document is published by Lowenstein Sandler PC to keep clients informed about current issues. It is intended to provide general information only. A L D
absolute exclusions for intellectual is a chilling proposition for insureds, reservation of rights letter, there was property torts to new policies. who rely upon their insurance policies nothing in the St. Paul policy that was Policyholders must carefully review to fund the increasingly common and inconsistent with the insurer’s claimed their policies to make certain that often devastating costs of defending right of reimbursement. Thus, where a they have the broadest possible against lawsuits. policy was silent on reimbursement, coverage in this area. the court held that it would be In St. Paul Fire and Marine Ins. Co. v. permissible for the insurer to create a Compaq Computer Corp. , Civ. No. 03- quasi-contractual right of 6485 (July 13, 2005), the District Court DEFENSE COSTS - WILL reimbursement by proffering a defense of Minnesota, applying T exas law, held YOU HAVE TO PAY on that condition. The court granted that St. Paul was entitled to recoup the BACK YOUR INSURER? summary judgment to the insurer, money it spent to defend its insured ordering Compaq to reimburse the by Cindy R. Tzvi, Esq. against a class action lawsuit alleging insurer for all $650,000+ in defense that Compaq had distributed Policyholder lawyers have long waged costs. computers with certain defective parts. war against insurer denials with the Compaq was insured under a package Similarly, in Scottsdale Ins. Co. v. MV familiar battle cry that the “duty to policy issued by St. Paul. Upon tender T ransportation et al ., Case No. S123766 defend is broader than the duty to of the claim, St. Paul accepted the (July 25, 2005), the Supreme Court of indemnify” and that if there is any defense of the suit, generally reserving California held that a commercial possibility that the allegations in the its rights. A couple of months later, the general liability insurer could obtain complaint, however frivolous, would insurer issued a second reservation of reimbursement of defense costs when come within the insurance policy’s rights letter, specifically reserving its it is ultimately determined that the coverage grant, then the insurer must policy never afforded potential for right to withdraw from the defense and provide a defense to the insured. seek recovery of fees and expenses coverage. In that case, the third party Insurers have reluctantly responded by incurred in defense if it is later action involved allegations by a providing a defense when there is determined there is no coverage or competitor in the transportation ambiguity as to coverage, while duty to defend. After paying in excess industry that the insured had reserving their rights to withdraw of $650,000 in defense costs, St. Paul misappropriated trade secrets to the defense and/or receive withdrew from the defense, and sought compete unfairly in bidding for new reimbursement if it is ultimately shown to recoup the expenses previously paid busing contracts. that there is no coverage. on the insured’s behalf. Scottsdale issued two CGL policies to T wo recent decisions may have An insurer’s right to reimbursement of the insured, which provided for insurers smiling and policyholders defense costs was an issue of first “advertising injury” coverage. checking their reserves. These cases impression in T exas, and the District Scottsdale agreed to provide a defense, may indicate a trend towards courts Court had to predict what a T exas but reserved its right to obtain enforcing the right of an insurer to court would decide. While there was reimbursement should it be determined recoup defense costs after a litigation precedent indicating that an insurer that the allegations did not fall within ends, where a court determines that may not unilaterally alter the the scope of advertising injury liability there was in fact no coverage under coverage of the policies. insurance contract through a the policy for the claims at issue. This
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