Patent Infringement and Advertising Injury
Insureds brought an action against their insurers seeking a declaratory judgment that the insurers were obligated to defend them in a patent infringement action pending against the insureds. This case came before the U.S. District Court in Dish Network Corporation v. Arch Specialty Insurance Company, 2010 WL 3310025 (D.Colo.).
Katz Technology Licensing sued EchoStar Satellite Communications (Dish Network) for patent infringement. Katz alleged that EchoStar directly and contributorily infringed, and induced others to infringe, one or more claims of each of the patents by making, using, offering to sell, and/or selling within the United States automated telephone systems, including the Dish Network customer service telephone system. Katz described the patents as having multiple fields of use, including but not limited to financial services call processing, automated credit card authorization services and product and service support.
Dish tendered the matter to its insurers under a commercial liability policy that provided coverage against advertising injury. The insurers declined coverage and the insureds sued.
Dish argued that the allegations in the Katz complaint gave rise to coverage under the advertising injury portion of the liability policy. The U.S. District Court said that Dish must prove three elements to establish a duty to defend for advertising injury: Dish must have been engaged in advertising during the policy period when the alleged advertising injury occurred; the allegations created a potential for liability under one of the covered offenses; and, a causal connection had to exist between the alleged injury and the advertising. The court said that if the insurers can demonstrate a lack of evidence for any one of these three elements, then they are under no duty to defend Dish for the alleged advertising injury.
The court reviewed the first of the three elements by examining the definition of advertising. The court found that advertising is generally accepted as being an activity designed to facilitate sales and that is directed towards the public at large. The Katz complaint focused on Dish's operation of allegedly infringing automated telephone systems that allowed the customers to perform pay-per-view ordering and customer service functions over the telephone. It was unclear to the court whether those activities constituted advertising and so the court reviewed findings from other jurisdictions. It then resolved the issue in Dish's favor and said the activities did constitute advertising.
As for the second element, Dish asserted that part of the definition of advertising injury was met by the allegations, namely, the misappropriation of advertising ideas or style of doing business. The court noted that Colorado had not comprehensively addressed what constitutes either an advertising idea or a style of doing business. So, again reviewing findings from other jurisdictions, the court said that most courts hold that misappropriation of advertising ideas means the wrongful taking of the manner by which another advertises its goods or services, or the wrongful taking of an idea about the solicitation of business; the misappropriation of advertising ideas must occur in the elements of the advertising injury itself, in its text, form, logo, or pictures, rather than in the product being advertised. In this instance, the Katz complaint focused on the use by Dish of patented technologies as a means of conveying to and tailoring its interactions with its customers. The complaint did not allege that the patented technologies are themselves incorporated as an element of Dish's communications and interactions with its customers. Therefore, the court said that the complaint did not constitute misappropriation of an advertising idea within the meaning of the contested insurance policy. And so, the definition of advertising injury was not met.
The court declared that it need not address the third element since there was no covered advertising injury as defined in the policy. Summary judgment was granted to the insurers.
Editor's Note: This case is presented as another example of a court addressing a patent infringement claim against the insured along with the resulting insured's claim that advertising injury coverage applies. Most courts today do not find coverage under the CGL form for patent infringement allegations, and this is bolstered by the current language in the ISO CGL form that specifically excludes coverage for the infringement of patent or other intellectual property rights. The ruling from this court is in line with the majority rule. (However, the court did point out that this thinking may change since the Federal patent statutes have been amended by adding the phrase “in the course of selling or offering to sell” to the definition of patent infringement.)
And, this court ruling offers more for the reader to consider. The court presents a very instructive step-by-step description of its thinking. The court explains its choice of law and how to determine the duty to defend. Moreover, the court provides definitions and explanations of several terms so as to help the reader understand its findings. These terms include: advertising; advertising injury; misappropriation of advertising ideas or style of doing business; most significant relationship test; and occurrence.