PATENT INFRINGEMENT CLAIMS FOUND TO CONSTITUTE “ADVERTISING INJURY”

Hyundai Motor America v. National Insurance Company of Pittsburgh

(9th Cir. (Ca.)
April 5, 2010)

Recently, the Ninth Circuit ruled that a patent
infringement claim constituted “misappropriation of ideas,” triggering a CGL
carrier’s duty to defend under the Personal and Advertising Liability
Coverage.  
 Hyundai’s website featured a “build your own vehicle”
(“BYO”) feature, which allowed users to input information regarding vehicle
preferences and generated customized vehicle images and pricing. 

Orion IP, LLC had patented an “electronic
system for creating customized product proposals” which asks questions of the
user and based upon the user’s responses, links product pictures and text into
a customized proposal.  Orion IP, LLC
sued Hyundai and nineteen other car companies for patent infringement related
to the BYO feature.  It alleged that
Hyundai was infringing on its patents by “methods” used on its website,
marketing methods, marketing systems and sales methods.

 

Hyundai sought a defense from its insurers pursuant to
the Personal and Advertising Injury Coverage. 

The insurers denied coverage, asserting that patent infringement was not
“advertising injury.”  Applying a
three-part test established by the Supreme Court of California in Hameid v.
National Fire Ins. of Hartford, 31 Cal.4th 16 (2003), the Ninth Circuit
disagreed and found a duty to defend.

 

First, the court held that the BYO feature on the website
was “advertising” to the public at large even though it created custom
proposals.  Generally, such solicitations
are not deemed “advertisements” because they are not directed to the public at
large. Noting the distribution of the BYO feature to “millions” of web-browsing
potential customers, the court presented an analogy:  if instead of the web, the company used a
crude paper version and distributed that in the newspaper.  The court reasoned that in such a case it
seemed clear that the distribution via the newspaper was advertising.

 

Second, the court determined that the BYO feature was a
“misappropriation of advertising ideas” as defined in the policy.  The insurers argued that the actual content or
form of the advertisement must infringe, not just the product being
advertised. 

The court rejected that
argument, noting that the “form” of the advertisement was the infringing
feature.  The insurers also claimed that
in order to infringe, the infringer must be a direct competitor.  The court rejected that argument based upon
the plain language of the policy, which contains no such requirement
Additionally, the court found a causal connection between the
injury and the advertisement because it was alleged that the use of the BYO
feature injured Orion.  There was a
casual connection because “the advertising itself was the improper use of the
patented method.”  


For a copy of the decision click here

Sarah Delaney and Richard Cohen

http://www.goldbergsegalla.com/attorneys/Delaney.html

http://www.goldbergsegalla.com/attorneys/Cohen.html

Case provided courtesy of Lexis


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