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 aEURoemisappropriation of ideas,aEUR? triggering a CGL carrieraEUR(TM)s duty to defend under the Personal and Advertising Liability Coverage.    HyundaiaEUR(TM)s website featured a aEURoebuild your own vehicleaEUR? (aEURoeBYOaEUR?) feature, which allowed users to input information regarding vehicle preferences and generated customized vehicle images and pricing. 

Orion IP, LLC had patented an aEURoeelectronic system for creating customized product proposalsaEUR? which asks questions of the user and based upon the useraEUR(TM)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 aEURoemethodsaEUR? 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 aEURoeadvertising injury.aEUR?  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 aEURoeadvertisingaEUR? to the public at large even though it created custom proposals.  Generally, such solicitations are not deemed aEURoeadvertisementsaEUR? because they are not directed to the public at large. Noting the distribution of the BYO feature to aEURoemillionsaEUR? 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 aEURoemisappropriation of advertising ideasaEUR? 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 aEURoeformaEUR? 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 aEURoethe advertising itself was the improper use of the patented method.aEUR?  

Sarah Delaney and Richard Cohen http://www.goldbergsegalla.com/attorneys/Delaney.html http://www.goldbergsegalla.com/attorneys/Cohen.html Case provided courtesy of Lexis