Litigating an intellectual property dispute is an expensive proposition. Such litigation is often hotly contested, expert-intensive, and involves attorneys whose rates can run several hundred dollars an hour. Given the stakes involved, corporate policyholders defending such legal battles are eager to look for financial sources to support or defray their litigation costs. And an increasing number of them are looking to their liability policies' "advertising injury" or "personal and advertising injury" coverage as a potential source to fund not only defense costs, but any judgment or settlement that emanates from the litigation, as well. But are these policyholders looking in the right place? Does the "advertising injury" or "personal and advertising injury" coverage even encompass the intellectual property at issue in such litigation?
Courts generally deem an insurance policy's terms to be the "touchstone" for determining an insurer's coverage obligations, because the insurer agreed to insure "only those risks, no more, no less." Heritage Mut. Ins. Co. v. Advanced Polymer Tech. Inc., 97 F. Supp. 2d 913, 921 (S.D. Ind. 2000). Consequently, insurance coverage disputes involving the "advertising injury" or "personal and advertising injury" coverage often concern the scope of the coverage's enumerated offenses. And this is particularly true for coverage disputes involving the "misappropriation of advertising ideas" or "use of another's advertising idea in your 'advertisement'" offenses, to which this article refers collectively as the "advertising ideas offense."
This article will introduce readers to how courts have addressed the scope of the advertising ideas offense in the context of intellectual property infringement claims. As a threshold matter, it will provide a brief overview of the historical development of the advertising ideas offense. Next, it will discuss what advertising ideas are, for "advertising injury"/"personal and advertising injury" coverage purposes. Lastly, the article will acquaint readers with some of the intellectual property infringement claims policyholders have argued the advertising ideas offense should encompass, and provide readers with an overview of how receptive courts have been to such arguments.
In the 1970s, the Insurance Services Office ("ISO") created an endorsement to provide insureds "advertising injury" coverage for injury arising out of certain enumerated offenses, among them, "piracy" and "unfair competition." See Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, 50 Cal. App. 4th 548, 558 (1996); State Farm Fire and Cas. Co. v. Steinberg, 393 F.3d 1226, 1231 n.2 (11th Cir. 2004). ISO incorporated the "advertising injury" coverage into its standard liability insurance forms in 1986. Steinberg, 393 F.3d at 1231 n.2. At that time, ISO deleted the "piracy" and "unfair competition" offenses and redefined "advertising injury" as injury arising out of four enumerated offenses, including the "misappropriation of advertising ideas or style of doing business." Lebas, 50 Cal. App. 4th at 558. ISO later deleted the "advertising injury" coverage provision in the late 1990s, and introduced coverage for "personal and advertising injury," which the form defined as injury arising out of (among other offenses) the "use of another's advertising idea in your 'advertisement,'" rather than a "misappropriation of advertising ideas or style of doing business." Steinberg, 393 F.3d at 1231 n 2. One court concluded that this history confirmed that the advertising ideas offense's application is limited to those instances in which an insured is liable to a third party whose advertising idea has been used without permission. Rose Acre Farms, Inc. v. Columbia Cas. Co., 662 F.3d 765, 768 (7th Cir. 2011)
II. What an advertising idea is
In evaluating the types of exposures the advertising ideas offense encompasses, one court explained, "the policy covers an underlying suit only when [the insured] is alleged to have misused an 'advertising idea.' 'Advertising' is not a noun in the phrase 'misappropriation of advertising ideas;' it is an adjective, and it is employed in the sentence to describe the kind of idea that must be misappropriated or misused in order for there to be coverage…" Applied Bolting Tech. Products, Inc. v. U.S.F. & G., 942 F. Supp. 1029, 1033-1034 (E.D. Pa. 1996), aff'd, 118 F.3d 1997 (3d Cir. 1997) (Vermont law).
Most liability insurance forms do not define the phrase "advertising idea." Some policyholders have argued that the phrase is ambiguous on that basis. And in one case, the court agreed that the "advertising idea" phrase was ambiguous. See, e.g., Lebas, 50 Cal. App. 4th at 560-67. While the Lebas court believed that the misappropriation of an "advertising idea" could encompass the "theft of an advertising plan from its creator without payment," the court did not believe the advertising ideas offense was limited to such circumstances. Instead, the court found the offense could also potentially encompass the taking of the manner and means by which another advertises its goods and services. Id. at 562. Because the Lebas court concluded that the offense was subject to different meanings, it found the offense to be ambiguous. Id. at 563. Notably, however, the same panel that decided the Lebas decision later qualified this assessment, emphasizing that, whether the advertising ideas offense is ambiguous must be determined in the context of the allegations asserted against the insured in a particular case. Mez Indus., Inc. v. Pacific Nat'l Ins. Co., 76 Cal. App. 4th 856, 870 (1999) ("In Lebas, we did not find that clause to be ambiguous in the abstract . . . [and] in the context of the facts in this [patent infringement] case, we reach an entirely different result").
Other courts have rejected the notion that the phrase "advertising idea" is ambiguous. Rather, these courts have found the phrase to be non-technical and defined by case law and general usage. Continental Cas. Co. v. Consolidated Graphics, Inc., 656 F. Supp. 2d 650, 658 (S.D. Tex. 2009). Giving "advertising idea" its plain and ordinary meaning, various courts have found "advertising idea" to encompass "'any idea or concept related to the promotion of a product to the public.'" Pizza Magia Intern., LLC v. Assurance Co. of America, 447 F. Supp. 2d 766, 772 (W.D. Ky. 2006) (internal citations omitted). Other courts have opined that an "advertising idea" is an idea for advertising that is "novel and new," and "definite and concrete," such that it is capable of being identified as having been created by one party and stolen or appropriated by another. Clarcor, Inc. v. Columba Cas. Co., 2010 WL 5211607, * 12 (M.D. Tenn. Dec. 16, 2010) (quoting Sorbee Intern'l Ltd. v. Chubb Custom Ins. Co., 735 A.2d 712, 714 (Pa. Super. Ct. 1999)).
It is against this backdrop that courts have been called upon to evaluate whether the advertising ideas offense potentially encompasses claims for the infringement of trademark, trade dress, and patent, and in some instances, trade secret misappropriation. And their responses have varied from jurisdiction to jurisdiction.
III. Types of Intellectual Property Sought to Be Considered an Advertising Ideas Offense
Whether the advertising ideas offense encompasses trademark infringement is an insurance coverage question that has been litigated throughout courts across the country since the "misappropriation of advertising ideas" offense was first introduced. A trademark is a word, name, symbol or device (or a combination of them) that is used in trade with goods to indicate the goods' source and to distinguish them from the goods of others. 15 U.S.C. 1127. A person infringes another's trademark where that person, without the consent of the trademark registrant, copies or colorably imitates in commerce a registered mark in connection with the sale and advertising of goods and services, or copies or colorably imitates in commerce the mark and uses it in labels, signs, prints, packages, wrappers, receptacles or advertisements in connection with the sale or advertising of goods and services, and in so doing is likely to cause confusion, mistake, or deception. 15 U.S.C. 1114.
A majority of courts presented with the question have concluded that the advertising ideas offense at least potentially encompasses trademark infringement claims. See, e.g., Lebas, 50 Cal. App. 4th at 560-67. For example, in finding that the advertising ideas offense potentially encompassed allegations that the insured had infringed the claimant's DRAKKAR and DRAKKAR NOIR trademarks, the Lebas court reasoned that the intrinsic purpose of a trademark is to "identif[y] a product's origin . . . [and] guarantee the product's unchanged quality." Id. at 557. The court also opined that "'[a] trademark is but a species of advertising, its purpose being to fix the identity of the article and the name of the producer in the minds of the people who see the advertisement …" Id. (quoting Northam Warren Corp. v. Universal Cosmetic Co., 18 F.2d 774, 774 (7th Cir. 1927)). Consequently, the court concluded that the advertising ideas offense potentially encompassed allegations that the insured had wrongfully taken the claimant's identifying mark. Id. at 564.
Several courts that have embraced this rationale have likewise found the advertising ideas offense to encompass trademark infringement claims. See Tom Kelley Studios, Inc. v. State Farm Gen. Ins. Co., 462 Fed. Appx. 740, 741, 2011 WL 6396441, * 1 (9th Cir. Dec. 21, 2011) (observing that California courts have construed the advertising ideas offense to encompass trademark infringement claims); State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co., 343 F.3d 249 (4th Cir. 2003) (applying North Carolina law, court believed trademark to potentially be an advertising idea because it viewed trademarks as playing an important role in advertising); Central Mut. Ins. Co. v. Stunfence, Inc., 292 F. Supp. 2d 1072, 1079 (N.D. Ill. 2003) (reasoning that, because a trademark is a designation used to identity a product's source, trademark "easily qualifies as an 'advertising idea'").
While numerous courts have held that the advertising ideas offense potentially encompasses trademark infringement claims, not all courts agree that a trademark is an advertising idea. See, e.g., Sport Group, Inc. v. Columbia Cas. Co., 335 F.3d 453 (5th Cir. 2003). Rejecting the notion that a trademark is a species of advertising, the Fifth Circuit Court of Appeals, interpreting Texas law, opined that a trademark does not in and of itself promote a product. The court emphasized that, unlike advertising media such as a billboard, newspaper notice, signpost, or television or radio commercial, a trademark's primary purpose is to identify and distinguish products rather than promote them. Based on this reasoning, the court concluded that a trademark did not constitute an advertising idea for insurance coverage purposes.
B. Trade Dress
Trade dress infringement claims, like claims involving trademark infringement, have also been the subject of numerous lawsuits concerning the scope of the advertising ideas offense. Trade dress is generally regarded as a type of intellectual property that falls under the umbrella of trademark law. Stunfence, Inc., 292 F. Supp. 2d at 1079. It often refers to a product's overall appearance and image in the marketplace (i.e., shape, color, visible features, packaging, labeling), but it may also encompass particular sales techniques. Australia Unlimited, Inc. v. Hartford Cas. Ins. Co., 198 P.3d 514 (Wash App. 2008). To be considered protectable trade dress, the design of a product must be non-functional and have a distinctiveness that serves to identify the product with its manufacturer. Eppendorf-Netheler-Hinz GMBH v. Ritter GMBH, 289 F.3d 351, 355 (5th Cir. 2002). Under federal law, a person may be liable for trade dress infringement where that person uses in commerce "any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person." 15 U.S.C. 1125. It should be noted that, since ISO amended its liability forms in the late 1990s, many liability policies now include infringement of trade dress in a named insured's "advertisement" (often a defined term) as an enumerated "personal and advertising injury" offense.
Given the different commercial characteristics trade dress can encompass, several courts have viewed trade dress to be an advertising idea, for insurance coverage purposes. See, e.g., R.C. Bigelow v. Liberty Mut. Ins. Co., 287 F.3d 242 (2d Cir. 2002) (Connecticut law); Australia Unlimited, supra, 198 P.3d at 520. For example, in R.C. Bigelow, the Second Circuit Court of Appeals held that the advertising ideas offense potentially encompassed claims that an insured tea manufacturer/distributor had infringed a competitor's trade dress by using confusingly similar packaging. Believing the packaging elements to serve an advertising purpose, the court emphasized that, "to the extent that [the insured] allegedly copied [the claimant's] packaging in published advertisements, the [underlying] complaint sufficiently alleged that [the insured] copied [the claimant's] 'advertising ideas or advertising style' within the plain meaning of the words in the insurance policy." Id., 287 F.3d at 247.
Finding the reasoning of the R.C. Bigelow decision to be persuasive, the Washington appellate court in its Australia Unlimited decision concluded that the advertising ideas offense potentially encompassed allegations that an insured copied or colorably imitated a competitor's "footwear, accessories, displays and associated marketing and sales materials," which served to give the claimant's products a "unique look and feel" in the marketplace and identify the products' origin. Id., 198 P.3d at 519. The court acknowledged in its decision that classic trade dress claims often involved product packaging or labeling. Nevertheless, it emphasized that trade dress could also encompass sales techniques that served to distinguish a product in the marketplace. After considering both the claimant's alleged use of its trade dress to impact consumer perception and the nature of the allegations asserted against the insured, the court concluded that such claims arguably fell within the scope of the advertising ideas offense. Id., 198 P.3d at 772. See also Tom Kelley Studios, 2011 WL 6396441, * 1 (Ninth Circuit acknowledges that trade dress infringement claims may fall within scope of advertising ideas offense under California law).
A patent is the grant of an intellectual property right to an inventor to exclude others from making, using, offering for sale, selling or importing an invention. A person infringes a patent where that person without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefore. 35 USC 271.
Courts have traditionally rejected the notion that "advertising injury" coverage applies to patent infringement claims. However, in recent years, some courts have found the advertising ideas offense to potentially encompass patent infringement claims where the patent involves a process or invention that could reasonably be considered an advertising idea. See, e.g., Amazon.com Int'l, Inc. v. American Dynasty Surplus Ins. Co., 85 P.3d 974 (Wash. App. 2004); ("Amazon I"); Amazon.com, Inc. v. Atlantic Mut. Ins. Co., 2005 WL 1711966 (W.D. Wash. July 21, 2005) (Washington law) ("Amazon II"); Hyundai Motor Am. v. National Union Fire Ins. Co., 600 F.3d 1092, 1100-1101 (9th Cir. 2010) (California law); Dish Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010 (10th Cir. 2011) (Colorado law). In making those determinations, these courts appear to contemplate the commercial nature/uses of the patented inventions.
For example, in Amazon I, the Washington appellate court concluded that the advertising ideas offense encompassed claims that an insured infringed patented technology that enabled website visitors to preview music products over the Internet. Similarly, the Amazon II court held that the advertising ideas offense encompassed the infringement of various method patents – among them, a patent pertaining to an electronic catalog system that enabled customers using the insured's website to obtain updated product data; an electronic system and method that enabled the insured to "personalize" electronic news, advertising, and product recommendations directed at a website visitor using a customer profile; and technology that provided website customers a "virtual shopping cart" to process items they wished to purchase and enabled the insured to monitor the frequency and duration of customers' access to various web pages – because of the commercial nature of the patented inventions.
Similarly, the Ninth and Tenth Circuit Courts of Appeal, relying on Amazon I, concluded that an insured's alleged infringement of a patented proposal preparation method (Hyundai) and a patented telephony-communication system (Dish) potentially involved a misappropriation of advertising ideas because the disputed patent involved a patented means or method of interacting with customers. Hyundai Motor Am., supra, 600 F.3d at 1100-1101. In making that determination, the Hyundai court explained:
[The patent owner] patented a method of displaying information to the public at large for the purpose of facilitating sales, i.e., a method of advertising. And [the patent owner's] complaint alleged that [the insured] violated that method patent by using the patented techniques as part of its own "marketing method" or "marketing system." In other words, [the patent owner] patented a "process or invention which could reasonably be considered an 'advertising idea'"…
600 F.3d at 1100-01. See also Dish Network, 659 F.3d at 1023 (allegations that insured allegedly misappropriated "a means of conveying content to and tailoring its interactions with its customers" potentially involved advertising ideas offense).
Other courts have construed the advertising ideas offense less broadly, even where the insured is alleged to have infringed patents that may serve promotional purposes. See, e.g., Discover Fin'l Servs. LLC v. National Union Fire Ins. Co., 527 F. Supp. 2d 806, 824 (N.D. Ill. 2007). For example, in rejecting Amazon I's premise that certain technology constitutes an "advertising idea" simply because it could be used to transmit advertising, the Discover Financial court observed that:
[u]sing or selling automated telephone systems that have the ability to advertise goods or services or solicit business does not itself involve any elements of advertising. In other words, the mere fact that [the insured's] allegedly infringing telephone systems, like many other technologies, are capable of advertising goods or carrying promotional messages, does not transform the technology into an advertising idea.
Discover Fin'l, 527 F. Supp. 2d at 824 (emphasis added). The court held that the patent infringement claims did not involve the advertising ideas offense because there was no basis from which it could conclude that patent owner was injured because the insured had taken the claimant's advertising. See also Illinois Nat'l Ins. Co. v. Walgreens Co., No. 07 CH 16703 (Cir. Ct. Cook Cty., Ill. July 8, 2008) (patented technology's ability to transmit advertising did not transform the technology's infringement into a "misappropriation of advertising ideas").
D. Trade Secrets
Trade secrets are another species of intellectual property that policyholders have argued constitutes advertising ideas for purposes of implicating an insurance policy's liability coverage. The Uniform Trade Secrets Act (the "UTSA"), which was developed by the National Conference of Commissioners on Uniform State Laws and has since been adopted by various states, defines "trade secret" as information that (i) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Courts are generally not inclined to find that a trade secret infringement claim potentially involves the advertising ideas offense where the disputed trade secrets are technical or scientific in nature. See, e.g., Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999) (Pennsylvania law) (advertising ideas offense not potentially at issue where trade secrets insured allegedly misappropriated concerned manufacture of product); Zurich Ins. Co. v. Sunclipse, Inc., 85 F. Supp. 2d 842 (N.D. Ill. 2000) (California law) (no misappropriation of advertising ideas where trade secrets pertain to claimant's technology, rather than the advertising of that technology).
In contrast to technical or scientific trade secrets, where the disputed trade secrets concern marketing-related information, some courts have found such misappropriation of trade secret claims to potentially involve the advertising ideas offense. See, e.g., Sentex Systems, Inc. v. Hartford Acc. & Indem. Co., 93 F.3d 578, 580 (9th Cir. 1996) (California law); Kinko's, Inc. v. Shuler, 646 N.W.2d 855, 2002 WL 1308174 (Wis. Ct. App. 2002). For example, in concluding that the advertising ideas offense encompassed allegations an insured had appropriated a competitor's billing and marketing techniques and customer lists, the Ninth Circuit observed that, "[i]n this day and age, advertising cannot be limited to written sales materials, and the concept of marketing includes a wide variety of direct and indirect advertising strategies." Sentex Systems, 93 F.3d at 580.
Similarly, in holding that certain misappropriation of trade secret claims triggered the advertising ideas offense, the Kinko's court emphasized that the claimant had alleged its trade secrets included sales and promotion strategies and marketing plans. The court was "satisfied that the ordinary meaning of 'advertising'" is broad enough to encompass 'sales and promotion strategies' and 'marketing.'" Kinko's, 2002 WL 1308174, *3. See also Continental Cas. Co. v. Consolidated Graphics, Inc., 656 F. Supp. 2d 650 (S.D. Tex. 2009) (advertising ideas offense implicated where insured was alleged to have taken claimant's pricing information, including information regarding past promotions conducted by claimant, because disputed information related to promotion of product to public).
It should be noted that, although some courts have found allegations of an insured's wrongful taking of another's marketing strategies to involve the advertising ideas offense, an insured's alleged theft of a customer list, alone, may not be sufficient to involve the advertising ideas offense. See, e.g., American Family Mut. Ins. Co. v. Beasley, 2012 WL 395707 (D. Nev. Feb. 6, 2012). Rejecting an argument that a customer list allegedly taken by the insured constituted an advertising idea, the Beasley court reasoned "'that a confidential customer list is a trade secret, not an idea about advertising.'" Id, 2012 WL 395707, *6 (quoting Steinberg, supra, 393 F.3d at 1234). See also Sentex Systems 93 F.3d at 580-81 (expressing misgivings that allegations of misappropriation of a customer list alone potentially involve advertising ideas offense).
This article, which expresses the opinions of the author and does not necessarily reflect the views of Bates Carey Nicolaides LLP or its clients, illustrates how courts can approach an advertising ideas analysis when presented with a particular intellectual property infringement claim. To be sure, whether an intellectual property infringement claim potentially involves an enumerated offense is only one part of an insurance coverage analysis. In evaluating whether an insurer has any coverage obligations owing a policyholder with respect to a particular intellectual property infringement claim, the insurer and policyholder alike will be careful to review all of the terms, conditions, limitations, and exclusions of the particular insurance policy under which coverage is sought, particularly as an increasing number of liability policies are excepting from coverage "advertising injury" or "personal and advertising injury" arising out of the infringement of arising out of infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Nevertheless, insurers will want to keep abreast of how courts are construing the scope of the advertising ideas offense and other enumerated offenses as they assess risk and set premiums for the "advertising injury" or "personal and advertising injury" coverage they offer.