Insurance Law Hawaii

Duty to Defend Arises from Allegations of "Advertising Injury"

   The insured, Dish Network Corporation, was sued for patent infringement by Ronald A Katz Technology Licensing, L.P. (RAKTL). See Dish Network Corp. v. Arch Specialty Ins. Co., 2011 U.S. App. LEXIS 20955 (10th Cir. Oct. 17, 2011). RAKTL alleged Dish infringed on twenty-three patents. The underlying complaint provided little information about how Dish actually used RAKTL's technologies. 

   Dish had several primary and excess policies from five different insurers. All of the policies agreed to defend and indemnify Dish against claims alleging "advertising injury." The policies defined "advertising injury" as, among other things, "[m]isappropriation of advertising ideas . . . ."

   The insurers denied a defense. Dish sued and the insurers moved for summary judgment. The district court agreed that RAKTL's reference to "customer service functions" in its complaint was sufficient to allege that Dish engaged in "advertising." The court rejected, however, Dish's argument that its use of a patented interactive telephone system to advertise could constitute "misappropriation of advertising ideas." The complaint did not allege that the patented technologies were themselves misappropriated as an element of Dish's communications and interactions with its customers. Therefore, the conduct was not "misappropriation of an advertising idea."

   The Tenth Circuit reversed. The court first considered whether patent infringement generally fell within the applicable CGL policies' "advertising injury" coverage. Here, Dish allegedly committed patent infringement by using RAKTL's technology to sell Dish's own non-infringing satellite television products and services. Normally, the scope of "advertising injury" coverage was clear where a patented product was advertised and sold. Where, however, the advertising idea that was misappropriated was also a patented technology, the scope of coverage was less certain.

   Therefore, whether this case presented a "misappropriation of advertising ideas" was ambiguous.  A suit for patent infringement could, under narrow circumstances, allege "misappropriation of advertising ideas." Therefore, the ambiguity had to construed in favor of coverage of a patent infringement case. 

   The court next asked whether the complaint potentially alleged a "misappropriation of advertising ideas." The underlying complaint potentially alleged acts of advertising because it did not fully explain what was meant by "pay-per-view ordering and customer service functions." This case differed from the typical case in which the insured merely advertised a product it had already misappropriated. Instead, the complaint here alleged misappropriation of a product specifically designed, in part, for advertising purposes. These allegations were sufficient to raise the possibility of misappropriation of an advertising idea.

   Finally, the court considered causation, i.e., whether the complained of injury arose in the course of advertising, as the policy language required. RAKTL alleged it "has been damaged and irreparably harmed by Dish's infringement, which will continue unless Dish is enjoined." Accordingly, the allegations sufficiently stated causation.

   Therefore, the district court's grant of summary judgment was reversed and remanded to allow consideration of exclusions in the policies yet to be addressed by the district court.

   Thanks to my Damon Key colleague, Mark Murakami (www.oceanlawhawaii), for forwarding this case to me.

Ninth Circuit Finds No Coverage for Infringment Claim

    The issue in United National Ins. Co. v. Spectrum Worldwide, Inc., No. 07-55833 (9th Cir. Feb. 2, 2009) [here] was whether the policy's "first publication" exclusion applied to an infringement claim.

    In December 1997, Sunset hired Spectrum, the insured, to advertise and distribute the "Hollywood 48-Hour Miracle Diet" drink.  Two Spectrum executives later formed Celebrity Products, Inc. to market and sell a similar product, "the Original Hollywood Celebrity Diet" drink.  Spectrum terminated its contract with Sunset and began marketing the Celebrity Diet drink.

    Sunset then demanded that Spectrum cease infringing on its Miracle Diet trademark.  When this failed, Sunset sued for infringement against Spectrum in October 2001.  Sunset alleged Spectrum deliberately made Celebrity Diet's packaging and labeling similar to Miracle Diet so that it confused consumers and damaged Sunset's reputation.  Sunset sought a temporary restraining order, asking the court to compare Sunset's 1998 label to Spectrum's 1998 and 2001 labels to determine whether Spectrum's 2001 label constituted an immediate harm to Sunset.  The district court granted a temporary restraining order based on the dramatic change between Spectrum's 1998 and 2001 labels.  At the preliminary injunction hearing, Spectrum argued it changed its 1998 label in 1999, and that its 1999 label was so similar to its 2001 label that Sunset could not experience immediate harm.  The district court accepted Spectrum's position and denied the preliminary injunction.  Accordingly, Spectrum was able to continue profiting from the sale of Celebrity Diet.

    Meanwhile, in 2001 United issued Spectrum an excess liability policy which indemnified the insured for damages resulting from "advertising liability" injury, including infringement of copyright.  The policy took effect April 26, 2001.  The policy excluded an "advertising injury" arising out of a publication of material which first took place before the policy period.  When Spectrum settled with Sunset, United contributed $420,000 to the settlement, and then sought reimbursement in a suit filed against Spectrum.  The district court granted United's motion for summary judgment, holding Spectrum's 1999 label formed the substance of Sunset's advertising injury, and eliminated coverage because the first publication occurred before the policy's effective date.

    The Ninth Circuit affirmed.  The policy clearly excluded any copyright infringement injury that arose from a publication of material first published before the policy became effective.  Next, the court considered whether Spectrum could argue its claim did not arise until 2001 afterit previously argued Sunset's alleged infringement claim arose from materials first published in 1999.  Allowing Spectrum to change course was unfair to Sunset and to United, whose indemnification obligations increased as Sunset's damages increased after Spectrum successfully avoided an injunction and later settled.  Therefore, Spectrum was judicially estopped from changing course. 

Ninth Circuit Lights Fire Under St. Paul, Ruling It Must Defend in Squabble Between Survivors of the Doors

What makes for a more interesting insurance case than a fight between surviving members of the Doors leading to a coverage dispute over the duty to defend?  Applying California case law, which is very similar to Hawaii case law, the Ninth Circuit recently determined St. Paul had a duty to defend a surviving of the Doors.

A founding member of the Doors, Raymond Manzarek, was sued in state court by former drummer, John Densmore, and the parents of Jim Morrison for infringing on the “The Doors” name in conjunction with a planned international tour.  Manzarek was found liable on some claims, but no damages were awarded.  Defense fees exceeded $3 million, however.

St. Paul refused to defend under a comprehensive liability policy issued to Manzarek.  Although the policy covered liability for advertising injury, St. Paul determined coverage was eliminated under a Field of Entertainment Limitation Endorsement (“FELE”).  The endorsement excluded coverage for the creation, production, publication, distribution, or advertising of media material. 

Manzarek sued St. Paul.  The District Court found the FELE clearly excluded coverage, and granted St. Paul’s Motion to Dismiss without allowing leave to amend.

The Ninth Circuit reversed.  The underlying suit was silent about what type of products and merchandise that Manzarek produced and marketed. The FELE excluded coverage for media related material, but coverage for advertising injury could still exist if Manzarek marketed a line of t-shirts or electric guitars with “The Doors” logo or Morrison’s likeness on them.  The District Court also abused its discretion in dismissing with prejudice and not allowing Manzarek to amend his complaint.

Given its similar case law, it is safe to assume the Hawaii Supreme Court would have also found a duty to defend.