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Intellectual property claims, including those involving patent, copyright, trademark, unfair competition and misappropriation of trade secrets, abound these days. Correspondingly, defendants are turning with increasing frequency to their insurance policies, seeking defense and indemnity of those claims. In most cases, insureds base their coverage argument on the so-called advertising injury language in comprehensive general liability (CGL) policies. Depending on the type of underlying claim, and the definition of “advertising injury” in the policy, insureds have had mixed success at best in obtaining coverage. The operative language in most comprehensive general liability policies is the following: “‘Advertising injury’ is injury that arises out of your advertising activity as a result of: … (a) oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; (b) oral or written publication of material that violates a person’s right of privacy; (c) misappropriation of advertising ideas or style of doing business; or (d) infringement of copyright, title or slogan.” SEMINAL CASE In the last few years, courts in the 3rd U.S. Circuit Court of Appeals have decided several cases that outline the parameters of the law in this booming area. The seminal decision came in The Frog Switch & Manufacturing Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999). In Frog, the plaintiff in the underlying action claimed that a former employee had misappropriated trade secrets and confidential business information, including drawings and prints related to a dipper bucket product line. The plaintiff also alleged that Frog had committed the torts of unfair competition and reverse passing off. Significantly, the plaintiff did not allege that the insured had misappropriated the plaintiff’s idea about identifying itself to customers. On the basis of that distinction, the court denied insurance coverage as to all claims. First, the Frogcourt examined whether the insurer had a “duty to defend” the underlying lawsuit. The court recognized that “an insurer’s duty to defend an insured in litigation is broader than the duty to indemnify, in that the former duty arises whenever an underlying complaint may potentially come within the insurance coverage.” Even if only one claim might be covered, an insurer must defend all claims until there is no possibility that the underlying plaintiff could recover on a covered claim. Moving to the specifics of the case, the court acknowledged that “intellectual property litigation … often proceeds under a bewildering variety of different labels covering the same material facts.” Notwithstanding that variety, the court found that “Frog’s alleged conduct does not fall within a reasonable insured’s understanding of misappropriation of advertising ideas or style of doing business.” It expressly distinguished Sentex Sys. Inc. v. Hartford Accident & Indemnity Co., 882 F. Supp. 930 (C.D. Cal. 1995), aff’d, 93 F.3d 578 (9th Cir. 1996), because Sentex involved misappropriation of trade secrets relating to marketing and sales and not to the manufacture and production of security systems themselves. In short, to be covered, the Frogcourt said, “allegations of unfair competition or misappropriation have to involve an advertising idea, not just a non-advertising idea that is made the subject of advertising.” The court concluded that “the broadest reading of misappropriating advertising ideas is that the insured wrongfully takes an idea about the solicitation of business.” The court defined a “style of doing business” as “a plan for interacting with consumers and getting their business.” LANHAM ACT The Frogcourt separately rejected the contention that the Lanham Act unfair competition claims were covered since the claims against Frog did not allege that Frog had in any way disparaged the plaintiff’s products. See Elcom Tech. Inc. v. Hartford Ins. Co., 991 F.Supp. 1294 (D. Utah 1997), in which there were only two companies in a field, and one company advertised that it had the only patented technology for the product, and allegations that the other falsely advertised that it had the only patented technology triggered the duty to defend. The Frogcourt, like the majority of courts, also recognized that even a claim that falls within “advertising injury” must have a causal connection with advertising activities. Therefore, with respect to patent claims, even if a court were to find that patent infringement constitutes “advertising injury,” either explicitly or implicitly, courts routinely conclude that the injury does not result from the advertising. It remains to be seen whether the change to the patent statute in 1996 to include “offers to sell” within the definition of patent infringement will appreciably change the result in such coverage cases. Adopting its definition of the terms of the CGL policies at issue, district courts in this circuit have followed Frog. For example, in Green Machine Corp. v. Zurich Am. Ins. Co., (E.D. Pa. Aug. 24, 2001), the insured was sued for infringing five patents and inducing infringement as to two of the patents, including both product and method patents. The insurer denied coverage on the basis that the allegations did not constitute advertising injury. The court relied on the holdings in Frogand Winklevoss Consultants Inc. v. Federal Ins. Co., 991 F. Supp. 1024 (N.D. Ill. 1998), when it held, “Patent infringement that is made the subject of advertising is not in and of itself an advertising idea” or a “style of doing business” and denied coverage. Similarly, in American National Fire Ins. Co. v. Methods Research Corp., (N.D. Ill. Dec. 5, 2000), the court held that under New Jersey law, patent infringement claims are not covered by the policy language “advertising ideas” or “style of doing business.” Moreover, it echoed the holding of a New Jersey court that “it is nonsense to suppose that if the parties had intended the insurance policy in question to cover patent infringement claims, the policy would explicitly cover infringements of copyright, title or slogan, but then include patent infringement, sub silentio, in a different provision, by reference to style of doing business.” Other courts have noted that “it is even more absurd to suggest that the phrase infringement of … ‘title’ as used in the clause infringement of copyright, title or slogan, encompasses patent infringement or inducement to infringe. Basic common sense dictates that if these policies covered any form of patent infringement, the word ‘patent’ would appear in the quoted infringement clauses.” See U.S. Test Inc. v. NDE Environmental Corp., 196 F.3d 1376, 1381 (Fed. Cir. 1999). While the standard articulated by the 3rd Circuit in Frogseems to preclude coverage of patent infringement claims, trademark infringement claims considered under that standard have fared better. For example, in CAT Internet Sys. Inc. v. Providence Washington Ins. Co., 153 F. Supp. 2d 755 (E.D. Pa. 2001), the underlying claim was for trademark infringement. The insureds, owners of the domain name “magazine.com,” were sued by the owner of the domain name “magazines.com” for trademark and trade name infringement, unfair competition and violation of the Tennessee Consumer Protection Act. The CAT court relied on the Frogcourt’s holding that “this standard advertising injury policy provision covers trademark infringement, because a trademark is a way of marking goods so that they will be identified with a particular source.” UNDERLYING ISSUE Ultimately, the court distinguished the dispute from that at issue in Frog, where the underlying complaint related to a design idea. “Unlike [ Frog], the [underlying] complaint does allege that what the insured took was itself an idea about identifying oneself to customers, and that magazines.com served as an indication of origin.” The CATcourt held that because the underlying complaint alleged appropriation of the trademark itself, the insurer had a duty to defend. The results in the 3rd Circuit are generally representative of the results throughout the majority of the other circuits. Claims of patent infringement, whether product patents or method patents, are not generally considered to constitute “advertising injury,” whereas claims for misappropriation of trade secrets or trademark infringement may well be found to be covered, even if not enumerated in the language of the policy, as long as the underlying complaint alleges facts sufficient to find a causal link between advertising and the injury. Clare Ann Fitzgerald, a senior associate at the law firm of Duane Morris in Philadelphia, practices in the area of commercial litigation, including intellectual property litigation.

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