Verteq, Inc. v. Northbrook Property & Cas. Ins. Co. of Illinois, No. 8:93 CV-00334-AHS-RWR (C.D. Cal. Nov. 1 1993) (Consultant)

Plaintiff in an IP matter against a larger competitor, which sued under a counterclaim, thus triggering coverage. Given that proof that the counterclaim was not viable involved the same legal work necessary to win its suit as plaintiff for violation of IP rights, the competitor, by pursuing the counterclaim, funded the litigation against it. Indeed, when a dispute arose over the rate of reimbursement, which was resolved in arbitration under California law, the insurer's unwillingness to pay the full rate was found to be improper.

Verteq received reimbursement for all attorneys' fees expended at the full rate, prejudgment interest from date of invoice, and the attorneys' fees incurred in the arbitration to prove same. The latter fees were recoverable because the court found that Northbrook Insurance Co.'s reimbursement of counsel at a rate of only $150 per hour for litigation pending through 1994 was improper and constituted a breach of the covenant of good faith and fair dealing.

Although this result may not attend in every case, the net result was that the competitor ended up funding, via its ill-considered counterclaim, the entire cost of a successful litigation against it, without requiring the plaintiff to meet the standard for recovery of its attorneys' fees pursuant to the intellectual property statute under which it sought relief.