Why Policyholders Should Hire Insurance Coverage Savvy Intellectual Property Litigators

Intellectual property litigation proceeds through a variety of causes of action. They can include a number of distinct factual allegations that often in some instances trigger insurance policy benefits entitling policyholders to a defense at their insurer’s expense. While the most common form of business insurance to secure coverage remains the Commercial General Liability (“CGL”) policy. Securing defense benefits under such policies presents increasing challenges.

To secure that benefit the parties may evaluate facts beyond the complaint “extrinsic evidence” that clarify how the claims asserted implicate insurance coverage. Enlisting the assistance of insurance coverage savvy policyholder council who are also intellectual property litigators enhances the prospects for securing insurance policy benefits.

The Microsoft Story

First, an anecdotal story. Many years ago Microsoft hired a competent intellectual property lawyer to pursue claims against a copyright infringer. In Federal Ins. Co. v. Microsoft Corp., No. C92-610D (W.D.Wa. April 14, 1993) the court entered an order awarding a judgement to Microsoft against the infringer for liability and damages. Thereafter, that attorney referred the case to another attorney who focused on insurance coverage issues. That second attorney pursued coverage claims against the defendant who had no other resources. He could not secure a judgement against the insurer. The judgement against the policyholder only proved copyright infringement but not “copyright infringement in your ‘advertisement.’”

The insurance coverage did not include infringement of copyright. It only covered “infringement of copyright in your ‘advertisement.’” The defendant in that lawsuit sole promotional activity was internet advertising. The coverage attorney’s task would have been greatly simplified if the complaint and judgement focused on those facts. After the judgement was entered, it was too late to solve that problem with the manner in which the initial judgement had been secured.

Thereafter, Microsoft terminated its relationship with the plaintiff’s attorney who had failed to secure a judgement that was capable of being pursued against the defendant’s insurer. It subsequently retained coverage savvy IP litigation counsel they now routinely alleged conduct falling within insurance coverage policy provisions.

Moreover, upon filing lawsuits Microsoft often delays litigation activity until the insurers for the defendant have been identified, their representatives contacted and negotiations pursued to determine whether coverage is available to respond to the asserted claims. This switch in litigation tactics flowed from Microsoft’s recognition that its interests were best served in pursuing insurance funded settlements promptly rather than expending monies in litigating against defenses with limited resources.

Maximizing Litigation Benefits Require Insurance Coverage Savvy Counsel

Second, a case in point where the insurer escaped exposure to a copyright infringement lawsuit despite express allegations that “copyright infringement in your ‘advertisement’” occurred, arose under Hartford policy. Hartford’s policy limits its exception to the Hartford IP exclusion to “a ‘claim or suit’ involving… (1) Infringement in ‘your advertisement’ or ‘your website’ of: a copyright…” Interpreting the scope of this exception to the IP exclusion. Spandex House, Inc. v. Hartford Fire Ins. Co., 2020 U.S. App. LEXIS 19177 (2d Cir. (N.Y.) June 17, 2020) it affirmed a published District Court opinion by Judge Caproni in Spandex House, Inc. v. Hartford Fire Ins. Co. 407 F.Supp. 3d 242 (S.D.N.Y. August 26, 2019). The Court of Appeals concluded that in order to establish coverage under this provision it must be the case that “the sole allegation pertaining to intellectual property rights in the underlying suit was limited to enumerated types of infringement or copying that were casually linked to the insured’s advertising or website.” Id at *4.

The Court of Appeals rejected a number of argument about grammatical construction of this provision, the quoted material and alleged failure to provide notice to the insured of the restrictions in this coverage. The litigants did not raise, however, a key issue which California law has expansively construed which might lead to a different result assuming the application of California law. That issue has yet to be resolved. (Our law firm is presently evaluating and pursuing cases under that theory where this applicable policy language is an issue).

Procuring CGL Insurance From Carriers Other Than Hartford, Travelers And Great American Will Maximize Policyholder Recovery

Third, in a case including claims where Hartford’s policy language is in effect, insurance coverage savvy litigators would refocus copyright infringement claims asserting infringement liability based on the manufacture, sale or distribution of products to only claim liability based on an “advertisement.”  Other insurers, like Travelers and Great American, have followed suit-mirroring Hartford’s restrictive intellectual property exception provisions. To assure that the claims asserted fall within the coverage in their policies, proper framing of claims by claimants to trigger coverage is essential.

The Joint Final Pretrial Order Supersedes The Pleadings As A Matter Of Law

Fourth, while claimants pursuing lawsuits are in the best position to pursue litigation theories. Under F.R.C.P 26(f), defendant/claimants are obligated to provide their insurance policies to the claimants. Thereafter, claimant’s counsel can ascertain whether the nature of their asserted causes of actions. Facts which support recovery could implicate coverage where the pleadings are amended or their allegations clarified through discovery or motion activity.

Factual allegations that may come to light in later in the lawsuit require revisiting insurer coverage obligations. Pursuant to F.R.Civ.P 16(e) The Joint Final Pretrial Order (“UFPTO”) “Supersedes the pleadings” Petree v. Victor Fluid Power Inc., 821 F.2d 1191, 1194 (3d. Cir. (N.J.) 1987); Atlanta Pharma AG v. Teva Pharm. USA, Inc., No. 64.2355 (JLL) 2010 U.S. Dist. LEXIS 14615 at *20 (D.N.J. July 15, 2010) (same).

The Best Defense May Be An Insurer Funded Offense

Fifth, plaintiffs who may also be counter defendants in that role to a distinct opportunity secure insurance coverage benefits. In many cases where a counter-defendant is entitled to a defense, the subsequent prosecution of its claims as a plaintiff, may be deemed recoverable fees because they are “conducted against liability under the law of the majority jurisdictions.” See “Claims That Are ‘Conducted Against Liability’ Render Prosecution of Claims Defensive.” Ch.6 §7 Insurance Coverage of Intellectual Property Assets, (2nd Edition) by David A. Gauntlett, Wolters Kluwer Law & Business, 2014. (2020-2 Supplement)

CONCLUSION

Securing the aid of savvy insurance coverage counsel is essential to secure policy benefits in light of the increasingly restrictive provisions that CGL policies offer policyholders sued for business tort claims. G&A assist Intellectual Property litigators and policyholders nationwide in helping structure robust insurance programs that address not only preferred forms of CGL coverage but add Media/Cyber/D&O Intellectual Property policies where appropriate to provide more comprehensive intellectual property insurance coverage. The representation includes claimants as well and clarification activities that bring into alignment insurance coverage opportunities and the pursuit of litigation goals through a coverage savvy litigation strategy.

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