Tenth Circuit Finds Patent Infringement Insurance Coverage Under “Advertising Injury” Clause

The Tenth Circuit handed down a message in a recent case brought by DISH Network against its Commercial General Liability (CGL) carriers, where DISH Network Corporation had been sued on patents claiming call center technology. Although unlikely, some CGL policies may still be interpreted to have some coverage for patent infringement claims if the patent is claimed to be on a way of advertising a product. In DISH Network Corp. v. Arch Specialty Ins. Co., __F.3d__ No. 10-1445 (10th Cir. Oct. 17, 2011), DISH argued that the CGL coverage for “advertising injury” was potentially triggered by the asserted patents’ claims which purportedly included advertising or product promotion.

Prior to reaching the Tenth Circuit the district court held that the underlying complaint did not allege an “advertising injury” under the policies issued to Dish by the five defendant insurers. As a result, the district court granted the insurers’ motion for summary judgment, and Dish appealed. The Tenth Circuit reversed and remanded.  By so doing those who only casually review the decision or news stories related to it might take away the wrong message.

Although “numerous cases do, indeed, categorically rule out ‘advertising injury’ coverage for patent infringement,” DISH, slip op. at 12, “where an advertising technique itself is patented, its infringement may constitute advertising injury.”, Id. at 14. The court noted that allegations of patent infringement by a product are consistently held to not be within advertising injury coverage, regardless of how that product might be advertised. Only when both the accused activity and the patent’s claims are within the scope of advertising does the potential for coverage attach. The insurers continued to assert various intellectual property (IP) exclusions and causation arguments, and the case will return to its trial court for further litigation.

It should also be noted that the ultimate question here on the question of insurance coverage is one of Colorado State law, and under Colorado law the operative question at this stage is not whether the complaint unequivocally spells out the specific advertising activities Dish engaged in, but rather whether the alleged facts even potentially fall within the scope of coverage.  Additionally, it is also worth noting that the Tenth Circuit did point out that the complaint alleges misappropriation of a product specifically designed, in part, for advertising purposes.

Ultimately, the Tenth Circuit concluded:

While we agree with the district court’s conclusion that patent infringement may, under certain circumstances, constitute “misappropriation of advertising ideas,” we disagree with its ruling that the patented means of conveying advertising content at issue here could not be “advertising ideas” within the meaning of Dish’s commercial general liability policies.

Therefore, no one should read this decision as stating a general rule that patent infringement is covered under “advertising injury” provisions in a typical insurance contract.  Rather, the decision should be read as saying that it is possible, based on these peculiar facts, that coverage could exists for this particular patent infringement claim under the advertising injury provisions.  Essentially, reaching this determination on summary judgment without full consideration was deemed inappropriate.

Obtaining CGL coverage for patent litigation continues to be a difficult and unpredictable endeavor. When cases like DISH continue to be litigated in the courts, you can be sure that carriers will attempt to further limit any plausible type of IP exposure under their commercial insurance policies. It is essential that companies not rely on the unpredictability of the courts to determine if they have coverage under their CGL policies.

Companies are well advised to proactively obtain insurance coverage specifically tailored to address their most valuable asset, intellectual property rights. Instead of taking the chance on CGL coverage, a company can obtain a dedicated policy where patent infringement allegations can be explicitly insured without the need to litigate coverage through trial and appeals courts. These dedicated IP policies can even cover the cost of pursuing a CGL carrier in those exceptional cases where it should provide coverage.

Despite the availability of IP insurance policies, most companies are unaware of their existence, or worse just assume that the business insurance that they do have will cover them if they get sued.  It behoves all companies to investigate whether they have adequate coverage for against allegations of patent infringement.  Likewise, it would be wise for attorneys to proactively raise the issue of whether it is a good idea to obtain patent infringement insurance with clients before it becomes necessary to have such coverage.