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Ninth Circuit Finds Duty to Defend Patent Infringement Claims


04/06/10

We are pleased to report a major victory achieved in the Ninth Circuit by one of Nossaman's newest Partners, Terry Leuin, on behalf of Hyundai Motor America.  In this published opinion, Hyundai Motor America v. National Union Fire Ins. Co. et al., the Ninth Circuit Court of Appeal held, for the first time under California law, that patent infringement can be covered as a "misappropriation of advertising ideas" under the advertising injury portion of a general liability policy, where the patent is on a method of web-based advertising.

In this case, Hyundai maintained a website that it used to advertise its cars and parts catalog.  Potential customers could log on to the website and use a "build your own vehicle" ("BYO") feature that displayed product and pricing information on an interactive basis.  The potential customer could navigate through the site, input desired options and requirements, and generate a product proposal.  This web-based technology is widely used as an advertising method to draw interested customers to the possibility of purchasing their "custom made" vehicles.

In the underlying lawsuit, Hyundai (along with other major automobile manufacturers) was alleged to have infringed on a third party's "method patents" for a computer-based system to dynamically create a customized proposal for the potential customer.  Hyundai tendered the defense to its general liability carriers (National Union and American Home), on the grounds that the alleged patent infringement constituted an "advertising injury" under the policy.  The insurers declined to defend and, on our advice, Hyundai brought suit.

The District Court granted summary judgment in favor of the insurers.  On appeal, the Ninth Circuit reversed and remanded, with instructions to enter summary judgment in favor of Hyundai, finding: "We hold that, in the context of the facts of this case, the third-party infringement claims constituted allegations of "misappropriation of advertising ideas" for purposes of the insurance policy."

This is the first time that a court, interpreting California law, has specifically held that patent infringement can constitute an advertising injury that may be covered under a liability policy, where the patent is on an advertising process as opposed to a patent on the product being advertised.  This is also a tremendous victory for our client, Hyundai, which is facing a $34 million judgment which is now on appeal.

Any business using a similar method of advertising its products should be carrying broad general liability coverage in the event they are subject to similar infringement claims.  We at Nossaman are happy to review our clients' insurance policies to maximize potential coverage, and to recover insurance benefits in the event of litigation.

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