Most lawyers brag about the cases they’ve won.  I prefer to pick apart the ones I’ve lost.  It’s cathartic.

The subject of general liability insurance coverage for supposed intellectual property offenses is hotly contested.  Depending on the “personal injury” and “advertising injury” coverage forms used in a particular policy, for example, insurance may exist for claims of patent or trademark infringement.   Generally and not surprisingly, insurance companies disagree.

So, here are the facts from a recent case we handled.  Companies A and B manufactured food preservatives overseas.  Our client –  Company C – approached the two manufacturers and offered to become the U.S. distributor for the products.  The parties signed a letter of intent, which included a confidentiality agreement as to the trade secrets of Companies A and B.

A and B alleged that C later “improperly associated itself with [the products] and promoted itself as the distributor of [the products] in the U.S., manufactured using [A and B’s] patented process and promoted itself as knowledgeable in the use of [A and B’s] trade secrets.”  A and B also alleged that C “began selling its own version of [the product] to the same customers.”

Companies A and B sued for (1) patent infringement, (2) unfair competition, and (3) theft of trade secrets. 

We then went after C’s liability insurance carrier for coverage under the “personal and advertising injury” form in the general liability policy.  In relevant part, the policy defined “advertising and personal injury” as injury arising out of “[c]opying, in your ‘advertisement,’ a person’s or organization’s ‘advertising idea’ or style of ‘advertisement.’”  The policy defined “advertising idea” as “any idea for an ‘advertisement.’”  Finally, the policy defined “advertising” as “the widespread public dissemination of information or images that has the purpose of inducing the sale of goods, products or services through…(1) Radio; (2) Television; (3) Billboard; (4) Magazine; (5) Newspaper; or…[a]ny other publication that is given widespread public distribution.”

Seizing on the last phrase (“any other publication that is given widespread distribution”), we moved for summary judgment on the duty to defend.  As you know if you’re an insurance aficionado, the carrier’s duty to defend is supposed to be triggered if there’s any possibility that coverage may ultimately exist.  We figured that the allegations in the underlying complaint (for example, that C “improperly associated itself with [the products] and promoted itself as the distributor of [the products] in the U.S.”) should suffice.

The judge didn’t buy what we were selling, though, holding in part: “The policy requires ‘widespread’ public dissemination…in order to constitute an advertisement…[T]he underlying complaint provides no support for the notion that the dissemination of information at issue was widespread.”

This (in my humble opinion) is a dopey ruling.  Under the law relating to the duty to defend, the proper question is whether there existed any possibility of widespread dissemination of information.  If so, the duty to defend should have been triggered.  I personally would like to have taken this one up to the Third Circuit for review, but we’d negotiated a high/low agreement with the carrier, so we settled following the court’s decision.  (A decent result for the client, since a less-than-perfect settlement is almost always better than a protracted litigation.  But I feel like I got cut off from dinner after the shrimp cocktail.)