Hyundai Motor Am. v. National Union Fire Ins. Co. of Pittsburgh, PA, 600 F.3d 1092 (9th Cir. (Cal.) 2010)

In 2005, Hyundai Motor America (“Hyundai”) was sued for patent infringement by Orion IP, LLC (“Orion”) based on allegations that Hyundai’s website used Orion’s patented methods of generating customized product proposals.

Specifically, Orion alleged that Hyundai’s website used a “build your own vehicle” (“BYO”) feature and a parts catalogue feature. Hyundai sought a defense from its insurers, asserting that Orion’s claims constituted allegations of “misappropriation of advertising ideas,” which was covered under the standard “advertising injury” provisions of their policies. The insurers refused to defend Hyundai.

After the jury in the patent infringement trial found against Hyundai, Hyundai brought suit against its insurers in the Central District of California seeking a declaration that the insurers had a duty to defend.

The district court granted summary judgment to the insurers. The Ninth Circuit reversed. It found the three-element test for proof of “advertising injury” coverage satisfied.

First, “advertising” was implicated rather than individualized solicitation because Hyundai’s BYO feature was widely distributed to the public at large as part of Hyundai’s dissemination of a product through its marketing methods and marketing systems.

The Court found that the insurers should have viewed the BYO feature on the insured’s website in making their determination whether to defend the underlying suit.

Second, the Court held the “misappropriation of advertising ideas” offense was satisfied where the patent was for a process or invention which reasonably could be considered an “advertising idea.”

The Court found that Orion did allege a violation of a method patent involving advertising ideas. There need not be a suit by a competitor since the misappropriation of advertising ideas could injure an NPE (non-practicing entity) as the policy did not limit the identity of the claimant by its specific language.

Third, the Court found that a causal connection arose because of the linkage between the “advertisement” and the “advertising injury” offense of “misappropriation of advertising ideas” where an advertising idea was itself patented.

In noting that there may be situations where an advertisement induces another to infringe a patent, the Court left open the question of whether a causal connection could be established in such a situation.

Thus, for patent infringement suits alleging that websites or other types of marketing methods/systems infringe a patent, defendants may be entitled to a duty to defend from their insurers under the standard “advertising injury” provisions of their policies. So long as the alleged wrongful acts constituting patent infringement potentially occur during a policy period where no patent infringement exclusion is in force, this analysis clarifies a pathway to coverage in a number of patent infringement lawsuits.