CARMAKER’S WEBSITE FEATURES QUALIFY AS ADVERTISING INJURY

Commercial General Liability	Advertising Injury
Patent Infringement	Defense

A patent holding company, Orion IP, LLC (Orion), sued Hyundai Motor (Hyundai). Orion alleged that Hyundai’s website included two different features that infringed upon two of its patents. One feature allowed customers to virtually build a customized vehicle and the other feature permitted customers to use an online catalog to select parts and prices that resulted in a selection of an accompanying price for the customized auto. Orion claimed that these features are found in two patents it held for creating product proposals by auto dealership customers and as a point of purchase aid for parts salespersons. Specifically, Orion alleged that the query, image and template methodologies were misappropriated and used by Hyundai and, as such, infringed on their patents.

Hyundai asked its liability insurer, National Union Fire Insurance (National), to defend it against Orion’s suit. National denied the request and Hyundai handled its own defense. A court ruled against Hyundai and awarded a $34 million dollar verdict.

Hyundai then filed a declaratory action asking that Orion be found responsible for the defense costs of the suit. It argued for coverage as advertising injury. A court disagreed and ruled in favor of National. Hyundai appealed.

The higher court addressed only the defense costs. Hyundai’s argument was that the allegations were based on a claim of misappropriation of advertising ideas which was a covered form of advertising injury. The court focused on the well-established concept that a duty to legally defend an insured is owed when a basis of coverage either does or may exist under a given insurance contract. The court studied whether Hyundai’s situation met three requirements:

1. Hyundai was involved in an activity that qualified as advertising and the offense took place during the policy period.
2. Orion’s allegations were related to liability for an advertising injury
3. Hyundai’s advertising activity aroused an injury allegation

The higher decided that Hyundai’s use of the documented website features did represent a form of advertising, that Orion’s allegations involved the theft of advertising ideas and that Hyundai’s patent infringement was directly related to an advertising injury. The court rejected National’s argument that Hyundai’s activity was a high-tech form of individual solicitation as opposed to the more broad-based advertising.

The lower court ruling against Hyundai was reversed and remanded with instructions to proceed with actions in accordance with the higher court’s finding.

Hyundai Motor America, plaintiff-Appellant, v. National Union fire Insurance Co. of Pittsburgh, PA: American Home Asurrance Co., Defendants-Appellees. USCTAPP 9th Cir. No. 08-56527 Filed April 5, 2010 http://caselaw.lp.findlaw.com/data2/circs/9th/0856527p.pdf?DCMP=ESP-pro_insurance[downloaded 5/3/2010]