Free Seminar – “Use of IP Litigation Insurance Policies” – 2/2/12

Mr. Gauntlett will be hosting a FREE seminar on “Use of IP Litigation Insurance Policies” at his offices in Irvine, CA on February 2, 2012.

Date:               Thursday, February 2, 2012 (RSVP Required)
Time:               5:15 p.m. – 6:45 p.m.
Admission:      Free (Maximum of 2 guests per company/corporation, limited to 25 guests)
 

* * * Limited Space – Please RSVP as soon as possible! * * *
Applied for CLE Credit

Location                                                        Schedule
Gauntlett & Associates                                    5:15-5:30 p.m.  –    Registration
18400 Von Karman, Suite 300                          5:30-5:45 p.m.  –    Welcome/Introduction
Irvine, CA  92612                                           5:45-6:45 p.m.  –    Presentation and Q&A
(949) 553-1010                                              6:45-7:00 p.m.  –    Reception – Hors d’oeuvres, wine, beverages

Presenters:
David Gauntlett, Principal, Gauntlett & Associates
John Scherling, Partner, Sughrue Mion, PLLC
Chandran Iyer, Partner, Sughrue Mion, PLLC
William Lewis, Executive Vice President, Bolton & Company

Please RSVP by Tuesday, January 24, 2012:
By Phone:  949-553-1010 (ask for Richard Beserra, Lisa Dalka or Jennifer Corlett)
By Email:  Richard Beserra, Marketing Coordinator: (rab@gauntlettlaw.com)

PROGRAM OVERVIEW

 I.       Patent Infringement Coverage

A typical patent infringement suit can cost at least $3.0 million through trial, exclusive of damages, costs and expenses. Being sued for infringement of patent, copyright trademark rights may be a catastrophic event for many companies, as funding the defense can easily drain available cash, exhaust lines of credit and even force a halt of business operations.  Defending an infringement suit from a position of financial weakness must be avoided at all costs.  IP insurance may provide the solution by giving your company the funds to make the legal system work for your company, whether defending a charge of infringement or bringing suit to protect its own intellectual property.

II.     Insurance Coverage For Patent Infringement Claims Under Commercial General Liability

Opportunities where the lawsuit is ongoing and the litigations are competitors in the marketplace, or where the patent covers a business, includes an “advertising technique or methodology.” This section will point out new opportunities for insurance coverage in patent infringement suits analyzing DISH Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010 (10th Cir. (Colo.) 2011) and Burgett, Inc. v. American Zurich Ins. Co., No. 2:11-cv-01554-MCE-JFM, 2011 WL 5884251 (E.D. Cal. Nov. 23, 2011). In addition, an analysis of the Burgett case may serve as a template to establish coverage in a number of pending patent infringement lawsuits where marketplace behaviour, equivalent to that in Burgett, may give rise to a defense fully outside any intellectual property exclusion.

III.    Buried Treasure

Securing reimbursement for monies expended in past intellectual property lawsuits.  Companies looking for extra money in these tough economic times may have an answer from the past.  The vast majority of insurer denial letters for intellectual property lawsuits lack merit.  Therefore, companies who have litigated intellectual property cases and expended significant monies in defense and settlement may be overlooking ready sources of cash through pursuit of coverage claims.

Following the program, a reception will be held for guests and presenters.

ABOUT THE PRESENTERS

David Gauntlett, Principal, Gauntlett & Associates.  David A. Gauntlett is the principal of Gauntlett & Associates. He is a 1979 graduate of Boalt Hall School of Law, University of California at Berkeley, where he served as a member of the California Law Review. He received his B.A. from the University of California at Irvine, Magna Cum Laude, in 1976. Mr. Gauntlett is lead counsel in intellectual property antitrust coverage disputes pending in over 30 states throughout the United States and is also responsible for many precedent-making insurance coverage cases involving patent, trademark, and copyright infringement, as well as trade secret misappropriation and unfair competition claims.  Mr. Gauntlett is a nationally recognized speaker and has spoken for C.L.E. credit to organizations which include the American Bar Association, Section of Business Law, Section of Intellectual Property; Section of Litigation, and Section of Tort and Insurance Practice; American Conference Institute; American Electronics Association of California and Arizona; California Bar Association, Intellectual Property Division; Eastern New York Patent Law Association; New York Patent Trademark and Copyright Association; Oregon Patent Law Association; Practicing Law Institute; University of Houston; University of Texas; Washington Patent Law Association; Washington D.C. Patent Law Association; and Wisconsin Intellectual Property Association.  Mr. Gauntlett has also served as an adjunct professor at the University of California, Berkeley, School of Law, Boalt Hall, where he taught a class entitled Insurance Coverage for Intellectual Property, Antitrust and E Commerce.  Mr. Gauntlett is also the author of numerous articles such as Plaintiff’s Rights to Use Coverage to Enhance Recovery in Intellectual Property and Antitrust Lawsuits, Journal of Insurance Coverage (Aspen Law & Business, Winter 2002), “Offer for Sale” Patent Infringement Lawsuits: New Opportunities For Insurance Coverage, New Controversies, Vol. 54, No. 4, SMU Law Review (2002), Tort Claims and Insurance in Cyberspace: Is Your Company Covered?, ACCA Docket, The Journal of the American Corporate Counsel Association, Vol. 19, No. 5 (May 2001), as well as Matthew Bender’s Intellectual Property Counseling and Litigation, Chapter 29, Vol. 2 ©1994; Business Insurance Law, Chapter 18, Insurance Coverage For Intellectual Property Lawsuits, ©1994; and his book published by Aspen Law & Business, entitled Insurance Coverage of Intellectual Property Assets, ©1999. 

John Scherling, Partner, Sughrue Mion, PLLC.  John Scherling is a Partner in the San Diego office of Sughrue Mion, PLLC, focusing on litigation and resolution of intellectual property disputes.  He previously served as an Assistant United States Attorney in the Criminal and Civil Divisions of the United States Attorney’s Office in the Southern District of California, where he handled all aspects of litigation including jury trials, bench trials and appeals in the United States Court of Appeals for the Ninth Circuit.  Mr. Scherling received numerous awards from the United States Department of Justice and the Department of State for his successful litigation on behalf of the United States.  Mr. Scherling has a technical emphasis in chemistry, as well as biochemistry and microbiology, acquired during his undergraduate studies at Iowa State University (B.S. with Honors and Distinction).  Mr. Scherling received his J.D. from Vanderbilt University, where he was Order of the Coif and Associate Articles Editor of the Vanderbilt Law Review.  Following receipt of his J.D., Mr. Scherling served as a law clerk to the Honorable Judith N. Keep in the United States District Court for the Southern District of California.  

Chandran Iyer, Partner, Sughrue Mion, PLLC.  Chandran Iyer is a Partner in the Washington, DC office of Sughrue Mion, PLLC.  Chandran practices in the area of patent law with a focus on patent litigation. A registered patent attorney, Chandran has extensive experience litigating before various federal and state courts.  His experience includes patent infringement cases relating to pharmaceutical products, Internet technologies, computer software, and medical devices.  He is the chair of the American Bar Association’s nanotechnology committee, and a member of the Chinese State Intellectual Property Office (SIPO) / U.S. Bar Liaison Council.  Chandran also serves as a member of the National Conference of Lawyers & Scientists, a select committee that addresses legal, policy and ethical issues of concern to lawyers and scientists. 

William Lewis (“Bill”), Executive Vice President, Bolton & Company.  Bill is a Vice President of Bolton & Company, Bill is a graduate of California State University at Los Angeles and San Diego State University. Bill has been in the insurance industry since 1981 and has been with Bolton & Company since 1989. He has earned the Chartered Property and Casualty Underwriter and Certified Insurance Counselor designations. Bill is responsible for developing new clients for the company and providing Risk Management and insurance programs for his existing clients. His clients come from various industries, such as construction,, high-tech, biotech and other fields. Bill helps these clients with all coverage’s including difficult risks requiring Professional Liability coverage or those that fit in an alternative risk transfer mechanism such as captives, deductible plans and self insured solutions. Bill has contributed to the growth of Bolton & Company through his insurance expertise, specifically geared toward technology-based risks, such as software development and multimedia companies, biotechnology risks, Directors and Officers Liability, and Intellectual Property protection, including copyright and trademark exposures and patent infringement coverage. Bill has utilized this experience to assist in the development of local incubator and start up companies. In 2009 Bolton & Company has formally created a Technology Practice to take advantage of the expertise of the firm in the high tech and life science arenas. The group will work with such clients to develop and refine risk management programs and place coverage ranging from products and clinical trials liability to directors and officer’s  coverage. Spurring the creation of this Technology Practice was the appointment of Bolton as the Southern California broker representative of Tech Assure, a national partnership of similar firms specializing in this industry. Bill leads this practice and takes advantage of Bolton’s memberships in groups such as the Southern California Biomedical Council and BIO. 

GAUNTLETT & ASSOCIATES

Gauntlett & Associates specializes in policyholder insurance coverage and litigation regarding copyright, antitrust, patent, trademark, trade secret, business and general coverage disputes, including:

1.         Insurance Coverage Litigation Focusing on IP, Antitrust and Business Tort Claims
2.         Securities Fraud Litigation Insurance Coverage
3.         IP Litigation, Representation in Arbitrations and Mediations
4.         Mergers and Acquisitions Insurance Coverage Counsel and Advice
5.         Expert Witness on Insurance Coverage Issues, Including Fee Disputes
6.         Counsel to IP Case-in-Chief Counsel for Insurance Coverage, Including:  Choice of Forum and Negotiation
7.         Consultant to Corporations Regarding What Type of Policies to Purchase to Protect Against IP Litigation

If you have a topic you would like to see addressed in future issues, please feel free to contact us with your suggestions.

David A. Gauntlett, Editor  •  Telephone: (949) 553-1010  •  Email: marketing@GauntlettLaw.com

Implicit Defamation/Disparagement Evidenced by Allegations of Substitution of Sub-Standard Goods

 

Miranda v. California Capital Ins. Co., No. A126778, 2011 WL 1168064, *6 (Cal. App. (1st Dist.) March 29, 2011)

 

Cow breeders transferred inferior cows to the claimant misrepresenting to him and the insured that the cows were from the insured’s herd, so as to disrupt their relationship.  These statements allegedly misrepresented “that the cows were the property of” [the insured] and from [the insured’s] herd. . . .”  The claims were not only for palming off inferior cows but for creating the false impression that the insured’s cows of better quality than they were thereby impairing future sales when the truth of their inferior character came to light.  “One accused of libel is responsible “for what is insinuated, as well as for what is stated explicitly.” (Bates v. Campbell (1931) 213 Cal. 438, 442.)”  Id. at *6.  Such statements were both defamatory of the insured and disparaging of its goods, i.e., the cows sold to the claimant by the insured.

 

California Capital limited its coverage inquiry to allegations of an untrue statement that would lead others not to deal with the insured and cause special damages.  But the Court of Appeals found potentially covered claims could exist regardless of the technical legal cause of action pled.

Buried Treasure – Part Three

DO “BURIED TREASURES” EXIST? 

Part Three of a Three Part Series

Ascertaining Whether Buried Treasure Exists Requires a Five-Part Analysis

These issues include:

1.       Did the company give notice to the insurers on risk as of the date of the first alleged “wrongful act” as well as all subsequent carriers and those at higher levels who may have a duty to pay any settlement reached.

2.       If not, was the insurer on constructive notice of the lawsuit and/or settlement.

3.       Has the statute of limitations run on their complaint.

4.       Are facts beyond the complaint available to clarify potential coverage where the law applicable permits reference to such evidence.

5.       Were the insurer or insurers notified of any settlement prior to its consummation where the insurer agreed to defend under a reservation of rights.

Notice

Notice is the key element in finding “buried treasure.”  Without notice, there is no right to insurance coverage as it is a prerequisite to accessing policy benefits in every case.  Notice should be promptly provided.  The rule is “tender early, tender often.”  Fears that notice may raise insurance premiums are ill-founded, inconsistent with the advice given by thoughtful brokers who know the insurance marketplace.

In the majority of jurisdictions, the “prejudice rule” applies.  This means that unless an insurer can show the alleged late notice caused it prejudice, it must provide full policy benefits to its insured.  Indeed, the Texas Supreme court made clear several years ago in a seminal decision that late notice applied to advertising injury/personal injury coverage claims, clarifying Texas law on this point.  Nevertheless, late notice can still be a problem in some forums.

In Illinois, late notice is a condition precedent to coverage.  Until the recent statutory change, New York made notice a condition precedent to procure coverage.  In changing that rule, the New York legislature observed several years ago in changing the Draconian New York “late notice” rule is “a trap for the unwary.”  In Florida, a prejudice standard applies, but the insured has the burden of proof. 

Constructive Notice

If notice was provided, “buried treasure” pursuit may be available whether or not a denial letter was received so long as an insurer cannot claim it never learned of the suit.  Constructive notice may be established by facts coming to the insurer’s attention from other policy renewals, communications by insurers through brokers to the insured, as well as public information provided to the insurer in connection with other policy applications.

Constructive notice can arise where there is evidence in public filings, such as 10Q and 10K statements discussing litigation which are then provided to insurers in connection with the renewal of policies.  Policy renewal for D&O or E&O policies frequently require an answer to the following:  “Are you involved presently or expected to be involved in the future with any form of litigation?”  Answers to this question brought to a CGL/umbrella insurer’s attention may put it on constructive notice of the litigation.  No formal tender need be made in such a circumstance.

The “No Harm, No Foul” Exception To Late Notice Challenges

A “voluntary payments” prohibition may not apply where an insurer would have denied a defense no matter when notice was provided on other grounds.  Where an insurer denies a defense based on grounds other than notice, a frequent issue in intellectual property insurance coverage dispute, a number of jurisdictions have embraced the “no harm, no foul” rule.  That principle addresses the problem that an insurer would have failed to defend even if receiving timely notice because the grounds for denial were far greater than merely lack of notice.  These can include the failure of potential coverage because of the lack of fact allegations triggering it, applicable exclusions the insurer contends applies, the failure to meet other conditions and the like.

Statute of Limitations May Not Delimit The Scope of Recoverable Claims

The statute of limitation varies in many of the states.  A state like Indiana is 20 years.  Kentucky and Ohio is 15 years.  Wyoming, Iowa, Illinois and Louisiana, 10 years.  Montana is 8 years.  But most of the states have either a 5 year statute of limitation or a 4-year statute of limitation.  And some have as short as three years.  Where your company is headquartered in states with a shorter statute of limitation (four years is typical) the statute may be tolled while the lawsuit is ongoing in the majority of forums until the litigation is resolved through appeal.  Thus, there may be more time to pursue coverage claims than is readily appreciated in many cases.

Pertinent Policy Periods to Evaluate For Potential Coverage

Insurer obligations to defend include claims based on false, frivolous or fraudulent allegations.  The merits of the underlying action are of no moment to insurance coverage analysis.  In those jurisdictions that look only to the allegations of the complaint (some 20 in the United States), which include Texas and Illinois, as well as Florida, the four corners rule is followed.  Under this “complaint allegations” rule it is not important whether the wrongful conduct alleged actually occurred.  The allegations control in compelling a defense duty.

Typically, CGL/umbrella coverage is “occurrence,” not “claims made” based.  The question is when the wrongful act occurred.  It is not uncommon to look to a date as far back in time as 20 to 25 years ago when the alleged wrongful conduct allegedly occurred.   In circumstances where fraudulent concealment is alleged the statute of limitations may be circumvented.  Thus, the copyright statute of limitations is three years but its inception date is often difficult to fix.

Answering Questions Raised By the Policy That the Complaint Does Not Answer

In one case (an antitrust suit) an outside law firm, after providing notice and receiving a denial, did not advise an insurer when the complaint was amended to add a labeled claim for defamation the carrier would have been compelled to defend.  As no notice was ever provided of the defamation claim, no policy benefits were ever obtained.

A jurisdiction that will permit facts beyond pleadings to be brought to an insured’s attention applies two different rules.  One, facts must be “known to the insurer” or two, “available to the insurer.”  In other jurisdictions, only facts known to the insurer may be evaluated.  The better practice is to insure that the facts known standard is met in every jurisdiction.

To do so, active interaction between coverage counsel and defense counsel is key.  Without an opportunity to not only inform the insurer of what facts have developed, but to ask questions germane to insurance coverage, in the underlying case, opportunities for coverage may be lost unnecessarily.  It is critical that settlement communications be orchestrated with the assistance of coverage counsel to best secure reimbursement for such payments. 

Conclusion

Statutes of limitation rarely bar pursuit of coverage action since they are tolled during litigation.  Indeed, choice of forum in coverage suits is a valuable tool that policyholders can use to obtain favorable coverage results.  Obtaining the most favorable prejudgment interest on monies paid in defense fees and/or settlement can also significantly enhance the recovery available to insureds.

Read prior “Buried Treasure” articles here:  Part One;  Part Two.

Insurer’s Right to Arbitration Denied Where Insured Failed to Make Timely Payments of Defense Fees

Housing Group v. PMA Capital Ins. Co., 123 Cal. Rptr. 3d 603, 609 (2011)

The court equated a failure to defend with a denial of a defense because it evidenced non-performance precluding it from securing a right to arbitrate a dispute over the reasonableness of rates under Cal. Civ. Code §2860(c), citing Atmel Corp. v. St. Paul Fire & Marine Ins. Co., 426 F. Supp. 2d 1039, 1047 (N.D. Cal. 2000).

[A]n acceptance of Caliber One’s position-that “insurers always can take advantage of [section] 2860 despite immediately failing to meet their burden to defend,”-would encourage insurers to reject their Cumis obligations for as long as they chose because they knew they could invoke the limitations and remedies of section 2860 at any time.

  

Buried Treasure – Part Two

WHY LOOK FOR “BURIED TREASURE”?

Part Two of a Three Part Series

Intellectual Property Lawsuits Are Expensive

It is not uncommon, pursuant to AIPLA surveys for companies to expend $500,000 to $1,000,000 for defense of trademark and copyright infringement lawsuits.  More than five times that sum may be expended for patent infringement lawsuits.  Where insurer denial letters assert erroneous grounds for denial, a distinct opportunity for pursuit of coverage arises.

Pre-Judgment Interest May Be Recoverable

Prejudgment interest typically runs from the date of invoice of attorneys’ fees to an insured or date of settlement (although from jurisdictions make the sum recoverable dependent on the date of payment of a settlement).  The majority of forums permit recovery of prejudgment interest in a range from 8 to 12%.  Oklahoma permits 15%.  Under certain circumstances, Texas permits 18%.

Where an insurer’s failure to pay a defense or settlement benefit is at issue then recovery of prejudgment interest can greatly enhance the value of the recovered fees.  Indeed, one of the most salient investments businesses can make is to pay attorneys’ fees.  The return on those fees exceeds market interest rates in a number of jurisdictions.

Conclusion

For companies seeking funding for ongoing litigation, a ready source of capital may be pursuit of coverage claims following past denials of insurers in previously pending suits.  Critically, insurance coverage litigation requires a matter of months, not years, since discovery is rarely necessary.  See ©David A. Gauntlett, Insurance 101 — Insight for Young Lawyers — No Discovery Is Appropriate in Addressing Coverage for Intellectual Property Disputes, Coverage, July/Aug. 2009.

Watch for the next installment, “Do Buried Treasures Exist?”

Read the first installment of Buried Treasure – Part One

“Buried Treasure” – Part One

“BURIED TREASURE” – SECURING REIMBURSEMENT FOR MONIES EXPENDED IN PAST INTELLECTUAL PROPERTY LAWSUITS

 Part One of a Three-Part Series

Introduction

Companies looking for extra money in these tough economic times may have an answer from the past.  The vast majority of insurer denial letters for intellectual property lawsuits lack merit.  Therefore, companies who have litigated intellectual property cases and expended significant monies in defense and settlement may be overlooking ready sources of cash through pursuit of coverage claims.  

Five Reasons Why Insurer Denials of Intellectual Property Claims May Not Be Well Taken

First, insurers rarely consider all the potential bases for coverage factually implicated by the underlying lawsuits they address.  The distinctions necessary to identify pertinent policy provisions may not be possessed by the personnel charged with conducting that analysis.

Second, insurer’s distinctly narrow fact constructions of allegations leads to consistent under-assessment of potential coverage for fact-based claims under “offense” based coverage for “categories of wrongdoing” which often proceed under a bewildering variety of labeled causes of action.

Third, the insurer’s ability to appreciate a potential for coverage requires an ongoing and “neutral assessment” of developments in coverage case law.  Mechanisms to communicate this developing law to the claims handling personnel charged with evaluating coverage for such claims are often ineffective and inconsistent with the insurer’s institutional perspective on how coverage should be evaluated.

Fourth, further, when case law, favorable to policyholders arises, it is not disseminated with appropriate instruction to caution claims to personnel to its significance.

Fifth, claims personnel may be the victim of a collective “willful blindness” to case developments that are antithetical to coverage perspectives developed while protecting insurer interests. 

Conclusion

For companies seeking funding for ongoing litigation, a ready source of capital may be pursuit of coverage claims following past denials of insurers in previously pending suits.  Critically, insurance coverage litigation requires a matter of months, not years, since discovery is rarely necessary.  See ©David A. Gauntlett, Insurance 101 — Insight for Young Lawyers — No Discovery Is Appropriate in Addressing Coverage for Intellectual Property Disputes, Coverage, July/Aug. 2009.

Watch for the next installment, “Why Look for Buried Treasure – Part Two”

Media Liability Did Not Cover Claims For Infringement of Title or Slogan in Unfair Competition Lawsuit Under Media Liability Policy

Interstate Bakeries Corp. v. OneBeacon Ins. Co., ___ F. Supp. 2d ___, 2011 WL 767055 (W.D. Mo. Feb. 25, 2011)

The OneBeacon policy provides “advertising and personal injury liability” coverage for “claims arising from an occurrence committed by the insured during the policy term in or for scheduled advertising and arising from: . . . 5.  infringement of title or slogan; . . . .”

“Occurrence” means:
     1.  The acquisition, creation or compilation of matter for advertising; and
     2.  The exhibition, dissemination or display of advertising through any medium.

The district court conceded that Flowers allegations that IBC was “using, or preparing to use, or has stated an intention to use or otherwise promoted” the “Nature’s Pride” and “Nature’s Choice” marks, coupled with other Flowers  allegations of IBC’s actual use of the mark, were sufficient to trigger the “occurrence” for “scheduled advertising.”  Id. at *8.

The district court erroneously found, however, that no “infringement of title or slogan” was implicated under applicable Missouri law. IBC’s use of “Nature’s Pride” in promoting its bread products allegedly caused the public to be deceived because it did not explain its non-affiliation with competitor “Nature’s Own.”  Both a “slogan” and “title” were implicated despite the district court’s failure to make such a finding.

“Title” defined as “the caption or name of matter” included making product packaging that displays bread products with a “distinctive appellation” – “Nature’s Pride.”  “Slogan” understood to include “a brief attention-getting phrase used in advertising or promotion” encompasses “Nature’s Pride” because it brought attention to the bread’s benefits which included “100% natural,” “whole grain goodness.”

The district court relied on Hugo Boss Fashions, Inc. v. Federal Ins. Co., 252 F.3d 608, 619 (2nd Cir. (N.Y.) 2001) which narrowly construed the distinct “trademarked slogan” offense to exclude a phrase used to promote a house mark or product mark itself.  In so ruling, it ignored CGS Indus., Inc. v. Charter Oak Fire Ins. Co., 751 F. Supp. 2d 444, 450 (E.D.N.Y. 2010) which found that as here, the alleged misconduct “ ‘misrepresent[ed] the nature, characteristics, and qualities’ of the offending goods, not just their product names.”  Id. at 451.

By doing double-duty, i.e., “Nature’s Pride,” implicated a “title” and a “slogan” which terms are not limited to any recognized tort.