UMG Recordings, Inc. v. American Home Assur. Co., No. 06-56076, 2008 WL 4107315 (9th Cir. (Cal.) Sept. 2, 2008)

Posted on September 29, 2008 by David Gauntlett

The Ninth Circuit affirmed the district court ruling by Judge Pregerson. It concluded that American did not have a duty to defend Island Def Jam Music Group, a division of UMG, from a suit filed against Def Jam by TVT Records, Inc. and TVT Music, Inc. in a contract dispute respecting the right to produce and market recording music performances by a rap group known as Cash Money Click (CMC).

Property damage was unavailable because there was no “occurrence” as the damage was the result of an intended or expected event.

Shell Oil Co. v. Winterthur Swiss Ins. Co., 15 Cal. Rptr. 2d 815, 838 (Ct. App. 1993).

The allegations did not concern UMG’s good as TVT maintained ownership rights to the CMC album. Thus, it was of no moment that the Irv Gotti CD “announces the upcoming release of the CMC Album in November 2002,” making the album itself an “advertisement” so as to fall within the Policy’s coverage for infringement of copyright in your advertisement.

The court also found no personal injury coverage for disparagement:

Here, the statement that Def Jam mischaracterized something to the artists about TVT’s efforts to protect its own rights does not concern TVT’s goods or products. Neither does it state any inadequacy about TVT’s services to the artists. The allegation is so vague it is hard to say exactly what it means, but at most it merely alleges that TVT will not stand on its own rights, which is not disparagement of TVT’s services.

Id. at *2.

The slander argument was waived as it was not raised in the trial court pursuant to Monetary II Ltd. P’ship v. Comm’r, 47 F.3d 342, 347 (9th Cir. 1995). Id. at *3.

Judge Graber concurred and dissented in part, finding Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 123 Cal.Rptr.2d 256, 269-72 (Ct. App. 2002) pertinent under disparagement coverage and requiring a defense thereunder:

False statements that may influence a third party not to use the plaintiff’s services, to the financial detriment of the plaintiff, trigger the duty to defend a claim of disparagement of services.

Id. at *3.

The dissent was willing to look at the contextual scenario where the allegations that TVT will not stand on its own rights could disparage TVT’s services to third parties because TVT depends on the willingness of others to put themselves in its hands to release albums.
Tags: , , , , , ,

Assessing Your Insurance Portfolio As an IP Owner to Maximize Value

Posted on July 28, 2008 by David Gauntlett
New Insurance Policies Covering Cyberspace Torts

Insurers now issue so-called cyberspace policies and also provide for net security coverage that addresses a host of exposures emanating from a company’s greater dependence on information services. Coverage for cyberspace intellectual property defense risks and prosecution opportunities, especially of patent and trade secret claims, is available only through policies specifically covering IP risks. You should carefully evaluate the wide array of available policies to maximize coverage for your company’s needs. The larger your client’s revenues and, hence, its premium payments, the greater your ability to negotiate favorable coverage terms.

Traditional offense-based advertising injury/personal injury CGL policies have a better track record than non-CGL policies in covering internet- and cyberspace-related torts. But the definitions of claims specified by the various ISO forms sometimes are murky and could require a case to proceed to trial to clarify whether coverage will arise. Common exclusions and questions about causal nexus also may apply to bar coverage. Errors and Omissions and Directors and Officers policies typically cover wrongful acts and require particularized conduct, either by a professional or a director/officer, to trigger coverage.

Cyberspace, Net Secure, and Intellectual Property Defense as well as pursuit policies offer a rich variety of solutions for addressing common e-commerce problems. As an adjunct to traditional policies, they give policyholders an improved coverage position that should minimize transaction costs. As the hypotheticals reviewed herein reveal, many common problems confronted by policyholders are best addressed under new forms of coverage where price point is a key consideration.

Nevertheless, a combination of broadly written traditional CGL Coverage with new form Cyberspace and Net coverage may present a winning package. Articulating hypothetical problems which your company could encounter and asking a prospective insurer to address whether its policy would cover given claims in writing is an effective way to “test drive” these new policies and find insurers who are willing to work for your business. However, because some of the narrower forms of cyberspace policies arguably do nothing more than duplicate the coverage that should be available under CGL and E&O/D&O policies, however, you must carefully review the policy language before selecting your company’s coverage.

Savvy corporate counsel will assure that the potential litigation exposure of their company governs the choice of its insurance policies. Many risks may not trigger net secure and cyberspace policies. But the significant exposure posed by cyberspace perils calls for having proactive, offense-based coverage in place before it is needed.

Cyberspace Policies

Unlike ISO policy forms, cyberspace policies offered by the current marketplace have not congealed into any standardized form. Indeed, insurers use product differentiations, protected by copyright, as a significant competitive strategy. It is therefore essential that you discuss with the vendor its specific policy language.

Cyberspace policies typically provide coverage for damages and defense costs arising out of enumerated offenses, such as defamation, invasion of privacy, misappropriation of name or likeness, or alleged violations of intellectual property rights stemming from information disseminated by the insured in covered media or advertising activities. They may also be endorsed to provide E&O coverage for the content of the covered information.

Media/Professional Insurance Agency, Inc., for example, issues a policy for Cyberspace Liability Plus™ Insurance that covers claims arising out of defamation and various intellectual property offenses, as well as “Piracy and plagiarism” (which according to at least one court makes that definition redundant) and the misuse of an intellectual property right, in the context of cyberspace activities. Iolab Corp. v. Seaboard Surety Co., 15 F.3d 1500, 1506 (9th Cir. 1994) (Placed in context, the intended meaning of the language is clear. “In the context of policies written protect against claims of advertising injury, ‘piracy’ means misappropriation or plagiarism found in the elements of the advertisement itself – in its text form, logo, or pictures – rather than in the product being advertised.”).

Although you can expect pertinent exclusions and other endorsements to exclude coverage available in a given factual scenario – typically for patent, trade secret, and antitrust claims – you will find the scope of the insuring grant in these policies a good place to start negotiating desired coverage (see sidebar for a list of cyberspace coverage vendors).

Net Secure Policies

Marsh’s Net Secure policy contains the elements common to most such policies. It addresses both first- and third-party losses and is underwritten by a consortium of insurers. It focuses on the more traditional kind of operational issues that companies encounter and addresses cyberspace property damage coverage.

Coverage A in the Marsh Net Secure policy includes a variety of perils, such as inadvertent mistake, error, or omission in the creation, distribution, installation, maintenance, modification, processing, repair, testing, or use of your computer system, and the introduction or spread of a computer virus, as well as other related forms of interruption to electronic information processing systems. The policy kicks in when there is “direct loss resulting from damage to forms of electronic data, information assets, computer programs or data processing media.”

Coverage B of the Marsh policy extends business income and extra expense coverage to include disruption, interruption, delay, or suspension of your internet and network activities during the period of recovery. The same litany of perils as enumerated in Coverage A triggers rights under this coverage.

Intellectual Property Policies

Policies that expressly provide for defense and/or prosecution of patent, trademark/trade dress, trade secret, and copyright claims obviously represent the most direct form of coverage for intellectual property claims. Intellectual property policies have the advantage of removing any ambiguity regarding the scope and extent of coverage. See DAVID A. GAUNTLETT, INSURANCE COVERAGE FOR INTELLECTUAL PROPERTY ASSETS, § 17.04 n.7 (Aspen Law and Business Division of Aspen Publishers, Inc., Gaithersburg, NY, 1999) (2007 Supplement).

One example of such coverage was historically available from the American International Specialty Lines Insurance Co. Called patent infringement indemnity insurance, it provided coverage of patent infringement claims caused by the “manufacture, use, distribution, advertising or sale” of any “covered product,” as long as the insured’s infringement was not intentional. You could endorse this policy to include other forms of intellectual property, such as trade secret, trademark, trade dress, or copyright.

Although a cyberspace policy may more economically protect your company from the latter three offenses, the patent defense policy expressly excludes them, absent an endorsement. At present for U.S.-based insurers, the sole resource for this insurance is the Intellectual Property Insurance Services Corporation based in Louisville, Kentucky. For significant corporations with a significant presence in Europe willing to procure patent defense insurance over a significant SIR (Self-Insured Retention), a number of opportunities through European-based insurers are becoming available. Similar risk-specific policies are available for the other intellectual property claims.

Intellectual property prosecution policies provide the necessary funding for you to pursue lawsuits in order to stop the infringement of your IP assets. Coverage of this type can be particularly important to companies that have a lot of their value tied up in these assets. Given the high cost of litigating intellectual property claims, smaller companies may lack the resources to pursue infringers and thus face the unfortunate prospect of standing idly by while infringement dilutes their valuable IP assets. Investing in coverage of this type can effectively eliminate this risk. Pursuit insurance has funded two cases that reached the U.S. Supreme Court. See Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995), aff’d, 517 U.S. 370 (1996); In re Lockwood, 50 F.3d 966 (Fed. Cir. 1995), vacated, 515 U.S. 1182 (1995) (after withdrawal of jury demand); see also Summit: Conn. Indem. Co. v. Markman, 1993 WL 304056 (E.D. Pa. 1993) (insured able to pay for the suit because his carrier had paid for two other suits involving the same patent).
Tags: , , , , ,