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  • WisBar News
    January
    04
    2013

    Insurer has a Duty to Defend Company in Internet Advertising Case 

    Joe Forward
    Legal Writer

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    Jan. 4, 2013 – One company sued another company, alleging two former employees took Internet marketing systems and strategies to start a competing business. Recently, a state appeals court ruled the defendant’s insurance company has a duty to defend.

    Insurer has a Duty to Defend Company in Internet Advertising Case 

    By org jforward wisbar Joe Forward, Legal Writer, State Bar of Wisconsin

    Insurer has a Duty to Defend Company in 
Internet 
Advertising Case Jan. 4, 2013 – One company sued another company, alleging two former employees took Internet marketing systems and strategies to start a competing business. Recently, a state appeals court ruled the defendant’s insurance company has a duty to defend.

    Specifically, the District II Wisconsin Court of Appeals in Air Engineering Inc. v. Industrial Air Power LLC, 2012AP103 (Jan. 3, 2012), ruled that Acuity Mutual Insurance Company must defend Industrial Air Power against six counts related to advertising injury, including trade secret misappropriation, breach of contract, and intentional interference with contract.

    Air Engineering, which buys and sells replacement parts and products for air compressors, alleges that Christopher Klemz and Matthew Krause, former employees, misappropriated confidential advertising strategies and now uses them to run Industrial Air Power.

    Among the complaints, Air Engineering says Industrial Air Power is using the former’s “internet advertising system,” which allows the company to identify potential customers based on Google search terms and position ads and websites providing company information to them.

    Industrial Air Power has a commercial general liability policy with Acuity, which intervened in the lawsuit and asked for a declaratory judgment that it has no duty to defend. The circuit court sided with Acuity. On appeal, the appeals court reversed in favor of Industrial Air Power.

    What is an Advertising Idea?  

    The appeals court ruled the complaint alleges an injury that, if proven, is covered under an “advertising injury” provision in the insurance policy. Specifically, the insurance policy covers advertising injuries for the “use of another’s advertising idea in your advertisement.”

    The three-judge appeals panel explained that an “advertising idea,” which is not defined in the Acuity policy, is “an idea for calling public attention to a product or business, especially by proclaiming desirable qualities so as to increase sales or patronage,” citing Atlantic Insurance Co. v. Badger Medical Supply Co., 191 Wis. 2d 229, 528 N.W.2d 486 (Ct. App. 1995).

    Noting that Atlantic Insurance involved “customer information,” which is not an advertising idea, the panel examined a federal case from California for a relevant example. In Hyundai Motor America v. National Union Fire Ins. Co. of Pittsburgh, 600 F.3d 1092 (9th Cir. 2010), a patent holding company (Orion IP LLC), sued Hyundai for patent infringement, alleging Hyundai was using a patented “build-your-own-car” feature on its website.

    The Ninth Circuit Court of Appeals ruled that Orion’s patent infringement claim alleged misappropriation of an advertising idea that was covered under Hyundai’s insurance policy. The appeals panel applied Hyundai to rule that Industrial Air Power’s actions are covered.

    “As in Hyundai, the information is tailored to the customer based on information furnished by the customer,” Judge Lisa Neubauer wrote. “Industrial’s use of the Internet Advertising System, as described in Air Engineering’s complaint, is ‘use of another’s advertising idea.”

    The panel also ruled that Air Engineering sufficiently alleged that Industrial Air Power engaged in advertising activity, as well as a causal connection between the activity and the injury.

    The court also rejected Acuity’s argument that an exclusion applied to bar coverage for an advertising injury “caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury.”

    “Air Engineering states potentially covered claims that do not base liability on a showing of a knowing violation of another’s rights and infliction of advertising injury,” Neubauer wrote. “[T]here are claims set forth in the complaint that survive the ‘knowing violation’ exclusion.”




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