Real Coverage, Virtual World

You company has a great idea for an online venture. The business plan has been written, the website designers have been hired, and you've even come up with a catchy name for the site. Now - have you checked your insurance coverage? In the sometimes topsy-turvy online world, insurance is not just a form of protection. It can actually be an asset, one that is frequently overlooked.

As the Internet becomes the venue of choice for advertising, consumer purchases and business-to-business transactions, companies engaged in e-commerce have more reason than ever to scrutinize their comprehensive general liability (CGL) policies. Legal disputes are far from uncommon in the fast-paced world of e-commerce, and companies may not realize that the "advertising injury" coverage provided by their CGL may cover the costs of this litigation.

Advertising injury coverage has been a standard part of CGL policies for a number of years. This coverage typically protects companies engaged in advertising activities from claims arising out of infringement of brand names, advertising slogans, and packaging for goods and trade libel.

With the shift in advertising activities to the Internet, the protection afforded by advertising injury coverage may be especially crucial. This is because some courts have interpreted this form of coverage to include protection for the kinds of legal claims frequently brought against operators of Internet sites.

Because of the global reach of Internet advertising, and the large amounts potentially at stake in copyright, trademark, patent and unfair competition disputes, the ability to turn to an insurance company for reimbursement of such claims can in some cases have a very significant impact on a company's bottom line.

The existence of coverage in specific cases always depends on a number of factors, including the language used in the particular insurance policy. But there are several e-commerce-related scenarios where insurance protection under advertising injury coverage should he explored.

DOMAIN NAME INFRINGEMENT

A "domain name" is an Internet site's online address: www.YourCompany.com, for example. A memorable domain name is the equivalent of a prime real estate address in the virtual world. Disputes involving the ownership and use of domain names frequently lead to claims for trademark infringement. Importantly, these claims may be encompassed by a company's advertising injury coverage, even though the policy does not specifically identify trademark infringement as

a covered offense.

One of the key cases in this area was decided in 1996 by an appellate court in California. In that case, the court had to decide whether one of the covered offenses in advertising injury coverage--"misappropriation of advertising ideas or style of doing business"--encompassed legal actions for trademark infringement. Although that case did not involve a dispute about a domain name, the court held that claims for trademark infringement were in fact encompassed by this offense.

Insurance may also come into play in disputes involving the use of trademarks outside the domain name context. Thus, a federal court in New York recently found in favor of Hugo Boss Fashions Inc. in its coverage suit against its carrier arising from a trademark infringement suit. In that case, the court held that the "Boss" mark fell within the definition of "slogan" as used in the policy's advertising injury coverage. Thus, the court found that another offense found in advertising injury coverage -- "infringement of copyright, title or slogan"--encompassed claims for infringement of the "Boss" mark.

Companies faced with intellectual property claims arising from their e-commerce activities should understand that these issues are far from settled, and that courts in different jurisdictions have not necessarily adopted the approaches of these two cases. Indeed, a California appeals court last December reached a result which was contrary to the New York court's decision in the Hugo Boss case. Nevertheless, companies whose e-commerce activities generate disputes about domain names, titles, slogans or other trademarks should carefully examine their policies for opportunities for coverage.

THE SALE OF KEYWORDS

A common technique used by e-commerce companies is to sell "keywords" to advertisers, so that consumers searching for particular items on a site will bring up the advertiser's Web page. Importantly, some keywords sold in this context may infringe another company's trademarks, service marks, titles or slogans. Thus, in a suit now pending in New York, Este[acute{e}] Lauder has asserted claims for trademark infringement against The Fragrance Counter and Excite for their sale of the keyword "Clinique;" visitors typing in "Cinique" were taken not to a Clinique site but to the advertiser's location.

Companies faced with this kind of claim ought to examine their CGL policies. Coverage for this kind of claim could be based on the two offenses discussed above--"misappropriation of advertising ideas or style of doing business" and "infringement of copyright, title or slogan." But in addition to these offenses, certain earlier CGL policies afford coverage for offenses based on "piracy" or "unfair competition." Depending on the factual circumstances of any given claim, coverage could be based on these policy clauses as well.

COPYRIGHT INFRINGEMENT

Copyright infringement is generally covered in the typical advertising injury portion of a CGL. The courts have not yet had much occasion to address the application of this offense to copyright infringement disputes arising out of e-commerce activities. However, an Oregon state court recently decided that an insurance company was obligated to provide a defense for its insured who had allegedly downloaded copyrighted photographs from an Internet site and then sold those photographs as part of an electronic image library.

Given the amount of copyrighted material which is available on the Internet, claims based on unauthorized copying or distribution are certain to proliferate. Since liability under copyright laws does not depend on willful or even intentional infringement, companies whose e-commerce activities inadvertently result in infringement could find themselves the targets of such suits.

PATENT INFRINGEMENT

Companies today are obtaining patent protection not only for their technological innovations, but for their business methods. In the realm of e-commerce, a recent example of this trend involved Amazon.com's recent patent infringement suit against Barnesandnoble.com for alleged copying of its single-click "Express Lane" online ordering method.

In this area, the courts have been generally less willing to find that "advertising injury" coverage provides protection for patent infringement claims. One notable exception has been the Ninth Circuit Court of Appeals which, in a decision last year, held that advertising injury coverage was sufficiently broad to cover claims of patent infringement, thereby triggering the insurer's duty to defend.

But other courts have been less willing to interpret the scope of advertising injury in this way. Recent decisions from the Sixth Circuit Court of Appeals and the California Court of Appeals have rejected this approach.

For companies engaged in e-commerce, insurance protection for patent infringement lawsuits may be especially crucial. As so-called "business methodology patents" proliferate, companies will increasingly claim ownership of particular techniques for conducting e-commerce. Being protected by insurance in the event of a suit charging misappropriation of such techniques is obviously of enormous value to the company facing such litigation.

INVASION OF PRIVACY

Advertising injury coverage typically includes coverage for claims arising out of "oral or written publication of material that violates a person's privacy." In the pre-Internet world, the unauthorized use of a person's name and likeliness on an advertisement was the classic example of this particular offense.