IPO Owners As Plaintiffs

Posted on July 10, 2008 by David Gauntlett

How to Get an Insurer to Pursue Patent Infringers with Attorneys You Choose at Its Expense – The Advent of Patent Pursuit Policies

As the cost of patent infringement litigation escalates, the average case will require more than $1,000,000 to pursue through trial according to a 1999 AIPLA (American Intellectual Property Law Association) survey. Many patent holders have been successful in procuring damages, principally via reasonable royalty awards, that make such lawsuits financially worthwhile. Lawsuits that do settle between major corporations are typically resolved through cross-licensing of patents possessed by each corporation. The net effect of these cases is to generate new marketing alliances.

For companies that do not have a significant patent portfolio that they can exchange with a competitor to resolve infringement disputes, the inability to afford costly patent litigation may mean the abandonment of a key market advantage, central to the company’s strategy. For such companies, the ability to afford patent infringement is a matter of economic survival.

Some years ago, creative patent attorneys appreciated the insurance industry seeking solutions to this issue. Persuaded that an advance of monies to fund such lawsuits could often be paid back from the proceeds realized through successful litigation, some select insurers began underwriting a new form of insurance – pursuit coverage that placed insurers and companies with patent rights into partnership in their efforts to realize the full benefit of the patents the companies had procured.

Known as “pursuit,” “abatement” or “enforcement” coverage, the purpose of this policy is to reimburse a policyholder for legal expenses it incurs in its pursuit of an infringer. This is really not a true form of insurance, but rather a risk-transfer mechanism with certain insurance-like aspects in the trigger of coverage.

Industries Likely to Benefit from Pursuit Coverage

Infringement Insurance: Offensive Exposed Industries:

– Legal Costs to Prosecute an Infringer – Manufacturing
– Covers Scheduled Patents Only – Consumer Products [Toys,
– Prior Approval Required to Commence Apparel, Personal Care, etc.]
   Litigation – Computers – Hardware &
– Insurer Shares in the Recovery Software
– Limits over $1M – Electronics
– Premium under $100,000 – Furniture
– Medical
– Food

Coverages Available for Pursuit of Patent Infringement Lawsuits

As yet, few of these policies have been interpreted. Nevertheless, a number of intellectual property counsel have procured reimbursement of the fees that they reasonably incurred in patent litigation. Typical issues will revolve around whether: (1) a viable infringement claim exists; and (2) facts not disclosed at time of application bar the right to pursue a claim (i.e., on sale bar applies because products within patent claims were advertised one year or more prior to application for the patent). The patents issued to Markman and Hilton Davis were both covered by pursuit insurance. A number of major insurers are considering extending similar coverage. The ensuing decade may well see such policies change the complexion of patent infringement litigation.

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Restoring Balance to the IP/Insurance Interface

Posted on July 8, 2008 by David Gauntlett

While some counsel may object that there is less predictability associated with the active pursuit of intellectual property interests, then true of product launches that create liability exposure, the differences are simply matters of degree. New product launches that create exposure are driven by a company’s marketing programs, as are core advertisements that create liability for intellectual property and antitrust risks. While some companies may elect to self-insure at high levels to reduce premium expense in this area, before that decision is made, it makes sense to look at what benefits might have already been available under existing policies for previously litigated antitrust and intellectual property claims.

Most major corporations have procedures, either through existing personnel or through the aid of consultants, that:

• Identify and evaluate the full range of IP;
• Determine the level of patent, copyright or trademark infringement by the company or others;
• Reduce exposure to legal action by managing risk;
• Protect residual risk through insurance.

The challenge comes in the last component through identifying products in the marketplace that can create similar opportunities for reimbursement and designing protocols to assure that the maximum policy benefits available to the company are properly secured.

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Reimbursement

Posted on June 5, 2008 by David Gauntlett

General Star Indem. Co. v. Virgin Islands Port Authority, No. 2001-188, 2008 WL 2235338 (D. V.I. May 29, 2008)

 

A district court in the Virgin Islands, St. Croix Division, joins the plethora of decisions which appears now to be a majority

and clearly represents the modern trend, finding that a declaration of reservation of rights does not entitle the insurer to reimbursement, even though it seeks unilateral recovery.

 

The court found that if there is no right to reimbursement in the policy it should not be implicated by a court following decisions such as General Agents Ins. Co. of America, Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1103 (Ill. 2005); First Insurance Co. of Hawaii v. State, by Minami, 665 P.2d 648, 654 (Haw. 1983); Perdue Farms, Inc. v. Travelers Cas. and Surety Co. of Am., 448 F.3d 252, 258 (4th Cir. (Md.) 2006); Terra Nova Ins. Co. Ltd. v. 900 Bar, Inc., 887 F.2d 1213, 1219 (3d Cir. (Pa.) 1989); Shoshone First Bank v. Pacific Employers Ins. Co., 2 P.3d 510, 514 (Wy. 2000); Liberty Mut. Ins. Co. v. FAG Bearings Corp., 153 F.3d 919, 924 (8th Cir. (Minn.) 1998); Westchester Fire Ins. Co. v. Wallerich, 527 F. Supp. 2d 896, 908 (D. Minn. 2007).

 

The Virgin Islands court relied on

 

title 22, section 819 of the Virgin Islands Code (“Section 819”) [which] provides that “[n]o agreement in conflict with, modifying, or extending any contract of insurance shall be valid unless in writing and made a part of the policy.”  V.I.Code Ann. tit. 22, § 819 (1968). Pursuant to Section 819, General Star was prohibited from constructively amending the Policies by reserving the right to reimbursement of defense costs in a subsequent letter.

 

Notably, a number of jurisdictions have similar statutory provisions which would support, by the same logic, the limitation of policies to their actual language.

 

Medical Liability Mut. Ins. Co. v. Alan Curtis Enterprises, Inc., ___S.W.3d ___, 2008 WL 2205868 (Ark. 2008)

 

In another contemporaneous case, the Arkansas Supreme Court joined a growing number of jurisdictions including Illinois and Texas who found that absent a contract provision in the policy permitting reimbursement of attorneys’ fees for a carrier who either agreed to defend or was adjudicated to owe a defense could not seek recoupment of monies expended for a defense.

 

In reaching that conclusion the court presumed that it was following the minority rule.  It did not observe how many jurisdictions had in fact articulated it.  Instead the court cited United Nat’l Ins. Co. v. SST Fitness Corp., 309 F.3d 914 (6th Cir. (Ohio) 2002); Cincinnati Ins. Co. v. Grand Pointe LLC, 501 F.Supp.2d 1145 (D.Tenn.2007); Buss v. Superior Court, 16 Cal.4th 35, 65 Cal.Rptr. 2d 366, 939 P.2d 766 (1997).

 

Neither of Arkansas’ statutory schemes supported an award of attorneys’ fees under the reimbursement fact pattern before the court.  Since Arkansas’ public policy was best evidenced by its statutes and they did not provide such remedy, there was no need to imply one.  See, e.g., State Farm Mut. Auto Ins. Co. v. Henderson, 356 Ark. 335, 342, 150 S.W.3d 276, 280 (2004).
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Nevada Federal District Court Predicts the Texas Supreme Court Will Forbid Reimbursement of Defense Fees Following a Unilateral Reservation of the Right to Reimbursement

Posted on April 9, 2008 by David Gauntlett

The Ohio Casualty Insurance Company v. Biotech Pharmacy, Inc. et al. adv.
U.S.D.C., District of Nevada, Case No. 2:05-CV-1214, RLH-PAL (D. NEV. 4-2-2008)

In the first decision nationally to expressly address an issue of Texas law, the Court predicted that the Texas Supreme Court would, consistent with its prior precedent, find that “a unilateral reservation of rights letter cannot create rights not contained in the insurance policy which include the right to seek reimbursement of defense fees where there was no potential for coverage”. In previous cases, the Texas Supreme Court, following Shoshone First Bank v. Pacific Employers Ins. Co., 2 P.3d 510, 515-16 (Wyo. 2000) found that a unilateral reservation of rights letter cannot create a right for an right for an insurer to seek reimbursement of settlement costs based on the logic of the Shoshone case which had expressly found that right extended to seek reimbursement of defense costs.

The Texas Supreme Court reaffirmed its earlier ruling in Matagorda finding in Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., No. 02-0730, ___S.W.3d___ ,2008 WL 274878, (Tex., Feb., 2008) that in Texas the same rule applied in a excess policy context.

The court denied a concurrent motion for reconsideration under FRCP rule 69 as moot in light of its finding vis-à-vis reimbursement. It had previously concluded that a 56(f) right to conduct discovery arose in determining whether a copyright infringement claim was based sufficiently on advertising to fall within the pertinent “advertising injury” coverage. 

Gauntlett & Associates attorneys, David A. Gauntlett and Joseph S. McMillen represented Biotech Pharmacy, Inc.

The Texas Supreme Court’s decision appears to represent the modern trend on this issue. General Agents Ins. Co. of America v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1102-1103.(2005) (“As a matter of public policy, we cannot condone an arrangement where an insurer can unilaterally modify its contract, through a reservation of rights, to allow for reimbursement of defense costs in the event a court later finds that the insurer owes no duty to defend. . . . [I]f an insurer wishes to retain its right to seek reimbursement of defense costs . . . the insurer is free to include such a term in its insurance contract. Absent such a provision in the policy, however, an insurer cannot later attempt to amend the policy by including the right to reimbursement in its reservation of rights letter.”)

See Westchester Fire Ins. Co. v. Wallerich, 527 F. Supp. 2d 896 (D. Minn. 2007) (“[T]his Court is of the view that the Minnesota Supreme Court would refuse to allow reimbursement unless an agreement to the contrary is found in the insurance policy.”); Perdue Farms, Inc. v. Travelers Cas. And Surety Co. Of America, 448 F.3d 252 (4th Cir. (Md.) 2006) (Accord.)

Each of these cases embraces a fundamental doctrine which has often been ignored by insurers and courts fail to recognize that an insurer, as a drafter of the policy, has within its power to carefully craft rights which it seeks to assert. When you attempt to add a reimbursement right, it is simply a redrafting of the policy for the insurer’s benefit.

By the same token, where a particular policy construction requires the addition of words not set forth in the policy, it is not for the court to add those after the fact. Thus, in the context of analyzing whether a blast facts claim asserting violations of the TCPA, which forbids the improper sending of facsimiles to a recipient who is not expecting to receive same, the courts have found “personal injury” coverage for invasion of privacy implicated, rejecting insurer arguments against such a construction. The insurers interpretation requires the addition of words or limitation not set forth in the policy.

Terra Nova Ins. Co. v. Fray-Witzer, 869 N.E.2d 565, 574 (Mass. 2007) (applying New Jersey law)

In effect, the insurers argue that the policy's definition of injury should be read to say “[o]ral or written publication of material, the content of which violates a person's right of privacy.” But New Jersey law is clear that when construing an ambiguous phrase in an insurance policy, courts should “consider whether clearer draftsmanship by the insurer ‘would have put the matter beyond reasonable question.’ ”

This approach is preferable to a vague “contextual reading” of the policy or one that relies on latin maxims which often reflect the results rather than the analytic process for determining proper coverage interpretation. See Black’s Law Dictionary, 8th Edition, Copyright 2004 Bryan A. Garner, pg. 620 “expressio unius est exclusio altrius [the negative implication] ‘[The recent disparagement by unanimous court] of this doctrine’s application [in Herman & MacLean v. Huddleston, 459 U.S. 375, 386, n.23, 103 S.Ct.683, 690 n.23 (1983)] puts its future in some doubt, but more likely confirms that judicial use of candidate for construction is opportunistic.’ Richard A. Posner, the Federal Courts; Crisis & Reform 282 (1985).” Id. at 621.

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