Patent Troll Defense

Insurer Must Provide Defense Coverage To Hyundai in “Troll” Dispute

In a story that received scant media coverage, an appeals court has decided that two insurance companies must provide defense coverage to Hyundai against patent infringement claims by a non-practicing entity (NPE), also known as a patent troll, because the company’s policy covers advertising injury.

As reported by the Courthouse News Service and IP Law 360 on April 7, the federal appeals court reversed a lower court decision when it ruled that Hyundai Motor America is entitled to defense coverage by National Union Fire Insurance Co. of Pittsburgh, Pa., a unit of AIG.

The case involved a patent infringement suit over an advertising method that ended with a $34 million verdict against the automaker.

The U.S. Court of Appeals for the Ninth Circuit ruled Monday that Judge James Selna of the U.S. District Court for the Central District of California erred when he granted summary judgment to National Union and American Home Assurance Co. on the grounds that patent infringement does not constitute “advertising injury” for the purposes of an insurance policy.

As reported in IPL360 “Gene Schaerr, a partner at Winston & Strawn LLP who represented Hyundai, called the ruling a ‘tremendous victory.’

Schaerr stated that the ruling is significant not only for Hyundai, but for a large number of other companies with similar policies that cover advertising injury. “The insurance industry has been taking the position that such policies don’t apply to patent infringement and other alleged wrongs involving Web sites,” he noted.

The case began in 2005, when Hyundai was one of 20 automakers sued by patent-holding company Orion IP LLC, now known as Clear with Computers LLC, in the Eastern District of Texas over a patent for a method of generating customized product proposals.

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I wonder if all companies are aware that certain of their existing insurance coverages may fund IP defense if not liability?

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A similar post from me on this topic appears on Mission Intangible, the weekly blog of the Intangible Asset Finance Society.


  1. There is one reason that the NPE (“patent troll“) business model has become increasingly popular: it works. It is also legal, and often helps protect independent inventors and SMEs from exploitation of their intellectual property by larger, more powerful entities. Notably, it is almost invariably such multinational corporations that complain most about NPEs — because, before the latter became so prevalent, greedy corporations could more often infringe SMEs’ IP with impunity. Although abuse of the system should be condemned, most so-called trolls do nothing worse than Wall Street traders, for instance. Like it or not, NPEs are here to stay. And that may be a good thing.


    1. There is evidence that at least some observers consider NPEs net positive for innovation and commerce. While few businesses will admit it publicly the initial pain that an infringer may experience from having to pay damages or licensing fees frequently is outweighed by the significance of the IP rights it gains access to. It’s like paying an expensive parking ticket. It’s part of the unpleasant cost of driving an automobile.

      Part of the problem is that many companies have operated with impunity, as you put it, from infringement and continue to do so. A leveler patent playing field is something they are not used to. As a result, just when the system seems to be working as it was intended to, a few large technology-centric companies are seeking patent “reform” which will weaken rights. Also contributing to the emergence of NPEs: greater availability of capital to fund enforcement, the ability to better assess patent validity and value, and the willingness of law firms to represent plaintiff’s in patent disputes, often for a stake in the outcome.


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