Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-08-56527/USCOURTS-ca9-08-56527-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

HYUNDAI MOTOR AMERICA, 

Plaintiff-Appellant, No. 08-56527

v. D.C. No.

NATIONAL UNION FIRE INSURANCE  CV-08:00020-JVSCOMPANY OF PITTSBURGH, PA; RNB

AMERICAN HOME ASSURANCE OPINION COMPANY,

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

James V. Selna, District Judge, Presiding

Argued and Submitted

February 3, 2010—Pasadena, California

Filed April 5, 2010

Before: Betty B. Fletcher, Harry Pregerson, and

Susan P. Graber, Circuit Judges.

Opinion by Judge Graber

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COUNSEL

Gene C. Schaerr, Winston & Strawn LLP, Washington, D.C.,

for the plaintiff-appellant.

Richard H. Nicolaides, Jr., Bates & Carey LLP, Chicago, Illinois, for the defendants-appellees.

OPINION

GRABER, Circuit Judge:

After Plaintiff Hyundai Motor America (“Hyundai”) placed

certain features on its website, a third party sued Hyundai for

patent infringement. Hyundai sought a defense from its liability insurers, Defendants National Union Fire Insurance Company of Pittsburgh and American Home Assurance Company.

Because the alleged patent infringement concerned one of

Hyundai’s advertising methods, Hyundai concluded that the

third-party suit alleged an “advertising injury,” as that term is

defined in the insurance policy. Defendants disagreed and

declined to defend Hyundai, which defended itself. Hyundai

later sued Defendants in this diversity action, seeking to

recover its defense costs in the earlier third-party action. The

district court agreed with Defendants that the alleged patent

infringement did not constitute an “advertising injury” under

the insurance policy and granted summary judgment to

Defendants. On de novo review, Fleming v. Yuma Reg’l Med.

Ctr., 587 F.3d 938, 940 n.2 (9th Cir. 2009), we reverse and

remand.

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FACTUAL AND PROCEDURAL HISTORY

Like most (if not all) major corporations, Hyundai maintains a website. At issue here are two features of the website:

a “build your own vehicle” (“BYO”) feature and a parts

catalogue feature. The BYO feature allowed users to navigate

through a series of questions on a menu (to select, for example, colors, engine and transmission types, and options). In

response to the user’s input, the BYO feature displayed customized vehicle images and pricing information. The parts

catalogue feature similarly allowed users to navigate through

a series of menus (to choose, for example, a model, engine

system, and sub-system) and displayed customized parts

images and pricing information.

Orion IP, LLC (“Orion”), a patent-holding company, holds

the rights to two patents that are relevant here. Patent Number

5,615,342 (“’342 patent”) concerns a method of generating

customized product proposals for potential customers of an

automobile dealer. The patent explains that “preprinted brochures” used by car dealerships are under-inclusive, because

they can show pictures of only a few combinations of cars,

despite the many different options available. At the same

time, a preprinted brochure is over-broad, because it contains

a complicated pricing matrix, much of which “is not of interest to a particular customer, since the customer will typically

be interested in the price for a single, or relatively few, combinations of options for the car.” “In containing all of this varied and generic information in an attempt to be ‘all things to

every customer,’ the preprinted brochures actually are of limited value to any particular customer.” The patent description

also notes that these brochures become quickly out of date

because of price changes and unavailable models. “The present invention solves these problems by utilizing a computerbased system to dynamically create customized, printed proposals for potential purchasers of a product.” The patent’s

abstract states that the invention is “[a]n electronic system for

creating customized product proposals [that] stores a plurality

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of pictures and text segments to be used as building blocks in

creating the proposal.” “The system queries a user to determine a customer’s needs and interests. Based upon the

answers to the queries, the system selects the appropriate picture and text building blocks to fill in proposal templates.”

“Based upon the customer’s answers to the queries, the system links product pictures, environment pictures, and textual

descriptions together in a customized proposal.” “Since each

proposal is customized for a particular customer, each proposal will have a much more persuasive effect in selling the

product.”

Patent Number 5,367,627 (“’627 patent”) concerns a similar method, but is aimed at the sale of parts. The ’627 patent

is aimed at aiding parts salespersons and works much the

same way as the ’342 patent.

In 2005, Orion sued Hyundai and nineteen other car companies for patent infringement. Orion alleged that Hyundai’s

BYO feature infringed the ’342 patent and that its sales parts

catalogue infringed the ’627 patent. Specifically, in two paragraphs that, except for the patent number, are worded identically, Orion alleged:

Defendant Hyundai has been and now is directly

infringing, and indirectly infringing by way of inducing infringement and/or contributing to the infringement of the ’342 patent [or ’627 patent] in the state

of Texas, in this judicial district, and elsewhere in

the United States by, among other things, methods

practiced on its various websites (including but not

limited to www.hyundaiusa.com) making and using

supply chain methods, sales methods, sales systems,

marketing methods, marketing systems and inventory systems covered by one or more claims of the

’342 patent [or ’627 patent] to the injury of Orion.

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Hyundai sought a defense from its insurers, Defendants.

Defendants had issued an insurance policy to Hyundai with

the following pertinent provisions:

COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

a. . . . We [Defendants] will have the right

and duty to defend the insured against any

“suit” seeking those damages [caused by,

among other things, “advertising injury”].

. . . 

b. This insurance applies to: . . . 

. . . .

(2) “Advertising injury” caused by an

offense committed in the course of

advertising your goods, products or

services . . . .

. . . .

SECTION V — DEFINITIONS

1. “Advertising injury” means injury arising out of

one or more of the following offenses:

a. Oral or written publication of material

that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;

b. Oral or written publication of material

that violates a person’s right of privacy;

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c. Misappropriation of advertising ideas or

style of doing business; or

d. Infringement of copyright, title, or slogan.

(Emphasis added.)

Hyundai asserted that Defendants had a duty to defend

Hyundai because Orion’s claims constituted allegations of,

among other things, “[m]isappropriation of advertising ideas.”

Defendants disputed that interpretation of the coverage and

declined to defend Hyundai. Hyundai thereafter defended

itself in the Orion action. A jury found against Hyundai and

awarded the patent-holder $34 million in damages.

Hyundai then filed this action against Defendants in federal

district court. Hyundai alleges four state-law claims, all of

which proceed from the premise that the insurance policy

obligated Defendants to defend Hyundai in the patentholder’s action. Hyundai seeks declaratory relief and its reasonable costs of defense but does not seek to recover the

amount of the jury verdict.

The district court granted summary judgment to Defendants. The court held that patent infringement is not an “advertising injury.” The court also held, as an alternative basis

for granting summary judgment, that Hyundai was “unable to

demonstrate a causal connection between its advertising[ ]

and Orion’s alleged injury.” The court did not reach the question whether the BYO feature and the online parts catalogue

“constitute ‘advertising’ as defined by the relevant California

authority.”

Hyundai timely appeals.

DISCUSSION

Hyundai argues that the Orion action constituted a lawsuit

alleging an “advertising injury” under the duty to defend

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clause in the insurance policy. More specifically, Hyundai

argues that the patent infringement claims in the Orion action

were claims alleging the “misappropriation of advertising

ideas.”

[1] California law governs in this diversity action. Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546 F.3d

1142, 1145 (9th Cir. 2008); see generally Vestar Dev. II, LLC

v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir. 2001)

(describing the method for determining questions of state

law). Under California law, interpretation of an insurance policy “is a question of law.” Hameid v. Nat’l Fire Ins. of Hartford, 71 P.3d 761, 764 (Cal. 2003).

An insurance policy is a contract between the insurer

and the insured. As with all contracts, the mutual

intention of the parties at the time the contract is

formed governs interpretation. The parties’ intent is

inferred from the “clear and explicit” meaning of

these provisions, interpreted in their “ordinary and

popular sense,” unless used by the parties in a technical sense or a special meaning is given to them by

usage. Thus, if the meaning a lay person would

ascribe to contract language is not ambiguous, we

apply that meaning.

Id. (citation, ellipses, and some internal quotation marks omitted).

[2] The general principles governing “duty to defend”

clauses are well settled. “Liability insurers owe a duty to

defend their insureds for claims that potentially fall within the

policy’s coverage provisions. The carrier must defend a suit

which potentially seeks damages within the coverage of the

policy.” Id. (internal quotation marks omitted). The obligation

to defend “can be excused only when the third party complaint can by no conceivable theory raise a single issue which

could bring it within the policy coverage.” Lebas Fashion

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Imps. of USA, Inc. v. ITT Hartford Ins. Group, 59 Cal. Rptr.

2d 36, 40 (Ct. App. 1996) (emphasis and internal quotation

marks omitted). This presumption in favor of the insured

applies to factual disputes, but not legal disputes. Id. “Any

doubt as to whether the facts give rise to a duty to defend is

resolved in the insured’s favor.” Id. But “it is settled that a

potential for coverage cannot be based on an unresolved legal

dispute concerning policy interpretation which is ultimately

resolved in favor of the insurer.” Id. In other words, if the

unresolved legal dispute ultimately is resolved in a way showing that the insurer had no duty to defend, then the insurer has

no liability to the insured. Otherwise the insurer is liable to

the insured. We turn, then, to the legal question whether

Defendants had a duty to defend Hyundai.

Determination of the duty to defend depends, in

the first instance, on a comparison between the allegations of the complaint and the terms of the policy.

But the duty also exists where extrinsic facts known

to the insurer suggest that the claim may be covered.

Moreover, that the precise causes of action pled by

the third-party complaint may fall outside policy

coverage does not excuse the duty to defend where,

under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be

amended to state a covered liability.

Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal.

2005) (citations omitted).

[3] The California Supreme Court has specified three

required elements to establish a duty to defend for an “advertising injury”:

[I]n order for [Hyundai] to have a reasonable expectation of coverage under [Defendants’] policy for

“advertising injury” [it] must show that: (1) [it] was

engaged in “advertising” during the policy period

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when the alleged “advertising injury” occurred; (2)

[Orion’s] allegations created a potential for liability

under one of the covered offenses (i.e., misappropriation of advertising ideas); and (3) a causal connection existed between the alleged injury and the

“advertising.”

Hameid, 71 P.3d at 764-65. The parties dispute all three elements.

A. “Advertising”

The term “advertising” means “widespread promotional

activities usually directed to the public at large,” but it does

not encompass “solicitation.” Id. at 766. Plaintiff argues that

it placed the BYO feature1 on its website to promote its products; a website is plainly directed to the public at large; therefore, the BYO feature constitutes “advertising.” Defendants

respond that, because the BYO feature creates customized

proposals specific to an individual user, the BYO feature

effectively is high-tech one-on-one solicitation. The district

court did not reach this issue, because it held that Hyundai

cannot meet the other two requirements.

[4] As noted above, “[d]etermination of the duty to defend

depends, in the first instance, on a comparison between the

allegations of the [third-party] complaint and the terms of the

policy.” Scottsdale Ins., 115 P.3d at 466. The reason for this

rule is that, when the insurer is presented with the opportunity

1Orion’s complaint alleged infringement by Hyundai both through its

BYO feature and through its electronic sales parts catalogue. But “the

insurer must defend the entire action even when only one of several causes

of action is potentially covered.” Foster-Gardner, Inc. v. Nat’l Union Fire

Ins. Co., 959 P.2d 265, 273 (Cal. 1998). Because we conclude that Defendants had a duty to defend with respect to the claim concerning the BYO

feature, we need not—and do not—discuss the patent infringement claim

concerning the electronic sales parts catalogue. Our discussion in text concerns the BYO feature only. 

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to defend, the insurer has, at a minimum, a copy of the complaint. Rombe Corp. v. Allied Ins. Co., 27 Cal. Rptr. 3d 99,

103 (Ct. App. 2005). Here, Orion alleged that Hyundai’s

BYO feature constituted “making and using supply chain

methods, sales methods, sales systems, marketing methods,

marketing systems and inventory systems.” (Emphasis added.)

Orion evidently viewed the BYO feature as, at least in part,

“marketing methods” or “marketing systems” and described

the feature as such in its complaint. The description in the

third-party complaint—“marketing methods” or “marketing

systems”—fits squarely within the definition of “advertising”

—“widespread promotional activities usually directed to the

public at large,” Hameid, 71 P.3d at 766. Comparing the

third-party complaint with the insurance policy, as the California Supreme Court requires, Scottsdale Ins., 115 P.3d at

466, we conclude that Orion’s complaint alleged “advertising” activities.

In some circumstances, however, we also may consider

“extrinsic facts known to the insurer.” Id. Here, it is safe to

assume that Defendants had access to Hyundai’s website and

could view the BYO feature in making their determination

whether to defend.2 Relying on the California Supreme

Court’s decision in Hameid, Defendants argue that each

user’s invocation of the BYO feature constitutes an individualized “solicitation.”

In Hameid, the plaintiff hairdresser left his employer and

started a new beauty parlor. 71 P.3d at 763. The former

employer “sued Hameid for stealing its customer list and

2Even if the duty to defend is not evident on the face of the complaint,

the duty to defend nevertheless arises if the extrinsic facts suggest that the

claim may be covered. Scottsdale Ins., 115 P.3d at 466. It is unclear

whether the opposite proposition holds. That is, it is unclear whether, as

Defendants urge here, extrinsic facts may be considered in order to defeat

an otherwise apparent duty to defend. Because we reach the same conclusion either way, we need not resolve this question nor decide whether

viewing the BYO feature on the website constitutes “extrinsic facts.” 

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soliciting its customers.” Id. The court addressed Hameid’s

argument that “advertising” should be interpreted to include

solicitation. Id. at 765. The court surveyed the existing case

law and sided with the majority approach, which requires

“widespread distribution of promotional material to the public

at large.” Id. at 765-69 (internal quotation marks omitted).

Applied to the case at hand, the court held that Hameid’s

agents 

made telephone calls and sent mailers to [the former

employer’s] customers advising them of their new

location and of Hameid’s lower prices. These activities strongly resemble the solicitations of a competitor’s customers in [one case]; the recruiting letters to

a competitor’s employees in [another case]; and the

subcontractor’s submission of bids in [a third case]

—all of which were held to be “solicitation,” not

“advertising.”

Id. at 769-70; see also Rombe, 27 Cal. Rptr. 3d at 107 (holding that an in-person breakfast meeting with clients constitutes “solicitation” and not “advertising” under Hameid);

Hayward v. Centennial Ins. Co., 430 F.3d 989, 992 (9th Cir.

2005) (holding that a third-party claim for wrongful solicitation absolved the insurer of the duty to defend because, under

Hameid, solicitation is not advertising).

Defendants correctly observe that the BYO feature has

some similarities to solicitation. After all, the BYO feature

does little, if anything, until the user inputs some personal

preferences. The patent’s raison d’etre is to create customized

proposals, specific to an individual user. In this way, each

invocation of the BYO feature by a given user is somewhat

similar to an individualized solicitation like the ones discussed in Hameid.

But Defendants’ attempt to fit the BYO feature into the

framework of Hameid ultimately is unpersuasive. The court in

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Hameid focused on the fact that the solicitations were limited

to a discrete number of known potential customers. It rejected

a characterization of that form of solicitation as “advertising,”

because it was not widely distributed to the public at large.

Here, the BYO feature is widely distributed to the public at

large, to millions of unknown web-browsing potential customers, even if the precise information conveyed to each user

varies with user input. All the users are still using the same

BYO feature.

An analogy to a hypothetical invention in the pre-Internet

age helps to illustrate why the BYO feature advertises cars to

the general public. Instead of the high-tech, Internet version

of the BYO feature, imagine a more crude, paper-only version. The invention includes tabbed sliders and plastic overlays; the user chooses various options and follows directions

to assemble the various physical parts. The resulting composite display shows the user’s choices, along with pricing information displayed in a cut-out window. And imagine that

Hyundai included one of these crude forms of the BYO feature as an insert in a general-circulation newspaper. It seems

clear that this “invention” would constitute “advertising,”

even though the individual newspaper readers might each

select different options and arrive at entirely different final

“displays.” Hyundai’s BYO feature is much more akin to that

example than it is to the individualized solicitations sent to a

specified, extant customer list discussed in Hameid, or to the

other individualized solicitations discussed in that case.

We conclude that the BYO feature constituted “advertising.”

B. Patent Infringement as Misappropriation of 

Advertising Ideas

[5] Hyundai next must establish that Orion’s patent

infringement claim constituted a “misappropriation of advertising ideas.” In Mez Industries, Inc. v. Pacific National InsurHYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5205

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ance Co., 90 Cal. Rptr. 2d 721, 733 (Ct. App. 1999), the

California Court of Appeal explained that a “contextual reasonableness” analysis applies to that question. We must determine, in the context of the case and in light of common sense,

whether a lay person reasonably would read the phrase “misappropriation of advertising ideas” to include the patent

infringement claim at issue. Id. More precisely, the proper test

is whether the patents at issue “involve any process or invention which could reasonably be considered an ‘advertising

idea.’ ” Id.

We have applied the test described by Mez:

The court [in Mez, 90 Cal. Rptr. 2d at 733,] noted

that the patents at issue “did not involve any process

or invention which could reasonably be considered

an ‘advertising idea’ or ‘a style of doing business.’ ”

Similar to Mez, the underlying [third-party]

actions at issue here do not allege violation of a

method patent involving advertising ideas or a style

of doing business. Like the allegations that Mez was

inducing infringement of a design patent in airflow

conduction systems, the [third-party] actions allege

violation of a design patent for certain therapeutic

magnetic devices.

Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1140-

41 (9th Cir. 2003) (emphasis added). Although neither we nor

the California courts affirmatively have held that certain types

of patent infringement can constitute advertising injuries, the

implication in Mez and Homedics is clear: Depending on “the

context of the facts and circumstances of th[e] case,” patent

infringement can qualify as an advertising injury if the patent

“involve[s] any process or invention which could reasonably

be considered an ‘advertising idea,’ ” Mez, 90 Cal. Rptr. 2d

at 733 (emphasis omitted); or, expressing the same idea in different words, if the third party “allege[d] violation of a

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method patent involving advertising ideas,” Homedics, 315

F.3d at 1141.

[6] Unlike in Mez and Homedics, the third party here did

allege “violation of a method patent involving advertising

ideas.” Id. Orion patented a method of displaying information

to the public at large for the purpose of facilitating sales, i.e.,

a method of advertising. And Orion’s complaint alleged that

Hyundai violated that method patent by using the patented

techniques as part of its own “marketing method” or “marketing system.” In other words, Orion patented a “process or

invention which could reasonably be considered an ‘advertising idea,’ ” Mez, 90 Cal. Rptr. 2d at 733, and Orion “allege[d]

violation of a method patent involving advertising ideas,”

Homedics, 315 F.3d at 1141. “In the context of the facts and

circumstances of this case,” Mez, 90 Cal. Rptr. 2d at 733,

Orion’s patent infringement claim alleged the “misappropriation of advertising ideas.”

Defendants attempt to rebut that conclusion on two

grounds. First, they argue that a “misappropriation of advertising ideas” must relate to the actual content of the challenged advertisement. In support, Defendants quote our

holding that, to constitute an advertising injury, the third-party

claim must concern the “elements of the advertisement itself

—in its text[,] form, logo, or pictures—rather than in the

product being advertised.” Iolab Corp. v. Seaboard Sur. Co.,

15 F.3d 1500, 1506 (9th Cir. 1994). Defendants’ reliance on

that quotation is misplaced because the BYO feature at issue

in the Orion action easily meets that test. The BYO feature is

the “form” “of the advertisement itself,” i.e., a build-yourown-vehicle module, and plainly is not “the product being

advertised,” i.e., motor vehicles. Defendants’ reliance on

other cases is similarly misplaced. See, e.g., Heritage Mut.

Ins. Co. v. Advanced Polymer Tech., Inc., 97 F. Supp. 2d 913,

927 (S.D. Ind. 2000) (“Environ simply does not claim . . . that

the piping product that APT allegedly took was inherently an

idea on how to advertise. Rather, Environ alleged that APT

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unfairly competed with it by stealing its product and claiming

the piping as its own, a distinctly different claim from alleging that APT took an idea about how to . . . advertise the

underground piping product.” (emphasis added)).

Second, Defendants argue that the source of the advertising

idea must be from a competitor. Because Orion is a patentholding company and not a direct competitor of Hyundai’s,

Defendants reason, the Orion action cannot constitute a “misappropriation of advertising ideas.” As an initial matter, nothing in the policy’s text—“misappropriation of advertising

ideas”—suggests that it must be a misappropriation of a competitor’s advertising ideas. Nor can we discern any contextual,

public-policy, or logical significance to who owns the legal

rights to the advertising idea in question. In any event, we

find no support for Defendants’ competitor-only rule in California law.

In conclusion, we acknowledge that the California courts,

and we, have rejected past claims that a patent infringement

constitutes an advertising injury. But both the California

courts and our court, applying California law, have held that

a contextual analysis applies and have recognized that

infringement of a patented advertising method could constitute a misappropriation of advertising ideas. In the context of

the facts of this case, we conclude that the Orion action contained allegations of misappropriation by Hyundai of a patented advertising method.

We find support for our conclusion in the persuasive

authority, Amazon.com International, Inc. v. American

Dynasty Surplus Lines Insurance Co., 85 P.3d 974 (Wash. Ct.

App. 2004) (applying Washington law).3 In that case, Ama3Defendants are correct, of course, that Amazon.com is not binding

authority, because it was applying Washington law and not California law.

It is nevertheless persuasive authority. We also note that, in the relevant

portions of its analysis, block-quoted in text, the Washington court cited

our case that did apply California law. It appears that there is little difference between Washington law and California law in these respects. 

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zon.com used music-preview technology on its website; a

company named Intouch sued Amazon.com for patent

infringement; and Amazon.com’s insurers declined to defend

it. Id. at 975-76. In addressing Amazon.com’s claim against

the insurers, the court held:

The misappropriation [of advertising ideas] must

occur “in the elements of the advertisement itself—

in its text, form, logo, or pictures—rather than in the

product being advertised.” [Iolab Corp. v. Seaboard

Sur. Co., 15 F.3d 1500, 1506 (9th Cir. 1994).]

Patent infringement arising from the manufacture

of an infringing product is not an advertising injury

even if the infringing product is used in advertising.

[Id.] But patent infringement may constitute an

advertising injury “where an entity uses an advertising technique that is itself patented.” [Id. at 1507

n.5.] That was the essence of Intouch’s allegation

against Amazon. . . . Intouch alleged that its patented

music preview technology was an element of Amazon’s advertisement. The Intouch complaint thus

conceivably alleged misappropriation of an [advertising] idea . . . .

Amazon.com, 85 P.3d at 977 (footnotes omitted; footnote citations in brackets). The same analysis applies here: Hyundai

“use[d] an advertising technique that is itself patented,” and

“[t]hat was the essence of [Orion’s] allegation against [Hyundai].” Id.

C. Causal Connection

Finally, a causal connection must link the advertisement

and the alleged advertising injury. As is the case with the previous element, courts have found no causal connection when

the patents that the insured allegedly infringed concerned the

underlying product for sale. But those same cases have noted

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or implied that a causal connection would exist in situations

like this one, where the patent concerns the method of advertising. When the advertisement itself infringes on the patent,

the causal connection requirement is met.

In Iolab, 15 F.3d at 1502, Iolab manufactured and sold an

intraocular lens. A patent holder sued Iolab for patent

infringement concerning the manufacture and sale of the lens,

and Iolab’s insurer refused to defend it. Id. at 1502-03. Iolab

sued its insurer and alleged that the patent infringement claim

alleged an “advertising injury.” Id. at 1503. Iolab insisted that

it was an advertising injury because its advertisement of the

lens had exposed it to the litigation. Id. at 1506. We disagreed. Id. We held that there was no causal connection

because the patent infringement “claim against Iolab was not

based on the advertising of the intraocular lens.” Id. at 1507.

In a footnote, we wrote: “Although the issue is not before us,

. . . where an entity uses an advertising technique that is itself

patented, a court might possibly hold that the infringement

arises out of or is committed in the advertising.” Id. at 1507

n.5.

Similarly, in Everest & Jennings, Inc. v. American Motorists Insurance Co., 23 F.3d 226, 229 (9th Cir. 1994), we held:

Even if true [that E & J advertised the patentinfringing product and that advertisement brought

the infringement to the patent-holder’s attention],

these facts simply do not establish the necessary

causal connection between the alleged infringement

and E & J’s advertising. Burke’s claim never

asserted that the infringement occurred because of E

& J’s advertising, much less that E & J’s advertising

infringed Burke’s patent independent of E & J’s

manufacture and sale of the product.

See also Bank of W. v. Superior Court, 833 P.2d 545, 559

(Cal. 1992) (“[A] claim of patent infringement does not occur

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in the course of advertising activities within the meaning of

the policy even though the insured advertises the infringing

product, if the claim of infringement is based on the sale or

importation of the product rather than its advertisement.”

(emphasis added) (alterations and internal quotation marks

omitted)).

In Simply Fresh Fruit, Inc. v. Continental Insurance Co.,

94 F.3d 1219, 1220 (9th Cir. 1996), a third-party competitor,

Reddi-Made, alleged that Simply Fresh Fruit stole its secret

(and patented) automated method for cutting fruit, by hiring

former Reddi-Made employees. Simply Fresh Fruit’s insurers

refused to defend, and Simply Fresh Fruit filed suit against its

insurers. Id. at 1221. In that suit, Simply Fresh Fruit alleged

that Reddi-Made did not know about the patent infringement

until Simply Fresh Fruit began advertising its well-cut fruit.

Id. at 1223. Simply Fresh Fruit thus concluded that the patent

infringement claims were advertising injuries. Id. at 1222-23.

[7] We rejected that argument for the obvious reason that

the advertising itself did not violate any patents; it simply

tipped off Reddi-Made. Id. at 1223. “[T]he advertising activities must cause the injury—not merely expose it.” Id.; see

also Microtec Research, Inc. v. Nationwide Mut. Ins. Co., 40

F.3d 968, 971 (9th Cir. 1994) (“It is now the clearly established law in California . . . that the injury for which coverage

is sought must be caused by the advertising itself.”). In Simply

Fresh Fruit, “Reddi-Made’s federal claims for direct, contributory and inducing infringement all accrued when Simply

Fresh . . . allegedly used its patented devices and processes.”

94 F.3d at 1222.

In summary, we must determine whether the advertising

itself constituted the (injurious) use of the patented method.

See, e.g., id. at 1223 (noting that “the advertising activities

must cause the injury”). When the patent infringement occurs

independent of the actual advertisement of the underlying

product, because the patent concerns the underlying product

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(either the product itself or the method of creating the product), then the causal connection typically4

 is not established,

even when the advertising exposes the infringement. When

the patent infringement occurs in the course of the advertising, however, the causal connection is established.

[8] Here, the use of the BYO feature in the website is itself

an infringement of the patent because it is the use of the BYO

feature that violates the patent (and not the design of the car,

for instance, or the method of manufacturing the car, or the

car’s engine, or anything related to the car for sale). Furthermore, and critically, it is that use that caused the injuries

alleged by Orion. See Orion’s complaint (“Hyundai has been

and now is directly infringing . . . the ’342 patent . . . by,

among other things, methods practiced on its various websites

. . . using . . . marketing methods [and] marketing systems . . .

covered by one or more claims of the ’342 patent to the injury

of Orion.”). Accordingly, there is a direct causal connection

between the advertisement (i.e., the use of the BYO feature on

the website) and the advertising injury (i.e., the patent

infringement). Because the use of the patented method was

itself an advertisement that caused the injuries alleged in the

third-party complaint, Hyundai has established the requisite

causal connection.

It is irrelevant whether Hyundai theoretically could have

violated the patent in some way other than in its advertising.

The proper inquiry asks, with respect to what actually

occurred, whether the advertising itself caused the injury, that

is, whether the advertising itself was the improper use of the

patented method. Again, we find persuasive the Washington

Court of Appeals’ analysis in Amazon.com: “[H]ere, the

alleged injury derived not merely from misappropriation of

the [patented software], but from its use as the means to mar4There may be situations in which an advertisement induces another to

infringe a patent. We do not reach the question whether the required

causal connection could be established in that situation. 

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ket goods for sale. In other words, the infringement occurred

in the advertising itself. [The third party’s] allegations therefore satisfied the causation requirement for a potential advertising injury.” 85 P.3d at 978.

CONCLUSION

[9] The third-party patent infringement claims here alleged

that Hyundai’s web-based advertisement violated the third

party’s advertising-method patents. We hold that, in the context of the facts of this case, the third-party patent infringement claims constituted allegations of “misappropriation of

advertising ideas” for purposes of the insurance policy. We

therefore reverse the district court’s grant of summary judgment to Defendants on all claims. We remand with instructions to grant summary judgment to Hyundai on the first

claim for declaratory relief on the duty to defend and with

instructions to conduct any further proceedings, if necessary,

on Hyundai’s other three claims.

REVERSED and REMANDED with instructions. 

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