Insurers Did Not Act As Advertised in “Advertising Injury” Suit
Does coverage for liability arising out of “advertising injury” include copyright infringement suits where the insured was not alleged to have engaged in advertisement? In Superior Integrated Solutions, Inc. v. Mercer Insurance Company of New Jersey, Inc., the New Jersey Appeals Court said “yes,” affirming the trial court’s granting summary judgment for an insured.
The suit involved whether a purported software infringer Insured Superior Integrated Solutions (“Superior”), could recover under an insurance policy issued by Mercer Insurance Co. (“Mercer”), which covered, in part, “advertising injury . . . arising out of an offense committed in the course of advertising goods, products, or services of your business/operations covered by this policy.” An “advertising injury” as defined in the policy included “Infringement of copyright.”
Superior was sued by Reynolds & Reynolds Company (“Reynolds”) in 2012. Reynolds designed an “automobile dealer management system” to automobile retailers, which allowed the retailers to organize their inventory, customer contacts, and financial and insurance information. Reynolds brought copyright infringement claims against Superior, alleging that the computer company had copied its program and distributed such copies without authorization, in an attempt solicit Reynolds’ customers. Specifically, Reynolds accused Superior of trying to convince its customers to break their agreement with Reynolds and integrate their software with Superior’s, so that Superior could to sell its services and products to Reynolds’ customers.
Following suit, Mercer denied Superior coverage and a defense on multiple grounds, including that no advertising injury had been alleged in the Reynolds complaint. Specifically, Mercer argued Reynolds had never alleged that Superior engaged in any “advertising,” which the parties agreed meant drawing the public’s attention to a product or service in order to attract customers. According to Mercer, the Reynolds complaint merely alleged Superior was “selling” the unauthorized software of Reynolds, not advertising it.
Mercer’s argument was premised on a prior New Jersey appellate decision, Information Spectrum v. Hartford, where the court determined there was no “advertising injury” where the insured’s alleged injury did not arise out of its advertising but out of the insured passing off another’s product as its own. The appellate court held there that the advertising injury must be “caused by the advertising act itself.”
The trial court disagreed with Mercer, and the appeals court affirmed. With respect to the purported “advertising injury,” the appeals court explained that unlike in Information Spectrum, Superior was not passing off Reynolds’ program as its own, but instead was alleged to have profited from its theft of Reynolds’ program by telling Reynolds’ customers that Reynolds’ program could be used and integrated with Superior’s program. In other words, unlike in Information Spectrum, Superior’s purported act of infringement was what allowed it to attract additional customers, constituting an “advertising injury” within the meaning of the policy. The appellate court also reasoned that “advertising activities must be a cause of the claimant’s injury,” but need not be “the only cause of the injury,” and therefore, even if non-advertising activities resulted in injury, there was coverage.
This issue adds some nuance to New Jersey’s law relating to coverage for “advertising injury.” Insureds who face infringement suits, and who can demonstrate the infringement involved statements made in the solicitation of business, and therefore caused an “advertising injury” may be able to obtain coverage.