Recent Copyright Case: No CGL Coverage
December 2006
Copyright infringement in the course of advertising
and exclusions for publishing activities and willful violation of a penal statute
defeat a claim for CGL coverage.
by Sanford
E. Warren Jr. and Eric Klein
Akin Gump Strauss
Hauer & Feld LLP
Twentieth Century Fox Film Corporation, SFM Entertainment LLC, and Newline
Home Video, Inc. (collectively "Twentieth Century Fox") filed a lawsuit in the
U.S. District Court for the Central District of California against Dastar Corporation,
Entertainment Distributing, and Marathon Music and Video (collectively, "Dastar").
Twentieth Century Fox alleged that Dastar infringed on its exclusive right to
reproduce and distribute videos based upon a book by copying its video series
and selling it under another title. The district court in that case granted
Twentieth Century Fox's motion for summary judgment and subsequently entered
judgments requiring Dastar to pay Twentieth Century Fox damages under the Copyright
Act and attorney fees and costs. Twentieth Century Fox
Film Corp. v. Dastar Corp., 2000 U.S. Dist. LEXIS 22064 (D. Cal. 2000).
The judgment was appealed to the Ninth Circuit Court of Appeals and was affirmed.
Subsequently, Dastar filed petition for writ of certiorari with the U.S. Supreme
Court which reversed and remanded.
Second Lawsuit—Case against Insurer
Dastar's insurers filed a declaratory action against it seeking a declaration
that the insurers were not required to indemnify Dastar in the first lawsuit.
A commercial general liability (CGL) insurance policy issued by American Economy
Insurance Company and a commercial umbrella liability insurance policy issued
by American States Insurance Company provided substantially similar coverage
for advertising injury. The CGL policy provided:
- We will pay those sums that the insured becomes legally obligated to
pay… because of "advertising injury" …
Advertising injury:
- means injury arising out of … [inter alia, infringement of copyright]
… committed in the course of advertising your goods, products or services....
The policies excluded coverage for advertising injury arising out of an offense
committed by an insured whose business is publishing or the willful violation
of a penal statute by or with consent of an insured. SeeAmerican States
Ins. Co. v. Dastar Corp., 2006 U.S. Dist. LEXIS 37873, 2-3 (D. Or. 2006).
Dastar contends that facts proved in the Twentieth Century Fox case establish
that Twentieth Century Fox was injured by copyright infringement committed by
Dastar in the course of advertising. Specifically, Dastar contends that it committed
copyright infringement in the course of advertising activity by selling its
videocassette series under the title "Campaigns in Europe," and by using the
title "Crusade in Europe" on the packaging for Campaigns in Europe. The insurers
dispute that Dastar's copyright infringement occurred in the course of advertising,
and further argued that the exclusions for publishing activities and willful
violation of a penal statute also defeated Dastar's claim for coverage. The
parties agreed that "advertising" was not defined in the policies, was therefore
ambiguous, and should be construed broadly in favor of coverage.
Court's Analysis
The sale of infringing material is not
copyright infringement in the course of advertising. SeeSimply Fresh
Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219, 1221 (9th Cir. 1996)
(emphasis added); See also
United States Fid. & Guar. Co. v. Star Techs., Inc.,
935 F. Supp. 1110, 1116 (D. Or. 1996). Sales may result from advertising activities,
but sales are not the same thing as advertising. Dastar's use of the title "Crusade
in Europe" on packaging for "Campaigns in Europe" did not violate the Copyright
Act. As a matter of law, Dastar cannot establish coverage. SeeDastar Corp. at 2006 U.S. Dist. LEXIS 37873, 4-5.
Conclusion
The court held that the insureds could not establish coverage and that the
insurers had no duty to indemnify the insureds for liability resulting from
judgments entered in the prior litigation. Although sales might result from
advertising activities, sales were not the same thing as advertising. See Dastar Corp. at 2006 U.S. Dist. LEXIS 37873 at 5.
This decision reaffirms that the CGL policy is not a reliable policy for
media liability coverage. Insureds need to analyze any publishing exposures
they may have, take risk management steps to reduce or eliminate those exposures,
and purchase insurance specific to that risk if necessary. Generally speaking,
a media liability or cyber liability policy is best used to insure these types
of exposures.
Eric J. Klein's practice focuses on all aspects of intellectual property litigation, including
patent, copyright, and trademark matters. Mr. Klein received his B.S.C.E. from
Texas A&M University and both his M.B.A. and J.D. degrees from Texas Tech University.
He is a member of the State Bar of Texas, the Dallas Bar Association, the American
Bar Association, and the American Intellectual Property Association. He can
be reached by calling (214) 969-2751 or by e-mail at .
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