Expert Commentary

Recent Copyright Case: No CGL Coverage

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.


Intellectual Property
December 2006

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 email.


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