Risk Management

Insurers Could Pay for Patent Infringements

Federal appeals court ruling may force insurance companies to rewrite the language in their commercial liability policies.
Ed ZwirnAugust 17, 2004

Corporations could have more protection from intellectual-property-related lawsuits than they might have thought.

In what the National Underwriter Online Property & Casualty News Service called a “precedent-setting decision,” a federal appeals court panel has ruled that commercial insurance policies cover claims alleging trademark infringement of brand names for commercial products.

The case reportedly involves Federal Insurance, a subsidiary of Warren, N.J.-based Chubb Group; two perfume manufacturers, Dana Perfume and Houbigant LTEE, LTD; and Houbigant, another manufacturer. Both Dana and Houbigant LTEE were insured under commercial general liability and commercial excess umbrella policies issued by Federal.

Houbigant had agreed to a licensing manufacturing arrangement with the companies, but has since accused the two manufacturers, now bankrupt, of infringing on its trademark by not living up to the terms of the agreement, according to the insurance news service. The company is seeking $320 million and other costs for litigation from Federal on the policies.

In its decision, reached in July, the Third U.S. Circuit Court of Appeals reversed a lower court decision that held to a general line holding that laws governing patent infringement extended only to infringement of trademarked names and “works of art,” the online publication reported.

John Schryber, a partner at Patton Boggs, LLP, in Washington, D.C., who represented Houbigant and argued the case before the appeals court, reportedly said the ruling would have “nationwide impact.”

The likely effect of the ruling, according to Schryber, would be to force insurance companies to rewrite the language in their commercial liability policies and to expose insurers to lawsuits from existing policyholders who may have been sued for trademark infringement but denied coverage.

A bankruptcy court, overseeing the bankruptcy of the manufacturers, agreed to a settlement in which Houbigant would be paid $50 million for patent infringement by the other companies, which are now bankrupt. Houbigant was allowed to pursue the balance of what it said it is owed through the manufacturer’s insurers. The perfume maker is seeking a total award of $320 million plus litigation costs.

A spokesperson for Chubb said the company does not comment on ongoing litigation, according to the report.