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Commercial General
Liability |
Patent Infringement |
Piracy |
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Duty To Defend And
Indemnify |
Advertising Injury |
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Konami (America), Inc.
(Konami) had secured two comprehensive general liability policies from Hartford
Insurance Company of Illinois (Hartford-Illinois) and one from Hartford
Casualty (The Hartford) for periods beginning on December 17, l986 and ending
December 17, 1989. The three policies were similar but only the first covered
piracy. None covered damages arising from patent infringement.
On June 1, 1993, North
American Philips Corporation and Lockheed Sanders, Inc. (jointly North
American/Lockheed) filed a complaint in federal court alleging patent
infringement. It alleged that Konami had infringed on patents relating to
digital circuitry for television games. It also alleged that Konami had
incorporated a North American/Lockheed patented device into its coin-operated
video games that were manufactured, used, and sold to its distributors.
Konami tendered the defense
of the action to The Hartford on July 9, 1993. The Hartford denied that its
policy provided coverage because the complaint did not allege an advertising
injury arising out of the insured's advertising activities. On February 15,
1994, Konami agreed to pay North American/Lockheed $495,000,representing a 3%
royalty on each game sold up until April 1989.
Konami filed its complaint
against The Hartford for breach of contract on June 28, 1994. It alleged that
The Hartford was obligated to defend and indemnify it and contended that the
policies The Hartford issued covered any actions arising from alleged patent
infringement under the "advertising injury" provision.
The trial court granted
Hartford's motion for summary judgment on the second and third policy and
Konami did not appeal. As to the first policy, the trial court reconsidered its
opinion and granted summary judgment for Konami for settlement of the primary
action, interest, costs, and attorneys' fees, in the total amount of
$984,943.15. The Hartford appealed.
The question before the
higher court was whether patent infringement was an "advertising
injury" covered by Hartford's policy. Konami contended that The Hartford
was obligated to defend and indemnify it if it committed patent infringement in
its advertising. The court agreed with the insured that some dictionaries
define "piracy" to include patent infringement but it said the word
had to be construed in the context of the policy. While the policy in this case
used the word "piracy," coverage under that provision was limited to
occurrences in the course of Konami's business.
The higher court said:
"Direct patent infringement refers to the making, using, or selling of a
patented invention." Furthermore, North American/Lockheed did not allege
it was injured in any way by Konami's advertising. Without such a connection to
advertising activities, Konami cannot be afforded coverage under the
advertising injury provision."
The trial court erred in
granting Konami's motion for summary judgment and that judgment was reversed.
Konami (America) Inc., v.
Hartford Insurance Company of Illinois, Appellant-No. 2-00-1219-Appellate Court
of Illinois, Second District-January 4, 2002-761 North Eastern Reporter 2d 1277