FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HYUNDAI MOTOR AMERICA,
Plaintiff-Appellant,
No. 08-56527
v.
D.C. No.
NATIONAL UNION FIRE INSURANCE CV-08:00020-JVS-
COMPANY OF PITTSBURGH, PA; RNB
AMERICAN HOME ASSURANCE
OPINION
COMPANY,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
James V. Selna, District Judge, Presiding
Argued and Submitted
February 3, 2010—Pasadena, California
Filed April 5, 2010
Before: Betty B. Fletcher, Harry Pregerson, and
Susan P. Graber, Circuit Judges.
Opinion by Judge Graber
5191
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5195
COUNSEL
Gene C. Schaerr, Winston & Strawn LLP, Washington, D.C.,
for the plaintiff-appellant.
Richard H. Nicolaides, Jr., Bates & Carey LLP, Chicago, Illi-
nois, for the defendants-appellees.
OPINION
GRABER, Circuit Judge:
After Plaintiff Hyundai Motor America (“Hyundai”) placed
certain features on its website, a third party sued Hyundai for
patent infringement. Hyundai sought a defense from its liabil-
ity insurers, Defendants National Union Fire Insurance Com-
pany of Pittsburgh and American Home Assurance Company.
Because the alleged patent infringement concerned one of
Hyundai’s advertising methods, Hyundai concluded that the
third-party suit alleged an “advertising injury,” as that term is
defined in the insurance policy. Defendants disagreed and
declined to defend Hyundai, which defended itself. Hyundai
later sued Defendants in this diversity action, seeking to
recover its defense costs in the earlier third-party action. The
district court agreed with Defendants that the alleged patent
infringement did not constitute an “advertising injury” under
the insurance policy and granted summary judgment to
Defendants. On de novo review, Fleming v. Yuma Reg’l Med.
Ctr., 587 F.3d 938, 940 n.2 (9th Cir. 2009), we reverse and
remand.
5196 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
FACTUAL AND PROCEDURAL HISTORY
Like most (if not all) major corporations, Hyundai main-
tains a website. At issue here are two features of the website:
a “build your own vehicle” (“BYO”) feature and a parts
catalogue feature. The BYO feature allowed users to navigate
through a series of questions on a menu (to select, for exam-
ple, colors, engine and transmission types, and options). In
response to the user’s input, the BYO feature displayed cus-
tomized vehicle images and pricing information. The parts
catalogue feature similarly allowed users to navigate through
a series of menus (to choose, for example, a model, engine
system, and sub-system) and displayed customized parts
images and pricing information.
Orion IP, LLC (“Orion”), a patent-holding company, holds
the rights to two patents that are relevant here. Patent Number
5,615,342 (“’342 patent”) concerns a method of generating
customized product proposals for potential customers of an
automobile dealer. The patent explains that “preprinted bro-
chures” used by car dealerships are under-inclusive, because
they can show pictures of only a few combinations of cars,
despite the many different options available. At the same
time, a preprinted brochure is over-broad, because it contains
a complicated pricing matrix, much of which “is not of inter-
est to a particular customer, since the customer will typically
be interested in the price for a single, or relatively few, com-
binations of options for the car.” “In containing all of this var-
ied and generic information in an attempt to be ‘all things to
every customer,’ the preprinted brochures actually are of lim-
ited value to any particular customer.” The patent description
also notes that these brochures become quickly out of date
because of price changes and unavailable models. “The pres-
ent invention solves these problems by utilizing a computer-
based system to dynamically create customized, printed pro-
posals for potential purchasers of a product.” The patent’s
abstract states that the invention is “[a]n electronic system for
creating customized product proposals [that] stores a plurality
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5197
of pictures and text segments to be used as building blocks in
creating the proposal.” “The system queries a user to deter-
mine a customer’s needs and interests. Based upon the
answers to the queries, the system selects the appropriate pic-
ture and text building blocks to fill in proposal templates.”
“Based upon the customer’s answers to the queries, the sys-
tem links product pictures, environment pictures, and textual
descriptions together in a customized proposal.” “Since each
proposal is customized for a particular customer, each pro-
posal will have a much more persuasive effect in selling the
product.”
Patent Number 5,367,627 (“’627 patent”) concerns a simi-
lar method, but is aimed at the sale of parts. The ’627 patent
is aimed at aiding parts salespersons and works much the
same way as the ’342 patent.
In 2005, Orion sued Hyundai and nineteen other car com-
panies for patent infringement. Orion alleged that Hyundai’s
BYO feature infringed the ’342 patent and that its sales parts
catalogue infringed the ’627 patent. Specifically, in two para-
graphs that, except for the patent number, are worded identi-
cally, Orion alleged:
Defendant Hyundai has been and now is directly
infringing, and indirectly infringing by way of induc-
ing infringement and/or contributing to the infringe-
ment of the ’342 patent [or ’627 patent] in the state
of Texas, in this judicial district, and elsewhere in
the United States by, among other things, methods
practiced on its various websites (including but not
limited to www.hyundaiusa.com) making and using
supply chain methods, sales methods, sales systems,
marketing methods, marketing systems and inven-
tory systems covered by one or more claims of the
’342 patent [or ’627 patent] to the injury of Orion.
5198 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
Hyundai sought a defense from its insurers, Defendants.
Defendants had issued an insurance policy to Hyundai with
the following pertinent provisions:
COVERAGE B. PERSONAL AND ADVERTIS-
ING INJURY LIABILITY
1. Insuring Agreement
a. . . . We [Defendants] will have the right
and duty to defend the insured against any
“suit” seeking those damages [caused by,
among other things, “advertising injury”].
...
b. This insurance applies to: . . .
....
(2) “Advertising injury” caused by an
offense committed in the course of
advertising your goods, products or
services . . . .
....
SECTION V — DEFINITIONS
1. “Advertising injury” means injury arising out of
one or more of the following offenses:
a. Oral or written publication of material
that slanders or libels a person or organiza-
tion or disparages a person’s or organiza-
tion’s goods, products or services;
b. Oral or written publication of material
that violates a person’s right of privacy;
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5199
c. Misappropriation of advertising ideas or
style of doing business; or
d. Infringement of copyright, title, or slo-
gan.
(Emphasis added.)
Hyundai asserted that Defendants had a duty to defend
Hyundai because Orion’s claims constituted allegations of,
among other things, “[m]isappropriation of advertising ideas.”
Defendants disputed that interpretation of the coverage and
declined to defend Hyundai. Hyundai thereafter defended
itself in the Orion action. A jury found against Hyundai and
awarded the patent-holder $34 million in damages.
Hyundai then filed this action against Defendants in federal
district court. Hyundai alleges four state-law claims, all of
which proceed from the premise that the insurance policy
obligated Defendants to defend Hyundai in the patent-
holder’s action. Hyundai seeks declaratory relief and its rea-
sonable costs of defense but does not seek to recover the
amount of the jury verdict.
The district court granted summary judgment to Defen-
dants. The court held that patent infringement is not an “ad-
vertising injury.” The court also held, as an alternative basis
for granting summary judgment, that Hyundai was “unable to
demonstrate a causal connection between its advertising[ ]
and Orion’s alleged injury.” The court did not reach the ques-
tion whether the BYO feature and the online parts catalogue
“constitute ‘advertising’ as defined by the relevant California
authority.”
Hyundai timely appeals.
DISCUSSION
Hyundai argues that the Orion action constituted a lawsuit
alleging an “advertising injury” under the duty to defend
5200 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
clause in the insurance policy. More specifically, Hyundai
argues that the patent infringement claims in the Orion action
were claims alleging the “misappropriation of advertising
ideas.”
[1] California law governs in this diversity action. Travel-
ers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546 F.3d
1142, 1145 (9th Cir. 2008); see generally Vestar Dev. II, LLC
v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir. 2001)
(describing the method for determining questions of state
law). Under California law, interpretation of an insurance pol-
icy “is a question of law.” Hameid v. Nat’l Fire Ins. of Hart-
ford, 71 P.3d 761, 764 (Cal. 2003).
An insurance policy is a contract between the insurer
and the insured. As with all contracts, the mutual
intention of the parties at the time the contract is
formed governs interpretation. The parties’ intent is
inferred from the “clear and explicit” meaning of
these provisions, interpreted in their “ordinary and
popular sense,” unless used by the parties in a tech-
nical sense or a special meaning is given to them by
usage. Thus, if the meaning a lay person would
ascribe to contract language is not ambiguous, we
apply that meaning.
Id. (citation, ellipses, and some internal quotation marks omit-
ted).
[2] The general principles governing “duty to defend”
clauses are well settled. “Liability insurers owe a duty to
defend their insureds for claims that potentially fall within the
policy’s coverage provisions. The carrier must defend a suit
which potentially seeks damages within the coverage of the
policy.” Id. (internal quotation marks omitted). The obligation
to defend “can be excused only when the third party com-
plaint can by no conceivable theory raise a single issue which
could bring it within the policy coverage.” Lebas Fashion
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5201
Imps. of USA, Inc. v. ITT Hartford Ins. Group, 59 Cal. Rptr.
2d 36, 40 (Ct. App. 1996) (emphasis and internal quotation
marks omitted). This presumption in favor of the insured
applies to factual disputes, but not legal disputes. Id. “Any
doubt as to whether the facts give rise to a duty to defend is
resolved in the insured’s favor.” Id. But “it is settled that a
potential for coverage cannot be based on an unresolved legal
dispute concerning policy interpretation which is ultimately
resolved in favor of the insurer.” Id. In other words, if the
unresolved legal dispute ultimately is resolved in a way show-
ing that the insurer had no duty to defend, then the insurer has
no liability to the insured. Otherwise the insurer is liable to
the insured. We turn, then, to the legal question whether
Defendants had a duty to defend Hyundai.
Determination of the duty to defend depends, in
the first instance, on a comparison between the alle-
gations of the complaint and the terms of the policy.
But the duty also exists where extrinsic facts known
to the insurer suggest that the claim may be covered.
Moreover, that the precise causes of action pled by
the third-party complaint may fall outside policy
coverage does not excuse the duty to defend where,
under the facts alleged, reasonably inferable, or oth-
erwise known, the complaint could fairly be
amended to state a covered liability.
Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal.
2005) (citations omitted).
[3] The California Supreme Court has specified three
required elements to establish a duty to defend for an “adver-
tising injury”:
[I]n order for [Hyundai] to have a reasonable expec-
tation of coverage under [Defendants’] policy for
“advertising injury” [it] must show that: (1) [it] was
engaged in “advertising” during the policy period
5202 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
when the alleged “advertising injury” occurred; (2)
[Orion’s] allegations created a potential for liability
under one of the covered offenses (i.e., misappropri-
ation of advertising ideas); and (3) a causal connec-
tion existed between the alleged injury and the
“advertising.”
Hameid, 71 P.3d at 764-65. The parties dispute all three ele-
ments.
A. “Advertising”
The term “advertising” means “widespread promotional
activities usually directed to the public at large,” but it does
not encompass “solicitation.” Id. at 766. Plaintiff argues that
it placed the BYO feature1 on its website to promote its prod-
ucts; a website is plainly directed to the public at large; there-
fore, the BYO feature constitutes “advertising.” Defendants
respond that, because the BYO feature creates customized
proposals specific to an individual user, the BYO feature
effectively is high-tech one-on-one solicitation. The district
court did not reach this issue, because it held that Hyundai
cannot meet the other two requirements.
[4] As noted above, “[d]etermination of the duty to defend
depends, in the first instance, on a comparison between the
allegations of the [third-party] complaint and the terms of the
policy.” Scottsdale Ins., 115 P.3d at 466. The reason for this
rule is that, when the insurer is presented with the opportunity
1
Orion’s complaint alleged infringement by Hyundai both through its
BYO feature and through its electronic sales parts catalogue. But “the
insurer must defend the entire action even when only one of several causes
of action is potentially covered.” Foster-Gardner, Inc. v. Nat’l Union Fire
Ins. Co., 959 P.2d 265, 273 (Cal. 1998). Because we conclude that Defen-
dants had a duty to defend with respect to the claim concerning the BYO
feature, we need not—and do not—discuss the patent infringement claim
concerning the electronic sales parts catalogue. Our discussion in text con-
cerns the BYO feature only.
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5203
to defend, the insurer has, at a minimum, a copy of the com-
plaint. Rombe Corp. v. Allied Ins. Co., 27 Cal. Rptr. 3d 99,
103 (Ct. App. 2005). Here, Orion alleged that Hyundai’s
BYO feature constituted “making and using supply chain
methods, sales methods, sales systems, marketing methods,
marketing systems and inventory systems.” (Emphasis added.)
Orion evidently viewed the BYO feature as, at least in part,
“marketing methods” or “marketing systems” and described
the feature as such in its complaint. The description in the
third-party complaint—“marketing methods” or “marketing
systems”—fits squarely within the definition of “advertising”
—“widespread promotional activities usually directed to the
public at large,” Hameid, 71 P.3d at 766. Comparing the
third-party complaint with the insurance policy, as the Cali-
fornia Supreme Court requires, Scottsdale Ins., 115 P.3d at
466, we conclude that Orion’s complaint alleged “advertis-
ing” activities.
In some circumstances, however, we also may consider
“extrinsic facts known to the insurer.” Id. Here, it is safe to
assume that Defendants had access to Hyundai’s website and
could view the BYO feature in making their determination
whether to defend.2 Relying on the California Supreme
Court’s decision in Hameid, Defendants argue that each
user’s invocation of the BYO feature constitutes an individu-
alized “solicitation.”
In Hameid, the plaintiff hairdresser left his employer and
started a new beauty parlor. 71 P.3d at 763. The former
employer “sued Hameid for stealing its customer list and
2
Even if the duty to defend is not evident on the face of the complaint,
the duty to defend nevertheless arises if the extrinsic facts suggest that the
claim may be covered. Scottsdale Ins., 115 P.3d at 466. It is unclear
whether the opposite proposition holds. That is, it is unclear whether, as
Defendants urge here, extrinsic facts may be considered in order to defeat
an otherwise apparent duty to defend. Because we reach the same conclu-
sion either way, we need not resolve this question nor decide whether
viewing the BYO feature on the website constitutes “extrinsic facts.”
5204 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
soliciting its customers.” Id. The court addressed Hameid’s
argument that “advertising” should be interpreted to include
solicitation. Id. at 765. The court surveyed the existing case
law and sided with the majority approach, which requires
“widespread distribution of promotional material to the public
at large.” Id. at 765-69 (internal quotation marks omitted).
Applied to the case at hand, the court held that Hameid’s
agents
made telephone calls and sent mailers to [the former
employer’s] customers advising them of their new
location and of Hameid’s lower prices. These activi-
ties strongly resemble the solicitations of a competi-
tor’s customers in [one case]; the recruiting letters to
a competitor’s employees in [another case]; and the
subcontractor’s submission of bids in [a third case]
—all of which were held to be “solicitation,” not
“advertising.”
Id. at 769-70; see also Rombe, 27 Cal. Rptr. 3d at 107 (hold-
ing that an in-person breakfast meeting with clients consti-
tutes “solicitation” and not “advertising” under Hameid);
Hayward v. Centennial Ins. Co., 430 F.3d 989, 992 (9th Cir.
2005) (holding that a third-party claim for wrongful solicita-
tion absolved the insurer of the duty to defend because, under
Hameid, solicitation is not advertising).
Defendants correctly observe that the BYO feature has
some similarities to solicitation. After all, the BYO feature
does little, if anything, until the user inputs some personal
preferences. The patent’s raison d’etre is to create customized
proposals, specific to an individual user. In this way, each
invocation of the BYO feature by a given user is somewhat
similar to an individualized solicitation like the ones dis-
cussed in Hameid.
But Defendants’ attempt to fit the BYO feature into the
framework of Hameid ultimately is unpersuasive. The court in
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5205
Hameid focused on the fact that the solicitations were limited
to a discrete number of known potential customers. It rejected
a characterization of that form of solicitation as “advertising,”
because it was not widely distributed to the public at large.
Here, the BYO feature is widely distributed to the public at
large, to millions of unknown web-browsing potential cus-
tomers, even if the precise information conveyed to each user
varies with user input. All the users are still using the same
BYO feature.
An analogy to a hypothetical invention in the pre-Internet
age helps to illustrate why the BYO feature advertises cars to
the general public. Instead of the high-tech, Internet version
of the BYO feature, imagine a more crude, paper-only ver-
sion. The invention includes tabbed sliders and plastic over-
lays; the user chooses various options and follows directions
to assemble the various physical parts. The resulting compos-
ite display shows the user’s choices, along with pricing infor-
mation displayed in a cut-out window. And imagine that
Hyundai included one of these crude forms of the BYO fea-
ture as an insert in a general-circulation newspaper. It seems
clear that this “invention” would constitute “advertising,”
even though the individual newspaper readers might each
select different options and arrive at entirely different final
“displays.” Hyundai’s BYO feature is much more akin to that
example than it is to the individualized solicitations sent to a
specified, extant customer list discussed in Hameid, or to the
other individualized solicitations discussed in that case.
We conclude that the BYO feature constituted “advertis-
ing.”
B. Patent Infringement as Misappropriation of
Advertising Ideas
[5] Hyundai next must establish that Orion’s patent
infringement claim constituted a “misappropriation of adver-
tising ideas.” In Mez Industries, Inc. v. Pacific National Insur-
5206 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
ance Co., 90 Cal. Rptr. 2d 721, 733 (Ct. App. 1999), the
California Court of Appeal explained that a “contextual rea-
sonableness” analysis applies to that question. We must deter-
mine, in the context of the case and in light of common sense,
whether a lay person reasonably would read the phrase “mis-
appropriation of advertising ideas” to include the patent
infringement claim at issue. Id. More precisely, the proper test
is whether the patents at issue “involve any process or inven-
tion which could reasonably be considered an ‘advertising
idea.’ ” Id.
We have applied the test described by Mez:
The court [in Mez, 90 Cal. Rptr. 2d at 733,] noted
that the patents at issue “did not involve any process
or invention which could reasonably be considered
an ‘advertising idea’ or ‘a style of doing business.’ ”
Similar to Mez, the underlying [third-party]
actions at issue here do not allege violation of a
method patent involving advertising ideas or a style
of doing business. Like the allegations that Mez was
inducing infringement of a design patent in airflow
conduction systems, the [third-party] actions allege
violation of a design patent for certain therapeutic
magnetic devices.
Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1140-
41 (9th Cir. 2003) (emphasis added). Although neither we nor
the California courts affirmatively have held that certain types
of patent infringement can constitute advertising injuries, the
implication in Mez and Homedics is clear: Depending on “the
context of the facts and circumstances of th[e] case,” patent
infringement can qualify as an advertising injury if the patent
“involve[s] any process or invention which could reasonably
be considered an ‘advertising idea,’ ” Mez, 90 Cal. Rptr. 2d
at 733 (emphasis omitted); or, expressing the same idea in dif-
ferent words, if the third party “allege[d] violation of a
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5207
method patent involving advertising ideas,” Homedics, 315
F.3d at 1141.
[6] Unlike in Mez and Homedics, the third party here did
allege “violation of a method patent involving advertising
ideas.” Id. Orion patented a method of displaying information
to the public at large for the purpose of facilitating sales, i.e.,
a method of advertising. And Orion’s complaint alleged that
Hyundai violated that method patent by using the patented
techniques as part of its own “marketing method” or “market-
ing system.” In other words, Orion patented a “process or
invention which could reasonably be considered an ‘advertis-
ing idea,’ ” Mez, 90 Cal. Rptr. 2d at 733, and Orion “allege[d]
violation of a method patent involving advertising ideas,”
Homedics, 315 F.3d at 1141. “In the context of the facts and
circumstances of this case,” Mez, 90 Cal. Rptr. 2d at 733,
Orion’s patent infringement claim alleged the “misappropria-
tion of advertising ideas.”
Defendants attempt to rebut that conclusion on two
grounds. First, they argue that a “misappropriation of adver-
tising ideas” must relate to the actual content of the chal-
lenged advertisement. In support, Defendants quote our
holding that, to constitute an advertising injury, the third-party
claim must concern the “elements of the advertisement itself
—in its text[,] form, logo, or pictures—rather than in the
product being advertised.” Iolab Corp. v. Seaboard Sur. Co.,
15 F.3d 1500, 1506 (9th Cir. 1994). Defendants’ reliance on
that quotation is misplaced because the BYO feature at issue
in the Orion action easily meets that test. The BYO feature is
the “form” “of the advertisement itself,” i.e., a build-your-
own-vehicle module, and plainly is not “the product being
advertised,” i.e., motor vehicles. Defendants’ reliance on
other cases is similarly misplaced. See, e.g., Heritage Mut.
Ins. Co. v. Advanced Polymer Tech., Inc., 97 F. Supp. 2d 913,
927 (S.D. Ind. 2000) (“Environ simply does not claim . . . that
the piping product that APT allegedly took was inherently an
idea on how to advertise. Rather, Environ alleged that APT
5208 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
unfairly competed with it by stealing its product and claiming
the piping as its own, a distinctly different claim from alleg-
ing that APT took an idea about how to . . . advertise the
underground piping product.” (emphasis added)).
Second, Defendants argue that the source of the advertising
idea must be from a competitor. Because Orion is a patent-
holding company and not a direct competitor of Hyundai’s,
Defendants reason, the Orion action cannot constitute a “mis-
appropriation of advertising ideas.” As an initial matter, noth-
ing in the policy’s text—“misappropriation of advertising
ideas”—suggests that it must be a misappropriation of a com-
petitor’s advertising ideas. Nor can we discern any contextual,
public-policy, or logical significance to who owns the legal
rights to the advertising idea in question. In any event, we
find no support for Defendants’ competitor-only rule in Cali-
fornia law.
In conclusion, we acknowledge that the California courts,
and we, have rejected past claims that a patent infringement
constitutes an advertising injury. But both the California
courts and our court, applying California law, have held that
a contextual analysis applies and have recognized that
infringement of a patented advertising method could consti-
tute a misappropriation of advertising ideas. In the context of
the facts of this case, we conclude that the Orion action con-
tained allegations of misappropriation by Hyundai of a pat-
ented advertising method.
We find support for our conclusion in the persuasive
authority, Amazon.com International, Inc. v. American
Dynasty Surplus Lines Insurance Co., 85 P.3d 974 (Wash. Ct.
App. 2004) (applying Washington law).3 In that case, Ama-
3
Defendants are correct, of course, that Amazon.com is not binding
authority, because it was applying Washington law and not California law.
It is nevertheless persuasive authority. We also note that, in the relevant
portions of its analysis, block-quoted in text, the Washington court cited
our case that did apply California law. It appears that there is little differ-
ence between Washington law and California law in these respects.
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5209
zon.com used music-preview technology on its website; a
company named Intouch sued Amazon.com for patent
infringement; and Amazon.com’s insurers declined to defend
it. Id. at 975-76. In addressing Amazon.com’s claim against
the insurers, the court held:
The misappropriation [of advertising ideas] must
occur “in the elements of the advertisement itself—
in its text, form, logo, or pictures—rather than in the
product being advertised.” [Iolab Corp. v. Seaboard
Sur. Co., 15 F.3d 1500, 1506 (9th Cir. 1994).]
Patent infringement arising from the manufacture
of an infringing product is not an advertising injury
even if the infringing product is used in advertising.
[Id.] But patent infringement may constitute an
advertising injury “where an entity uses an advertis-
ing technique that is itself patented.” [Id. at 1507
n.5.] That was the essence of Intouch’s allegation
against Amazon. . . . Intouch alleged that its patented
music preview technology was an element of Ama-
zon’s advertisement. The Intouch complaint thus
conceivably alleged misappropriation of an [adver-
tising] idea . . . .
Amazon.com, 85 P.3d at 977 (footnotes omitted; footnote cita-
tions in brackets). The same analysis applies here: Hyundai
“use[d] an advertising technique that is itself patented,” and
“[t]hat was the essence of [Orion’s] allegation against [Hyun-
dai].” Id.
C. Causal Connection
Finally, a causal connection must link the advertisement
and the alleged advertising injury. As is the case with the pre-
vious element, courts have found no causal connection when
the patents that the insured allegedly infringed concerned the
underlying product for sale. But those same cases have noted
5210 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
or implied that a causal connection would exist in situations
like this one, where the patent concerns the method of adver-
tising. When the advertisement itself infringes on the patent,
the causal connection requirement is met.
In Iolab, 15 F.3d at 1502, Iolab manufactured and sold an
intraocular lens. A patent holder sued Iolab for patent
infringement concerning the manufacture and sale of the lens,
and Iolab’s insurer refused to defend it. Id. at 1502-03. Iolab
sued its insurer and alleged that the patent infringement claim
alleged an “advertising injury.” Id. at 1503. Iolab insisted that
it was an advertising injury because its advertisement of the
lens had exposed it to the litigation. Id. at 1506. We dis-
agreed. Id. We held that there was no causal connection
because the patent infringement “claim against Iolab was not
based on the advertising of the intraocular lens.” Id. at 1507.
In a footnote, we wrote: “Although the issue is not before us,
. . . where an entity uses an advertising technique that is itself
patented, a court might possibly hold that the infringement
arises out of or is committed in the advertising.” Id. at 1507
n.5.
Similarly, in Everest & Jennings, Inc. v. American Motor-
ists Insurance Co., 23 F.3d 226, 229 (9th Cir. 1994), we held:
Even if true [that E & J advertised the patent-
infringing product and that advertisement brought
the infringement to the patent-holder’s attention],
these facts simply do not establish the necessary
causal connection between the alleged infringement
and E & J’s advertising. Burke’s claim never
asserted that the infringement occurred because of E
& J’s advertising, much less that E & J’s advertising
infringed Burke’s patent independent of E & J’s
manufacture and sale of the product.
See also Bank of W. v. Superior Court, 833 P.2d 545, 559
(Cal. 1992) (“[A] claim of patent infringement does not occur
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5211
in the course of advertising activities within the meaning of
the policy even though the insured advertises the infringing
product, if the claim of infringement is based on the sale or
importation of the product rather than its advertisement.”
(emphasis added) (alterations and internal quotation marks
omitted)).
In Simply Fresh Fruit, Inc. v. Continental Insurance Co.,
94 F.3d 1219, 1220 (9th Cir. 1996), a third-party competitor,
Reddi-Made, alleged that Simply Fresh Fruit stole its secret
(and patented) automated method for cutting fruit, by hiring
former Reddi-Made employees. Simply Fresh Fruit’s insurers
refused to defend, and Simply Fresh Fruit filed suit against its
insurers. Id. at 1221. In that suit, Simply Fresh Fruit alleged
that Reddi-Made did not know about the patent infringement
until Simply Fresh Fruit began advertising its well-cut fruit.
Id. at 1223. Simply Fresh Fruit thus concluded that the patent
infringement claims were advertising injuries. Id. at 1222-23.
[7] We rejected that argument for the obvious reason that
the advertising itself did not violate any patents; it simply
tipped off Reddi-Made. Id. at 1223. “[T]he advertising activi-
ties must cause the injury—not merely expose it.” Id.; see
also Microtec Research, Inc. v. Nationwide Mut. Ins. Co., 40
F.3d 968, 971 (9th Cir. 1994) (“It is now the clearly estab-
lished law in California . . . that the injury for which coverage
is sought must be caused by the advertising itself.”). In Simply
Fresh Fruit, “Reddi-Made’s federal claims for direct, contrib-
utory and inducing infringement all accrued when Simply
Fresh . . . allegedly used its patented devices and processes.”
94 F.3d at 1222.
In summary, we must determine whether the advertising
itself constituted the (injurious) use of the patented method.
See, e.g., id. at 1223 (noting that “the advertising activities
must cause the injury”). When the patent infringement occurs
independent of the actual advertisement of the underlying
product, because the patent concerns the underlying product
5212 HYUNDAI MOTOR v. NATIONAL UNION FIRE INS.
(either the product itself or the method of creating the prod-
uct), then the causal connection typically4 is not established,
even when the advertising exposes the infringement. When
the patent infringement occurs in the course of the advertis-
ing, however, the causal connection is established.
[8] Here, the use of the BYO feature in the website is itself
an infringement of the patent because it is the use of the BYO
feature that violates the patent (and not the design of the car,
for instance, or the method of manufacturing the car, or the
car’s engine, or anything related to the car for sale). Further-
more, and critically, it is that use that caused the injuries
alleged by Orion. See Orion’s complaint (“Hyundai has been
and now is directly infringing . . . the ’342 patent . . . by,
among other things, methods practiced on its various websites
. . . using . . . marketing methods [and] marketing systems . . .
covered by one or more claims of the ’342 patent to the injury
of Orion.”). Accordingly, there is a direct causal connection
between the advertisement (i.e., the use of the BYO feature on
the website) and the advertising injury (i.e., the patent
infringement). Because the use of the patented method was
itself an advertisement that caused the injuries alleged in the
third-party complaint, Hyundai has established the requisite
causal connection.
It is irrelevant whether Hyundai theoretically could have
violated the patent in some way other than in its advertising.
The proper inquiry asks, with respect to what actually
occurred, whether the advertising itself caused the injury, that
is, whether the advertising itself was the improper use of the
patented method. Again, we find persuasive the Washington
Court of Appeals’ analysis in Amazon.com: “[H]ere, the
alleged injury derived not merely from misappropriation of
the [patented software], but from its use as the means to mar-
4
There may be situations in which an advertisement induces another to
infringe a patent. We do not reach the question whether the required
causal connection could be established in that situation.
HYUNDAI MOTOR v. NATIONAL UNION FIRE INS. 5213
ket goods for sale. In other words, the infringement occurred
in the advertising itself. [The third party’s] allegations there-
fore satisfied the causation requirement for a potential adver-
tising injury.” 85 P.3d at 978.
CONCLUSION
[9] The third-party patent infringement claims here alleged
that Hyundai’s web-based advertisement violated the third
party’s advertising-method patents. We hold that, in the con-
text of the facts of this case, the third-party patent infringe-
ment claims constituted allegations of “misappropriation of
advertising ideas” for purposes of the insurance policy. We
therefore reverse the district court’s grant of summary judg-
ment to Defendants on all claims. We remand with instruc-
tions to grant summary judgment to Hyundai on the first
claim for declaratory relief on the duty to defend and with
instructions to conduct any further proceedings, if necessary,
on Hyundai’s other three claims.
REVERSED and REMANDED with instructions.