Commercial General Liability Policies and Intellectual Property Infringment Claims

Beginning in the mid-1990's, defendants sued for trademark and trade dress infringement were increasingly successful in having courts order their insurance carriers to cover the claims under the "advertising injury" clause of Commercial General Liability (CGL) policies.   While in the last several years the insurance carriers have adopted more restrictive language in the advertising injury clause, CGL policies nonetheless remain a source of potential coverage in many IP cases.

Where the carrier has agreed to provide its insured with a defense to the infringement claim (typically under a "reservation of rights"), a problem often arises over choice of defense counsel. Will the carrier allow the client's selected law firm to remain in the case? Often, the carrier attempts to transfer the case to a different law firm on the carrier's "approved" list, typically a law firm having little or no IP law experience.

Fortunately, the laws of most states require the client and the carrier to agree on counsel when the carrier has accepted the defense under a reservation of rights. This provides the client with some leverage to insist that its selected law firm remain on board.

            
Is this good news for you? The carrier’s decision to offer your firm the engagement of the matter is often a mixed blessing for because carriers tend to pay well below market rate for specialized IP counsel. How can you ensure that your work on the case is financially rewarding?

Here are alternative pricing models that your firm can propose in such cases:

• The law firm can offer to discount its standard rates by 10 percent to 15 percent for all time keepers. Your incentive? The carrier represents a guaranteed source of payment (although payment periods can sometimes run well more than 60 days).

• The law firm can offer a “blended rate” covering all of the attorneys.   The carrier is much more likely to agree to a blended rate of $300 per hour, for example, rather than a $200 to $450 range, since the $450 per hour top-end rate is a red flag.

• The client can agree to pay a portion of the fees. For example, the carrier agrees to pay a $250 blended rate with the client paying the other $50 per hour.  The client has the benefit of retaining his selected counsel at a small fraction of the total fee. This option also shows good faith to the carrier that your fee is reasonable because the client is willing to contribute toward payment.

Once the carrier is involved in the defense of the case, there’s a final opportunity to use insurance coverage: Have the carrier pay the client the cost associated with the “phase-out” of the accused mark as a means of settling the case. After all, the carrier is economically indifferent as to whether the dollars go to defense cost or to the insured to facilitate a settlement.  In one case recently handled by our firm, the carrier directly paid the client $300,000 to accept a name change as part of a non-monetary settlement with the plaintiff.