When most of us think of advertising, we conjure up an image of the troubled yet brilliant Don Draper of “Mad Men” creating the perfect print or television ad to sell a client's product. The scope of what is considered advertising under a commercial general liability policy, however, can reach beyond what even Don Draper could imagine.

The Insurance Services Office's Commercial General Liability (CGL) policy provides coverage for personal and advertising injury liability. One of the exclusions to this coverage is for such injury that arises out of copyright, patent, trademark, trade secret, and other intellectual property infringement. The exclusion contains an exception for copyright, trade dress, or slogan infringement in the insured's advertisement.

“Advertisement” is a defined term in the policy, meaning “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” Published notices include materials placed on the Internet and on the portion of websites that are about the insured's goods, products or services for the purposes of attracting customers or supporters.

What is a notice? How can it be published?

The Fifth Circuit Court of Appeals addressed these questions in Mid-Continent Cas. Co. v. Kipp Flores Architects, L.L.C., 602 Fed. Appx. 985 (5th Cir. 2105). In this case, Kipp Flores Architects (KFA)—an architecture firm that licenses home designs—entered into license agreements with Texas homebuilder Hallmark. KFA supplied 11 different house designs, and Hallmark was authorized to build each design once. If Hallmark wanted to use the designs more than once, the agreement stipulated that KFA would receive additional license payments.

Hallmark built several hundred more copies of the homes without paying KFA for the additional licenses. KFA sued Hallmark for copyright infringement and won. Hallmark's insurer, Mid-Continent, argued that the CGL policy excluded coverage for copyright infringement, but KFA countered that the exception for copyright infringement in Hallmark's advertisement applied. Mid-Continent contended that the infringement did not occur in Hallmark's advertisement.

KFA claimed that “Hallmark infringed KFA's copyright in its advertisements and that the structures themselves constituted advertisements.” Hallmark used the houses themselves as its primary form of marketing. While Mid-Continent agreed that Hallmark used the houses to market to customers, it stated that “a house cannot be a 'notice,' and it cannot be 'broadcast or published.'”

The court, though, said that “the policies never specify that 'notice' must take any particular form (e.g., in writing or on a website) and never exclude from the definition a physical object, nor do they define 'broadcast' or 'published.'” The court also noted that dictionary definitions and other court opinions have construed “notice” broadly, with the Oxford English Dictionary defining “notice” as the “act of imparting information.”

Similarly, the court stated that “publish” has a comprehensive definition: “to make public or generally known.”

Since Hallmark advertised its construction business almost exclusively though the houses themselves, models of the homes, and signs in the yards of the houses, the court concluded, “Under the undisputed facts, Hallmark's use of infringing houses satisfies not only the policies' expansive definition of 'advertisement' and Texas law's similarly broad construction of the term, but also common sense.” The infringing houses all qualified as advertisements under the policies.

Defining “Advertising”

In another case, Acuity v. Bagadia, 750 N.W.2d 817 (Wis. 2008), the Supreme Court of Wisconsin was tasked with determining what was meant by “advertising,” a term that was not defined in the insured's policy.

UNIK Associates was a software vendor whose business focused primarily on purchasing computer software at discount prices and selling it to resellers. Symantec claimed that UNIK advertised, distributed, and sold its copyrighted and trademarked products without authorization. Symantec sued UNIK and was awarded a judgment for $958,253.40.

Acuity, which provided UNIK with a CGL policy, claimed it was not responsible for paying the judgment because the policy covered advertising, and UNIK's actions were not advertising activities. In particular, it claimed that samples UNIK sent to potential clients did not meet the definition of “advertising.”

The court considered the various definitions of “advertising.” A standard dictionary defined the term as “calling the public's attention to a product or business by proclaiming its qualities or advantages in order to increase sales or arouse a desire to buy or patronize.” The court pointed out both the standard narrow definition and the standard broad definition that have evolved in the common law. The standard narrow definition is “widespread announcement or distribution of promotional materials,” while the standard broad definition is “any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.”

The court determined that the term “advertising,” as it was used in the advertising injury provision of the CGL policy, was ambiguous, and it would use the broad definition.

Acuity said that “the disks UNIK shipped to existing customers were shipped in response to customer requests, and they were packaged in plain, white paper sleeves without retail boxes and without manuals” and argued that “such activity cannot be deemed 'advertising' under any definition.”

However, applying the broad definition, the court held that UNIK's activities were considered advertising, stating, “The following facts are undisputed: (1) UNIK sent sample disks to customers; (2) if the customer approved of the sample, the customer placed an order for the disks; (3) within less than three years, UNIK sold over 117,000 disks containing Symantec's copyrights through this process. We think it is abundantly clear that UNIK's practice of sending sample disks constitutes a 'solicitation of business,' as we define advertising here.”

The court held that UNIK's advertising activity contributed materially to its infringement of Symantec's copyrights, thus supporting the finding of coverage under the advertising injury provision of the policy.

As these cases demonstrate, advertising is more than television commercials and online ads. The range of the term, in its broadest sense, can reach to anything that is made public in order to solicit business.