Many insurance policies include “intellectual property” exclusions.
Hammond v. TCA, arose out of a failed business relationship in which Hammond (a software developer) had been cut-out as the middle-man. In the case, TCA alleged that it owned the software and Hammond counterclaimed. That underlying case eventually settled.
Meanwhile, Hammond’s insurance company USLI had refused to indemnify Hammond based in-part upon the intellectual property exclusion found in the policy that specifically excluded coverage for any “loss, cost, or expense . . . [a]rising out of any infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” Agreeing, the court particularly found that the basis for TCA’s attorney fee requests stemmed from the Pennsylvania Uniform Trade Secrets Act as well as the Copyright Act – even though no intellectual property infringement claim had been asserted in the underlying case. On appeal, the Third Circuit affirmed this ruling:
[T]he intellectual property exception to the Policy precluded coverage. To repeat, that exception bars coverage for “personal and advertising injury” “[a]rising out of any infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” The basis for the claim of attorney’s fees here was under 12 Pa.C.S. § 5305 (PA UTSA) and 17 U.S.C. § 505, which allow shifting of attorney’s fees in cases of bad faith trademark [sic] and copyright claims, respectively. Though no intellectual property claim was filed against Hammond, the basis of the request for attorney’s fees was an alleged infringement by him of TCA and LanTEK’s intellectual property rights. Hence the intellectual property exception precludes coverage.
Of course, the oddity of this result is that attorney fees under both the UTCA and Copyright Act are generally thought to require first an underlying claim of trade secret or copyright infringement. Hammond has petitioned for writ of certiorari, but the petition appears to have little chance of success.