United States Court of Appeals,

                                            Eleventh Circuit.

                                              No. 96-9249.

  ELAN PHARMACEUTICAL RESEARCH CORPORATION, Plaintiff-Appellant, Cross-
Appellee,

                                                    v.

  EMPLOYERS INSURANCE OF WAUSAU, a Wisconsin corporation, Wausau Underwriters
Insurance Company, a Wisconsin corporation, Defendants-Appellees, Cross Appellants.

                                             June 26, 1998

Appeals from the United States District Court for the Northern District of Georgia. (No. 2:94-CV-
118-WCO), William C. O’Kelley, Judge.

Before TJOFLAT, BIRCH and MARCUS*, Circuit Judges.

        BIRCH, Circuit Judge:

        This diversity case requires us to determine the extent of an insurer's duty, under Georgia

law, to defend a claim of patent infringement as an "advertising injury" covered in a pair of

commercial liability insurance policies. The appeal also presents the questions of whether Georgia

law permits an insured to recover litigation expenses incurred before tendering notice to the insurer

and whether a parent company's liability for patent infringement falls within insurance coverage for

stockholder liability. The plaintiff-appellant appeals the district court's decision to grant the insurer's

motion for summary judgment on the issues of pre-tender litigation expenses and stockholder

liability. The defendant-cross-appellant appeals the district court's decision to grant the insured's

motion for summary judgment on the question of coverage under the "advertising injury" clause of


   *
     Honorable Stanley Marcus was a U.S. District Judge for the Southern District of Florida,
sitting by designation as a member of this panel, when this appeal was argued and taken under
submission. On November 24, 1997, he took the oath of office as a United States Circuit Judge
of the Eleventh Circuit.
the policies. We AFFIRM.

                                          BACKGROUND

       Elan Corporation, Plc ("Plc") is an Irish corporation engaged in the manufacture and sale of

pharmaceutical drugs. Plaintiff-appellant, Elan Pharmaceutical Research Corporation ("EPRC"),

a Georgia corporation, is one of a number of United States subsidiaries of Plc. On July 9, 1992,

Pfizer, Inc. ("Pfizer") filed a lawsuit against EPRC and Plc (collectively "Elan") in the United States

District Court for the District of Delaware alleging that Elan had infringed a patent licensed to

Pfizer. The patent concerned a formulation of nifedipine, a drug used to treat angina and

hypertension.    Pfizer's complaint asserted that Elan had infringed its patent rights by

commercializing a competing version of the drug. EPRC retained legal counsel to defend the Pfizer

action and the same legal counsel represented Plc in its special appearance to contest personal

jurisdiction in the Delaware district court.

       EPRC previously had purchased two commercial liability insurance policies from Employers

Insurance of Wausau and Wausau Underwriters Insurance Company1 (collectively "Wausau"): a

commercial general liability policy (the "CGL policy") and a commercial umbrella liability policy

(the "CUL policy"). Both the CGL and CUL policies provided a one-year period of coverage, from

April 1, 1992 to April 1, 1993. On September 11, 1992, approximately two months after Pfizer filed

its complaint, EPRC notified Wausau of the Pfizer suit and asked it to provide a defense in

accordance with the policies. On November 16, 1992, Wausau acknowledged notice of the Pfizer

lawsuit but denied any obligation to defend EPRC under the policies. Wausau similarly denied two

subsequent requests from EPRC to reconsider its position.



   1
   Both Employers Insurance of Wausau and Wausau Underwriters Insurance Company are
Wisconsin corporations.
        The Pfizer litigation terminated on February 4, 1993, when the Delaware district court held

that Pfizer, as a licensee, did not have standing to assert the patent rights of its licensor. See Pfizer,

Inc. v. Elan Pharm. Research Corp., 

(D.Del.1993). After the disposition of the

Pfizer action, EPRC brought this claim against Wausau in the Northern District of Georgia, seeking

to recover the costs of defending the lawsuit. On August 29, 1995, the district court found that

Wausau owed a duty to defend EPRC against Pfizer's claims of patent infringement under the

"advertising injury" coverage of the CGL and CUL policies and entered summary judgment in favor

of EPRC. On August 8, 1996, the district court entered partial summary judgment in Wausau's favor,

finding that the policies did not cover the litigation expenses EPRC incurred before giving Wausau

notice of the Pfizer suit on September 11, 1992 and that the policies did not cover Plc's litigation

expenses because Plc's conduct, rather than its status as EPRC's sole shareholder, provided the basis

for Pfizer's allegations of liability against Plc. EPRC appeals the district court's 1996 order and

Wausau cross-appeals the district court's 1995 order.

                                             DISCUSSION

        The district court's summary judgment rulings in this case involve the interpretation and

application of the pertinent terms of the insurance contracts. The construction of an insurance

contract is a question of law and is subject to de novo review. See LaFarge Corp. v. Travelers

Indem. Co., 

, 1514-15 (11th Cir.1997) (per curiam). Our review of the district court's

grant of summary judgment is plenary and we apply the same legal standards as those employed by

the district court. 

is appropriate when no genuine issue of material fact

exists and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c).

I Coverage for Advertising Injury

        First, we address Wausau's contention that the district court erred when it granted summary
judgment in EPRC's favor on the issue of whether the CGL and CUL policies required Wausau to

defend the Pfizer lawsuit. We note that, under Georgia law, the duty to defend an insured is separate

and independent from the obligation to indemnify. See Penn-America Ins. Co. v. Disabled Am.

Veterans, Inc., 

, 

, 376 (1997). Although an insurer need not indemnify

an insured for a liability the insured incurs outside the terms of the insurance contract, an insurer

must provide a defense against any complaint that, if successful, might potentially or arguably fall

within the policy's coverage. 

whether an insurer owes its insured a duty to defend

a particular lawsuit, Georgia law directs us to compare the allegations of the complaint, as well as

the facts supporting those allegations, against the provisions of the insurance contract. See Great

Am. Ins. Co. v. McKemie, 

, 85-86, 

, 40-41 (1979). As we construe the

insurance contract in this case, we are mindful of our obligation to carry out the parties' true

intentions. See Tennessee Corp. v. Hartford Accident and Indem. Co., 

, 551 (5th

Cir.1972) (applying Georgia law). If the claim is only one of potential coverage, however, any

"doubt as to liability and [the] insurer's duty to defend should be resolved in favor of the insured."

(quoting 7C John Alan Appleman, Insurance Law and Practice

§ 4684.01, at 98-100 (Walter F. Berdal ed., 1979)).

       Both of the insurance contracts at issue in this case contain a provision insuring against

liability for an "advertising injury" that occurs during the policy period and in the course of

advertising the insured's goods, products, or services.2 The policies define "advertising injury" to


   2
    The CGL, under Coverage B, states in pertinent part:

               We will pay those sums that the insured becomes legally obligated to pay as
               damages because of ... "advertising injury" to which this coverage part applies.
               We will have the right and duty to defend any "suit" seeking those damages.

       CGL § I(B)(1)(a); see also CUL § I(1)(c) (providing similar coverage).
include injury arising out of patent infringement committed in the course of the insured's

"advertising activities."3 The contracts further define those advertising activities as "the wide spread

distribution of material promoting your goods, products or services." CGL, Endorsement No. 5, ¶

D(1); CUL § VI(20). To fall within the coverage of the insurance policies, therefore, (1) Pfizer's

suit must have alleged a cognizable advertising injury; (2) EPRC must have engaged in advertising

activity; and (3) there must have been some causal connection between the advertising injury and

the advertising activity. See e.g., New Hampshire Ins. Co. v. R.L. Chaides Constr. Co., 

, 1455 (N.D.Cal.1994) (interpreting similar policy language).

         Pfizer's lawsuit asserted two claims of patent infringement in connection with Elan's

attempts to obtain the Food and Drug Administration's ("FDA") approval of Nifelan, Elan's

nifedipine product. In order to comprehend Pfizer's claims, a brief review of the applicable patent

regime is necessary. Federal law provides a cause of action for patent infringement against

"whoever without authority makes, uses, offers to sell, or sells any patented invention ... during the

term of the patent therefor." 35 U.S.C. § 271(a). Section 271(e) creates an exemption for those who

wish to make, use, or sell a patented invention "solely for uses reasonably related to the development

and submission of information under a Federal law which regulates the manufacture, use or sale of




   3
    The CGL, as modified by an endorsement, provides:

               "Advertising injury" means injury ... arising out of one or more of the following
               offenses committed in the course of "your advertising activities."

                       ....

                       d. Infringement of copyright, title, trademark, patent or slogan.

       CGL, Endorsement No. 5, § V(1) (emphasis added); see also CUL § VI(1) (identical
       language).
drugs...." 35 U.S.C. § 271(e)(1).4 Section 271(e)(2), however, states that it shall be an act of

infringement to submit an application pursuant to a number of specific sections of the Federal Food,

Drug and Cosmetic Act, "if the purpose of such submission is to obtain approval ... to engage in the

commercial manufacture, use, or sale of a [patented] drug ... before the expiration of such patent."

35 U.S.C. § 271(e)(2).

       Count I of Pfizer's complaint alleged that Elan infringed Pfizer's patent by filing a New Drug

Application (the "NDA") for FDA approval of a patented drug in the manner described in section

271(e)(2), i.e., for the purpose of engaging in commercial sales before the expiration of Pfizer's

patent. Both parties, however, agree that Count I of Pfizer's complaint did not implicate Wausau's

insurance policies. Count II of the complaint alleged that Elan filed the NDA based on certain

clinical studies, and that those clinical studies were "not solely for a use reasonably related to the

development and submission of information for the Nifelan NDA, but were for the purpose of

commercializing Nifelan...." Pfizer Comp. ¶ 32. Count II further alleged that the studies themselves

constitute an infringing use of Pfizer's patent and that the studies fell outside the protection of

section 271(e)(1). See 

Elan argues that Count II of the complaint brought the Pfizer law

suit within the confines of the CGL and CUL policies.


   4
    Congress added § 271(e) to address a specific problem caused by the intersection of FDA
regulations and the patent laws. Prior to the adoption of § 271(e), drug manufacturers who
wished to sell a generic version of a patented drug immediately upon the expiration of the patent
could not do so because of the lengthy delay associated with obtaining the legally-required,
pre-market FDA approval of any such drug. See Telectronics Pacing Sys., Inc. v. Ventritex, Inc.,

, 1524 (Fed.Cir.1992). Before 1984, these manufacturers could not conduct the
clinical tests necessary to submit their products for FDA approval before the patent expired on
the brand name drug without risking liability for an infringing manufacture or use. 

25 (citing Roche Prod., Inc. v. Bolar Pharm. Co., 

(Fed.Cir.1984)). As a result,
generic versions of drugs could not become available on the market until long after the patent on
the brand name drug had expired. Congress responded by amending the law to permit those who
wish to market a competing generic drug to make, use, and sell that product as long as their
efforts are reasonably related to obtaining the required federal approvals. 

       Wausau concedes that its policies include coverage for suits alleging patent infringement,

as an enumerated advertising injury, committed in the course of the insured's advertising activities.

We, therefore, begin our analysis by considering whether the commercialization of the clinical

studies described in Count II of Pfizer's complaint amounts to advertising activity, as defined in the

contracts. Courts have differed over precisely what type of conduct constitutes advertising activity.

A number of courts have defined the term expansively to include even individual sales pitches to

individual consumers; but other courts have defined it more narrowly. Compare John Deere Ins.

Co. v. Shamrock Ind., Inc., 

, 440 (D.Minn.1988) (relying on Black's Law Dictionary

for the proposition that the solicitation of one person's business constitutes advertising), aff'd 

(8th Cir.1991) with First Bank and Trust Co. v. New Hampshire Ins. Group, 

,

418, 

, 1368 (1983) ("the mere explanation of bank services to a couple in a private

office cannot be considered "advertising' "). Although Georgia's courts have yet to voice an opinion

in this debate, it appears that the facts of this case meet even the narrowest readings of advertising

activity advanced in the cases that Wausau cites in its briefs.

        As noted above, the CGL and CUL policies define "advertising activity" as the widespread

distribution of material promoting Elan's goods, products, or services. Unambiguous terms of an

insurance contract are to be understood in their "plain, ordinary, and popular sense." Horace Mann

Ins. Co. v. Drury, 213 Ga.App. 321, 322, 

, 274 (1994). A plain and ordinary reading

of the definition of advertising activity in Wausau's policies would include an insured's

dissemination of information to promote a product or service. Black's Law Dictionary defines

advertising in a manner that would include such dissemination of information:

       Any oral, written, or graphic statement made by the seller in any manner in connection with
       the solicitation of business....

Black's Law Dictionary 54, (6th ed.1990). Moreover, the courts that have considered the issue of
advertising activity in similar contexts have defined it in terms that include the dissemination of

information to promote a product. See e.g., Smartfoods, Inc. v. Northbrook Property & Cas. Co.,

35 Mass.App.Ct. 239, 243-44, 

, 1368 (1993) ("advertising means a public

announcement to proclaim the qualities of a product.... Wide dissemination of information is

typically the objective of advertising.") (citations omitted).

         Count II of Pfizer's complaint accuses Elan of using the clinical studies at issue to

"commercialize" Nifelan in the United States. As Wausau admits, the common definition and usage

of the term "commercialize" includes developing commerce in a particular item.5 The dissemination

of clinical studies to develop a market for one of Elan's products, therefore, appears to fall well

within the definition of advertising activity provided in the insurance policies and in the case law.

Moreover, even if Wausau credibly could argue that Pfizer's complaint did not alert it to the fact that

Elan's advertising activities were potentially or arguably at issue, thus triggering Wausau's duty to

defend, the record shows that when asked in an interrogatory to clarify Count II of its complaint,

Pfizer specifically cited Elan's advertising of its Nifelan product in the United Kingdom and Canada

as giving rise to their cause of action.6      Although Elan provided Pfizer's response to this

interrogatory to Wausau in its second request for a defense, Wausau maintained its position that


   5
    The term "commercialize" also appears to be a term of art in this particular area of practice
before the FDA. Federal regulations prohibit the commercialization of an investigational device
being sold to generate testing data for FDA approval "by charging the subjects or investigators ...
a price larger than that necessary to recover costs of manufacture, research, development, and
handling." 21 C.F.R. § 812.7(b); see also 

n. 2 (discussing this
regulation in the context of a § 271(e)(1) case). Since there has never been any suggestion,
either in Pfizer's complaint or the record in this case, that Elan ever sold Nifelan, the regulation
appears to have no application to this case.
   6
    Georgia law does not permit an insurer to rely on the allegations of the complaint to deny
coverage when the facts that the insurer knows or can ascertain show that the claim is within the
coverage of the policy. See Loftin v. United States Fire Ins. Co., 106 Ga.App. 287, 296, 

, 59 (1962).
Pfizer's lawsuit fell outside the policies.

        Wausau urges that the record in the Pfizer action demonstrates that Elan's use of the clinical

studies in this case did not amount to a "wide spread distribution" as required by the insurance

policies. In support, Wausau cites Fox Chem. Co. v. Great Am. Ins. Co., 

, 386

(Minn.1978), for the proposition that a corporation's internal distribution of a pamphlet to educate

the corporation's sales force did not constitute an advertising activity because the insured had not

engaged in a widespread distribution of this material to the public and had not included it in direct

mailings to the corporation's customers.7 

The Fox court, however, found it significant

that the insured had not reproduced the pamphlet outside the company in "the general media or trade

publications." 

        In this case, the record shows that Elan distributed the information in question outside its

own corporate structure in a number of fora with an eye towards developing interest in its products

and services. See R3-13, Exh. B, Mulligan Decl. WW 13-18 (describing Elan's promotion of

Nifelan). Significantly, Elan discussed its Nifelan product in trade journals, using clinical studies

to promote its version of the drug.8 See e.g., R4-16, St. Peter Aff., Exh. E. Elan also made the

Nifelan product a part of its presentations to security analysts as part of its efforts to promote the


   7
    The Fox case is one of the few that Wausau cites that does not focus on the relatively narrow
question of whether sales pitches to individuals constitute advertising. Although the majority of
the cases appear to hold that these sales pitches do not constitute advertising activity, such
authority does little to help us resolve the questions presented in this appeal.
   8
    Wausau's contention that Elan was not engaged in advertising activity because the clinical
data did not promote a "good, product, or service" is unpersuasive. Pfizer's complaint clearly
concerns the commercialization of Nifelan, the product Elan hoped would compete with Pfizer's
drug. Moreover, the fact that the FDA had not then approved Nifelan for sale in the United
States does not detract from our conclusion that Elan's efforts to promote the drug were
advertising activities. In April 1992, Elan publically announced that the FDA's approval of
Nifelan was imminent and engaged in a campaign to drum up interest in the drug to begin sales
immediately upon approval.
drug as a potential source of significant revenue and profit for the company. These external

distributions of the clinical studies to promote commercial interest in Nifelan are different in kind

than the internal distribution at issue in Fox. Moreover, the publication of the clinical studies to

promote Nifelan in the trade press presents the very case that the Fox court used as a counter

example to show what would constitute "advertising activity."

          Wausau also emphasizes the fact that Elan never distributed the information to the general

public and argues that without such a public distribution, the dissemination of clinical studies cannot

constitute advertising. We find this argument unpersuasive. As an initial matter, we note that the

insurance contracts contain no express requirement that the insured must direct its advertising

activity either towards the general public or actual consumers. Moreover, Wausau's argument would

have us ignore the reality of how drugs make their way to market. Identifying and contacting the

target market for a prescription drug certainly will require marketing strategies and solutions that

differ from the tactics used for products that have a more ubiquitous appeal.9 A number of courts

have considered the relative size of the target audience in their analyses of what constitutes a

widespread distribution (and hence advertising activity) in this context. In R.L. Chaides, for

example, the district court explained that as long as the insured directed its efforts at influencing a

significant portion of its client base, the advertising activity requirement was satisfied, regardless

of the size of the audience. 

.10


   9
   Beer producers, for example, find it effective to advertise their wares with television
commercials during the Superbowl, when they expect a large segment of their target market to
be watching. A drug manufacturer, however, may find such a strategy unproductive. We would
expect the target audience for Nifelan to be far narrower and more discrete than that for
Budweiser, and what amounts to a "widespread distribution of materials" necessarily will be far
more circumscribed for Elan than for the Anheuser-Busch Corporation.
   10
        The R.L. Chaides court noted that:
          Similarly, we find it insignificant that Elan directed its efforts at doctors, hospitals, and other

health professionals through the trade press rather than at actual consumers. Given that physicians,

who prescribe drugs to their patients, often serve as a conduit between drug manufacturers and

consumers, it is hardly surprising that Elan would focus its efforts on medical professionals rather

than taking out an advertisement in a newspaper of general circulation.11 We find it significant that

the language in question appears in commercial general liability and commercial umbrella liability

policies, of the sort a wide variety of companies rely upon. The language at issue is general and

permits ready application in different situations to reflect this reality. We will not import a

limitation on coverage for advertising activities, namely that the distribution of material in question

address the general public or the final consumer, when such a limitation would not fit the reasonable

expectations of the different types of businesses that have purchased similar coverage. Accordingly,

we find that the distribution of information in this case satisfies the advertising activity requirement



                          Advertising activity must be examined in the context of the overall
                  universe of customers to whom a communication may be addressed; to hold
                  otherwise would effectively preclude small businesses ... from ever invoking their
                  rights to coverage for advertising injury liability.... This court ... concludes here,
                  that where the advertising audience is small but nonetheless constitutes all or a
                  significant portion of the insured's client base, the advertising activity element is
                  

.
   11
        As one commentator has observed:

                  [C]ommunications intended to induce the doctors to prescribe a pharmaceutical
                  manufacturer's drugs for the doctors' patients would constitute "advertising" even
                  though the communications were never observed by the ultimate consumers, the
                  patients ... [just as] a cereal manufacturer's Saturday morning commercials are
                  "advertising" even though they are aimed at children, not their parents who
                  actually buy the product....

          Jan T. Chilton, Expanding Boundaries of the Advertising Injury Coverage, 620
          PLI/Comm 165, 175 (1992) (citations omitted).
in Wausau's policies.

        Having determined that Count II of Pfizer's complaint set forth an enumerated advertising

injury and that Elan was engaged in advertising activity, we must address whether the injury and the

activity were sufficiently related to support coverage under the policies. Although Georgia's courts

have not yet had occasion to address the causal connection required in this context, Wausau points

us to persuasive authority from other jurisdictions that requires the insured to show a significant

causal connection between the injury alleged in the suit and the insured's advertising activities. In

a representative case, the California Supreme Court, interpreting policy language very similar to that

at issue here, explained that such a causal connection was necessary to avoid the conclusion that any

harmful act committed by a defendant who advertised in any fashion would fall under the grant of

coverage. Such an expansive reading of the coverage would contradict both the reasonable

expectations of the insured and the language of the insurance contract in question, which limited

coverage to injuries likely to occur in connection with advertising activity.12 See Bank of the West

v. Superior Court of Contra Costa County, 

, 1274-77, 

, 558-60, 

, 551-54 (1992). To provide an example, the Bank of the West court explained that

a claim for patent infringement did not occur in the course of advertising activities even though the

insured had advertised the infringing product, because the patent holder based its claim of

infringement on the insured's sale or importation of the infringing product rather than on its

advertisement. 

833 P.2d at 

. A federal district court,

purporting to apply Georgia law (albeit without the benefit of controlling authority), recently made



   12
     The California Supreme Court examined a contract that, much like the insurance contracts at
issue in this case, limited the types of injury contemplated as "advertising injury" to those that
might occur in advertising—such as libel, slander, and copyright infringement. See Bank of the

, 833 P.2d at 

.
a similar ruling in the copyright context. See Robert Bowden, Inc. v. Aetna Cas. and Sur. Co., 

(N.D.Ga.1997). In that case, the insured argued that it illegally copied the plaintiff's

computer software (and thus infringed the copyright at issue) because it needed the software to

construct an advertising campaign. Rejecting coverage under the advertising injury clause, the

district court held that "an insured's advertising must have been the cause of whatever injury is

alleged in the underlying suit." 

        Elan does not contest the contractual requirement that the patent injury must have occurred

within the scope of its advertising activities but argues that the patent infringement alleged in Count

II of Pfizer's complaint provides the required causal connection. Pfizer's complaint, particularly its

use of the term "commercialize," gives rise to a number of varied interpretations.13 The most natural

reading of the complaint, particularly its allegation that the clinical studies themselves, standing

apart from Elan's filing of the NDA, are infringing uses that fall outside the protection of section

271(e)(1), however, is as a claim for infringement under section 271(a). In 1992, when Pfizer filed

its complaint, it was an open question of federal patent law whether the subsequent dissemination

of clinical studies and information developed for the purpose of obtaining FDA approval for a drug

or medical device deprived a defendant of the protections of section 271(e)(1) and therefore gave

rise to an action under section 271(a).14 Under such a theory of liability, the dissemination of the


   13
     We, for example, could, as Wausau suggests, read Pfizer's complaint to state a claim under
271(e)(2) because the use of the term "commercialize" evokes the forbidden purpose of that
section, namely, the commercial manufacture, use, or sale of a patented device before the
expiration of the patent. Given the complaint's isolation of the studies from Elan's filing of the
NDA, however, section 271(e)(2) appears inapplicable. See also supra note 4.
   14
     A number of cases before the Telectronics opinion had suggested that such a theory of
liability was viable. See Ortho Pharm. Corp. v. Smith, 18 U.S.P.Q.2d (BNA) 1977, 1992, 

(E.D.Pa.1990), aff'd, 

(Fed.Cir.1992); Scripps Clinic & Research
Found. v. Genentech, Inc., 

, 1396-97 (N.D.Cal.1987), modified, 

(N.D.Cal.1988), aff'd in part and rev'd in part, 

(Fed.Cir.1991).
data in a company's advertising would give rise to an action for patent infringement, because the

dissemination would retroactively deprive the protected use of the patented drug to collect the data

of its exemption. Construed this way, Pfizer's lawsuit provided the necessary causal connection

between the alleged patent infringement and Elan's advertising activities, because without and until

that activity took place, the clinical studies at issue would have been exempt.15 Moreover, Pfizer

essentially confirmed this reading of its claims during discovery by stating that the use of the clinical

studies to advertise Nifelan in the United Kingdom and Canada provided the factual basis for Count

II of its complaint.    Although the United States Court of Appeals for the Federal Circuit

subsequently held that the dissemination of such data outside the FDA process and the data's use for

fund raising and other business purposes was either an exempt use under section 271(e)(1) or did

not constitute an infringing use under section 271(a), see 

, when Pfizer

filed its complaint this remained an open issue. As a result, we find that the allegations of Count

II of Pfizer's complaint adequately set out a sufficient causal connection between advertising

activities and the advertising injury of patent infringement.16


   15
     Contrary to Wausau's arguments, the Ninth Circuit's decision in Iolab Corp. v. Seaboard
Sur. Co., 

(9th Cir.1994), supports this result. In that case, the insured was found
liable for patent infringement for engaging in sales of a patented device. The patent holder
overcame a § 271(e)(1) defense by proving that the insured's sales were for profit rather than to
elicit data for FDA approval, in part, by citing the insured's efforts to advertise the device.
Contrary to the insured's arguments and as the Iolab court found, however, the insured's liability
depended on the sales of the device, not the advertising of the device. 

Accordingly, the Iolab court found that the insured's advertising of the patented device was not
an element of the claim and therefore could not provide the requisite link to advertising activity
to support coverage under the policy. 

In this case, however, Elan never sold Nifelan
and Pfizer relied on the non-exempt use of the patented drug in Elan's advertising activities to
assert liability. Elan's advertising, therefore, was a necessary element of Pfizer's claim, and
Iolab, therefore, supports our decision in this case.
   16
     We reject Wausau's argument that an insured cannot show the required causal connection
between the advertising injury of patent infringement and its advertising activity unless the
plaintiff's complaint alleges that the advertising itself infringes the patent. Although such a
          Finally, we note that the district court correctly determined that the patent infringement

charged in Count II of Pfizer's complaint took place within the time and place restrictions described

in Wausau's policies. As explained above, the 1989 filing of the NDA gave rise to the allegations

of Count I, but the record shows that the commercialization of Nifelan that gave rise to Count II took

place during the policies' coverage period of April 1992 to April 1993.17 Similarly, Count II of

Pfizer's complaint alleges that Elan commercialized Nifelan in the United States, which falls within

the coverage territory of Wausau's policies.18 Pfizer, in an interrogatory response, also explained



restriction has some appeal in the context of copyright or trademark infringement, both
commonly found in advertising injury clauses, see Advance Watch Co. v. Kemper Nat'l Ins. Co.,

, 806-07 (6th Cir.1996), it is difficult to comprehend how an advertisement could
ever infringe a patent. See e.g., Bradshaw v. Igloo Prod. Corp., 

, 1100-01
(N.D.Ill.) (advertising an infringing product does not constitute an infringing use), aff'd in
relevant part, 

(Fed.Cir.1996). But see Union Ins. Co. v. Land and Sky, Inc., 

, 703, 

, 777-78 (1995) (suggesting that an advertisement that advocated
infringement of a patented device might support liability for inducing patent infringement under
35 U.S.C. § 271(b)). Advertising techniques are not patentable and, even if an insured gave
away free samples of an infringing product as part of a promotion, the patent infringement would
arise out of its manufacture of the product, not the advertising activity. Wausau's argument,
therefore, asks us to construe the contract in a way that makes the enumeration of patent
infringement as an advertising injury an illusory benefit. Cf. National Union Fire Ins. Co. v.
Siliconix, Inc., 

, 80 (N.D.Cal.1989); see also Schafer Properties v. Tara State
Bank, 220 Ga.App. 378, 381, 

, 746 (1996) ("the favored construction will be that
which gives meaning and effect to all the terms of the contract over that which nullifies and
renders meaningless part of the document.").
   17
     Significantly, although Wausau contests the characterization of these efforts as "advertising
activities," it does not contest EPRC's assertions that it promoted Nifelan at conferences in April,
May, and June of 1992 or that EPRC published articles regarding Nifelan in the trade press
during the same time period.
   18
        As defined in the Wausau policies:

                  4. "Coverage territory" means:

                         a. The United States of America ..., Puerto Rico and Canada.

                         ....
that Elan's advertising of its product in the United Kingdom and Canada gave rise to Count II of the

complaint. Although coverage for advertising injuries in the United Kingdom requires a sale or

activity traceable to the broader coverage territory, that limitation does not apply to Canada, which

falls within the policies' primary coverage territory. We conclude that Count II of Pfizer's complaint

against Elan gave rise to an arguable or potential claim against Wausau's commercial liability

policies and, therefore, obligated Wausau to provide EPRC a defense. Accordingly, we affirm the

district court's decision to grant summary judgment against Wausau on this question.

II Wausau's Liability for Pre-Tender Litigation Expenses

        Elan contends that the district court erred by granting summary judgment to Wausau on the

question of pre-tender litigation expenses. The parties agree that Pfizer filed its complaint against

Elan on July 9, 1992 and that EPRC did not notify Wausau of the lawsuit until September 11, 1992.

During that two-month period, Elan retained counsel and began to defend the lawsuit, incurring

$519,682.05 in defense expenses. The district court held that Wausau was not liable for these

pre-tender expenses as a matter of Georgia law. Elan does not argue that the district court neglected

a material issue of contested fact, but rather contends that the district court misapplied the law to the

uncontested facts. We disagree.

        The only Georgia case that addresses the issue of an insurer's liability for the costs of a legal


                        c. All parts of the world if:

                        (1) The injury or damage arises out of:

                        (a) Goods or products made or sold by you in the territory described in a.
                        above; or

                        (b) The activities of a person whose home is in the territory described in a.
                        above but is away for a short time on your business;....

        CGL § V(4).
defense incurred before the insured tenders notice of the lawsuit is O'Brien Family Trust v. Glen

Falls Ins. Co., 218 Ga.App. 379, 

(1995). In that case, an insured trust, without

notifying the insurer, began to defend a lawsuit with its own counsel and at its own expense. After

approximately four years, the trust gave the insurer written notice of the lawsuit and the insurer,

without reserving its rights, opted to take over the suit and quickly settled it. The trust then sought

to recover from the insurer the legal expenses it had incurred over the previous four years. The

Georgia Court of Appeals noted that the insurance policy at issue required the trust to give the

insurer written notice of a claim as soon as possible and immediately to forward to the insurer any

papers filed in any lawsuit against the trust. 

461 S.E.2d at 313. The policy, however, was

silent on the issue of pre-tender legal expenses. 

461 S.E.2d at 313. The court held

that the policy did not permit the trust to recover its expenses from the insurer, explaining that:

          Such a construction would render contractual terms necessary to trigger ... [the insurer's]
          performance under the policy meaningless.

461 S.E.2d at 313.

          Wausau's CGL and CUL policies contain language similar to the policy at issue in O'Brien

in all salient respects. The policy is silent on the issue of pre-tender expenses but includes terms that

require the insured to provide notice of potential claims "as soon as practicable" and to forward all

papers connected with lawsuits "immediately."19 Elan argues that bad facts make bad law and


   19
        The CGL provides:

                 b. If a claim is made or "suit" is brought against any insured, you must:

                         ....

                         (2) Notify us as soon as practicable.

                         You must see to it that we receive written notice of the claim or "suit" as
                         soon as practicable.
valiantly attempts to distinguish O'Brien on the facts. The O'Brien court, however, did not rest its

ruling on the admittedly extreme facts before it, but rather announced a rule of general

applicability.20 Regardless of whether the O'Brien opinion might be criticized as bad law, as a

federal court sitting in diversity, the district court had no choice but to apply it. See Erie R.R. Co.

v. Tompkins, 

, 

, 

(1938). Applying that rule to this case, we

hold that EPRC did not trigger Wausau's duty to defend until it tendered notice of the Pfizer lawsuit

on September 11, 1992 and that, as a result, Wausau is not liable for the litigation expenses Elan

incurred before that date.

        Our holding above that Wausau subsequently breached its duty to defend cannot serve to

expand the scope of Wausau's liability. See Colonial Oil Indus. v. Underwriters, 

, 563,

, 339 (1997) ("when the insurer breaches the contract by wrongfully refusing to

provide a defense, the insured is entitled to receive only what it is owed under the contract-the cost

of the defense."). Although the insurer in the O'Brien case honored its duty to defend without

reservation despite the four year delay, there is no indication that the court based its ruling on that

fact. The O'Brien court's legal decision that the provision of notice to the insurer triggers the duty




               c. You and any other involved insured must:

                       (1) Immediately send us copies of any demands, notices, summonses or
                       legal papers received in connection with the claim or "suit"....

        CGL § IV(2).
   20
     The unusual facts before the O'Brien court may account for the fact that no other court
appears to have applied the rule announced in that case. In most cases where the insured fails to
tender notice in a reasonable time the insurer will assert the late notification defense and avoid
liability entirely. See e.g., Canadyne-Georgia Corp. v. Continental Ins. Co., 

(11th Cir.1993) (affirming summary judgment in insurer's favor on similar facts). It is only in
cases such as the one sub judice, in which the insured's tender of notice is presumably not so late
as to avoid the insurer's duty to defend, that the issue arises.
to defend compels our conclusion that the obligation does not include expenses incurred before that

notification. We affirm the district court's partial grant of summary judgment on this issue.

III Wausau's Liability for Elan Plc's Defense Costs

        Finally, we address the district court's ruling that Wausau is not liable for the costs of

defending Plc in the Pfizer litigation. As noted above, EPRC purchased the CGL and CUL policies

at issue in this case. An endorsement to the policies, however, includes coverage for EPRC's

shareholders, as additional insureds, but only to the extent of their liability as stockholders. The

parties agree that Plc, as EPRC's sole shareholder, is an "additional insured" under the policies. The

only question before us, then, is whether Pfizer's complaint sought damages from Plc by virtue of

its status as a stockholder of EPRC.

        Although Georgia's courts do not appear to have interpreted the precise coverage limitation

at issue here, the parties have advanced persuasive authority on the point. In Certainteed Corp. v.

Federal Ins. Co., 

, 354 (E.D.Pa.1995), for example, a district court applying

Pennsylvania and Minnesota law considered a parent company's claim for coverage under its

subsidiary's insurance policy that contained the following language: "Your stockholders are also

insureds but only with respect to their liability as stockholders." Although the court held that the

parent company did not qualify as a stockholder under the facts of the case, the court also explained

that the policy did not cover claims asserting liability based on the stockholder's conduct, either

alone or in concert with the insured. 

Instead, the court explained that: "The policy

language reflects coverage for a stockholder when its status as a stockholder-not its own

conduct-makes it liable for conduct of the named insured." Id.21


   21
    Although we have found no controlling Georgia authority on this question, the Georgia
Supreme Court has strictly applied coverage limitations based on the insured's particular role
under corporate law. See Shelby Ins. Co. v. Ford, 

, 

(1995). In
        Although Pfizer's complaint did assert that EPRC is a wholly-owned subsidiary of Plc,

neither the complaint nor the facts supporting it laid out a claim that Plc's status as EPRC's sole

stockholder was a basis for liability. Instead, the complaint alleged that EPRC or Plc engaged in

conduct that infringed Pfizer's patent. As in the Certainteed case described above, there is no

allegation that Plc is liable for damages to Pfizer because of an alter ego relationship with EPRC or

because of its status as EPRC's sole-shareholder.22 As a result, we agree with the district court's

conclusion that the costs of defending Elan, Plc in the Pfizer suit fall outside the coverage of

Wausau's policies.

                                           CONCLUSION

        Elan asks us to reverse the district court's order of August 8, 1996, limiting Wausau's liability

to the cost of defending EPRC in the Pfizer suit after September 11, 1992. Wausau asks us to




Shelby, the insured had purchased a policy that covered her individual liability "only with
respect to the conduct of a business of which you are the sole owner." 

454 S.E.2d at
465. The insured was the sole owner of a corporation that ran a child-care business. When a
child, injured on the premises of the child-care center, sued the corporation and the individual
insured, the court deferred to the corporate form and held that the insurer owed neither the
corporation nor the individual a defense. The court explained that the corporation was not a
named insured under the policy and that because the corporation, not the individual insured,
conducted the child-care business, the insurance policy did not cover liability that the individual
incurred while employed in that business. 

454 S.E.2d at 465-66. The court,
relying on Georgia corporate law and the precise language of the insurance policy, ignored the
plain reality that the individual insured owned and operated both the corporation and the
child-care business and, therefore, denied coverage.
   22
     Elan argues that Pfizer did assert a theory of alter ego liability against Plc as part of its
arguments in support of the district court's personal jurisdiction over Plc, an Irish corporation.
We need only note that Wausau's policies do not provide coverage for EPRC's stockholders to
the extent that a plaintiff may establish jurisdiction in a particular forum by virtue of the
shareholder relationship. The contract language clearly limits coverage to suits alleging that the
stockholder's liability arises out of the relationship. Our review of Pfizer's arguments during this
portion of the litigation reveals that, contrary to Elan's assertions, Pfizer made no argument that
Plc's liability depended upon the shareholder relationship. Accordingly, we find Elan's argument
on this point to be without merit.
reverse the district court's August 28, 1995 order finding that Wausau owed Elan a duty to defend

the Pfizer lawsuit. After comparing the language of Wausau's CGL and CUL policies to Pfizer's

allegations against Elan, and examining the facts underlying Pfizer's complaint, we conclude that

Wausau did owe a duty to defend EPRC against the lawsuit. We hold that Pfizer's allegations of

patent infringement through the commercialization of clinical studies regarding Nifelan fell within

the "advertising injury" coverage in the policies. We hold, however, that EPRC did not trigger

Wausau's duty to defend until it tendered notice to Wausau on September 11, 1992, and that, as a

result, Wausau is only liable for the costs of defending the lawsuit after that date. Finally, we hold

that Wausau did not owe a duty to defend Plc in Pfizer's lawsuit because the complaint made no

claim of shareholder liability against Plc. We AFFIRM the district court as to both its 1995 order

granting summary judgment in EPRC's favor and its 1996 order granting partial summary judgment

in Wausau's favor.