Filed: Jan. 20, 2005
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 04-1509 TELETRONICS INTERNATIONAL, INCORPORATED, Plaintiff - Appellant, versus CNA INSURANCE COMPANY/TRANSPORTATION INSURANCE COMPANY, Defendant - Appellee. Appeal from the United States District Court for the District of Maryland, at Greenbelt. Alexander Williams, Jr., District Judge. (CA-03-1348-AW) Argued: October 28, 2004 Decided: January 20, 2005 Before LUTTIG, MOTZ, and DUNCAN, Circuit Judges. Reversed and remanded by un
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 04-1509 TELETRONICS INTERNATIONAL, INCORPORATED, Plaintiff - Appellant, versus CNA INSURANCE COMPANY/TRANSPORTATION INSURANCE COMPANY, Defendant - Appellee. Appeal from the United States District Court for the District of Maryland, at Greenbelt. Alexander Williams, Jr., District Judge. (CA-03-1348-AW) Argued: October 28, 2004 Decided: January 20, 2005 Before LUTTIG, MOTZ, and DUNCAN, Circuit Judges. Reversed and remanded by unp..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1509
TELETRONICS INTERNATIONAL, INCORPORATED,
Plaintiff - Appellant,
versus
CNA INSURANCE COMPANY/TRANSPORTATION INSURANCE
COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District Judge.
(CA-03-1348-AW)
Argued: October 28, 2004 Decided: January 20, 2005
Before LUTTIG, MOTZ, and DUNCAN, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion.
ARGUED: Frederick Ngosi Samuels, CAHN & SAMUELS, L.L.P.,
Washington, D.C., for Appellant. William H. White, Jr., BONNER,
KIERNAN, TREBACH & CROCIATA, Washington, D.C., for Appellee. ON
BRIEF: Maurice U. Cahn, CAHN & SAMUELS, L.L.P., Washington, D.C.,
for Appellant. Rina Niyogi, BONNER, KIERNAN, TREBACH & CROCIATA,
Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
After being sued by a competitor for copyright infringement
and related claims, Teletronics International, Inc. ("Teletronics")
brought suit against Transportation Insurance Company
("Transportation"), claiming that Transportation breached its duty
to defend Teletronics under an "advertising injury" provision of an
insurance policy between the parties. On cross motions for summary
judgment, the district court granted summary judgment for
Transportation on the grounds that the activities giving rise to
the infringement action were not "advertising" activities under the
policy. For the reasons that follow, we reverse the order granting
summary judgment to Transportation, and remand with instructions
for the district court to enter summary judgment in favor of
Teletronics.
I.
Teletronics is a Delaware corporation engaged in the
manufacture, distribution, and sale of high-technology wireless
communications products. Teletronics purchased a comprehensive
general liability insurance ("CGL") policy from Transportation
effective from August 8, 1998 to August 8, 1999. Teletronics
later renewed this policy for the period of August 8, 1999 to
August 8, 2000. Relevant to this appeal, the policy contained an
"advertising injury" provision, in which Transportation agreed to
defend and indemnify Teletronics against third-party claims for
2
damages caused by Teletronics "in the course of advertising [its]
goods, products or services."1 J.A. at 85.
Teletronics is a direct competitor of Young Design, Inc.
("Young Design"), a Virginia manufacturer and seller of radio
amplifiers for wireless data communications. In January 1998,
Teletronics contacted Young Design for the purpose of exploring an
original equipment manufacture ("OEM") relationship, sometimes
known as a "private labeling arrangement." Under the proposed
agreement, Teletronics would purchase Young Design's amplifiers and
resell them under its own name, bundled together with other
Teletronics products. Over the next twelve months, Teletronics
purchased several amplifiers from Young Design for the purpose of
evaluating them and deciding whether to enter into the OEM
contract. Young Design also provided Teletronics with an
electronic, editable copy of its Model AMP2440 User and
Installation Manual ("Installation Manual"), and authorized
Teletronics to remove all references to Young Design so as to
facilitate the private label sales.
1
The Business Liability section of the insurance policy provides in
relevant part that:
We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury,”
“property damage,” “personal injury” or “advertising
injury” to which this insurance applies. We will have
the right and duty to defend any “suit” seeking those
damages.
J.A. at 85.
3
Approximately one year later, Young Design discovered that
Teletronics was producing wireless amplifiers that were similar to
its own products. After examining a Teletronics amplifier, Young
Design concluded that Teletronics was selling "knock-off" versions
of its amplifier. Teletronics, however, denied the charge,
explaining that it had designed its own amplifier in the summer of
1997, and that it had completed its first amplifier prototype in
August 1998. In addition, Young Design asserted that Teletronics
was distributing a user manual with its amplifiers that was nearly
identical to Young Design's copyrighted Installation Manual.
Confronted with this accusation, Teletronics admitted that the
manual used for its amplifiers included portions copied directly
from Young Design's Installation Manual.
On June 14, 2000, Young Design filed a five-count complaint in
the United States District Court for the Eastern District of
Virginia, asserting claims for breach of contract, fraud,
misappropriation of trade secrets, copyright infringement, and
trover. The lawsuit culminated in a three-day bench trial
conducted in January 2001. In light of the court's pre-trial
rulings, the only claims presented at trial were those for
misappropriation of trade secrets and copyright infringement. On
July 31, 2001, the district court issued a memorandum opinion
dismissing the trade secrets claim. However, the court ruled in
favor of Young Design on the copyright infringement claim, and
4
entered an order permanently enjoining Teletronics from copying
Young Design's Installation Manual.
While the Young Design suit was pending, Teletronics demanded
that Transportation defend it pursuant to the "advertising injury"
clause in the CGL policy. Transportation refused on the grounds
that the injury caused by Transportation to Young Design did not
occur "in the course of advertising" and thus did not qualify as an
"advertising injury" under the policy. Teletronics subsequently
requested that Transportation reconsider its disclaimer of
coverage. In particular, Teletronics argued that it posted an
electronic copy of the infringing manual on its website to provide
potential customers with information about its amplifiers, and
asserted that this conduct was "advertising" sufficient to trigger
the "advertising injury" provision in the insurance policy. After
Transportation again disclaimed coverage, Teletronics filed an
action for breach of contract against Transportation in a Maryland
state court. Transportation thereafter removed the lawsuit to the
United States District Court for the District of Maryland based on
diversity jurisdiction under 28 U.S.C. § 1332.
The parties filed cross motions for summary judgment, agreeing
that the coverage dispute turned solely on whether the infringement
of Young Design's Installation Manual occurred in the course of
Teletronics' "advertising" activities. On February 2, 2004, the
district court concluded that the policy did not afford coverage
5
for the copyright infringement claim, and accordingly granted
summary judgment in favor of Transportation. The district court
rejected Teletronics' argument that posting the Installation Manual
on its website brought the infringement claim within the policy's
"advertising injury" provision. Specifically, the court reasoned
that:
The manual was not prominently displayed on the web site,
and its mere presence on the website is not sufficient to
convert it into "advertising." To find otherwise would
require this Court to term "advertising" anything that is
posted on a company's website.
Teletronics Int'l, Inc. v. CNA Ins. Co./Transportation Ins. Co.,
302 F. Supp. 2d 442, 450 (D. Md. 2004).
The district court also found that Teletronics' practice of
referring potential customers to the manual on its website for
product information was more indicative of one-on-one solicitation
than advertising.2 See Monumental Life Ins. Co. v. U.S. Fidelity
and Guaranty Co., 617 A.2d 1163, 1174 (Md. Ct. Spec. App. 1993)
(holding that advertising must involve "widespread distribution or
announcements to the public," rather than personal solicitation).
Subsequently, the district court denied Teletronics' motion for
reconsideration, and Teletronics filed a timely appeal.
2
For example, in response to an e-mail inquiry from one potential
customer, Teletronics wrote: "Thank you for your interest in our
products. The easiest way to get information on our products is
via the internet. You can download a complete user manual on all
our products." J.A. at 41.
6
II.
We review the district court's order granting summary judgment
de novo. Smith v. Continental Cas. Co., 369 F.3d 412, 417 (4th
Cir. 2004). Summary judgment is appropriate when "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Here,
the parties agree that there are no material issues of fact in
dispute, that Maryland law governs our interpretation of the
insurance policy, and that the dispositive issue in this appeal is
whether the injury to Young Design occurred "in the course of
advertising" activities.
Under Maryland law, a liability insurer must defend its
insured in a tort action3 if the injury claimed is potentially
covered by the insurance policy. Brohawn v. Transamerica Ins. Co.,
347 A.2d 842, 850 (Md. 1975). The insurer must defend if there
exists even a "potentiality that the claim could be covered by the
policy." Litz v. State Farm Fire & Cas. Co.,
695 A.2d 566, 570
(Md. 1997) (internal quotations omitted). As a result, the duty to
defend is broader than the duty to indemnify, since "any
3
"Copyright infringement . . . is an intentional tort." Bucklew v.
Hawkins, Ash, Baptie & Co., LLP,
329 F.3d 923, 931 (7th Cir. 2003);
see also Gnossos Music v. Mitken, Inc.,
653 F.2d 117, 120 (4th Cir.
1981) (stating that "copyright infringement is a tortious
interference with a property right").
7
potentiality of coverage, no matter how slight, gives rise to a
duty to defend." Id. (emphasis added). We determine the
potentiality of coverage under the policy based on the allegations
in the underlying complaint, as well as any "extrinsic evidence"--
that is, evidence outside the complaint--relied upon by the insured
to establish coverage.
Id. Finally, under Maryland law, any doubt
concerning the potentiality of coverage must be resolved in favor
of the insured. Zurich Ins. Co. v. Principal Mut. Ins. Co.,
761
A.2d 344, 348 (Md. 2000).
In this case, the CGL policy requires Transportation to defend
Teletronics only if the underlying action resulted from an
"'[a]dvertising injury' caused by an offense committed in the
course of advertising your goods, products or services." J.A. at
85. The policy lists four types of "advertising injuries,"
including:
a. Oral or written publication of material that slanders
or libels a person or organization or disparages a
person's or organization's goods, products or services;
b. Oral or written publication of material that violates
a person's right of privacy;
c. Misappropriation of advertising ideas or style of
doing business; or
d. Infringement of copyright, title or slogan.
J.A. at 93. The copyright infringement claim is the sole ground
upon which Teletronics bases its claim for coverage.
8
Although the policy defines advertising "injury," it does not
define "advertising."4 Nor have the Maryland courts construed the
term in the context of a liability insurance policy providing
coverage for claims arising out of an advertising injury. We are
unpersuaded by Transportation's assertion that the Maryland Court
of Special Appeals comprehensively defines "advertising" in
Monumental Life. That case holds that one-to-one solicitation and
advertising are "mutually exclusive, the difference being that
advertising must be of a public nature." Monumental Life, 617 A.2d
at 1173. Thus, while Monumental Life holds that personal
solicitation is not advertising, it does not appear to define what
advertising actually is under Maryland law.
4
Transportation contended for the first time at oral argument that
we need not reach the question of what constitutes "advertising"
under Maryland law because the injury to Young Design--that is, the
infringement of its copyright--occurred when Teletronics reproduced
and distributed paper copies of the Installation Manual, not when
Teletronics later placed an electronic copy of the manual on its
website. Stated differently, Transportation argues that,
irrespective of whether the activity constituted "advertising"
under Maryland law, no infringement, and thus no "injury" to Young
Design, occurred when Teletronics posted a copy of the Installation
Manual on its website. We find this argument unpersuasive. The
owner of a copyright enjoys the exclusive right to make copies of
a protected work, and anyone who produces copies, through whatever
medium, is subject to an action for copyright infringement under
federal law. Horgan v. MacMillan, Inc.,
789 F.2d 157, 162 (2d Cir.
1986) (reproduction of copyrighted work in different medium "is not
a defense to infringement."); see also Oriental Art Printing, Inc.
v. Goldstar Printing Corp.,
175 F. Supp. 2d 542, 545 (S.D.N.Y.
2001) (The Copyright Act "protects against unauthorized copying not
only in the work's original medium but also in any other medium.").
Thus, Teletronics committed an independent act of copyright
infringement by posting an electronic copy of the Installation
Manual on its website.
9
Generally, when state law on an issue is unsettled, a federal
court sitting in diversity must attempt "to predict how [the
state's highest] court would rule if presented with the issue."
Private Mortgage Inv. Servs., Inc. v. Hotel & Club Assocs., Inc.,
296 F.3d 308, 312 (4th Cir. 2002); see also Liberty Mut. Ins. Co.
v. Triangle Indus.,
957 F.2d 1153, 1156 (4th Cir. 1992) (federal
diversity court must predict how state court would rule on
unsettled question of state law). To this end, we may examine
cases from other jurisdictions for guidance in determining what law
Maryland would adopt. Lexington Ins. Co. v. Rugg & Knopp, Inc.,
165 F.3d 1087, 1092 (7th Cir. 1999) (in the absence of state
authority on point, federal courts may seek guidance from other
jurisdictions).
The vast majority of jurisdictions have defined advertising as
"the widespread distribution of promotional material to the public
at large." Erie Ins. Group v. Sear Corp., 102 F.3d 889, 894 n.2
(7th Cir. 1996) (collecting cases and identifying majority rule);
Solers, Inc. v. Hartford Cas. Ins. Co.,
146 F. Supp. 2d 785, 793
(E.D. Va. 2001) (same); Select Design, Ltd. v. Union Mut. Fire Ins.
Co.,
674 A.2d 798, 801-02 (Vt. 1996) (same); see also USX Corp. v.
Adriatic Ins. Co.,
99 F. Supp. 2d 593, 618 (W.D. Pa. 2000) ("The
overwhelming majority of reported cases have interpreted the plain
and ordinary meaning of 'advertising' to mean the widespread
distribution of promotional material to the public for the purpose
10
of generating business."). On the other hand, a relatively small
number of courts have held that advertising also encompasses the
personal or one-to-one solicitation of potential customers. See,
e.g., Sentex Sys., Inc. v. Hartford Accident & Indem. Co., 882 F.
Supp. 930, 939 (C.D. Cal. 1995) (defining advertising as "any oral,
written, or graphic statement made by the seller in any manner in
connection with the solicitation of business."); see also,
Merchants Co. v. American Motorists Ins. Co., 794 F. Supp. 611, 619
(S.D. Miss. 1992) (holding that advertising encompasses the
solicitation of individual customers); cf. Elizabeth D. Lauzon,
Annotation, Advertising Injury Insurance,
98 A.L.R. 5th 1, at *2
(2002) (discussing split in authority concerning whether
advertising activity "requires widespread distribution of
promotional material to the public . . . or can include one-on-one
or targeted group solicitations").
Here, we find it unnecessary to speculate as to which
definition of "advertising" the Maryland courts would prefer, since
the activities of the insured in this case would satisfy either the
majority or the minority rule.5 With respect to the minority view,
5
Although "conservatism is in order" when relying on the practice
of other jurisdictions to predict how the highest court of another
state might rule, Lexington Ins. Co., 165 F.3d at 1093, we have
some confidence that the Maryland courts would prefer the majority
rule. In Grosman v. Real Estate Comm'n,
297 A.2d 257 (Md. 1972),
the Maryland Court of Appeals, in an effort to define "advertising"
for the purposes of a Maryland statute prohibiting false
advertising in real estate transactions, observed that advertising
has been defined as:
11
Teletronics clearly engaged in conduct that amounts to personal
solicitation. As noted earlier, the district court found, and
Transportation does not dispute, that after receiving inquiries
from potential customers about its amplifier products, Teletronics
referred customers to the installation manual posted on its
website. Thus, Transportation concedes that Teletronics solicited
potential customers in connection with its amplifier products, and
that this conduct would satisfy the minority view of "advertising"
as encompassing one-on-one solicitation. Appellee's Br. at 26
(stating that the insured's activities amounted to "one-on-one
sales communications").
With regard to the majority view, Teletronics similarly
engaged in activities that amount to the widespread distribution of
promotional material to the public. First, there is no genuine
dispute that Teletronics employed the installation manual to
promote the sale of its amplifiers. The manual contains
information concerning the product's basic specifications,
Any form of public announcement intended to aid directly
or indirectly in the sale of a commodity, . . . [and] the
act or practice of calling public attention to one's
product, service, need, etc., esp. by paid announcements
in newspapers and magazines, over radio or television, on
billboards, etc. . . .
Id. at 266 (emphasis added). We believe that this definition is
consonant with the prevailing view that advertising must be
directed towards the public at large. In addition, Monumental Life
is a well-reasoned opinion rejecting the minority view that one-to-
one solicitation constitutes advertising. Monumental
Life, 617
A.2d at 1174.
12
advantages over other types of wireless amplifiers, compatibility
with other kinds of technology, as well as installation and
warranty information. J.A. at 700-10. Second, by posting the
installation manual on the Internet, Teletronics distributed the
document to a large audience of potential customers. Consequently,
through placing a copy of the infringing manual on its website,
Teletronics engaged in "the widespread distribution of promotional
material to the public at large."6 Playboy Enterprises, Inc. v.
St. Paul Fire & Marine Ins. Co., 769 F.2d 425, 428-29 (7th Cir.
1985).
We disagree, however, with the district court's view that our
conclusion necessarily means that any information posted on a
website constitutes advertising. While any information about a
product or service that is posted on a publicly-accessible webpage
is widely distributed, such information--under either the majority
or the minority rule--is not advertising unless it is for the
purpose of "generating" or "soliciting" business. USX Corp., 99
F. Supp. 2d at 618 (majority view); Sentex
Sys., 882 F. Supp. at
939 (minority view). Furthermore, the promotional aspect of an
6
For this reason, we reject Transportation's argument that it was
not obligated to defend Teletronics because there was no causal
connection between the injury to Young Design and Teletronics'
advertising activities. Appellant's Br. at 20-21. Since we have
held that the particular manner in which Teletronics used Young
Design's copyrighted Installation Manual constituted an
"advertising" activity, there is no valid argument that Teletronics
failed to establish the required nexus between the asserted
liability and its advertising activities.
13
activity must be more than merely incidental. In other words,
under both the majority and the minority view, an activity must
involve, at a minimum, "actual, affirmative self-promotion of the
actor's goods or services" in order to constitute advertising.
Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1193 (11th
Cir. 2002) (quoting Erie Ins.
Group, 102 F.3d at 894). Thus, with
these constraints in mind, it is apparent that information does not
become "advertising" simply by virtue of its dissemination via the
Internet.
III.
Accordingly, we hold that Teletronics' activities in this case
constituted advertising, and that Transportation was therefore
obligated to defend Teletronics under the liability insurance
policy between the parties. We therefore reverse the order
granting summary judgment to Transportation, and remand with
instructions for the district court to enter summary judgment in
favor of Teletronics.
REVERSED AND REMANDED
14
