Elan Pharmaceutical v. Employers

PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_______________
No. 96-9249
_______________
D. C. Docket No. 2:94-CV-118-WCO
ELAN PHARMACEUTICAL RESEARCH CORPORATION,
Plaintiff-Appellant,
Cross-Appellee,
versus
EMPLOYERS INSURANCE OF WAUSAU, a Wisconsin
corporation, WAUSAU UNDERWRITERS INSURANCE
COMPANY, a Wisconsin corporation
Defendants-Appellees,
Cross Appellants.
______________________________
Appeals from the United States District Court
for the Northern District of Georgia
______________________________
(June 26, 1998)
Before TJOFLAT and BIRCH, and MARCUS*, Circuit Judges.
BIRCH, Circuit Judge,
*
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.
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 the policies. We AFFIRM.
BACKGROUND
2
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
3
Wausau Underwriters Insurance Company2 (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.
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., 812 F. Supp. 1352 (D. Del. 1993).
After the disposition of the Pfizer action, EPRC brought this claim
2
Both Employers Insurance of Wausau and Wausau Underwriters
Insurance Company are Wisconsin corporations.
4
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
5
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., 118 F.3d 1511, 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. Id. Summary
judgment 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
6
to defend an insured is separate and independent from the
obligation to indemnify. See Penn-America Ins. Co. v. Disabled
Am. Veterans, Inc., 268 Ga. 564, 490 S.E.2d 374, 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. Id. To determine 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, 244 Ga. 84, 85-86,
259 S.E.2d 39, 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., 463 F.2d 548, 551 (5th Cir. 1972) (applying Georgia
law). If the claim is only one of potential coverage, however, any
7
“doubt as to liability and [the] insurer's duty to defend should be
resolved in favor of the insured.” Penn-America, 490 S.E.2d at 376(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.1 The policies define
“advertising injury” to include injury arising out of patent infringement
committed in the course of the insured's “advertising activities.”2
1
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).
2
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).
8
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., 847 F. Supp. 1452, 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
9
. . . 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 drugs . . . .” 35
U.S.C. § 271(e)(1).3 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]
3
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., 982 F.2d 1520, 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. Id. at 1524-25 (citing Roche
Prod. Inc. v. Bolar Pharm. Co., 733 F.2d 858 (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. Id. at 1525.
10
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 id. ¶ 33. Elan argues that Count II of the
11
complaint brought the Pfizer law suit within the confines of the CGL
and CUL policies.
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., 696 F. Supp. 434, 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 929 F.2d 413 (8th
Cir. 1991) with First Bank and Trust Co. v. New Hampshire Ins.
12
Group, 124, N.H. 417, 418, 469 A.2d 1367, 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, 445
S.E.2d 272, 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:
13
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, 618 N.E.2d
1365, 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.4
4
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
14
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.5 Although Elan provided
Pfizer's response to this interrogatory to Wausau in its second
that necessary to recover costs of manufacture, research,
development, and handling.” 21 C.F.R. § 812.7(b); see also
Telectronics, 982 F.2d at 1523 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.
5
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, 127 S.E.2d 53, 59 (1962).
15
request for a defense, Wausau maintained its position that 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., 264
N.W.2d 385, 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.6 Id. at 386. The Fox court,
however, found it significant that the insured had not reproduced the
6
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.
16
pamphlet outside the company in “the general media or trade
publications.” Id. (emphasis added).
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. ¶¶ 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.7 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
drug as a potential source of significant revenue and profit for the
company. These external distributions of the clinical studies to
7
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.
17
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
18
that have a more ubiquitous appeal.8 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. See 847 F. Supp. at 1456.9
8
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.
9
The R.L. Chaides court noted that:
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
satisfied.
847 F. Supp. at 1456.
19
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.10 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
10
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).
20
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 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,
21
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.11 See Bank of
the West v. Superior Court of Contra Costa County, 2 Cal. 4th 1254,
1274-77, 833 P.2d 545, 558-60, 10 Cal. Rptr. 2d 538, 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
11
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 West, 2 Cal. 4th at 1276, 833 P.2d
at 560, 10 Cal. Rptr. 2d at 553.
22
infringing product rather than on its advertisement. Id. at 1275, 833
P.2d at 559, 10 Cal. Rptr. 2d at 552. A federal district court,
purporting to apply Georgia law (albeit without the benefit of
controlling authority), recently made a similar ruling in the copyright
context. See Robert Bowden, Inc. v. Aetna Cas. and Sur. Co., 977
F. Supp. 1475 (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.” Id. at 1480.
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,”
23
gives rise to a number of varied interpretations.12 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).13 Under such a theory of liability, the
12
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.
13
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, 959 F.2d 936 (Fed. Cir. 1992); Scripps Clinic &
Research Found. v. Genentech, Inc., 666 F. Supp. 1379, 1396-97
(N.D. Cal. 1987), modified, 678 F. Supp. 1429 (N.D. Cal. 1988),
aff'd in part and rev'd in part, 927 F.2d 1565 (Fed. Cir. 1991).
24
dissemination of the 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.14 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
14
Contrary to Wausau's arguments, the Ninth Circuit's
decision in Iolab Corp. v. Seaboard Sur. Co. , 15 F.3d 1500 (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. Id. at 1506-07. 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.
Id. at 1507. 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.
25
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 Telectronics, 982 F.2d at 1523, 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.15
15
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 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., 99 F.3d 975, 806-07 (6th Cir. 1994), it is difficult to
comprehend how an advertisement could ever infringe a patent. See
e.g., Bradshaw v. Igloo Prod. Corp., 912 F. Supp. 1088, 1100-01
(N.D. Ill.) (advertising an infringing product does not constitute
an infringing use), aff'd in relevant part, 101 F.3d 716 (Fed. Cir.
1996). But see Union Ins. Co. v. Land and Sky, Inc., 247 Neb. 696,
703, 529 N.W.2d 773, 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,
26
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 1993.16
Similarly, Count II of Pfizer's complaint alleges that Elan
commercialized Nifelan in the United States, which falls within the
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., 729 F. Supp. 77, 80 (N.D. Cal. 1989);
see also Schafer Properties v. Tara State Bank, 220 Ga. App. 378,
381, 469 S.E.2d 743, 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.”).
16
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.
27
coverage territory of Wausau's policies.17 Pfizer, in an interrogatory
response, also explained 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
17
As defined in the Wausau policies:
4. “Coverage territory” means:
a. The United States of America . . . ,
Puerto Rico and Canada.
. . . .
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).
28
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 defense incurred before the insured
29
tenders notice of the lawsuit is O'Brien Family Trust v. Glen Falls
Ins. Co., 218 Ga. App. 379, 461 S.E.2d 311 (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. Id. at 380, 461 S.E.2d
at 313. The policy, however, was silent on the issue of pre-tender
legal expenses. Id. at 380-81, 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:
30
Such a construction would render contractual
terms necessary to trigger . . . [the insurer's]
performance under the policy meaningless.
Id. at 381, 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.”18 Elan argues that bad facts make bad law and
valiantly attempts to distinguish O'Brien on the facts. The O'Brien
court, however, did not rest its ruling on the admittedly extreme facts
18
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.
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).
31
before it, but rather announced a rule of general applicability.19
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, 304 U.S. 64,
58 S. Ct. 817, 82 L. Ed. 1188 (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, 268 Ga. 561, 563, 491
S.E.2d 337, 339 (1997) (“when the insurer breaches the contract by
19
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., 999 F.2d 1547 (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.
32
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 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
33
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., 913 F. Supp. 351, 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
34
or in concert with the insured. Id. at 357. 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.20
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.
20
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, 265 Ga. 232, 454
S.E.2d 464 (1995). In 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.” Id. at 232,
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. Id. at 233-
34, 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.
35
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.21 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 reverse
the district court's August 28, 1995 order finding that Wausau owed
21
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.
36
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.
37
38