857 F. Supp. at 1263; Sentex, 93 F.3d at 580; Simply Fresh, 94 F.3d at 1223. The original Lynchval complaint is devoid of allegations that Winklevoss committed trade secret misappropriation in connection with marketing or promoting Proval -- there are no claims that Winklevoss stole Lynchval's proprietary marketing materials or customer lists, for example. The complaint instead circumscribes Winklevoss' trade secret violations to its misappropriation of Lynchval's proprietary mathematical formulas and user input questions -- information allegedly used in producing a competing software package.
Winklevoss nevertheless insists that its promotional activities caused Lynchval harm -- lost revenue, profits, and customers -- satisfying the advertising injury requirement. See Lynchval Complt. PP 87, 90, 95, 107. Winklevoss also maintains that Lynchval's requested relief establishes advertising injury because the complaint seeks to enjoin Winklevoss from (1) promoting any software developed using Lynchval software, and (2) providing third parties with information obtained by running Lynchval software. Id. P 121.A.2., 121.A.4. These points have no merit -- the "harm" argument fails to tie advertising activities to a covered offense, and the injunction argument lacks a connection with advertising.
First, what Winklevoss portrays as injuries did not "arise solely out of" a covered offense "committed in the course of advertising your goods, products or services," as Federal's policy requires. To the extent Lynchval's profit, revenue, and customer losses arose solely out of Winklevoss' trade secret misappropriation (assuming for now that this is a covered offense), the misappropriation was not, we held above, committed "in the course of advertising." Any other injuries did not "arise solely out of" a covered offense, but instead arose out of other misconduct -- perhaps tortious interference with contractual and business relationships or unfair competition -- misconduct that Winklevoss does not even attempt to characterize as covered offenses.
Lynchval's requests for injunctive relief also lack the needed links between advertising, injury, and offense. As explained earlier, promoting an illicitly developed product is not advertising injury; that Lynchval has asked the court to prohibit Lynchval from doing so does nothing to change the allegations' substance. Lynchval's request to enjoin Winklevoss from "providing any information obtained from the running of any Lynchval Systems software to non-client third parties" likewise fails to allege advertising injury for two reasons: this request for relief does not mention advertising and it does not claim that Winklevoss ever disclosed trade secrets in the course of advertising.
The entire complaint, construed liberally in Winklevoss' favor, is concerned with Winklevoss misappropriating trade secrets to develop a competing product, not with anything Winklevoss said or did while promoting the product.
It is telling that Winklevoss cites no decisions equating trade secret misappropriation with advertising injury. Instead, it claims analogy to DecisionOne Corp. v. ITT Hartford Ins. Group, 942 F. Supp. 1038 (E.D. Pa. 1996), which held that allegations of false advertising under the Lanham Act satisfied policy advertising injury provisions. The underlying claim in DecisionOne alleged that the insured had made false and misleading comparisons between it and the claimant, causing customer defection. Id. at 1042. The court held that these allegations fit the covered policy offense of disparagement, which the court defined as "'[a] statement about a competitor's goods which is untrue or misleading and is made to influence or tends to influence the public not to buy.'" Id. at 1043 (quoting Black's Law Dictionary (6th ed. 1990)). Because the "wrongful acts causing continued harm include [insured's] false promotion and advertisement . . . and false comparisons to [claimant]," the allegations established the requisite causal connection between wrongdoing and advertising activity. Id. Although the claimant had alleged trade secret violations as well, the court went out of its way to point out that "[claimant] is not alleging harm solely from theft of trade secrets . . . . It also alleges injury from [the insured's] advertising."
Id. at 1042 n.1.
Allegations that an insured's advertisements made false comparisons to a competitor forge a strong link between misconduct and advertising. But in this case, Winklevoss cannot point to any allegations claiming trade secret misappropriation in connection with Winklevoss' promotional efforts. The harm lay in Proval's development, which transpired long before Winklevoss began marketing the product.
The remainder of Winklevoss' authority is just as easily distinguished. Challenging the need for a causal connection between advertising injury and advertising activity, Winklevoss cites a number of cases that it claims dispense with this requirement.
But these cases fail to aid Winklevoss on two fronts. First, they all involve claims of trademark or trade dress infringement, which many courts have held "inherently involve advertising activity." Poof Toy Prods., Inc. v. United States Fidelity & Guar. Co., 891 F. Supp. 1228, 1235 (E.D. Mich. 1995); see Dogloo, Inc. v. Northern Ins. Co., 907 F. Supp. 1383, 1391 (C.D. Cal. 1995) ("'trademark or tradename infringement . . . necessarily involves advertising'") (quoting J.A. Brundage Plumbing & Roto-Rooter, Inc. v. Massachusetts Bay Ins. Co., 818 F. Supp. 553 (W.D.N.Y. 1993)). The Poof Toy court based this conclusion on the need to prove in every trademark and trade dress case the likelihood of consumer confusion or deception. 891 F. Supp. at 1236 ("To have (or potentially cause) this effect, one must clearly advertise (announce to the intended customers) the mark or dress.") (citing 15 U.S.C. § 1125(a)). In contrast, proof of advertising is not an essential element of trade secret misappropriation.
Second, all but one of these cases apply the same causation requirement as Davila, Sentex, and Simply Fresh ; that is, they adhere to the majority rule that the alleged offense must be caused by advertising. In Dogloo, the court agreed with the insurer that "the infringement need be committed in an advertisement rather than in the sale of a product in order to be covered." 907 F. Supp. at 1390-91 (citation and internal quotations omitted). The underlying Lanham Act false advertising claims established the requisite tie to advertising. Id. at 1391. The Poof Toy court, having already found insurance coverage for trademark and trade dress infringement, next addressed underlying copyright infringement claims, explaining that "where the complaint does not identify any connection between the copyright claims and the advertising activity, there is no duty to defend." 891 F. Supp. at 1235. The court found the necessary connection to advertising in allegations that the insured had infringed the plaintiff's copyrights and trademarks by selling her toys at Target stores under the insured's label. 891 F. Supp. at 1230, 1235.
In First State Ins. Co. v. Alpha Delta Phi Fraternity, an unpublished Illinois appellate court case,
the court found a duty to defend under advertising injury provisions because "the advertising injuries incurred . . . are alleged to have been proximately caused by defendants' advertising activities." 39 U.S.P.Q.2D (BNA) 1905, 1914 (1st Dist. 1995). The underlying complaint alleged that the insured local fraternity had infringed the international fraternity's trademarks in several ways. The local chapter had displayed fraternity letters on the insured's house without authorization; listed itself as an Alpha Delta Phi chapter in phone books, newsletters, and correspondence; and misrepresented itself in solicitations for alumni contributions. The court began by characterizing these activities as advertising, id. at 1911-12, then went on to find that the insured's use of the plaintiff's marks in this advertising caused the plaintiff's injury. Id. at 1914. Finally, the court in B.H. Smith, Inc. v. Zurich Ins. Co., 285 Ill. App. 3d 536, 676 N.E.2d 221, 221 Ill. Dec. 700 (1st Dist. 1996), was silent on the causation requirement. The court emphasized, however, that "our conclusion is based strictly on New York law," which it admitted interprets advertising injury broadly -- far more broadly, we have found, than Illinois or any other jurisdiction.
Moreover, B.H. Smith dealt with trademark claims, which, as we observed above, inherently involve advertising activity.
In short, both the weight of authority and the particular allegations here compel a finding that Winklevoss cannot satisfy the "in the course of advertising" requirement for its alleged trade secret violations. As such, Winklevoss fails one of three prerequisites to triggering defense obligations under its insurance policies' advertising injury provisions. But Winklevoss' alleged trade secret misappropriation is deficient for an independent reason -- it is not a covered offense.
II. Trade Secret Misappropriation is Not Misappropriation of Advertising Ideas or a Style of Doing Business
Even if the alleged trade secret misappropriation occurred in the course of advertising, Winklevoss must still demonstrate that these allegations fit an enumerated offense in the policy's advertising injury provisions.
The policy lists four, none of which explicitly covers trade secret misappropriation. Winklevoss argues most forcefully that its alleged trade secret misappropriation satisfies the third covered offense, "misappropriation of advertising ideas or style of doing business."
For purposes of the above discussion, we assumed this was true. Analysis of the policy language reveals that it is not.
"In construing an insurance policy, the primary function of the court is to ascertain and enforce the intentions of the parties as expressed in the agreement." Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391, 620 N.E.2d 1073, 1078, 189 Ill. Dec. 756 (1993). Ambiguities are construed in favor of the insured, while unambiguous words take on their plain, ordinary meaning. Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill. 2d 90, 108-09, 607 N.E.2d 1204, 1212, 180 Ill. Dec. 691 (1992). Winklevoss maintains that the phrase "misappropriation of advertising ideas or style of doing business" is ambiguous or, at the very least, enjoys a broad range of meanings encompassing trade secret misappropriation. This Court agrees that the language is susceptible of more than one reasonable interpretation. But even accepting the interpretation most favorable to Winklevoss, we cannot conclude that trade secret theft falls within it.
Although "misappropriation of advertising ideas or style of doing business" is a common CGL policy advertising offense, few courts have explored its meaning in depth. All agree that the phrase really comprises two offenses -- misappropriating advertising ideas and misappropriating a style of doing business -- either of which, if shown, is sufficient. See, e.g., Advance Watch Co. v. Kemper Nat'l Ins. Co., 99 F.3d 795, 800 (6th Cir. 1996). But some of the terms provoke disagreement. For example, the word "misappropriation" has been assigned dueling definitions: a technical, legal meaning that tracks the common-law tort of misappropriation, see Advance Watch Co., 99 F.3d at 804; Atlantic Mut. Ins. Co. v. Badger Medical Supply Co., 191 Wis. 2d 229, 237, 528 N.W.2d 486, 489-90 (Ct. App. 1995); and the general lay meaning "to take wrongfully," see Lebas Fashion Imports v. ITT Hartford Ins. Group, 50 Cal. App. 4th 548, 561, 59 Cal. Rptr. 2d 36, 44 (2d Dist. 1996). Likewise, the term "advertising" has variously been interpreted, at its narrowest, as the "widespread distribution of promotional material to the public at large," see Playboy Enters. v. St. Paul Fire & Marine Ins. Co., 769 F.2d 425, 429 (7th Cir. 1985), and, at its broadest, as the "active solicitation of business," Erie Ins. Group v. Sear Corp., 102 F.3d 889, 894 (7th Cir. 1996).
Consistent with principles of Illinois insurance policy interpretation, we favor the insured by affording these terms their broadest possible meaning, but will not strain them to create obligations the parties never envisioned. The most liberal interpretation of the phrase "misappropriation of advertising ideas or style of doing business" is found in Lebas Fashion Imports v. ITT Hartford Ins. Group, a duty to defend case with underlying allegations of trademark infringement. Approaching the policy language from a layperson's point of view, the court found that "misappropriation of advertising ideas or style of doing business" encompasses trademark claims. 50 Cal. App. 4th at 562-63, 59 Cal. Rptr. 2d at 44. The court ascribed to the word "misappropriation" its "general meaning of 'to take wrongfully'" and rejected the insurer's invitation to interpret the word in a "technical common law sense." Id. at 562, 59 Cal. Rptr. 2d at 44. The court went on to define the full "misappropriation of advertising ideas" offense:
While the misappropriation of an "advertising idea" certainly would include the theft of an advertising plan from its creator without payment, it is also reasonable to apply it to wrongful taking of the manner or means by which another advertises its goods or services. As we have already explained, one of the basic functions of a trademark is to advertise the product or services of the registrant.
Id. The same rationale supported finding a trademark to be an "integral part of an entity's 'style of doing business.'" Id.
Combining the Lebas formulation with the Seventh Circuit's most generous definition of advertising, we conclude that the trade secret misappropriation here does not fall within the covered offense "misappropriation of advertising ideas." The Seventh Circuit held in Erie Ins. Group v. Sear Corp. that advertising requires, at the very least, the active solicitation of business. 102 F.3d at 894. Consequently, the broadest reading of misappropriating advertising ideas is that the insured wrongfully took an idea about the solicitation of business. But the Lynchval complaint contends no such thing. The only ideas Winklevoss is accused of stealing are mathematical formulas and raw data input questions from Lynchval's software. These are not ideas about getting more business, or how to promote a product, or even how to approach customers. These are ideas about how develop a computer program that can determine the cost of employee benefit programs. Even under the most liberal interpretation of the complaint, it does not claim the "wrongful taking of the manner or means by which [Lynchval] advertises its goods or services." Lebas, 50 Cal. App. 4th at 562, 59 Cal. Rptr. 2d at 44.
To squeeze these allegations into the "misappropriation of advertising ideas" aperture would be to transgress the parties' reasonable expectations. Indeed, such an interpretation would read the last two words right out of the phrase, condoning coverage for any wrongful taking, just because the claim happens to use the "misappropriation" nomenclature. We conclude that taking a trade secret is not equivalent to taking an advertising idea unless the secret has do to with how something is advertised.
Winklevoss fares no better with the "misappropriation of a style of doing business" offense. The courts interpreting this phrase have consistently held it to refer to "a company's comprehensive style of doing business," St. Paul Fire & Marine Ins. Co. v. Advanced Interventional Sys., Inc., 824 F. Supp. 583, 585 (E.D. Va. 1993) (citing cases), aff'd, 21 F.3d 424 (4th Cir. 1994); Atlantic Mut. Ins. Co., 191 Wis. 2d 229, 239-40, 528 N.W.2d 486 (1995), or the "outward appearance or signature of a business," Owens-Brockway Glass Container, Inc. v. International Ins. Co., 884 F. Supp. 363, 369 (E.D. Cal. 1995), aff'd, 94 F.3d 652 (1996). The Lynchval complaint, however, is concerned with the theft of its products' inner workings, not their outward appearance. Unlike a trademark, a trade secret's basic function is not advertisement. See Lebas, 50 Cal. App. 4th at 562, 59 Cal. Rptr. 2d at 44. Moreover, the Lynchval suit claims that Winklevoss misappropriated only trade secrets from two software programs, not the overall scheme by which Lynchval conducts its business. See St. Paul, 824 F. Supp. at 585 (stealing a single product is not misappropriating a style of doing business). The caselaw therefore does not permit a finding that Winklevoss stole Lynchval's style of doing business by stealing its trade secrets.
Because the Lynchval allegations fall far short of even the most liberal definitions of "misappropriation of advertising ideas or style of doing business," Winklevoss cannot satisfy the third covered offense under Federal's insurance policy. We now consider whether Winklevoss can show that it allegedly committed one of the remaining enumerated offenses.
III. The Lynchval Allegations Do Not Constitute Disparagement, Infringement of Title, or an Invasion of Privacy
Winklevoss argues for the first time in its combined response/reply brief that the Lynchval complaint contains facts that fit within the rest of the covered offenses: "oral or written publication of material that . . . disparages a person's or organization's goods, products or services"; "infringement of title"; and "oral or written publication of material that violates a person's right of privacy." This position has no merit. Finding that the Lynchval complaint alleges these covered offenses would require this Court to rewrite the complaint.
Winklevoss begins its disparagement argument by conceding that "the Lynchval complaint states no express claim for disparagement . . . ." Pls.' Reply at 14. Nonetheless, it asserts that the following allegations trigger a duty to defend under this covered offense:
86. Upon information and belief, CCA and Winklevoss have approached other companies, with whom Lynchval Systems has a contractual relationship, and has offered to license or lease to them, Proval software which was improperly developed with reference, by CCA and Winklevoss, to trade secret information of Lynchval Systems.
87. Such approaches have resulted in at least one contractual client of Lynchval Systems canceling its contract and beginning use of CCA's illicitly developed software, Proval.