Infringing domain name is advertising injury for insurance purposes

In State Auto Prop and Cas Ins Co v Travelers Indem Co of Am, the US Court of Appeals for the Fourth Circuit has ruled that the registration and use of a domain name that infringes another's trademark is an advertising injury for the purposes of an insurance policy. The court also held that the domain name used the trademark "in the course of advertising" as it led customers to advertisements on the related site.

In 1996 Travelers Indemnity Company of America issued Nissan Computer Corp (NCC) with a policy that provided coverage for any "advertising injury caused by an offence committed in the course of advertising [NCC's] goods, products or services". The policy defined 'advertising injury' to include harm caused by NCC's "misappropriation of advertising ideas or style of doing business". NCC also took out an identically worded policy with a second insurer, State Auto Property and Casualty Company.

NCC registered the domain names 'nissan.com' and 'nissan.net', establishing websites that advertised its products and services as well as those of companies in the automotive industry. Predictably, Nissan Motor Company brought suit against NCC for trademark infringement and related claims (see Commercial content banned from 'nissan.com' website).

NCC sought insurance coverage from both insurance companies in relation to the lawsuit. State Auto Property honoured its policy, while Travelers contended that the policy did not cover the situation because:

• the term 'misappropriation' referred only to common-law misappropriation and did not include trademark infringement;
  
  
• NCC's registration of the domain names did not constitute an advertising injury; and
  
  
• the damage that Nissan allegedly experienced did not occur "in the course of advertising" by NCC - it was instead the result of advertising by other parties.

The US District Court for the Eastern District of North Carolina agreed with these arguments and issued a declaratory judgment in favour of Travelers.

On appeal, the Fourth Circuit reversed this decision on all three grounds. With respect to the meaning of 'misappropriation', the court found that North Carolina's Supreme Court would likely afford the term a common and general meaning that includes trademark infringement (as was the case with the majority of courts that had already dealt with the issue). The court held that any ambiguity should be the insurer's responsibility, particularly where two insurers with identically worded policies differ over whether coverage exists.

Considering whether registration of a domain name constitutes an advertising injury, the Fourth Circuit found that a trademark constitutes an 'advertising idea' the misuse of which can give rise to an advertising injury. With respect to NCC's claim that it had not caused damage, the court found that leading consumers to advertisements on a website is an act that occurs "in the course of advertising".

Although this decision turned on a federal appellate court's construction of one state's laws, the decision is likely to have important ramifications for how insurance policies related to internet activity are interpreted nationwide, and the coverage afforded to domain name registrants.

Robert R Begland, Manatt Phelps & Phillips, Los Angeles