Elan Pharmaceutical Research Corp. v. Employers Ins. of Wausau

• Decision Date: 26 June 1998
• Docket Number: No. 96-9249,96-9249
• Citation: 144 F.3d 1372
• Parties: 11 Fla. L. Weekly Fed. C 1555 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.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1372

144 F.3d 1372

11 Fla. L. Weekly Fed. C 1555

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.

No. 96-9249.

United States Court of Appeals, Eleventh Circuit.

June 26, 1998.

Frank W. Armstrong, Stewart, Melvin & Frost, LLP, Gainesville, GA, Morgan Chu, Gary N. Frischling, Thomas W. Johnson, Jr., Melissa R. Gleiberman, Irell & Manella, Los Angeles, CA, for Plaintiff-Appellant, Cross-Appellee.

Joe B. Sartain, Jr., Gainesville, GA, Terese S. Wallschlaeger, Patricia St. Peter, Zelle & Larson, LLP, Minneapolis, MN, for Defendants-Appellees, Cross-Appellants.

Appeals from the United States District Court for the Northern District of Georgia.

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 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 Company ¹ (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 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., 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 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 "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. ² The policies define "advertising injury" to 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, p 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 ... 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). 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...