Erie Ins. Exch. v. Compeve Corp.

• Decision Date: 08 May 2015
• Docket Number: No. 1–14–2508.,1–14–2508.
• Parties: ERIE INSURANCE EXCHANGE, Plaintiff–Appellee, v. COMPEVE CORPORATION and Slava Packovskis, Defendants–Appellants.
• Court: United States Appellate Court of Illinois

32 N.E.3d 160

114 U.S.P.Q.2d 1900

ERIE INSURANCE EXCHANGE, Plaintiff–Appellee

v.COMPEVE CORPORATION and Slava Packovskis, Defendants–Appellants.

No. 1–14–2508.

Appellate Court of Illinois, First District, Fifth Division.

May 8, 2015.

David J.E. Roe, of Mount Prospect, for appellants.

Bruce M. Lichtcsien, of Hinkhouse Williams Walsh LLP, of Chicago, for appellee.

OPINION

Justice GORDON delivered the judgment of the court, with opinion.

¶ 1 Defendants, Compeve Corporation (Compeve) and Slava Packovskis, appeal from the trial court's entry of summary judgment in favor of plaintiff Erie Insurance Exchange (Erie). The trial court found that Erie had no duty to defend defendants in a lawsuit filed against them by Microsoft Corporation (Microsoft), which alleged that defendants violated Microsoft's intellectual property rights by selling computers loaded with unauthorized copies of Microsoft's software. For the reasons that follow, we affirm.

¶ 2 BACKGROUND

¶ 3 On October 18, 2013, Erie filed a complaint for declaratory judgment, alleging that Compeve was the named insured on an insurance policy issued by Erie. Compeve and Packovskis, Compeve's owner, had been named in a lawsuit initiated by Microsoft in the United States District Court for the Northern District of Illinois, in which Microsoft alleged that Compeve installed counterfeit Microsoft software in the computers that it sells and that by selling the counterfeit software, Compeve infringed upon Microsoft's copyrights and trademarks. Erie sought a declaratory judgment that under the terms and conditions of the insurance policy, Erie had no obligation to defend or indemnify Compeve or Packovskis against any of the allegations in the Microsoft litigation.¹

¶ 4 The Microsoft complaint, filed on September 16, 2013, alleged that Compeve and Packovskis “engaged in copyright and trademark infringement; false designation of origin[;] false description and representation; and unfair competition.” Microsoft's complaint alleged that Compeve was engaged in the business of advertising, marketing, installing, offering, and distributing computer hardware and software, “including purported Microsoft software.”

¶ 5 Paragraph 10 of Microsoft's complaint alleged that “[d]efendants advertised, marketed, installed, offered and distributed unauthorized copies of Microsoft software, infringing Microsoft's copyrights, trademarks and/or service mark.” Paragraph 11 alleged that “On information and belief, Defendants advertise that the computers they sell come installed with Microsoft software, and in their advertisements, Defendants misappropriate and/or infringe Microsoft's copyrights, advertising ideas, style of doing business, slogans, trademarks and/or service mark.”

¶ 6 Microsoft's complaint alleged that in March 2013, defendants sold a Microsoft investigator several computers with unauthorized copies of Windows XP installed. In June 2013, Microsoft asked defendants to cease and desist from making and distributing infringing copies of Microsoft software on computers. Nevertheless, in July 2013, defendants again sold a Microsoft investigator several computers with unauthorized copies of Windows XP installed. The complaint alleged that “[o]n information and belief, these are not isolated incidents. Rather, Defendants have been and continue to be involved in advertising, marketing, installing, offering, and/or distributing counterfeit and infringing copies of Microsoft's software and/or related components to unidentified persons or entities.” Microsoft alleged that it “ha[d] been harmed by Defendants' activities, including their advertising activities and unauthorized use of Microsoft's copyright protected material.”

¶ 7 The first count of Microsoft's complaint, which is the only count relevant to the instant appeal, was for copyright infringement. The count incorporated the allegations as set forth above and alleged that “Defendants have infringed the copyrights in Microsoft's software, including but not limited to Microsoft Windows XP, by advertising, marketing, installing, offering, and/or distributing infringing materials in the United States of America without approval or authorization from Microsoft.”²

¶ 8 The insurance policy at issue in the instant case was an “Ultrapack Plus” policy with a policy period of January 18, 2013, to January 18, 2014. The policy provided coverage for “personal and advertising injury,” which was defined as:

“ ‘Personal and advertising injury’ means injury, including consequential ‘bodily injury’, arising out of one or more of the following offenses:

* * *

g. Infringing upon another's copyright, trade dress or slogan in your ‘advertisement’.”

“Advertisement” was further defined as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.”

¶ 9 The policy excluded coverage for, inter alia:

“i. Infringement Of Copyright, Patent, Trademark Or Trade Secret

‘Personal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another's advertising idea in your ‘advertisement’.

However, this exclusion does not apply to infringement, in your ‘advertisement’, of copyright, trade dress or slogan.”

¶ 10 On March 4, 2014, Erie filed a motion for summary judgment, claiming that it had no duty to defend defendants because the underlying complaint did not allege a covered “personal and advertising injury” claim. With respect to Microsoft's claim of copyright infringement, which is the only claim at issue in the instant appeal, Erie argued that the allegations in the complaint were not sufficient to trigger coverage for “personal and advertising injury” because there were only conclusory allegations that Compeve violated Microsoft's copyright in advertising and there were no allegations of a causal connection between Compeve's alleged advertisement and Microsoft's damages.

¶ 11 On March 12, 2014, defendants also filed a motion for summary judgment. Defendants pointed to several paragraphs in Microsoft's complaint alleging copyright infringement through advertising, including those quoted above. They claimed that the insurance policy provided coverage for such advertising injury and that Erie had breached its duty to defend.

¶ 12 On July 23, 2014, the parties came before the trial court for a hearing on their cross-motions for summary judgment. After hearing argument, the court found that the allegations of the Microsoft complaint did not bring any of its claims within or potentially within the insurance policy's coverage. With respect to the claim for copyright infringement, the court found that “there must be a causal connection between the Defendants' alleged advertising activity and Microsoft's alleged advertising injury and the allegations of the underlying complaint are insufficient to make that connection directly or potentially.” Therefore, the court found that Erie had no duty to defend or indemnify defendants in the Microsoft action. Accordingly, the trial court granted Erie's motion for summary judgment and denied defendants' motion for summary judgment. This appeal follows.

¶ 13 ANALYSIS

¶ 14 On appeal, defendants argue that the trial court erred in granting summary judgment in Erie's favor because Erie had a duty to defend defendants in the Microsoft litigation. A trial court is permitted to grant summary judgment only “if the pleadings, depositions, and admissions on file, together with the 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.” 735 ILCS 5/2–1005(c) (West 2008). The trial court must view these documents and exhibits in the light most favorable to the nonmoving party. Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill.2d 307, 315, 290 Ill.Dec. 218, 821 N.E.2d 269 (2004). We review a trial court's decision to grant a motion for summary judgment de novo. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102, 180 Ill.Dec. 691, 607 N.E.2d 1204 (1992). De novo consideration means we perform the same analysis that a trial judge would perform. Khan v. BDO Seidman, LLP, 408 Ill.App.3d 564, 578, 350 Ill.Dec. 63, 948 N.E.2d 132 (2011). “ ‘The construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court which are appropriate subjects for disposition by way of summary judgment.’ ” Steadfast Insurance Co. v. Caremark Rx, Inc., 359 Ill.App.3d 749, 755, 296 Ill.Dec. 537, 835 N.E.2d 890 (2005) (quoting Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 391, 189 Ill.Dec. 756, 620 N.E.2d 1073 (1993) ).

¶ 15 “Summary judgment is a drastic measure and should only be granted if the movant's right to judgment is clear and free from doubt.” Outboard Marine Corp., 154 Ill.2d at 102, 180 Ill.Dec. 691, 607 N.E.2d 1204. However, “[m]ere speculation, conjecture, or guess is insufficient to withstand summary judgment.” Sorce v. Naperville Jeep Eagle, Inc., 309 Ill.App.3d 313, 328, 242 Ill.Dec. 738, 722 N.E.2d 227 (1999). A defendant moving for summary judgment bears the initial burden of proof. Nedzvekas v. Fung, 374 Ill.App.3d 618, 624, 313 Ill.Dec. 448, 872 N.E.2d 431 (2007). The defendant may meet his burden of proof either by affirmatively showing that some element of the case must be resolved in his favor or by establishing “ ‘that there is an absence of evidence to support the nonmoving party's case.’ ” Nedzvekas, 374 Ill.App.3d at 624, 313 Ill.Dec. 448, 872 N.E.2d 431 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). In other words, there is no evidence to support the plaintiff's complaint.

¶ 16 “ ‘The purpose of summary...