Farmington Cas. Co. v. Cyberlogic Technologies
| Decision Date | 04 March 1998 |
| Docket Number | No. 97-71613.,97-71613. |
| Citation | 996 F.Supp. 695 |
| Parties | FARMINGTON CASUALTY CO., a Connecticut corporation, Plaintiff and Counter-Defendant, v. CYBERLOGIC TECHNOLOGIES, INC., a Michigan corporation, Defendant and Counter-Plaintiff. |
| Court | U.S. District Court — Eastern District of Michigan |
Matthew W. Schlegel, Kupelian, Ormond & Magy, Southfield, MI, William C. Morison-Knox, Thomas Holden, Sunny S. Huo, Morison-Knox, Holden, Melendez & Stokes, LLP, Walnut Creek, CA, On behalf of Plaintiff and Counter-Defendant.
Robert S. Nolan, Douglas P. LaLone, Harness, Dickey & Pierce, PLC, Troy, MI, David C. Hinshaw, T.A. Taurino, Gansinger, Hinshaw, Buckley & Padilla, LLP, Los Angeles, CA, On behalf of Defendant and Counter-Plaintiff.
The present case is an insurance coverage dispute between Plaintiff Farmington Insurance Company ("Farmington") and its insured, Cyberlogic Technologies, Inc. ("Cyberlogic").
On or about May 26, 1994, Aetna Life & Casualty,1 through Farmington, issued a commercial general liability policy ("Farmington Policy") to Cyberlogic. The Farmington Policy, which was renewed twice and in effect through May 26, 1997, provides coverage for "advertising injury" according to the following language:
We will pay those sums that the "insured" becomes legally obligated to pay as damages because of ... "advertising injury" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages.
Farmington Policy, I(B)(1)(a).
The Farmington Policy contains two provisions which, in combination, define the "`advertising injury' to which this insurance applies." The first provides that
[t]his insurance applies to: "[a]dvertising injury" caused by an offense committed in the course of advertising your goods, products or services; but only if the offense was committed in the "coverage territory" during the policy period.
Farmington Policy, I(B)(1)(b)(2). The second provides that "[a]dvertising injury" means injury arising out of one or more of the following offenses:
a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's organization's goods, products or services;
b. Oral or written publication of material that violates a person's right of privacy;
c. Misappropriation of advertising ideas or style of doing business; or
d. Infringement of copyright, title or slogan.
Farmington Policy, V(1).
The foregoing language has become the subject of dispute between the parties following the initiation of a lawsuit against Cyberlogic. Specifically, on October 16, 1996, Plaintiff was named as a defendant in Wonderware Corp. v. Cyberlogic Technologies, Inc. et al. (the "Wonderware" case) in the United States District Court for the Central District of California.2 Cyberlogic contends that the Wonderware case alleges an advertising injury and that Farmington therefore has a duty to defend Cyberlogic against that allegation. Farmington concedes that it has a duty to defend Cyberlogic in any suit seeking damages for an advertising injury as that term is defined in the Farmington Policy. It argues, however, that the Wonderware case does not allege such an advertising injury. As such, a familiarity with the factual allegations and claim for relief in the Wonderware case is necessary to a resolution of the present case.
The Wonderware Corporation ("Wonderware") produces computer software for "industrial automation." Industrial automation software is used by factory equipment operators to monitor, adjust, and control a variety of factory floor equipment from a single computer that graphically displays the necessary gauges and status indicators. Such software is operative only in computers that have been properly connected to the factory equipment by means of a device known as a "programmable controller," which allows for the interaction between the factory equipment and the computer. The industrial automation software produced by Wonderware is sold under the trademark "InTouch."
Wonderware hired Cyberlogic to develop a software program to enable one version of InTouch — InTouch for Windows — to successfully interact with programmable controllers produced by the Allen-Bradley Corporation. Under their agreement ("InTouch Agreement"), Cyberlogic was to create the designated interaction software, or "driver," and Wonderware was to receive all rights, including the copyright, in the completed driver. Cyberlogic delivered the InTouch Driver to Wonderware in August 1995, and Wonderware has at all times retained exclusive rights to that product.
Subsequent to the InTouch Agreement, Cyberlogic allegedly developed a second driver for Intellution, Inc. ("Intellution"), the producer of industrial automation software sold under the trademark "FIX." Cyberlogic and Intellution entered into an agreement ("FIX Agreement") that is very similar to the InTouch Agreement. Specifically, under the FIX Agreement, Cyberlogic purportedly developed a driver ("FIX Driver") that allows one version of FIX — FIX for Windows — to interact successfully with Allen-Bradley programmable controllers. However, under the terms of the FIX Agreement, unlike the InTouch Agreement, Cyberlogic received all rights, including the copyright, in the driver.
Wonderware alleges in the Wonderware case that the FIX Driver is "substantially identical" to the InTouch Driver and that Cyberlogic and Intellution are infringing Wonderware's exclusive rights, including its copyright, in the InTouch Driver. Specifically, Wonderware states the following counts: (i) copyright infringement; (ii) unfair competition; (iii) misappropriation of trade secrets; (iv) conspiracy; (v) breach of contract; (vi) intentional interference with contractual relations; and (vii) negligent interference with contractual relations. Counts i-v are asserted against Cyberlogic; Counts i-iv and vi-vii are asserted against Intellution.
On or about December 6, 1996, Cyberlogic tendered notice of the Wonderware case to Farmington and demanded a defense. Specifically, Cyberlogic claims that the Wonderware case alleges an advertising injury as that term is defined in the Farmington Policy.
In making its claim for a defense, Cyberlogic informed Farmington, as it now informs this Court, that the FIX Driver is distributed in two formats. First, the FIX Driver is distributed on a compact disk ("Compact Disk"). Copies of the Compact Disk are distributed by Intellution, without charge, to all purchasers of Intellution's FIX industrial automation software. In addition to the FIX Driver, the Compact Disk also contains presentations describing and promoting the FIX Driver.3 Second, the FIX Driver is distributed on a floppy disk ("Floppy Disk"). Copies of the Floppy Disk are sold directly by Cyberlogic to users of the FIX industrial automation software.
The FIX Driver distributed on the Compact Disk differs from the FIX Driver distributed on the Floppy Disk in only one respect: it has a life-span of four hours. In its substance, however, it is a "full" copy of the FIX Driver (Cyberlogic Brief, October 16, 1997, pp. 5, 11). As such, the FIX Driver distributed on the Compact Disk is intended to serve as a demonstration, or "free sample," of the FIX Driver. Cyberlogic states that this four-hour copy of the FIX Driver is analogous to a sample box of laundry detergent: "the product contained in both the fullsize and sample size is exactly the same; only the amount of product or useful life-span differs" (Cyberlogic Brief, October 16, 1997, p. 5 n. 7). Cyberlogic distributes this free sample of the FIX Driver with the hope that, after using it up, FIX users will purchase the unrestricted copies sold on the Floppy Disk.
Cyberlogic's demand for a defense from Farmington was premised solely on the FIX Driver as distributed on the Compact Disk.4 Specifically, Cyberlogic argued that the FIX Driver on the Compact Disk is an advertisement and that Wonderware's copyright claim therefore alleges an advertising injury. Farmington refused to provide a defense. Instead, on April 16, 1997, Farmington filed the present suit, arguing that the Wonderware case does not allege an advertising injury and seeking a declaratory judgment that it has no duty to defend or indemnify Cyberlogic in that case. On May 16, 1997, Plaintiff filed a counter-complaint seeking a declaratory judgment to the contrary. The counter-complaint also brings causes of action for breach of contract and breach of the covenant of good faith and fair dealing.
The parties are now before the Court on cross motions for summary judgment. Cyberlogic brings a motion for partial summary judgment on the issue of Farmington's duty to defend. Farmington brings a motion for summary judgment on the entire case.
Under F.R.Civ.P 56(c), summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, 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 judgment as a matter of law." Copeland v. Machulis, 57 F.3d 476, 478 (6th Cir.1995). As both Plaintiff and Defendant have moved for summary judgment, they each concede that no genuine issues of material fact remain.5 As such, the Court may proceed to rule upon the present motions.
Whether an insurer has a duty to defend its insured in an underlying action depends on (1) the terms of the applicable insurance policy, Allstate Ins. Co. v. Freeman, 432 Mich. 656, 443 N.W.2d 734, 737 (1989), and (2) the allegations in the underlying complaint. State Farm Fire and Cas. Co. v. Basham, 206 Mich.App. 240, 520 N.W.2d 713, 714-15 (1994); Wright v. White Birch Park, Inc., 118 Mich.App. 639, 325 N.W.2d 524, 526 (1982). The duty to defend extends to allegations that "`even arguably come within the policy coverage.'" Bash...
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