You May Have Stolen the Advertising Database, But You Still Have No Advertising Idea

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In Liberty Corporate Capital Ltd. v. Security Safe Outlet, 2014 WL 3973726 (6th Cir. August 15, 2014), the Sixth Circuit Court of Appeals held that where a stolen customer database is used as the basis of an advertising campaign, a claim arising from the misappropriation of that database does not constitute an advertising injury.

The case arose from an action brought by BudsGunShop.com, LLC (“BGS”) against a competitor, Security Safe Outlet, Inc. (“SSO”), and its former employee Matthew Denninghoff. While still a BGS employee, Denninghoff conspired with his sister, who was SSO’s Vice President, to open an internet firearms sales operation for SSO, in competition with BGS.  When Denninghoff left BGS, he secretly took a number of backup copies of BGS’s customer database with him. These were used by SSO to send mass promotional emails to BGS’s Kentucky customers. Although BGS directed SSO to desist in its use of the customer information, SSO refused to do so. BGS then sued SSO.

SSO sought a defense from its insurer, Liberty Corporate Capital Limited (“Liberty”), under a series of commercial general liability policies. SSO argued that coverage for BGS’s misappropriation of trade secrets claim fell within the policies’ adverting injury coverage, because the mass promotional emails were “advertisements,” and BGS’s claim constituted an allegation that SSO improperly used BGS’s “advertising idea” in its advertisements.  Liberty denied coverage arguing that, although the emails may have been “advertisements,” BGS’s misappropriation claim was not covered because BGS did not allege that SSO or Denninghoff used any of its “advertising ideas” in the emails, and the customer database itself was not an “advertising idea.”

The Sixth Circuit agreed with Liberty.  BGS’s allegations regarding misappropriation and use of the customer database did not involve the use of an “advertising idea,”  which was “reasonably understood to encompass a company’s plan, scheme, or design for calling its products or services to the attention of the public.”   BGS had not alleged that SSO used any of its advertising plans, schemes, or designs in the emails, only that customer information was used as a basis for the advertising campaign.

The Sixth Circuit affirmed the district’s court’s holding that Liberty had no duty to defend or indemnify SSO.

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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