Maryland Bar Bulletin
Publications : Bar Bulletin : March 2012

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Liability for copyright and trademark infringement is likely apparent to most businesses and ad agencies, but as the world continues to shift toward digital media, businesses and ad agencies are becoming exposed to patent infringement risks.

This shift toward digital media has created the need for businesses and ad agencies to strike an increasingly delicate balance between effectively marketing a product or service and avoiding patent infringement liability. While not every business or ad agency will be sued when it integrates a patented function into its online advertising campaign (and not all of the businesses or ad agencies that are sued will be found liable), the threat of litigation is something for businesses and ad agencies to keep in mind as they develop new ways to reach their target consumer.

Businesses and ad agencies often overlook the threat of patent liability in online advertising because many of the patented features on the Internet seem standard and ubiquitous. This misconception creates a potential for businesses to ask their ad agencies to implement patented technology in their online advertising. Additionally, the pressure to please clients creates a potential for ad agencies to follow their client’s directives without first understanding the patent infringement risks associated with those directives.

Businesses and ad agencies use software and complex html code to perform functions integral to their online advertisements. For example, pop-up windows and targeted banner ads rely on lines written into a website’s html code. Those functions seem standard, but they are in fact patented. If a business incorporates a patented function into its online advertisement it may be directly liable for patent infringement. Likewise, if an ad agency, in following the creative direction of its client, uses a patented function to accomplish that directive, the ad agency may be directly or indirectly liable for patent infringement.

For example, in 2010, GeoTag, Inc., a company that developed a method for online searching based on a user’s location, sued a number of online retailers claiming that those retailers infringed GeoTag’s patent by implementing a location based “Store Finder” feature on their websites.

Additionally, in 2009, a company called Denizen, Inc. sued the ad agency J. Walter Thompson Co. (JWT) and its parent, WPP Group, USA, alleging that JWT stole its patented technique of blending a television show’s content and characters into advertising for a television program.

While both of these cases settled, surely most clients would prefer to avoid even the threat of litigation. Accordingly, ad agencies can shift their risk through the agency-client agreement by having the client assume all of the risks associated with patent infringement. Ad agencies can also shift their risk onto their client by setting a cap on their liability for patent infringement. Another way ad agencies can reduce their liability exposure is by providing software development and marketing technology services through separate corporate entities. While it has been suggested from some quarters that increasing agency fees might make up for the risk of patent infringement being assumed by the agency, the liability and defense costs can far outweigh any increased agency fees. Thus, an increased agency fee is not the best way for an ad agency to shift the risk in this context.

If a company is sued for patent infringement relating to an advertisement, it likely will look to its ad agency for indemnification under an indemnification clause contained in its client-agency contract. Thus, for a business to successfully shift the risk of patent infringement relating to online advertising, the business must ensure that the client-agency contract specifically addresses indemnification as it relates to patent infringement. Smart businesses and ad agencies will ensure that it is not left for a court to decide whether patent infringement is covered under the general indemnification provisions of the agency-client contract.

Both parties should also make sure that they are adequately insured for patent infringement. While some courts have held that patent infringement is covered by a general insurance policy which protects against “advertising injury,” other courts have held that patent infringement is not covered by such policies. To best protect themselves, businesses and their ad agencies should ensure that the language of their insurance policies specifically include protection for patent infringement.

While this area of law is still in its infancy, it is important that attorneys advise their clients of these risks as many of those clients are likely unaware that these risks exist. Simply being aware of the patent infringement risks involved with advertising on the internet can go a long way to help your client mitigate those risks and avoid litigation.

Bryce W. Donohue is an associate at Astrachan Gunst Thomas Rubin, P.C. His practice focuses on Intellectual Property, Advertising Law, and General Business Law.

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Publications : Bar Bulletin : March 2012

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