After Plaintiff Hyundai Motor America (“Hyundai”) placed certain features on its website, a third party sued Hyundai for patent infringement. Hyundai sought a defense from its liability insurers, Defendants National Union Fire Insurance Company of Pittsburgh and American Home Assurance Company. Because the alleged patent infringement concerned one of Hyundai’s advertising methods, Hyundai concluded that the third-party suit alleged an “advertising injury,” as that term is defined in the insurance policy. Defendants disagreed and declined to defend Hyundai, which defended itself. Hyundai later sued Defendants in this diversity action, seeking to recover its defense costs in the earlier third-party action. The district court agreed with Defendants that the alleged patent infringement did not constitute an “advertising injury” under the insurance policy and granted summary judgment to Defendants. On de novo review,
Fleming v. Yuma Reg’l Med. Ctr.,
FACTUAL AND PROCEDURAL HISTORY
Like most (if not all) major corporations, Hyundai maintains a website. At issue here are two features of the website: a “build your own vehicle” (“BYO”) feature and a parts catalogue feature. The BYO feature allowed users to navigate through a series of questions on a menu (to select, for example, colors, engine and transmission types, and options). In response to the user’s input, the BYO feature displayed customized vehicle images and pricing information. The parts catalogue feature similarly allowed users to navigate through a series of menus (to choose, for example, a model, engine system, and subsystem) and displayed customized parts images and pricing information.
Orion IP, LLC (“Orion”), a patent-holding company, holds the rights to two patents that are relevant here. Patent Number 5,615,342 (“ '342 patent”) concerns a method of generating customized product proposals for potential customers of an automobile dealer. The patent explains that “preprinted brochures” used by car dealerships are under-inclusive, because they can show pictures of only a few combinations of cars, despite the many different options available. At the same time, a preprinted brochure is over-broad, because it contains a complicated pricing matrix, much of which “is not of interest to a particular customer, since the customer will typically be interested in the price for a single, or relatively few, combinations of options for the car.” “In containing all of this varied and generic information in an attempt to be ‘all things to every customer,’ the preprinted brochures actually are of limited value to any particular customer.” The patent description also notes that these brochures become quickly out of date because of price changes and unavailable models. “The present invention solves these problems by utilizing a computer-based system to dynamically create customized, printed proposals for potential purchasers of a product.” The patent’s abstract states that the invention is “[a]n electronic system for creating customized product proposals [that] stores a plurality of pictures and text segments to be used as building blocks in creating the proposal.” “The system queries a user to determine a customer’s needs and interests. Based upon the answers to the queries, the system selects the appropriate picture and text building blocks to fill in proposal *1096 templates.” “Based upon the customer’s answers to the queries, the system links product pictures, environment pictures, and textual descriptions together in a customized proposal.” “Since each proposal is customized for a particular customer, each proposal will have a much more persuasive effect in selling the product.”
Patent Number 5,367,627 (“ ’627 patent”) concerns a similar method, but is aimed at the sale of parts. The ’627 patent is aimed at aiding parts salespersons and works much the same way as the ’342 patent.
In 2005, Orion sued Hyundai and nineteen other car companies for patent infringement. Orion alleged that Hyundai’s BYO feature infringed the ’342 patent and that its sales parts catalogue infringed the ’627 patent. Specifically, in two paragraphs that, except for the patent number, are worded identically, Orion alleged:
Defendant Hyundai has been and now is directly infringing, and indirectly infringing by way of inducing infringement and/or contributing to the infringement of the ’342 patent [or ’627 patent] in the state of Texas, in this judicial district, and elsewhere in the United States by, among other things, methods practiced on its various websites (including but not limited to www.hyundaiusa. com) making and using supply chain methods, sales methods, sales systems, marketing methods, marketing systems and inventory systems covered by one or more claims of the ’342 patent [or ’627 patent] to the injury of Orion.
Hyundai sought a defense from its insurers, Defendants. Defendants had issued an insurance policy to Hyundai with the following pertinent provisions:
COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY
1. Insuring Agreement
a.... We [Defendants] will have the right and duty to defend the insured against any “suit” seeking those damages [caused by, among other things, “advertising injury”].
b.This insurance applies to: ...
(2) “Advertising injury” caused by an offense committed in the course of advertising your goods, products or services....
SECTION V — DEFINITIONS
1. “Advertising 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 or 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.
(Emphasis added.)
Hyundai asserted that Defendants had a duty to defend Hyundai because Orion’s claims constituted allegations of, among other things, “[m]isappropriation of advertising ideas.” Defendants disputed that interpretation of the coverage and declined to defend Hyundai. Hyundai thereafter defended itself in the Orion action. A jury found against Hyundai and awarded the patent-holder $34 million in damages.
Hyundai then filed this action against Defendants in federal district court. Hyundai alleges four state-law claims, all of which proceed from the premise that the insurance policy obligated Defendants to defend Hyundai in the patent-holder’s *1097 action. Hyundai seeks declaratory relief and its reasonable costs of defense but does not seek to recover the amount of the jury verdict.
The district court granted summary judgment to Defendants. The court held that patent infringement is not an “advertising injury.” The court also held, as an alternative basis for granting summary judgment, that Hyundai was “unable to demonstrate a causal connection between its advertising[ ] and Orion’s alleged injury.” The court did not reach the question whether the BYO feature and the online parts catalogue “constitute ‘advertising’ as defined by the relevant California authority.”
Hyundai timely appeals.
DISCUSSION
Hyundai argues that the Orion action constituted a lawsuit alleging an “advertising injury” under the duty to defend clause in the insurance policy. More specifically, Hyundai argues that the patent infringement claims in the Orion action were claims alleging the “misappropriation of advertising ideas.”
California law governs in this diversity action.
Travelers Prop. Cas. Co. of Am. v. Conocophillips Co.,
An insurance policy is a contract between the insurer and the insured. As with all contracts, the mutual intention of the parties at the time the contract is formed governs interpretation. The parties’ intent is inferred from the “clear and explicit” meaning of these provisions, interpreted in their “ordinary and popular sense,” unless used by the parties in a technical sense or a special meaning is given to them by usage. Thus, if the meaning a lay person would ascribe to contract language is not ambiguous, we apply that meaning.
Id. (citation, ellipses, and some internal quotation marks omitted).
The general principles governing “duty to defend” clauses are well settled. “Liability insurers owe a duty to defend their insureds for claims that potentially fall within the policy’s coverage provisions. The carrier must defend a suit which
potentially
seeks damages within the coverage of the policy.”
Id.
(internal quotation marks omitted). The obligation to defend “can be excused only when the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.”
Lebas Fashion Imps. of USA Inc. v. ITT Hartford Ins. Group,
Determination of the duty to defend depends, in the first instance, on a comparison between the allegations of the com *1098 plaint and the terms of the policy. But the duty also exists where extrinsic facts known to the insurer suggest that the claim may be covered. Moreover, that the precise causes of action pled by the third-party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.
Scottsdale Ins. Co. v. MV Transp.,
The California Supreme Court has specified three required elements to establish a duty to defend for an “advertising injury”:
[I]n order for [Hyundai] to have a reasonable expectation of coverage under [Defendants’] policy for “advertising injury” [it] must show that: (l)[it] was engaged in “advertising” during the policy period when the alleged “advertising injury” occurred; (2) [Orion’s] allegations created a potential for liability under one of the covered offenses (i.e., misappropriation of advertising ideas); and (3) a causal connection existed between the alleged injury and the “advertising.”
Hameid,
A. “Advertising ”
The term “advertising” means “widespread promotional activities usually directed to the public at large,” but it does not encompass “solicitation.” Id. at 766. Plaintiff argues that it placed the BYO feature 1 on its website to promote its products; a website is plainly directed to the public at large; therefore, the BYO feature constitutes “advertising.” Defendants respond that, because the BYO feature creates customized proposals specific to an individual user, the BYO feature effectively is high-tech one-on-one solicitation. The district court did not reach this issue, because it held that Hyundai cannot meet the other two requirements.
As noted above, “[determination of the duty to defend depends, in the first instance, on a comparison between the allegations of the [third-party] complaint and the terms of the policy.”
Scottsdale Ins.,
In some circumstances, however, we also may consider “extrinsic facts known to the insurer.” Id. Here, it is safe to assume that Defendants had access to Hyundai’s website and could view the BYO feature in making their determination whether to defend. 2 Relying on the California Supreme Court’s decision in Hameid, Defendants argue that each user’s invocation of the BYO feature constitutes an individualized “solicitation.”
In
Hameid,
the plaintiff hairdresser
left his
employer and started a new beauty parlor.
made telephone calls and sent mailers to [the former employer’s] customers advising them of their new location and of Hameid’s lower prices. These activities strongly resemble the solicitations of a competitor’s customers in [one case]; the recruiting letters to a competitor’s employees in [another case]; and the subcontractor’s submission of bids in [a third case] — all of which were held to be “solicitation,” not “advertising.”
Id.
at 769-70;
see also Rombe,
Defendants correctly observe that the BYO feature has some similarities to solicitation. After all, the BYO feature does little, if anything, until the user inputs some personal preferences. The patent’s raison d’etre is to create customized proposals, specific to an individual user. In this way, each invocation of the BYO feature by a given user is somewhat similar to an individualized solicitation like the ones discussed in Hameid.
But Defendants’ attempt to fit the BYO feature into the framework of Hameid ultimately is unpersuasive. The court in Hameid focused on the fact that the solicitations were limited to a discrete number of known potential customers. It rejected a characterization of that form of solicitation as “advertising,” because it was not widely distributed to the public at large. Here, the BYO feature is widely distributed to the public at large, to millions of unknown web-browsing potential customers, even if the precise information conveyed to each *1100 user varies with user input. All the users are still using the same BYO feature.
An analogy to a hypothetical invention in the pre-Internet age helps to illustrate why the BYO feature advertises cars to the general public. Instead of the high-tech, Internet version of the BYO feature, imagine a more crude, paper-only version. The invention includes tabbed sliders and plastic overlays; the user chooses various options and follows directions to assemble the various physical parts. The resulting composite display shows the user’s choices, along with pricing information displayed in a cut-out window. And imagine that Hyundai included one of these crude forms of the BYO feature as an insert in a general-circulation newspaper. It seems clear that this “invention” would constitute “advertising,” even though the individual newspaper readers might each select different options and arrive at entirely different final “displays.” Hyundai’s BYO feature is much more akin to that example than it is to the individualized solicitations sent to a specified, extant customer list discussed in Hameid, or to the other individualized solicitations discussed in that case.
We conclude that the BYO feature constituted “advertising.”
B. Patent Infringement as Misappropriation of Advertising Ideas
Hyundai next must establish that Orion’s patent infringement claim constituted a “misappropriation of advertising ideas.” In
Mez Industries, Inc. v. Pacific National Insurance Co.,
We have applied the test described by Mez:
The court [in Mez,90 Cal.Rptr.2d at 733 ,] noted that the patents at issue “did not involve any process or invention which could reasonably be considered an ‘advertising idea’ or ‘a style of doing business.’ ”
Similar to Mez, the underlying [third-party] actions at issue here do not allege violation of a method patent involving advertising ideas or a style of doing business. Like the allegations that Mez was inducing infringement of a design patent in airflow conduction systems, the [third-party] actions allege violation of a design patent for certain therapeutic magnetic devices.
Homedics, Inc. v. Valley Forge Ins. Co.,
Unlike in
Mez
and
Homedics,
the third party here
did
allege “violation of a method patent involving advertising ideas.”
Id.
Orion patented a method of displaying information to the public at large for the
*1101
purpose of facilitating sales, i.e., a method of advertising. And Orion’s complaint alleged that Hyundai violated that method patent by using the patented techniques as part of its own “marketing method” or “marketing system.” In other words, Orion patented a “process or invention which could reasonably be considered an ‘advertising idea,’ ”
Mez,
Defendants attempt to rebut that conclusion on two grounds. First, they argue that a “misappropriation of advertising ideas” must relate to the actual
content
of the challenged advertisement. In support, Defendants quote our holding that, to constitute an advertising injury, the third-party claim must concern the “elements
of the advertisement itself
— in its text[,] form, logo, or pictures — rather than in the product being advertised.”
Iolab Corp. v. Seaboard Sur. Co.,
Second, Defendants argue that the source of the advertising idea must be from a competitor. Because Orion is a patent-holding company and not a direct competitor of Hyundai’s, Defendants reason, the Orion action cannot constitute a “misappropriation of advertising ideas.” As an initial matter, nothing in the policy’s text — “misappropriation of advertising ideas” — suggests that it must be a misappropriation of a competitor’s advertising ideas. Nor can we discern any contextual, public-policy, or logical significance to who owns the legal rights to the advertising idea in question. In any event, we find no support for Defendants’ competitor-only rule in California law.
In conclusion, we acknowledge that the California courts, and we, have rejected past claims that a patent infringement constitutes an advertising injury. But both the California courts and our court, applying California law, have held that a contextual analysis applies and have recognized that infringement of a patented advertising method could constitute a misappropriation of advertising ideas. In the context of the facts of this case, we conclude that the Orion action contained allegations of misappropriation by Hyundai of a patented advertising method.
We find support for our conclusion in the persuasive authority,
Amazon.com International, Inc. v. American Dynasty Surplus Lines Insurance Co.,
The misappropriation [of advertising-ideas] must occur “in the elements of the advertisement itself — in its text, form, logo, or pictures — rather than in the product being advertised.” [Iolab Corp. v. Seaboard Sur. Co.,15 F.3d 1500 , 1506 (9th Cir.1994).]
Patent infringement arising from the manufacture of an infringing product is not an advertising injury even if the infringing product is used in advertising. [Id] But patent infringement may constitute an advertising injury “where an entity uses an advertising technique that is itself patented.” [Id. at 1507 n. 5.] That was the essence of Intouch’s allegation against Amazon.... Intoueh alleged that its patented music preview technology was an element of Amazon’s advertisement. The Intoueh complaint thus conceivably alleged misappropriation of an [advertising] idea....
Amazon.com,
C. Causal Connection
Finally, a causal connection must link the advertisement and the alleged advertising injury. As is the case with the previous element, courts have found no causal connection when the patents that the insured allegedly infringed concerned the underlying product for sale. But those same cases have noted or implied that a causal connection would exist in situations like this one, where the patent concerns the method of advertising. When the advertisement itself infringes on the patent, the causal connection requirement is met.
In
Iolab,
Similarly, in
Everest & Jennings, Inc. v. American Motorists Insurance Co.,
Even if true [that E & J advertised the patent-infringing product and that advertisement brought the infringement to the patent-holder’s attention], these facts simply do not establish the necessary causal connection between the alleged infringement and E & J’s advertising. Burke’s claim never asserted that the infringement occurred because of E & J’s advertising, much less that E & J’s advertising infringed Burke’s patent independent of E & J’s manufacture and sale of the product.
*1103
See also Bank of W. v. Superior Court, 2
Cal.4th 1254,
In
Simply Fresh Fruit, Inc. v. Continental Insurance Co.,
We rejected that argument for the obvious reason that the advertising itself did not violate any patents; it simply tipped off Reddi-Made.
Id.
at 1223. “[T]he
advertising activities
must
cause
the injury — not merely expose it.”
Id.; see also Microtec Research, Inc. v. Nationwide Mut. Ins. Co.,
In summary, we must determine whether the advertising itself constituted the (injurious) use of the patented method. See, e.g., id. at 1223(noting that “the advertising activities must cause the injury”). When the patent infringement occurs independent of the actual advertisement of the underlying product, because the patent concerns the underlying product (either the product itself or the method of creating the product), then the causal connection typically 4 is not established, even when the advertising exposes the infringement. When the patent infringement occurs in the course of the advertising, however, the causal connection is established.
Here, the use of the BYO feature in the website is itself an infringement of the patent because it is the use of the BYO feature that violates the patent (and not the design of the car, for instance, or the method of manufacturing the car, or the ear’s engine, or anything related to the car for sale). Furthermore, and critically, it is that use that caused the injuries alleged by Orion. See Orion’s complaint (“Hyundai has been and now is directly infringing ... the '342 patent ... by, among other things, methods practiced on its various websites ... using ... marketing methods [and] marketing systems ... covered by one or more claims of the '342 patent to the injury of Orion.”). Accordingly, there is a direct causal connection between the advertisement (i.e., the use of the BYO feature on the website) and the advertising injury (i.e., the patent infringement). Because the use of the patented method was itself an advertisement that caused the injuries alleged in the third-party corn- *1104 plaint, Hyundai has established the requisite causal connection.
It is irrelevant whether Hyundai theoretically could have violated the patent in some way other than in its advertising. The proper inquiry asks, with respect to what actually occurred, whether the advertising itself caused the injury, that is, whether the advertising itself was the improper use of the patented method. Again, we find persuasive the Washington Court of Appeals’ analysis in Amazon.com: “[H]ere, the alleged injury derived not merely from misappropriation of the [patented software], but from
its use as the means to market goods for sale.
In other words, the infringement occurred in the advertising itself. [The third party’s] allegations therefore satisfied the causation requirement for a potential advertising injury.”
CONCLUSION
The third-party patent infringement claims here alleged that Hyundai’s web-based advertisement violated the third party’s advertising-method patents. We hold that, in the context of the facts of this case, the third-party patent infringement claims constituted allegations of “misappropriation of advertising ideas” for purposes of the insurance policy. We therefore reverse the district court’s grant of summary judgment to Defendants on all claims. We remand with instructions to grant summary judgment to Hyundai on the first claim for declaratory relief on the duty to defend and with instructions to conduct any further proceedings, if necessary, on Hyundai’s other three claims.
REVERSED and REMANDED with instructions.
Notes
. Orion's complaint alleged infringement by Hyundai both through its BYO feature and through its electronic sales parts catalogue. But "the insurer must defend the entire action even when only one of several causes of action is potentially covered.”
Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co.,
. Even if the duty to defend is not evident on the face of the complaint, the duty to defend nevertheless arises if the extrinsic facts suggest that the claim may be covered.
Scottsdale Ins.,
. Defendants are correct, of course, that Amazon.com is not binding authority, because it was applying Washington law and not California law. It is nevertheless persuasive authority. We also note that, in the relevant portions of its analysis, block-quoted in text, the Washington court cited our case that did apply California law. It appears that there is *1102 little difference between Washington law and California law in these respects.
. There may be situations in which an advertisement induces another to infringe a patent. We do not reach the question whether the required causal connection could be established in that situation.