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Insurer sues Amazon to restrict coverage

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Insurer sues Amazon to restrict coverage

TYLER, Texas—A patent infringement case involving two of the world's most recognized companies—International Business Machines Corp. and Amazon.com Inc.—has now become an insurance coverage dispute as well.

That's because earlier this month, New York-based Atlantic Mutual Insurance Co. asked the U.S. District Court for the Eastern District of Texas in Tyler to absolve it from responsibility for covering Amazon.com's losses if it should be found responsible for infringing on a series of patents on IBM technology. Atlantic Mutual had issued three commercial general liability policies to Amazon.com during the late 1990s that Amazon sought to tap for defense and other costs.

According to court papers, IBM sued Amazon on Oct. 23, 2006, in U.S. District Court for the Eastern District of Texas in both the courts in Lufkin and Tyler, alleging that "Amazon has built its business model on the use of IBM patents, knowing its business was covered by and infringing IBM's patents. Amazon, moreover, has ignored IBM's repeated demands that Amazon either pay for the use of Amazon's IBM's property or stop taking the property for Amazon's own use. Indeed, after four years of stonewalling, Amazon's intent is clear—Amazon would rather take IBM's property unlawfully than pay for its use. This lawsuit seeks to stop Amazon's taking of IBM's property without payment."

Last month, IBM filed an amended suit that added a series of Amazon domestic and international subsidiaries as defendants.

The action seeks compensatory damages for patent infringement, lawyers' fees and court costs and "increased damages of up to three times the amount of compensatory damages found."

On March 2, Atlantic Mutual filed a complaint for declaratory relief in the Tyler court. In its complaint, Atlantic Mutual said that it had issued three commercial general liability policies to Amazon.com covering the periods May 15, 1997, to May 15, 1998; May 15, 1998, to May 15, 1999; and May 15, 1999 to May 15, 2000. The policies held that Atlantic "will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal injury' or 'advertising injury' to which this insurance applies. We will have the right and duty to defend any 'suit' seeking those damages."

According to the Atlantic Mutual filing, Amazon notified its insurer of the IBM suits. But Atlantic holds that it is not obligated to provide a defense or to indemnify Amazon because in part, "the IBM suits do not and cannot seek damages caused by an offense during Atlantic's policy period." Although the policy covers copyright infringement under the advertising injury, it says nothing about patent infringement.

Atlantic Mutual asks the court to hold that it is not obligated to defend or indemnify Amazon.com in the IBM action, for court costs or whatever other relief the court would provide.

Attorneys for the parties did not return calls for comment by publication time.