Air Engineering, Inc. v. Industrial Air Power, LLC

2013 WI App 18, 828 N.W.2d 565, 346 Wis. 2d 9, 2013 WL 28271, 2013 Wisc. App. LEXIS 9
CourtCourt of Appeals of Wisconsin
DecidedJanuary 3, 2013
DocketNo. 2012AP103
StatusPublished
Cited by6 cases

This text of 2013 WI App 18 (Air Engineering, Inc. v. Industrial Air Power, LLC) is published on Counsel Stack Legal Research, covering Court of Appeals of Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Air Engineering, Inc. v. Industrial Air Power, LLC, 2013 WI App 18, 828 N.W.2d 565, 346 Wis. 2d 9, 2013 WL 28271, 2013 Wisc. App. LEXIS 9 (Wis. Ct. App. 2013).

Opinion

NEUBAUER, P.J.

¶ 1. This is a dispute regarding an insurance company's duty to defend under a commercial general liability (CGL) policy against allegations of advertising injury based on use of another's "advertising idea." In the underlying lawsuit, Air Engineering, Inc. sued Industrial Air Fower, LLC alleging various causes of action based on Industrial's alleged misappropriation and use of Air Engineering's website source code and site content and an internet advertising system that was designed to place advertisements for the company on potential customers' computers. Acuity, Industrial's insurer, intervened and moved for a declaratory judgment that it had no obligation to defend, and therefore, no obligation to indemnify, Industrial against Air Engineering's claims in the underlying action. The circuit court granted declaratory judgment in favor of Acuity, concluding that the complaint did not allege facts that, if true, would give rise to a duty to defend against allegations of advertising injury. We hold that the complaint alleges facts sufficient to trigger the duty to defend and thus reverse.

BACKGROUND

¶ 2. The complaint describes four systems that Air Engineering claims Industrial misappropriated and used in its own marketing: the Farts Purchasing System, the Customer Database System, the Internet Advertising System, and the Website Source Code. Air [15]*15Engineering refers to the first three systems collectively as the Proprietary Systems. For our purposes, the most important of these is the Internet Advertising System. We set forth the facts as alleged in Air Engineering's complaint, briefly describing the other three systems, then turn to a more detailed description of the Internet Advertising System.

¶ 3. Air Engineering buys air compressor replacement parts and related products and sells them to end-user customers. Over the years, Air Engineering developed techniques to determine how and where to purchase products and a database describing these techniques. Air Engineering refers to these techniques and database as the Parts Purchasing System. Air Engineering also developed a Customer Database System that enabled Air Engineering's salespeople to access customer information quickly and efficiently. Additionally, Air Engineering maintains a website for which it created source code, the Website Source Code.

¶ 4. Air Engineering also developed a system of targeting potential customers based on their online searches. As alleged in the complaint, the Internet Advertising System allowed Air Engineering to:

(A) identify search terms that persons making Google searches for Replacement Products are likely to type as part of their search; (B) identify and purchase domain names which are more likely than others to appear early in the Search List when such terms are typed in; (C) design and place Google ads which will appear when such search terms are typed and which contain domain names leading to websites that provide information about [Air Engineering's] Replacement Products and about how to purchase such products; and (D) construct websites for such domain names, or construct websites with links to such domain names, which provide information about [Air Engineering's] Replacement Products and about how to purchase such products.

[16]*16¶ 5. Air Engineering has kept the Proprietary Systems and the Website Source Code confidential. The Proprietary Systems and the Website Source Code have great economic value to Air Engineering and are essential to Air Engineering's business success and profitability because they allow Air Engineering to make its products more attractive to, and give Air Engineering enhanced access to, customers and potential customers through Google searches and in other respects. Much of the value of the Proprietary Systems and the Website Source Code would be lost if they were disclosed, as competitors could use them to enhance their competitive position with respect to Air Engineering.

¶ 6. Christopher Klemz and Matthew Kraus1 were both employees of Air Engineering, were familiar with the Proprietary Systems and Website Source Code, and were advised that the systems were confidential. Klemz registered a website name for and incorporated Industrial while he was employed by Air Engineering.

¶ 7. As further alleged in the complaint, much of Industrial's website source code and content are identical to Air Engineering's Website Source Code and content. Klemz and Kraus used Air Engineering's Website Source Code and website content, without Air Engineering's permission, to construct and maintain Industrial's website. Klemz left Air Engineering in September 2008; Klaus left in February 2009. Both began work for Industrial. Shortly thereafter, two customers with whom Air Engineering had long-term relationships quit buying replacement parts from Air Engineering and started buying the same parts from Industrial — at lower prices. The only way for Industrial [17]*17to have offered the same range of products at prices parallel, albeit lower, than Air Engineering is for Industrial to have used the information contained in the Proprietary Systems and the Website Source Code. Industrial has used information from the Proprietary Systems to create and operate its business, to market its products and services, and to solicit business, including business from Air Engineering's present and prospective customers.

¶ 8. The complaint alleges six counts: trade secret misappropriation (alleging violation of Wis. Stat. § 134.90) (2009-10),2 breach of contract, breach of fiduciary duty, conspiracy, intentional interference with contract, and unjust enrichment. The defendants denied all allegations and tendered their defense to Acuity, Industrial's CGL insurer. Acuity agreed to defend Industrial, reserving its right to deny coverage for uncovered claims. Acuity intervened, and the parties stipulated to bifurcate the proceedings, determining first whether Acuity had a duty to defend and staying proceedings on liability and indemnity. Acuity moved for declaratory judgment, asking the circuit court to declare that it had no duty to defend and therefore no duty to indemnify Industrial against Air Engineering's claims. The circuit court granted declaratory judgment, and Industrial appeals.

DISCUSSION

Standard of Review

¶ 9. A declaratory judgment determining insurance coverage involves the interpretation of an insur[18]*18anee policy, which is a question of law that we review de novo. Danbeck v. American Family Mut. Ins. Co., 2001 WI 91, ¶ 10, 245 Wis. 2d 186, 629 N.W2d 150. "Words and phrases in insurance contracts are subject to the same rules of construction that apply to contracts generally; the primary objective in interpreting and construing a contract is to ascertain and carry out the true intent of the parties." Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI 33, ¶ 16, 261 Wis. 2d 4, 660 N.W.2d 666.

Duty to Defend

¶ 10. We determine whether there is a duty to defend by comparing the allegations in the complaint with the terms of the policy. Id., ¶ 19. The duty to defend is basely solely on the four corners of the complaint; no extrinsic facts or evidence are considered. Id.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
2013 WI App 18, 828 N.W.2d 565, 346 Wis. 2d 9, 2013 WL 28271, 2013 Wisc. App. LEXIS 9, Counsel Stack Legal Research, https://law.counselstack.com/opinion/air-engineering-inc-v-industrial-air-power-llc-wisctapp-2013.