Searching for a Unicorn: Unearthing Buried Trade Dress Claims

Searching for a Unicorn: Unearthing Buried Trade Dress Claims

By David A. Gauntlett[*]

Introduction

Standard[2] Commerical General Liability (“CGL”) insurance policies typically exclude claims for the most well-known intellectual property claims: copyright, trademark, trade secret, and patent infringement. However, they also include an exception for infringement of copyright, trade dress, or slogan in your “advertisement,” with the term “advertisement” broadly defined.[3] Fact allegations for unfair competition typically included with trademark or patent infringement, and on occasion trade secret or copyright infringement claims, may implicate the duty to defend under the exception IP torts, such as trade dress infringement. Thus, policyholders often scramble to establish the applicability of the trade dress coverage with mixed results. [4]

What Is Trade Dress?

Trade dress is “essentially [a product’s] total image and overall appearance,” including “size, shape, color or color combinations, texture, graphics, or even particular sales techniques.”[5] Some well-known examples are the red sole of a Christian Louboutin shoe, the red sealing wax on a bottle of Maker’s Mark, and the unique shape of a Hershey Kiss.

In Amco Insurance Co. v. Ledo’s, Inc.,[6] a recent case in Illinois, the underlying complaint did not have a cause of action labeled as trade dress infringement, but Ledo’s argued the factual allegations were sufficient. The complaint “mentioned their pizza’s ‘distinctive rectangular presentation,’ the ‘certain image’ they ‘prescribe’ for and that customers expect from ‘the Ledo Pizza® name,’ and statutory requirements ‘that [Ledo System and Ledo Carryouts] affirmatively act to protect the trademark and trade dress.’”[7]

The Ledo’s Court Concluded No Potential Trade Dress Claims Existed

Despite the language quoted above, the court ruled that none of the allegations “so much as hint that Ledo’s, Inc. has wrongfully appropriated the look and feel of Ledo Pizza® such that Ledo’s, Inc.’s presentation might cause confusion as to the source of the pizza.”[8] The court compared the situation to a case involving the sale of “reprogrammed and ‘unlocked’” cell phones that bore the exterior design and logo of Sprint or T-Mobile phones.[9]

There, the court said, the exterior appearances were indistinguishable from genuine products, but there was no trade dress claim because “there was no suggestion that confusion might stem from ‘the size, shape, color, etc.—the “look and feel”—of the phones.’”[10] Instead, the confusion stemmed from the presence of the logos on the phones, which placed the claims entirely within the purview of trademark infringement.[11]  

Similarly, the Ledo’s court concluded the allegations “consistently contend that Ledo's, Inc.'s name, in conjunction with similar food products, is likely to cause confusion with the Ledo Pizza® mark.”[12] Because the court held the similarity of names to be the true source of confusion, it ruled in favor of the insurer and found no significance in the underlying complaint’s mentions of trade dress elements.[13]

The Ability to Use Extrinsic Evidence under Illinois Law

To surmount the obstacles erected by case authority narrowly construing the fact circumstances where trade dress claims may be implicated, the law of the forum should be carefully evaluated to determine if it permits the introduction of extrinsic evidence to clarify the scope of the asserted claims. Illinois law permits the introduction of extrinsic evidence to establish potential coverage, thereby meeting the standard duty to defend.[14]

In Ledo’s, the insured did not do so. This is a common failing in seeking coverage for trade dress infringement.[15] That failure led to a ruling against the insured. While trade dress claims might have been implicated with additional factual development, the complaint as pled was inadequate, even when inferences from the allegations were taken into account.[16] Notably, the Ledo’s court acknowledged that extrinsic evidence could have made a difference in the result had it been proffered to the insured.[17]

Targeted Deposition Questions Can Make the Difference

Lawyers answer requests for production of documents and interrogatories, but they cannot directly respond to deposition questions. Carefully focused inquiries to decision-makers within the underlying plaintiff’s organization can elicit facts that evidence that the claims asserted, despite their articulation in the complaint, are in fact broader. Indeed, they may encompass trade dress infringement allegations.

Deposition questions posed by Ledo’s counsel might have included the following:

·         Is the rectangular shape of your pizzas something consumers identify with your product?

·         Is the overall aesthetic appearance of your pizzas cultivated to appeal to consumers?

·         Is there any potential for customers to be confused by other pizzas mimicking the visual appearance of your pizzas?

·         Have you suffered potential damages from that customer confusion?

Seek Extrinsic Evidence Early in the Suit So It Can Be Properly Used

Taking the “wait and see” approach to extrinsic evidence can deprive an insured of prompt defense reimbursement benefits. Some courts may require that the extrinsic evidence must be made known to the insurer for the policy benefits to attach.[18] Where discovery cannot be pursued effectively, or the case has already progressed beyond discovery, another attachment point to secure benefits prospectively is the Pretrial Conference Order.[19] The Pretrial Conference Order may include much more factual specificity about the basis for asserted liability, which can constitute evidence creating a duty to defend. Such an order is not extrinsic evidence. Rather, it replaces the pleadings, allowing a prospective defense to arise from the date it is filed

Conclusion

The lesson here is that courts often fail to fully appreciate the latent potential for additional claims based upon the factual allegations in a complaint. As coverage counsel, it is our responsibility to elicit additional evidence that helps the court understand the significance of every fact alleged in an underlying action. Because reliance on the complaint alone often falls short of that goal, we must use extrinsic evidence, or (where available) the Pretrial Conference Order, to sustain potential grounds for the duty to defend.

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[*] David A. Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. He also serves as an expert witness on insurance coverage issues and represents policyholders and their counsel on a range of fee dispute issues with their insurers. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[2] Insurance Services Office (“ISO”) Form No. CG 00 01 04 13. 

[3] See David A. Gauntlett, Why Evaluating Coverage for Intellectual Property Is Challenging, https://www.gauntlettlaw.com/news/why-evaluating-coverage-for-intellectual-property-is-challenging (May 5, 2022).

[4] Peter S. Selvin, Liability Insurance Coverage for Trade Dress Infringement, https://www.americanbar.org/groups/litigation/committees/insurance-coverage/articles/2012/marapr2012-liability-trade-infringement/ (Apr. 1, 2012) (collecting and analyzing cases). A number of cases that appear to meet the applicable standard did not compel a defense. See, e.g., The Oglio Entm't Grp., Inc. v. The Hartford Cas. Ins. Co., 200 Cal. App. 4th 573, 584 (2011) (No coverage despite allegation “that Oglio sought out artists to copy Davis’s product,” including those elements that constitute trade dress, because the product itself was “not an advertisement or style of advertisement promoting that product.”)

[5] Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 764 n.1 (1992).

[6] Amco Ins. Co. v. Ledo's, Inc., No. 21 C 2972, 2022 U.S. Dist. LEXIS 20417 (N.D. Ill. Feb. 4, 2022).

[7] Id. at *15–16.

[8] Id. at *20–21.

[9] Id. at *16–17 (citing AU Elecs., Inc. v. Harleysville Grp., Inc., 82 F. Supp. 3d 805, 807–08 (N.D. Ill. 2015)).

[10] Ledo’s, 2022 U.S. Dist. LEXIS 20417 at *17 (quoting AU Elecs., 82 F. Supp. 3d at 810–11).

[11] Ledo’s, 2022 U.S. Dist. LEXIS 20417 at *17 (quoting AU Elecs., 82 F. Supp. 3d at 811–12).

[12] Ledo’s, 2022 U.S. Dist. LEXIS 20417 at *20.

[13] Id.

[14] Axiom Ins. Managers, LLC v. Capitol Spec. Ins. Corp., 876 F. Supp. 2d 1005, 1014 (N.D. Ill. (E.D.) 2012) (“Additionally, it is appropriate to consider facts extrinsic to the underlying complaint as long as such consideration does not require the determination of facts critical to resolving the underlying lawsuit.”) (citing Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011, 1019–20 (2010)).

[15] Insureds often fail to reference available extrinsic evidence to clarify the defense duty. See, e.g., AU Elecs., Inc. v. Harleysville Grp., Inc., 82 F. Supp. 3d 805, 812 (N.D. Ill. 2015) (Insured offered no evidence beyond underlying complaint, which alleged “that [AU] sell[s] virtually identical looking, directly competing products.”) (alterations and emphasis in original); Greenwich Ins. Co. v. RPS Prods., 379 Ill. App. 3d 78, 80 (2008) (Insured relied on underlying complaint’s allegation that the product’s “box prominently displays the claim that it ‘Fits Holmes(R),’ and lists the following Holmes(R) Harmony(R) Air Purifier Models: HAP 615, 625, 650, 675, 675RC.”)

[16] Id. at *20.

[17] Ledo’s, 2022 U.S. Dist. LEXIS 20417 at *15 (“The Court also assumes that it may look beyond the allegations of the complaint . . . .”) (citing Pekin Ins. Co. v. Wilson, 237 Ill. 2d 446 (Ill. App. Ct. 2010)).

[18] Spandex House, Inc. v. Hartford Fire Ins. Co., 407 F. Supp. 3d 242, 257 (S.D.N.Y. 2019) (Concluding that the duty to defend would not be triggered until the production of evidence establishing coverage was “reasonably, and not just hypothetically, possible.”) (citing High Point Design, LLC v. LM Ins. Corp., 911 F.3d 89, 95 (2d Cir. 2018) (Holding that the insurer was only obligated to pay for defense fees after the introduction of critical extrinsic evidence because coverage only attaches “when [the insurer] has actual knowledge of facts establishing a reasonable possibility of coverage.”)

[19] Petree v. Victor Fluid Power, Inc., 831 F.2d 1191, 1194 (3d Cir. 1987) (“[T]he pretrial order supersedes the pleadings, and amendments will be allowed only in exceptional circumstances to prevent manifest injustice.”)