Trademark Dilution “Tarnishment” Claims Implicate Offense “d” Coverage

Trademark Dilution “Tarnishment” Claims Implicate Offense “d” Coverage

By David A. Gauntlett*

Introduction

Following our previous blog addressing trademark dilution based on “blurring,” we now turn to dilution based on “tarnishment.” The Lanham Act defines trademark dilution based on “tarnishment” as “association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark.”[1] Like “blurring,” this form of dilution also commonly implicates one of the “personal and advertising injury offenses found in Commercial General Liability (“CGL”) policies

Trademark Dilution Triggers Coverage under Offense “d”

 CGL policies provide coverage for “personal and advertising injury,” which includes offense “d”: “oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services.”[2] Though trademark suits rarely include a labeled cause of action for “disparagement,” that is of no moment.[3] A typical trademark “dilution” claim includes sufficient factual allegations to implicate offense “d” coverage, while being sufficiently distinct from trademark “infringement” to avoid the policy’s IP exclusion.

 Even if the explicit claims for dilution do fall within an exclusion, it is not the label of the cause of action but the facts that control. A claim that is based on dilution by “tarnishment” may state grounds for potential coverage which falls within offense “d.” Those policies that narrowly only protect libel or slander as opposed to disparagement, such as that issued by the Chubb entities regarding the same conduct, might call into question the viability of the source of products and thus tarnish the reputation of the company as well as question the viability of its products, and thus trigger a defense.[4]

 One can infer from allegations of tarnishment that that the underlying Plaintiff’s products have been diminished in value by association with the purportedly inferior products of the policyholder (and that the reputation of their seller is denigrated by the negative association of the seller with inferior products).

Rosequist's Lanham Act claim alleged, in essence, that MTD had distributed promotional materials to its customers that contained photographs of Rosequist's distinctive and high-quality furniture. MTD pulled a “bait-and-switch” on its customers, however, by displaying in its showroom “cheap synthetic knock-offs” of Rosequist's products, running the risk that consumers would be confused and misled, as to the origin of the items on display. Rosequist claimed this conduct would “dilute and tarnish” her trade dress.[5]

A later case citing Michael Taylor concluded that these facts were sufficient to implicate offense “d” coverage:

Defendant Keating [induced] purchasers and others to believe, contrary to the fact, that the products sold by Defendant Keating are rendered, sponsored or otherwise approved by, or connected with Plaintiff Glidewell. Defendant Keating's acts have damaged, impaired and diluted that part of Plaintiff Glidewell's goodwill symbolized by its trademark BRUXZIR® to Plaintiff Glidewell's immediate and irreparable damage[.]

. . .

Plaintiff Glidewell has no control over the composition or quality of the goods sold under the confusingly similar trademark by Defendant Keating. As a result, to the extent Defendant's products are inferior to Plaintiff Glidewell's products, Plaintiff Glidewell's valuable goodwill, developed at great expense and effort by Plaintiff Glidewell, is being harmed by Defendant Keating's unauthorized use of the confusingly similar trademark, and is at risk of further damage.[6] 

“Oral or Written Publication” Is Key to Coverage

In Michael Taylor, the underlying Plaintiff alleged that:

[The policyholder] entice[d] customers interested in Rosequist's products into MTD's showrooms, where they would then be “steered instead” to the imitation products. The term “steered” fairly implies some further statements, presumably oral, were being made by MTD personnel to convey the information that the imitation products were the Rosequist furniture depicted in the brochures.[7]

Subsequent cases noted this “steering” and the implied additional statements as a requirement for potential coverage stemming from a dilution by “tarnishment” cause of action under common law unfair competition claims for relief.[8]

Trademark Dilution Claims Based on “Tarnishment” Not Excluded as IP Claims

Trademark dilution claims protect property right interests and are distinct in character from claims for trademark infringement. Protections against direct trademark infringement are based on society’s interest in protecting consumers from being misled about the source of the trademarked goods.[9] A trademark holder’s right to sue for infringement is derived from the public’s right to ascertain product origin.[10] In contrast, trademark anti-dilution statutes are designed to directly protect trademark holders’ property interest in their respective marks. They do not require consumer confusion. Indeed, prohibiting the disparagement of famous marks through wrongful association was one of Congress’s guiding concerns in enacting the 1996 Federal Anti-Dilution Act.[11]

Professor Welkowitz further explained the distinctions in his treatise:

Dilution protection represents a different perspective about trademarks. Instead of protecting against confusion, the object of dilution is protected by the “distinctive quality” of the trademark. . . . Most important, this erosion of power is assumed to occur in the absence of any consumer confusion. . . . One might reasonably describe diluting uses of the mark as source distractors.” That is, they distract the viewer from the primary source — identifying content of the mark.[12]               

Nonetheless, Keating Dental Arts, Inc. v. Hartford Cas. Ins. Co.[13] determined that there was no duty to defend. The court’s analysis, which preceded Swift, concluded the claims “[were all] based on trademark infringement, and all of the factual allegations in the complaint track the elements of a trademark claim,” which was excluded.[14] Thus, “any such [implicit disparagement] claim . . . arises out of potential consumer confusion caused by the alleged trademark violation.”[15] The arguments noted above, however, were not presented to either court. As a case is not authority for a proposition it did not address, this issue remains open.[16]

Keating Dental also pre-dated the Ninth Circuit’s My Choice decision,[17] which narrowly interpreted “arising out of” when used in an IP exclusion.[18]

Conclusion

It does not matter if a lawsuit asserting liability for trademark infringement is conjoined with allegations of trademark dilution based on tarnishment. So long as the elements to assert “injury arising out of . . . material that . . . disparages a person's or organization's goods, products or services” are asserted (or capable of amendment), a defense is compelled. It matters not that concurrent  trademark infringement claims are alleged because the ISO IP exclusion must preclude a defense “in all possible worlds.”[19] Properly presented trademark dilution claims which include fact allegations supporting liability for implicit or explicit disparagement may trigger a defense even where there is a robust IP exclusion in place.

*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. Mr. Gauntlett can be reached at (949) 553-1010 by voicemail or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[1] 15 U.S.C. § 1125(c)(2)(C).

[2] Navigators’ Form NAV NP3 + Cyber (07/16) CGL Policy.

[3] Atlantic Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1034 (2002) (“The scope of the duty does not depend on the labels given to the causes of action in the third party complaint[.]”)

[4] Petrochem Mktg., Inc. v. Mt. Hawley Ins. Co., 131 F. App'x 100, 101 (9th Cir. 2005) (“Advantage did allege facts that could be construed as a libel claim, but only as trade libel, not ordinary libel or defamation.”) But see Petition for Rehearing filed May 31, 2005.

[5] Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co. of Am., 761 F. Supp. 2d 904, 907 (N.D. Cal. 2011) aff’d, 495 F. App’x 830 (9th Cir. (Cal.) 2012).

[6] Keating Dental Arts, Inc. v. Hartford Cas. Ins. Co., No. SACV130419DOCANX, 2013 WL 12084156, *2 (C.D. Cal. Oct. 7, 2013), aff'd, 627 F. App'x 671 (9th Cir. 2015).

[7] Michael Taylor, 761 F. Supp. 2d at 912.

[8] Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal. App. 4th 915, 928 (2012) aff’d, 59 Cal. 4th 277 (2014) (“Thus even under the analysis of Michael Taylor Designs, Inc., the Dahl complaint did not allege disparagement and did not create a possibility of coverage under the advertising injury provision of the Hartford insurance policy.”)

[9] Allard Enters., Inc. v. Advanced Programming Resources, Inc., 249 F.3d 564, 574 (6th Cir. (Ohio) 2001).

[10] S.C. Johnson & Son, Inc. v. Johnson, 266 F.2d 129, 139 (6th Cir. (Tenn.) 1959).

[11] I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 45 (1st Cir. (Mass.) 1998) (“Sponsors of the [Anti-Dilution] bill articulated the type of problem the Act was meant to solve:  [T]his bill is designed to protect famous trademarks from subsequent uses that blur the distinctiveness of the mark or tarnish or disparage it, even in the absence of a likelihood of confusion.  Thus, for example, the use of DuPont shoes, Buick aspirin, and Kodak pianos would be actionable under this bill.”)

[12] DAVID S. WELKOWITZ, TRADEMARK DILUTION: FEDERAL, STATE & INTERNATIONAL LAW § 109, at p. 5 (2005).

[13] Keating Dental Arts, Inc. v. Hartford Cas. Ins. Co., 627 F. App'x 671 (9th Cir. (Cal.) 2015).

[14] Id. at 671.

[15] Id.

[16] Rosen v. State Farm Gen. Ins. Co., 30 Cal. 4th 1070, 1076 (2003) (“[A]n opinion is only authority for those issues actually considered or decided.”)

[17] My Choice Software, Ltd. Liab. Co. v. Travelers Cas. Ins. Co. of Am., 823 F. App'x 510 (9th Cir. (Cal.) 2020).

[18] Id. at 512 (“Applying the ‘arising out of’ exclusionary language to the allegations asserted in the Trusted Tech cross-complaint runs counter to the principle that ‘insurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured, [whereas] . . . exclusionary clauses are interpreted narrowly against the insurer.’”) (quoting MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 648 (2003)).

[19] Atlantic Mut. Ins. Co. v. J. Lamb, Inc.,, 100 Cal. App. 4th at 1039; but see David A. Gauntlett, Three 2020 Coverage Cases Clarify Coverage Availability, https://www.gauntlettlaw.com/news/three-2020-coverage-cases-clarify-coverage-availability (Feb. 17, 2021).