Trademark - Insurance Coverage Advice and Litigation

Trademark infringement, since the 1986 ISO form was in place, has broadly encompassed a variety of trademark, trade dress, trade name and other related torts. Beginning in 2001 the Insurance Services Office added a trademark exclusion to the standard policy. The coverage was thereafter limited to "trade dress infringement in your ‘advertisement.'"  However, from 1998-2001 the phrase "use of another's advertising idea" was found sufficiently broad to cover a number of trademark infringement and trade name claims. Many insurers have variant versions of trademark coverage, which focuses on coverage for "trademarked titles or slogans". Particular policy language must be evaluated in this respect. Gauntlett & Associates has litigated a number of cases under the exceptions to the trademark infringement exclusion, such as those for "infringement of slogan" or "trademarked title or slogan".

Representative Cases:

Burgett, Inc. v. Am. Zurich Ins. Co., 2:11-CV-01554-MCE, 2011 WL 5884251 (E.D. Cal. Nov. 23, 2011)

Implicit disparagement triggered a defense where false statements were made to another company about Burgett's alleged ownership of the "SOHMER" trademark in which claimant Persis asserted ownership rights.  No trademark infringement barred a defense since fact allegations for disparagement could create liability outside exclusion's scope.

Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co. of Am., 761 F. Supp. 2d 904 (N.D. Cal. (S.F. Div.) 2011) aff'd, 495 Fed. Appx. 830 (9th Cir. 2012)

The court found two grounds for evidencing disparagement coverage.  First, that there were express allegations that the reputation of goods was harmed by MTD's conduct.  Second, the court reasoned, "The complaint . . . explained that the alleged purpose of those brochures was to entice 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."  The Court noted that the new theory of slander of goods in the amended complaint may have added some factual specificity to the early allegations, such as the substitution of the phrase 'sales employees orally told potential customers . . .' to the previous term 'steered,' but making the same point explicitly that was previously implicit was not such a change in character that precluded the defense under the previous fact allegations.

Infor Global Solutions (Michigan), Inc. v. St. Paul Fire & Marine Ins. Co., 686 F. Supp. 2d 1005, 1007 (N.D. Cal. (San Jose Div.) 2010), Total Call Int'l, Inc. v. Peerless Ins. Co.,104 Cal. Rptr. 3d 319, (Cal. Ct. App. 2010) (did not represent a material change in governing law.) (The court's prior finding was thus unaffected when it concluded implicit disparagement based on allegations that E.piphany (Infor's predecessor) "falsely stated that it was the ‘only' producer of ‘all Java' and ‘fully J2EE' software solutions, which was an ‘important differentiator' between competing products, even though some competitors offered products with these exact features." In Total Call, the policyholder did not provide the service it promised in its advertisements, which by itself "carrie[d] no implication" that the one company's phone cards cost more or less than another's.)

Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339 (7th Cir. (Ill.) 2010) (Despite a trademark exclusion, St. Paul, had a duty to defend its insured, Santa's Best Craft, in a Lanham Act trademark infringement suit by a competitor.  The competitor alleged that Santa's Best Craft had copied the competitor's packaging design for Christmas lights and sold them using false and deceptive language. An exception to the exclusion provided coverage for suits claiming an "[u]nauthorized use of ... any slogan ... of others in your advertising."  St. Paul claimed that the competitor's claim for unauthorized use of a slogan was merely background for its trade dress infringement claim, which was excluded under the IP exclusion and not included in the advertising-slogan exception.  The court disagreed - because the allegations in the complaint could potentially give rise to a claim for unauthorized use of a slogan.  Finding a duty to defend, the court noted that even if the complaint framed its claim as one for trade dress infringement, what mattered was the substance of the allegations, "not the legal labels attached to them.").

Ohio Cas. Ins. Co. v. Biotech Pharmacy, Inc., 547 F. Supp. 2d 1158 (D. Nev. 2008)
In the first decision nationally to expressly address an issue of Texas law, the Court predicted that the Texas Supreme Court would, consistent with its prior precedent, find that "a unilateral reservation of rights letter cannot create rights not contained in the insurance policy which include the right to seek reimbursement of defense fees where there was no potential for coverage". In previous cases, the Texas Supreme Court, following Shoshone First Bank v. Pacific Employers Ins. Co., 2 P.3d 510, 515-16 (Wyo. 2000) found that a unilateral reservation of rights letter cannot create a right for an right for an insurer to seek reimbursement of settlement costs based on the logic of the Shoshone case which had expressly found that right extended to seek reimbursement of defense costs.  The Texas Supreme Court reaffirmed its earlier ruling in Matagorda finding in Excess Underwriters at Lloyd's, London v. Frank's Casing Crew & Rental Tools, Inc., 246 S.W.3d 42 (Tex. 2008) that in Texas the same rule applied in an excess policy context.

Indian Harbor Ins. Co. v. Hartford Cas. Ins. Co., No. B192829, 2007 WL 2955564, at *9 (Cal. Ct. App. Oct. 11, 2007) ("The facts presented here are similar to those in El-Com Hardware, Inc. v. Fireman's Fund Ins. Co. (2001) 92 Cal.App.4th 205 . . . . The underlying complaint in El-Com did not refer to or describe any of the insured's advertising or promotional literature, nor did it use any variation of the word ‘advertise.' . . . Here, as in El-Com, the Skechers catalog depicting allegedly infringing products put Hartford on notice of claims potentially covered under its policy. Moreover, the Adidas complaint itself specifically alleged injury caused by Skechers's advertising products that purportedly infringed upon Adidas's Three-Stripe Mark.").

Santa's Best Craft, LLC, et al. v. St. Paul Fire & Marine Ins. Co., No. 04 C 1342, 2004 WL 1730332 (N.D. Ill. July 28, 2004) (Slogans "New Technology"; "worry-free lighting") (The court found four distinct slogans, including the two referenced above. These included: "Patent-pending ‘Stay-On' feature keeps bulbs lit" and "String Stays Lit even if a bulb is loose or missing!" The unfair competition claims premised on the improper use of these slogans articulated in various counts, including causes of action for false advertising and false designation of origin, did not fall within the scope of the intellectual property exclusion. In any event, they were within the exception to that exclusion. The "infringement of slogan" claims did not fall within the exception for "trademarked slogans" where the term "slogan" was defined as "a phrase that others use and intend to attract attention in their advertising." The court rejected arguments that the slogans were mere components of the trade dress infringement claim, emphasizing that " ‘[The court] give[s] little weight to the legal label that characterizes the underlying allegations. Instead, [the court] determine[s] whether the alleged conduct arguably falls within at least one of the categories of wrongdoing listed in the policy.' Lexmark Intern., Inc. v. Transportation Ins. Co., 327 Ill.App.3d 128, 135-36 (Ill.App. 1st Dist.2001)."),

Zen Design Group, Ltd. adv. Cincinnati Ins. Co., 329 F.3d 546 (6th Cir. (Mich.) 2003) (Slogan "Wearable Light") (The court found the slogan "The Wearable Light" fell within the policy's coverage for "infringement of slogan." Zen's competitor, ASP, specifically alleged that Zen's use of advertisements and packaging utilizing and bearing ASP's WEARABLE LIGHT trademark in connection with the sale of handheld LED flashlights without ASP's authorization or consent impacted ASP's reputation and its trademark and trade dress rights. Since "The Wearable Light" was a form of LED flashlight within the "SAPPHIRE" line of flashlights, as depicted on the advertisement in issue, a defense was triggered.).

Ultra Coachbuilders, Inc. v. General Security Ins. Co., 229 F. Supp. 2d 284 (S.D.N.Y. 2002) (100% of recoverable defense fees with 10% interest from date of invoice) (applying California law) (The court found that prejudgment interest at 10% per annum was due from date of invoice. In awarding 100% and 10% prejudgment interest on Knobbe, Martens, Olson and Bear's defense fees, it found that their rates, as well as the fees themselves, were reasonable in light of the complexity of the lawsuit and the favorable results obtained therein. See Safeguard Scientifics, Inc. v. Liberty Mut. Ins. Co., 766 F. Supp. 324, 333-34 (E.D. Pa. 1991), aff'd in part, rev'd in part on other grounds, 961 F.2d 209 (3d Cir. 1992). The prosecution of counterclaims alleging unfair competition and interference with competitive advantage was used to argue (albeit unsuccessfully) that the injunction application was not barred by the doctrine of "unclean hands"; thus they were inextricably intertwined with the defense of counterclaims and necessary to the defense of the litigation as a strategic matter. Thus, there was no reason to diminish the full amount of defense fees owed because of the asserted counterclaims.).

Finger Furniture Co., Inc. v. Travelers Indemnity Co. of Conn., No. H-01-2797, 2002 WL 32113755 (S.D. Tex. Aug. 19, 2002) (Slogan/title "True Value") (Bob Finger's Houston furniture store's use of the phrase "True Value" as a promotional statement to attract customers constituted both a title and a slogan, falling within the policy's coverage for "infringement of title or slogan." The court also independently found that claims for trademark infringement associated with that promotional campaign implicated coverage under the "misappropriation of advertising ideas or style of doing business" offense. References in the complaint to marketing meet one causal nexus to advertising necessary so as to implicate potential coverage under the "advertising injury" provision.).

Ultra Coachbuilders, Inc. v. General Security Ins. Co., No. 02 CV 675 (LLS), 2002 WL 31528474 (S.D.N.Y. July 15, 2002) (Slogan "Quality Vehicle Modifier" or "QVM") (Judge Stanton ruled that a defense arose for claims falling within the "infringement of slogan" offense, under an exception to the trademark exclusion, for the slogan "QVM" which stands for "Quality Vehicle Modifier." The term "Quality Vehicle Modifier," abbreviated by the letters "QVM," qualified as a slogan sufficient to trigger a defense duty where it served as a descriptive name of a service program, which the claimant used to promote both the program itself and the use of its other products, Ford vehicles, to limousine converters. Ultra Coachbuilders stretched Ford Navigators into limousines, but did not have permission from Ford to do so. The court noted that, "A slogan is a brief attention-getting phrase used in advertising or promotion or a phrase used repeatedly, as in promotion.").

El-Com Hardware, Inc. v. Fireman's Fund Ins. Co., 92 Cal. App. 4th 205 (2001) (The claimant Penn Fabrication alleged trade dress infringement because El-Com's "marketing" confused customers as to the origin of a speaker unit handle design. Although the words "advertise" or "promote" were not used in the complaint, Penn alleged injury due to offering for sale, selling, passing and palming off, and using in commerce the copied handle. The advertising was implicated because there was display and presentation of products to a significant number of the client base at trade shows, as well as independent dissemination of product catalogs depicting the infringing handles.).

Concept Enterprises, Inc. v. Hartford Ins. Co. of the Midwest, No. CV 00-7267 NM (JWJx), 2001 WL 34050685 (C.D. Cal. May 21, 2001) (Judge Manella found that there was a duty to defend the trade dress claims where they were asserted in conjunction with causes of action for patent infringement, therefore implicating defense duties for the entire lawsuit. Hartford attempted to pay only 15% of the bills, based on its calculation of relative liability exposure for the covered trade dress vs. uncovered patent infringement claims. This approach was rejected by the court as inconsistent with the California Supreme Court's Buss decision requiring an "immediate and complete defense" of all claims subject to right to reimbursement after performance. It also found that any attempt to lessen the rate payable was unavailing under Civil Code § 2860 where less than all fees due were paid. The conduct constituted bad faith as a matter of law, entitling the insured to fees it incurred in its coverage dispute under Brandt.).

Fossil, Inc. v. Fireman's Fund Ins. Co., Case No. C99-5023 MHP (N.D. Cal. July 12, 2000) (Judge Patel found claims that Fossil violated Section 43(a) of the Lanham Act and engaged in unfair competition. The violation was premised on allegations that Fossil copied the designs of Leegin leather products, which triggered a defense as a potential trade dress infringement claim.).

Bay Electric Supply, Inc. and FAE, Inc. v. Travelers Lloyds Ins. Co., 61 F. Supp. 2d 611 (S.D. Tex. 1999) (The underlying case sought recovery for violation of federal and state laws prohibiting trademark and trade dress infringement, trademark dilution and unfair competition. The allegations were based upon the sale by Bay and FAE of circuit breakers bearing trademarks and configurations allegedly identified with and owned by ACB. The court noted that since ACB specifically alleged importation, marketing, and/or sale of circuit breakers bearing the infringing reproductions of the Configuration Marks and/or which bear or are packaged with infringing reproductions of the trademark STAB-LOK, and this is likely to confuse or deceive the public as the source, sponsorship and/or approval of defendants' circuit breakers, the causal nexus is met and a duty of the defense was owed by the insurer. The court rejected the knowledge of falsity exclusion, which "is not a requirement for a finding of liability in the underlying action." The "prior publication" exclusion was inapplicable because, although FAE's coverage with Travelers commenced one month after FAE began selling the allegedly infringing circuit breakers, no claim against FAE could arise until registration of its trademarks in 1997, "well after the inception of Travelers' coverage for FAE.").

Hayes Specialties, Inc. adv. American States Ins. Co., No. 97-020037 CK4, 1998 WL 1740968 (Mich. Cir. Ct. March 5, 1998) (The court rejected the narrow definition of the "misappropriation of advertising ideas or style of doing business" as limited to forms of common law misappropriation and not encompassing trademark claims, articulated in Advance Watch Company v. Kemper National Ins. Co., 99 F.3d 795 (6th Cir. (Mich.) 1996). The Advance Watch analysis was inconsistent with Michigan law and unlikely to be adopted by any Michigan court of appeals or supreme court. The claimant Kransco alleged that Hayes marketed and sold a "Game Footbag" which duplicated the unique physical appearance of the Kransco products through its use of a "sinuous seam," causing confusion in the minds of consumers as to the source of the product, in violation of its trademark. The pertinent offense was implicated where a product's shape, appearance or ornamental features were specifically designed so that its exhibition or display acts as advertising. In such instances, unauthorized copying of unique and identifying features, which causes consumer confusion and dilutes the injured party's trade dress, falls within the "misappropriation" offense.).

Elcom Technologies v. Hartford Ins. Co. of the Midwest, 991 F. Supp. 1294 (D. Utah 1997) (applying Pennsylvania law) (False advertising claim in suit for intellectual property claiming that Elcom improperly marketed its products as patented when they were not triggers coverage under "advertising injury" offense of "misappropriation of advertising ideas or style of doing business.").

Lebas Fashion Imports of U.S.A. v. ITT Hartford Ins. Group, 44 Cal. App. 4th 531 (1996), aff'd on reh'g, 50 Cal. App. 4th 548 (1996), aff'd on modification, 50 Cal. App. 4th 1949A (1996), petition for review denied (Jan. 22, 1997) (Guy Laroche distributed and sold high-fashion perfumes and cosmetics products under its trade name and trademarks "DRAKKAR" and "DRAKKAR NOIR." It asserted trademark infringement and unfair competition claims against Lebas, which advertised its clothing products under these same trade names and sought to register the "DRAKKAR" name. These allegations triggered a defense under the ambiguous "misappropriation of advertising ideas or style of doing business" offense because it asserted the "wrongful taking of the manner or means by which another advertises its goods or services".).

Dogloo v. Northern Ins. Co., 907 F. Supp. 1383 (C.D. Cal. 1995) (Judge Collins found that there was a duty to defend claims for trademark and trade dress infringement filed by Doskocil Mfg., Inc. against Dogloo under a 1986 ISO policy form covering advertising injury because Dogloo's use of the configuration trademark constituted false designation of origin and a false description and representation of goods, fitting squarely within the policy coverage for misappropriation of style of doing business.).

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