Claimant’s Pursuit of Amazon’s Insurance Coverage for Post-FTC Actions
/Claimant’s Pursuit of Amazon’s Insurance Coverage for Post-FTC Actions
The Federal Trade Commission’s recent case against Amazon shows how careful pleading allows plaintiffs additional claims against Amazon under Commercial General Liability insurance policies.
David A. Gauntlett, Gauntlett & Associates
The Federal Trade Commission (“FTC”) recently made headlines by filing an antitrust lawsuit against Amazon in the U.S. District Court for the Western District of Washington. The complaint describes a number of allegedly illegal practices, including Amazon’s practice of prioritizing “Sponsored Brand” and “Sponsored Product” search results. Injury to consumers and competitors is alleged to flow from Amazon’s selective alteration of search results to make room for these “Sponsored” spots at the top. These allegations in particular could easily spawn civil actions filed by consumers and competitors who claim injuries from these practices. These potential plaintiffs can expedite settlement by careful pleading that facilitates coverage under a Commercial General Liability (“CGL”) insurance policy that insures Amazon for its “use of another’s advertising idea in [its] ‘advertisement’.”
“Use”
The Insurance Services Office (“ISO”) that produces standard insurance policy forms changed the phrasing of this offense in modern policies from “misappropriation” to “use.” A “use” need not be inherently wrongful, but can still result in an offense if injuries “aris[e] out of” that “use,” such as misleading the public to pay higher prices. “Use” is significantly broader than “misappropriation,” including both “misuse” and “wrongful” use. See Ohio Cas. Ins. Co. v. Albers Med., Inc., No. 03-1037-CV-W-ODS, 2005 U.S. Dist. LEXIS 45675, at *1, *14, *14 n.5 (W.D. Mo. Sep. 22, 2005) (“‘Used’ does not have the same technical, defined meaning in the law as ‘misappropriation’ . . . . [T]here is nothing limiting “use of an advertising idea” to a laundry list of theories or causes of action.”). Thus, claimants need only show that Amazon employed the tactics at issue, not that it did so wrongfully.
“Of Another’s”
To satisfy this element, the CGL policy only requires that the “advertising idea” used not be the insured’s original idea. In Hyundai Motor America v. National Union Fire Insurance Co., 600 F.3d 1092 (9th Cir. 2010), the court rejected the insurer’s argument that the claimant must be the owner of the “advertising idea” at issue. In the Amazon case, the “advertising idea” of prioritizing sponsored products over organic online search results stretches back to at least Google’s launch of AdWords in 2000, potentially implicating claims under Amazon’s insurance policy.
“Advertising Idea”
Under Washington law, which would likely apply to any coverage dispute, [1] Auto Sox USA Inc. v. Zurich North America makes clear that “advertising idea” is broadly defined as any “idea for soliciting business or an idea about advertising.” 88 P.3d 1008, 1011 (Wash. Ct. App. 2004). The primary hurdle to clear is that the insured did not cause injury through use of another’s product. Here, the displacement of organic search results in favor of sponsored ones fits within the “idea about advertising” definition provided by Washington law. How did Amazon advertise these sponsored products? By moving them to the top of the search results. In analog terms, this is roughly the equivalent of allowing companies to pay to have their products placed at eye level in a supermarket.
In Auto Sox, the court ruled there was no potential coverage where a company infringed a patented design for magnetically attaching advertisements to vehicles. The insured was not using an “advertising idea” but rather selling a product that would allow others to display their own advertisements. Id. at 1011 (“Auto Sox's alleged infringement occurred not in advertising but in the manufacture and sale of an infringing product.”) The allegations against Amazon, by contrast, do not take issue with the products sold by Amazon, focusing only on the manner in which Amazon displayed those products to consumers.[2]
“In Your ‘Advertisement’”
“Advertisement” is defined by standard policies to mean, in relevant part, any “public[cation] to the general public or specific market segments about your goods, products or services for the purpose of attracting customers.” As shown in the images in the FTC’s complaint, the sponsored search results are crafted to attract customers with features such as star ratings, low inventory notifications, and discount offers. In E.S.Y., Inc. v. Scottsdale Insurance Co., the court determined hang tags attached by a retailer to clothing products constituted advertisements because they did more than simply convey information—their “special design presumably had the additional function of attracting consumers to the garments themselves and to the brand more generally.” 139 F. Supp. 3d 1341, 1355 (S.D. Fla. 2015).
Similarly, Amazon’s “Sponsored Product” results that are subject to the FTC’s lawsuit display more than factual information about the product, such as the product’s star rating. As featured in the complaint, the “Sponsored Brand” results can also feature large splash images. These have the same function of “attracting customers to the [products] themselves and to the brand more generally” that satisfied the court in E.S.Y.
Careful Pleading Is Necessary
Settlement for civil actions generated in the aftermath of the FTC lawsuit would be much easier if coverage is established. To accomplish that, the pleadings must be crafted in such a way to highlight the elements constituting “use of another’s advertising idea in your ‘advertisement’.” Furthermore, including the right allegations is only half the battle. The other half is knowing what not to include since an applicable exclusion will eviscerate any potential coverage. Expert coverage counsel can assist in drafting complaints that implicate potential coverage without running afoul of common exclusions, such as those for “Intellectual Property” and “Knowing Violation of Rights of Another[3] .”
“Intellectual Property” Exclusion
The “Intellectual Property” exclusion applies to injury “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” It is easily avoided here because the standard language contains an explicit exception: “Under this exclusion, such other intellectual property rights do not include the use of another's advertising idea in your ‘advertisement’.” See, e.g., High Point Design, LLC v. LM Ins. Corp., 911 F.3d 89, 92 (2d Cir. (N.Y.) 2018).
“Knowing Violation” Exclusion
The “Knowing Violation” exclusion is trickier. It precludes coverage for any injury “caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury’.” Despite many insurers and even courts mistakenly treating this as an “intentional acts” exclusion, the actual language restricts its application to instances in which the injury, not simply the act, was intended. Sentinel Ins. Co. v. Choice! Energy Servs. Retail LP, No. H-22-2155, 2022 U.S. Dist. LEXIS 203034, *19 (S.D. Tex. Nov. 8, 2022) (“[T]he key phrase in the exclusion . . . is that the [injurious] conduct is done ‘with the expectation of inflicting “personal and advertising injury.”’ The exclusion does not apply merely because the conduct . . . is intentional.”) Here, that means a complaint can allege Amazon intentionally committed the acts described above without implicating the exclusion, but the allegation must be careful to avoid asserting that Amazon meant to cause injury through those actions.
Conclusion
The recent FTC lawsuit against Amazon has laid the groundwork for follow-up actions from both consumers and competitors. Drafting a complaint that triggers coverage for the “advertising injury” offense of “use of another’s advertising idea in your ‘advertisement’,” with the term “advertisement” defined in the insurance policy, requires careful attention to detail. Experienced insurance coverage counsel can assist in crafting pleadings that fall within the policy’s coverage without implicating any exclusions, thereby facilitating securing insurer-funded settlements.