Gauntlett on Intellectual Property/Antritrust Insurance : Insurance Policyholder Advocate & Attorney David Gauntlett : Gauntlett Law Firm : Insurance Recovery, Policy Interpretation : Irvine, Orange County, California

The court denied the insurer’s motion to dismiss and granted instead plaintiff’s motion for partial summary judgment re the duty to defend as well as for defendant Federal’s concurrent motion for summary judgment.

At issue were two insurance policies, a premises/operations liability policy and a commercial access and umbrella policy issued by Federal to Align. The pertinent coverage was for personal injury and defined as personal injury “includes injury . . . caused by an offense of: D. electronic, oral, written or other publication of material that: 1. libels or slanders or person or organization (which does not include disparagement of goods, products, property or services); …” Id. at *2.

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The trademark exclusion did not bar a defense for otherwise covered claims of violations of unfair trade practice acts under New Mexico law, intentional interference with business relationships and malicious abuse of prosecution as well as other torts.

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IWP alleged that “Toffler and/or Barnett selected and reproduced articles from [IWPs] Copyrighted works and distributed the articles to many recipients in issues of a series entitled “Morning Brew.”

Prior to April 2007 the publishers of Morning Brew explained that “Published daily, the Morning Brew is a free service presenting open source articles of interest to leaders in national security and related fields. All articles are subject to the copyright protections associated with the original sources.

Articles in the Publication were organized according to titles of books written by Alvin Toffler, co-founder of Toffler Associates. By May 2007, Barnett was sending the Publication to the email addresses of 38 other Toffler employees and about 300 persons in the defense industry, the intelligence community and Corporate America.
 

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The court found no breach of Erie’s duty to defend as it defended under reservation of rights and there has been no determination of the underlying claims. Various expenses within the bankruptcy court in the court’s view were not recoverable.

The underlying complaint alleged that the Debtors and others distributors counterfeit diabetic test strips, including causes of action for federal trademark infringement, federal false advertising, federal dilution of mark, common law unfair competition and unjust enrichment.

Conceding that a defense was owed in the underlying New York action, Erie urged that the defense did not cover motions in the early stages of the bankruptcy case.

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The underlying action alleged unfair competition, interference with contractual relations and prospective economic advantage, misappropriation of trade secrets, and conversion. The carrier, Centennial, provided the defense under reservation of rights, including the right to seek reimbursement. Independent counsel was retained and paid legal fees and costs.

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The underlying suit alleged that Perry and Wilson, Inc. dba Marvin J. Perry & Associates (“P & W”) had acquired the trade name and trademark of “Marvin J. Perry & Associates” through a purchase agreement with MJP in 1993 and that MJP’s continued use of the name and mark after the sale violated P & W’s common law and federal statutory rights.

The court concluded that no defense was owed in light of an applicable IP exclusion of its policy. It barred coverage for any personal and advertising injury “ ‘. . . [a]ris[es] out of any violation of any intellectual property rights, such as patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity.’ ”

Id. at 437.

The court found applicable Seventh and Sixth Circuit authority on point to wit Native Am. Arts, Inc. v. Hartford Cas. Ins. Co., 435 F. 3d 729, 732-35 (7th Cir. 2006) where the intellectual property exclusion relieved the insurer of its duty to defend its

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The following seven propositions illustrate important issues which intellectual property owners need to be aware of to maximize the value of those assets. They include:

1. What claims you assert in litigation your opponents right to a defense and indemnity under their insurance coverage.

2. What insurance coverage will litigation against your company trigger that benefits its interests?

3. What new forms of insurance coverage are available to IPOs that will expand opportunities to transfer litigation costs to its insurers?

4. Can an insurance coverage audit reveal hidden opportunities to recapture monies paid for defense fees/settlements and/or judgments under existing insurance policies and, given the exposure revealed by a review of past coverage opportunities, is the present insurance portfolio properly attuned to risks your company now confronts.

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