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

Citing Discover Financial Services LLC v. National Union Fire Ins. Co., 527 F. Supp. 2d 806, 824 (N.D. Ill. 2007), which also addressed insurance coverage for Katz’ patent infringement claims, the court acknowledged that “Discover Financial omitted the Katz patents at issue in this case which specifically include claims relating to advertising.”

Incredibly, the court found this factor not essential to its ultimate finding. However, it was clearly germane to the Discover Financial court, and close analysis of the fact allegations evidences that the relevant precedent was not Discover but Hyundai Motor Am. v. Nat’l Union Fire Ins. Co., 600 F.3d 1092, 1098 (9th Cir. (Cal.) 2010), citing Amazon.com Int’l, Inc. v. Am. Dynasty Surplus Lines Ins. Co., 85 P.3d 974, 977 (Wash. Ct. App. 2004). These cases found patented “advertising techniques” which implicated potential “advertising injury” coverage under the “misappropriation of advertising ideas” offense. Especially as one of the pertinent patents, #5,828,734 at Claim 219, provides, “A telephone interface system ... wherein said selective operating format involves advertising a product for sale.” Discover Financial, 527 F. Supp. 2d at 813.

An even closer case the court’s order did not reference is Amazon.com, Inc. v. Atlantic Mutual Ins. Co., No. C05-00719RSM, 2005 WL 1711966 (W.D. Wash. July 21, 2005), which found the “virtual shopping cart” patent met the test because “[t]he ‘virtual shopping cart’ is a feature of plaintiff's advertising techniques [that] . . . monitors the frequency and duration of access to various pages by customers, thereby providing important marketing feedback to plaintiff.” Id. at *9.
 

Looking, under Florida law, solely at the allegations of the complaint, the court noted that the pertinent complaint invokes neither Section 1681n nor Section 1681o, but only 1681c(g). The following questions of law are common to the putative class:

(i) Whether the Merchant accepts credit cards or debit cards for the transaction of business;

(ii) Whether the Merchant violated FACTA by printing more than the last five digits of the credit card . . .

(iii) Whether the Merchant's sole means of recording the payment card's account number or expiration date is by handwriting . . .

(iv) Whether the Merchant willfully failed to comply with the requirements imposed by FACTA.

Id. at *8.

The allegations of the Chavoustie and Turner complaints were both analyzed.

The pertinent personal and advertising injury coverage was “e. Oral or written publication, in any manner, of material that violates a person's right of privacy.”

The insurers argued that sharing the payment card receipt with the payment card holder alone did not violate any privacy rights under Florida law. The court noted:

In considering the breadth of the phrase, “publication, in any manner,” the Court finds it difficult to conceive of a more inclusive description of the categories of “publication” to be covered by an insurance policy, particularly in light of Florida's insurance policy construction canon requiring courts to interpret coverage clauses “in the broadest possible manner to [e]ffect the greatest extent of coverage,” Westmoreland, 704 So.2d at 179 (Fla. 4th Dist.Ct.App.1997) (citing Hudson v. Prudential Prop. & Cas. Ins. Co., 450 So.2d 565, 568 (Fla.2d Dist.Ct.App.1984); and putting insurers on notice that “ ‘when an insurer fails to define a term in a policy, ... the insurer cannot take the position that there should be a “narrow, restrictive interpretation of the coverage provided.” ’ ” State Farm Fire and Cas. Co. v. CTC Development Corp., 720 So.2d 1072, 1076 (Fla.1998) (citations omitted). Had Defendants wished to restrict the definition of “publication” to be narrowed to the meaning of that term under Florida defamation law or to be otherwise qualified, Defendants bore the burden of articulating that limitation.

Id. at *11 (citations omitted).

In line with this analytic approach, plaintiffs’ provision to a payment card holder of a receipt bearing that payment card holder’s expiration date and more than five digits of that payment card holder’s account number could constitute a publication. Id. at *11.

At most there were two plausible interpretations of the term “publication” and that should be preferred which would interpret against the insurer who drafted it. Id. at *13.

The insurers argued that there was no injury but only the potential to cause injury by creating a greater exposure to identity theft.

The court responded:

These contentions miss the mark. Plaintiffs argue that the policies' definition of “personal and advertising injury” . . . encompasses the injury alleged by Chavoustie and Turner in their complaints. “Personal and advertising injury” contemplates a different type of injury than “bodily injury,” “property damage,” “advertising injury,” or “personal injury,” to the extent that any of those terms may be defined by the applicable insurance policies.

Id. at *13.

The legislative history elucidates that the truncation provisions of the FACTA arose from a desire to prevent identity theft that can occur when a card holder’s private financial information, such as the card holder’s complete credit card number, is exposed on electronically printed payment card receipts. Id. at *15.

The alleged conduct in the Chavoustie and Turner actions implicated an injurious act, publication, and potential violation of the right of privacy. It reasoned:

In Chavoustie, the plaintiffs claimed that E.T. “failed to protect [the Chavoustie plaintiffs] against identity theft and credit and debit card fraud by printing more than the last five digits of the card number and/or the expiration date on the consumer receipts it provided to [the Chavoustie plaintiffs].” . . . They further alleged that as a result of E.T.'s alleged failure to truncate on electronically printed payment card receipts, the Chavoustie plaintiffs were “aggrieved by [E.T.'s] ... fail[ure] to comply with the requirements of FACTA.”

Id. at *16.

The statutory character of the damage awards was of no moment since both actual and statutory damages were remedies. The court reasoned:

As the Eleventh Circuit has rejected the argument that statutory damages under Section 1681n amount to punitive damages, this Court respectfully declines to accept USLI's invitation to conclude otherwise.

Id. at *18.

Looking to the “knowing violation of the rights of another” exclusion, the court did not aver that Creative reviewed or otherwise actually became aware of the information contained in the materials alleged to have been provided to Creative, thus requiring knowledge of the information. Id. at *21.

The exclusion for TCPA, CAN-SPAM and other statutory violations did not embrace this particular form of privacy invasion. The court reasoned:

[T]he FACTA seeks to protect the secrecy privacy interest in that it attempts to protect private financial information from becoming known to others. Therefore, the seclusion privacy interest, or the right to avoid intrusions into a private domain, which the TCPA and CAN-SPAM are intended to address, represents a different kind of privacy interest than the secrecy privacy interest at stake in the FACTA.

Id. at *24.

Thus, the court concluded that plaintiff E.T. stated a cause of action against defendant Essex but concluded that Creative had not stated a viable cause of action against defendant USLI. The court reached the distinct conclusion regarding USLI because it found the exclusion for TCPA, CAN-SPAM and other statutory violations implicated as to its policy. It noted:

Because the FACTA is a statute that limits the information that such an electronically printed receipt provided to the card holder may include, and, indeed, prohibits the inclusion of certain information, the FACTA qualifies as a statute that “prohibits and limits the ... communicating or distribution of material or information,” within the ordinary meaning of the terms of this exclusion. As a result, USLI is under neither a duty to defend nor to indemnify Creative with regard to the Turner litigation.

Id. at *22.

Wisconsin is a four-corner state looking rigorously at the allegation of the complaint and nothing beyond. Articulating the basis for a defense determination, the Court observed:

“The test is whether the complaint arguably asserts a form of liability covered by the policy.” Hamlin Inc. v. Hartford Accident & Indem. Co., 86 F.3d 93, 96 (7th Cir.1996) (applying Wisconsin law) . . . .

Id. at *5.

In analyzing the defense, the court observed:

Specifically, KI contends that S & P's amended complaint alleges injury arising out of the “[u]nauthorized taking or use of any advertising idea, material, slogan, style or title of others.”

Id. at *6.

Here, the plain language of the pertinent provision requires that St. Paul pay damages resulting from KI's advertising of its products that arise from misappropriating someone else's advertising. The word “advertising,” as used in this provision of the policy, is intended to modify not just “idea,” but each of the terms that follow. Otherwise, the enumerated offense would extend far beyond the area of advertising. Thus, St. Paul agreed to indemnify KI against liability for damages incurred where, in advertising its own products, KI misappropriated an idea, material, slogan, style or title from the advertising of another. In the context of this case, St. Paul would be required to indemnify KI for any damages KI incurred in advertising its own products if KI was found to have taken or used any of S & P's advertising ideas, materials, slogans, styles or titles without S & P's consent. Since S & P's lawsuit had nothing to do with its own advertising but was instead all about KI's alleged theft of its furniture design, it seems clear that no covered claim was alleged.

Id. at *7.

The court’s construction would add words of limitation not set forth in the policy to wit, that it is not possible to promote a product similar to that of a competitor, such that its mere promotion would be a misappropriation of an advertising idea, especially where the character of the liability as here, depended upon the content of advertising which would include physical display of furniture as an advertisement for the product itself on showroom floors falling within the broad meaning of the definition of the term “advertising” in St. Paul’s policy, which means, “attracting the attention of others by any means for the purpose of seeking customers or increasing sales or business.” Id. at *3.

Articulating the later argument, KI asserted:

First, . . . “S & P's allegations that KI took and improperly displayed CAMPUS in the KI showroom implicates coverage under the advertising materials language of the policy.” . . . Second . . . KI contends that “the aesthetic nature of [S & P's] design is the true advertising idea and style because it was designed to appeal to consumers through unique appearance,” . . . .

Id. at *7.

The court found that the physical display of the campus furniture in a showroom was made at a time when it purported to be representing the campus line and therefore could not be part of the misrepresentation conduct. Second, the court found that there is no evidence that the campus desk and chair that KI displayed at the showroom in 1995 were created by S & P for the purpose of advertising.

The court, thus, looks to the understanding that the claimant had in using materials misappropriated, not the effect of what the defendant did with those materials, which could be deemed to implicate advertising material. As liability attaches for the defendant’s conduct that could be actionable, the court’s focus appears improper.

The court specifically rejected the notion that the product itself by virtue of its design constitutes advertising, even under St. Paul’s broad definition of that term.

Instead, advertising is communication about a product, and as such it cannot logically be the product itself. This distinction is implicit in St. Paul's definition: “Advertising means attracting the attention of others [to the product] by any means for the purpose of seeking customers or increasing sales or business.” The advertising-the means or act of attracting attention-needs an object; it is not itself the object.

Id. at *9.

The addition of the bracketed phrase “to the product” is but one possible meaning. It does not look at all possible meanings of the term advertising, which is required in a duty to defend analysis nor the potential that a product can logically be an advertisement for itself in some circumstances. As these possibilities are not even examined by the court, and the court takes what it believes is the most logical understanding of how advertising is to be understood, it has only shown that there is one possible reading of the policy under which coverage would not arise, not that it couldn’t occur potentially herein. Although the court cites a number of cases for the proposition that the product cannot be in advertising for itself, they are an equally significant number and more of them recent than the court’s opinion, embracing the contrary view.

The court’s citations include Westport Reinsurance Management, LLC v. St. Paul Fire & Marine Ins. Co., 80 Fed. Appx. 277, 279 (3rd Cir. 2003) (product itself is not advertising); Green Machine Corp. v. Zurich-American Ins. Group, 313 F.3d 837, 841 (3rd Cir. 2002). (Marketing strategy or style of attracting customers was theft of underlying method, not an advertising idea.); Accessories Biz, Inc. v. Linda and Jay Keane, Inc., 533 F. Supp. 2d 381, 388 (S.D.N.Y. 2008) (“Advertising idea” does not include product itself, thus samples could not be a form of advertising.); Hosel & Anderson, Inc. v. ZV II, Inc., 2001 WL 392229, *2 (S.D.N.Y. 2001) (“[t]he product itself is not an advertisement within the meaning of the policy”).

Specific language of the policies could be determinative in each of these cases and the court does not cite it thereby running afoul of the rule that a policy must be interpreted in light of particular language not purported general rules instructions may not have application therein.

The court distinguished Fireman’s Fund Ins. Co. v. Bradley Corp., finding there that the court found that express coverage for trademark encompassed trade dress fact allegations. Consumer confusion caused by the mistaken impression through presentation of a product could be an advertising idea as the court noted. Indiana Ins. Co. v. Super Natural Distributors, Inc., 2003 WI App. 244, 2003 WL 22336427, *10 (Wis. Ct. App. 2003); Superformance Intern., Inc. v. Hartford Cas. Ins. Co., 203 F. Supp. 2d 587, 597 (E.D.Va. 2002).

The court distinguished Acuity Mutual Ins. Co. v. Bagadia, 750 N.W.2d 817 (Wis. 2008) because there, sending of copyrighted software samples and advertising of trademarked software was part and parcel of the injury alleged. The absence of alleged injury based on consumer confusion or any advertising of the product, even though it is implicit from the fact allegations referenced. The fact that in both Bradley and Bagadia, the claimant was a competitor of the insured defendant and the court’s view was noteworthy. It characterized a section of the complaint referring to display or advertising of the products as surplusage, as they were “not a component of any injury (since they do not relate to the merits of any of the claims).” Id. at *11.

The court seems fixated on whether the fact allegations support the theory of damages as articulated in the complaint, not as the court was compelled to do under applicable Wisconsin law, whether the facts could support recovery under any theory that might implicate possible coverage. Thus, the court cites, but does not consider the import of Curtis-Universal, Inc. v. Sheboygan Emergency Services, Inc., 43 F.3d 1119, 1122 (7th Cir. (Wis.) 1994). Skipping in its citation the part of the Seventh Circuit’s opinion that emphasized that the theory of relief, which it described as a legal label, was of no moment.

The same analysis was apropos as to Federal’s policies where “infringement of copyrighted advertising materials” was the offense analyzed.

[E]ven if the complaint in the underlying action could be read to allege copyright or trademark infringement based on KI's alleged misappropriation of S & P's furniture designs, there is certainly no allegation that KI made infringing use of copyrighted advertising materials, unless one regards the design itself as advertising, an argument that I have already fully addressed and rejected above.

Id. at *13.

• St. Paul’s payment of $780,000 in defense fees and $315,000 to settle a lawsuit was no small matter and that it entitled St. Paul to potential reimbursement if issues could be factually addressed to the court’s satisfaction.

• There was no authority for the proposition that reimbursement is not permitted even though Wisconsin law may stay proceedings in the underlying claim until the coverage question is resolved, since there is a direct action statute permitting that remedy.

• The complexity attending resolution of commercial general liability coverage issues made this an inappropriate policy.

• The right to reimbursement was a majority position, even though that appears not be true anymore with the recent spade of cases, including General Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods, Co., 828 N.E.2d 1092, 1101 (2005). Id at *18.

• A motion for leave to amend to file a counterclaim seeking reimbursement remains.

The court did not analyze whether the asserted claims for relief could be supported absent any theory of liability consistent with the factual claims asserted, the standard enunciated by the majority of courts and best articulated in Ohio Cas. Ins. Co. v. Cloud Nine, LLC, 464 F. Supp. 2d 1161 (D. Utah 2006) (“[T]he causes of action asserted against the Cloud Nine Defendants do not necessarily require that, in order to find liability, the defendant have knowledge of falsity or knowledge that its conduct would cause advertising injury.”). (The exclusion barred intentional acts). This approach is based on a misreading of Connecticut Indemnity Co. v. DER Travel Service, Inc., 328 F. 3d 347, 350-51 (7th Cir. (Ill.) 2003) which analyzed that there is an errors & omissions policy which did have an intentional acts exclusion in transposing that analysis to a completely distinct offense-based policy which incorporates intentional acts as the offenses within the policy.

While it cited a number of cases that found that the assertion of negligent or reckless conduct would render the “knowledge of falsity” exclusion inapplicable, the court presumed as a negative pregnant from these cases (i.e., absent allegations of negligence or recklessness the pertinent exclusion would otherwise apply.) These cases did not address that issue and did not stand for the proposition urged.

The court did not address whether the precluding coverage for infringing upon another’s copyright in your advertisement was implicated because it found the exclusion barred a defense. Analyzing both knowledge that the act would violate the rights of another’s and inflict “personal and advertising injury” as well as “knowledge of falsity,” the court found the defense precluded all that was alleged was deliberate, knowing, willful, malicious and oppressive statements and infringement activity with regards to StorageTek’s priority rights.

"[N]o reasonable jury could find that Great Northern was not prejudiced by Guaranty Bank's inexplicable failure to give prompt notice [until over 90% of the defense fees were incurred and the preliminary injunction motion had been lost]. RTE Corp. v. Maryland Casualty Co., 74 Wis.2d 614, 247 N.W.2d 171, 178-79 (Wis.1976), and cases cited there; Sanderfoot v. Sherry Motors, Inc., 33 Wis.2d 301, 147 N.W.2d 255, 259 (Wis.1967)."

Id. at *2.

The court also noted that the leniency towards insureds demonstrated by the Wisconsin legislature and Supreme Court were to individuals, not substantial commercial enterprises. The court noted, however, that the contra proferentum rule has been exercised for the benefit of large corporations as well as individuals as the Supreme Court of Wisconsin had not spoken on topic.

Guaranty Bank argued in effect that there was no harm, no foul, because the insurer would have denied on grounds other than late notice. The court elected to analyze whether a duty of defense arose to determine if that would conclusively bar policy benefits even if notice was found appropriate. The court found no arguable coverage evidence on the face of the complaint.

The court noted:

"There is an express exclusion for advertising injury to 'any intellectual property law or right' 'other than one described in the definition of advertising injury' – that is, other than (so far as relates to this case) a registered trademark. So unless Midwest Guaranty Bank was suing for infringement of a registered trademark, any damages it obtained would not be covered by Great Northern's policy."

Id. at *4.

The court found it was clear that the suit was for infringement of an unregistered trademark. The court found it significant that the suit was for a common law claim of trademark infringement and unfair competition under Michigan common law. The court noted:

"There is no such animal as a registered common law trademark. Dana Shilling, Essentials of Trademark and Unfair Competition 4 (2002); Richard Raysman et al., Intellectual Property Licensing: Forms and Analysis § 4.02[4], p. 4-10 (1999). If it is registered, it is registered pursuant to a statute, either the Lanham Act or a state statute. Michigan has a trademark registration statute, Mich. Comp. Laws §§ 422.34, 429.33, .35, .42, and it is not preempted by the Lanham Act because it does not limit federal rights. Attrezzi, LLC v. Maytag Corp., 436 F.3d 32, 41-42 (1st Cir.2006); 3 McCarthy on Trademarks and Unfair Competition § 22:2, p. 22-3 (4th ed.2004). But Guaranty Bank did not sue under the statute, and so far as appears never registered its mark under any law."

Id. at *5.

The court also noted there was no trademark number referenced on the Civil Cover Sheet, which is a contemporaneous publicly filed document even though it is not part of the complaint. Id. at *5.