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

“Misappropriation of advertising ideas” or “style of doing business” offense was implicated by the trademark infringement claim as the certified question queried.

We conclude that the absence of the word “trademark” in the CGL policy does not foreclose the possibility that trademark infringement falls within the scope of the advertising-injury definitions in General Casualty's policy. First, the policy provides coverage for injuries “arising out of” the advertising-injury definitions, which expands the scope of the policy language since this court has defined “arising out of” broadly as “originating from,” “growing out of,” or “flowing from.” Dougherty v. State Farm Mut. Ins. Co., 699 N.W.2d 741, 744 (Minn.2005). Second, the Minnesota rules of insurance policy interpretation require policies to be read in favor of finding coverage, and require courts to look past the legal nomenclature to the underlying allegations. Finally, the duty to defend applies to claims that “arguably” fall within the policy, and if insurance policy language is susceptible of more than one meaning, it must be given the meaning that favors coverage.

Id. at *3.

Noting that the only other supreme court that reached a similar view, it found Acuity v. Bagadia, 750 N.W.2d 817, 827 (Wis. 2008) persuasive. Adopting the broader definition of advertising in accord with the Acuity court’s reasoning, it stated:

[W]e interpret the term “advertising” . . . as: “any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.”

Id. at *6.

This opinion reflects a modern trend broadly construing the term “advertising.” It circumvents misstatements in earlier cases that improperly asserted that the majority of courts (Id. at 26) had narrowly interpreted “advertising” as “widespread promotional activities usually directed to the public at large”. Hameid v. National Fire Ins. Co. of Hartford, 31 Cal. 4th 16, 24 (2003). See The Proper Definition of “Advertising” in an “Advertising Injury” Coverage Case - a Critique of the California Supreme Court’s Decision in Hameid v. National Fire Ins. Of Hartford, 31 Cal. 4th 16, 1 Cal. Rptr. 3d 401, 71 P.3d 761 (2003) [Published in Mealey’s Litigation Report: Intellectual Property Vol. 12, Iss. #1 also published in Mealey’s Emerging Insurance Disputes Vol. 8, Iss. # 20; Mealey’s Litigation Report: California Insurance Vol. 3, Iss. # 5].

The “use of another’s advertising idea in your ‘advertisement’ ” offense was implicated, thus the court found it unnecessary to decide whether there was an infringement of copyright, trade dress or slogan at issue. It reasoned,

Tolkien also alleged that Hobbit Travel used the word “hobbit” in its domain name and on its website to attract the national public's attention to its travel agency, and capitalize on the goodwill surrounding the Tolkien works. These uses of the word “hobbit” by Hobbit Travel were made in connection with the solicitation of travel business within our broad reading of “advertisement”; thus, Tolkien's damages arose out of Hobbit Travel's “use of another's advertising idea in [its] ‘advertisement.’ ”

Id. at *7.

A vigorous dissent by Chief Justice Magnuson found that the court had too broadly stretched the meaning of “arguably” bring into question the previous views expressed in Franklin v. W. National Mut. Ins. Co., 574 N.W. 2d 405, 407 (Minn. 1998) (citing Ross v. Briggs and Morgan, 540 N.W. 2d 843, 847 (Minn. 1995)). Id. at *9.

upon AU’s material breach of the settlement agreement in “[m]anufacturing, displaying, distributing, offering for sale, and selling footwear ... based on a design not approved by Crocs.”

Id. at *9.

Here, Crocs not only made general allegations of trade dress infringement, it also specifically included in its trade dress description its “marketing and sales materials” that “share an overall unique look and feel” that serve to identify Crocs as the origin. Crocs also expressly identified All’s NothinZ brand website as a source of infringing activities. And Crocs sought damages for AU’s profits from its “marketing” of products bearing any “copy or colorable imitation” of the Crocs Trade Dress.

Id. at *5.

Distinguishing coverage under cases asserting patent infringement from trademark or trade name or trade dress infringement, the court observed:

[W]hat Northern appears to overlook is that, in contrast to a claim for patent infringement – which is limited to the making, using, or selling of another’s product – Section 43(a) of the Lanham Act provides a remedy for “a false designation of origin, or any false description or representation.” 15 U.S.C. § 1125(a).... [T]rademark or tradename infringement ... necessarily involves advertising, or use, of the mark or name to identify the merchant’s goods or services.

Id. at *5.

Some causal connection between injury and the insured’s advertising activity arose as the complaint alleged that

“[d]efendants market, import, and/or sell footwear that infringes the Crocs Trade Dress,” and that “[d]efendants copied the Crocs Trade Dress with the intent to trade on the goodwill developed by Crocs in establishing the Crocs Trade Dress.”

Id. at *6.

The injunctive relief request related to marketing of shoes and infringement of Crocs’ trade dress instructive. Advance Watch was readily distinguished, noting that the flawed logic of Advance Watch was properly exposed in Westfield Cos. v. O.K.L. Can Line, 155 Ohio App. 3d 747, 756 (2003).

The policy contained an exclusion that limited all personal and advertising injury except to the extent that the underlying assurance was applicable to personal or advertising injury and claims arising out of that “personal and advertising injury.” Hartford’s argument was that the advertising injury coverage in the umbrella policy was meant to follow form the underlying policy in terms only of excess coverage for the underlying insurance. The court rejected Hartford’s narrow construction of the “knowledge of advertising injury” provision:

Hartford’s reading of the exception focuses on the word “that” – the umbrella policy will apply to “personal and advertising injury” if the underlying policy applies to personal and advertising injury and also to claims arising out of that (particular) personal and advertising injury.

Id. at *7.

AU’s distinct reading was more consistent with the plain language of the exception. Finding any ambiguity must be resolved against Hartford, the court concluded that AU’s argument should apply.

AU reads the second provision of the exception to mean that the underlying insurance must cover claims arising out of that category of offenses defined as “personal and advertising injury.” Even though the underlying insurance here admittedly does not cover intellectual property claims, the underlying insurance covers other personal and advertising injury claims. The exception only requires that the underlying insurance be applicable to some claims arising out of the personal and advertising injury category. It does not say that the underlying insurance must apply to “the” (specific) claim, it only states that underlying insurance must be applicable “to claims arising out of that” category.

Id. at *8.

The court, however, found that the federal court action in Colorado which stayed the proceeding pending resolution of the equivalent claim through the ITC action did not create an independent basis for defense of the ITC proceeding. The absence of a request for monetary damages in the ITC proceeding pursuant to 19 U.S.C. § 1337 precluded a defense opportunity therein. Pursuant to section 1337 the ITC did not have the authority to enter an order for monetary damages.
Since these actions were ultimately settled and thereafter AU sought to manufacture new designs, a case thereafter brought in Colorado II, which contested those activities which were allegedly in violation of the settlement agreement, was not within coverage.

The basis of the Colorado II compliant was AU’s “copy or colorable imitations of the Crocs Trade Dress” and use of “a design not approved by Crocs” not a specific advertisement of products related to that design and thus the court found no coverage.