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

The pertinent coverage, an exception to the IP exclusion under which Microsoft need establish liability, was “infringement of copyright . . . in your ‘advertisement.’ ” Id. at *5.

To trigger coverage under the advertising injury provisions of the Policies, the Underlying Lawsuit must have alleged, and judgment must have been entered, on the theory of potential for liability on one of the listed offenses and the offense was committed in the course of advertising the insured's goods, products or services. See Bank of the West v. Superior Court, 2 Cal.4th 1254, 1277 (1992). The California Supreme Court in Bank of the West held that there can be no coverage where the alleged injury had no causal connection to the insured's advertising activities. Id. at 1276.

Id. at *5.

As the court explained:

Here, the EEE Defendants' alleged copyright infringement did not have any causal relationship with its advertising as required to fall under the coverage for “advertising injury.” The allegations in Microsoft's complaint and the judgment entered in its favor concern merely the fact that the EEE Defendants infringed Microsoft's software copyrights by importing and selling the software in the United States when it was only licensed for sale abroad and to educational institutions. The judgment and the complaint upon which it was entered does not relate to any content in advertising or injury caused therefrom.

Id. at *6.

The other problem is that the alleged copyright infringement was deemed to be intentional, which is how the court characterized personal and advertising injury “arising out of an offense committed by, at the direction of or with the consent or acquiescence of the insured with the expectation of inflicting ‘personal and advertising injury.’ ” The court found that this implicated California Insurance Code § 533, precluding coverage for willful misconduct.

Clearly Microsoft could have planned against pirates in such a way that it could have obtained a judgment that was more likely to be enforceable against the insurer but elected not to do so. That decision was costly as it simply obtained the benefit of relief as a practical matter but no damages.

The publication did not alert the reader that Toffler was a consulting firm or tell the reader what services Toffler offered.

In concluding that the publication was not advertising, Hartford’s claim representative, Dengler (who did not speak to Barnett or any other Toffler employees) “was directed to 150 specific clients and does not constitute ‘widespread public distribution.’” She also concluded that the Publication “was principally a medium to convey information and was not advertisement.”

The court found no conflict between the law of Pennsylvania, Massachusetts and Virginia as to the pertinent coverage issues and thus applied Pennsylvania law.

The court found a duty to defend Toffler.

IWP's Complaint alleges that Barnett distributed the Publication, which it described as “a serial” containing articles, to “many recipients.” The “many recipients” allegation supports that the Publication had widespread distribution, as required by the Policy's definition of an advertisement.

Id. at *9.

Looking only to the complaint and the policy under Pennsylvania law, the court found that the duty to defend did not expire on October 21, 2007 when Toffler’s answer to the underlying complaint admitted emailing the publication “to a select group of friends and associates.” Id. at *9.

Applying an objective standard, the court found that a reasonable person in Toffler’s position would have understood and expected that the publication would fall within the policy’s description of “information or images” that has the purpose of inducing the sale of goods, products or services.

There are numerous objective indicia that, prior to the alleged copyright infringement, Barnett made changes to the Publication that caused the Toffler name and Toffler themes to appear throughout the Publication-in the title, in the footnote, on the watermark . . . . Barnett sent the Publication to various persons in the industries from which Toffler had sold its services in the past or might sell its services in the future.

Id. at *10.

No indemnity arose, however, because “Barnett's e-mail distribution of the Publication to approximately 300 persons outside of Toffler was not widespread public dissemination, as required by the Policy . . . .” Id. at *13.

No prejudice was proven to bar all defense fee reimbursement.

insured in an underlying suit asserting mislabeling of products and trademark violations. This because all of the underlying complaints were based on the insured’s use of the trademark.

The court also noted Parameter Driven Software, Inc. v. Mass. Bay Ins. Co., 25 F.3d 332, 337 (6th Cir. 1994), Global Computing, Inc. v. Hartford Cas. Ins. Co., No. 05-C-6753, 2007 WL 844618, at *4 (N.D. Ill. March 14, 2007) as well as Greenwich Ins. Co. v. RPS Prods., Inc., 882 N.E.2d 1202, 1212 (Ill. Ct. App. 2008) but a different result attended in NGK Metals Corp. v. Nat’l Union Fire Ins. Co., No. 1:04-CV-56, 2005 WL 1115925, at *15 (E.D. Tenn. Apr. 29, 2005). Although the court did not note this fact, the applicable Illinois or Michigan law cases cited, all apply a four-corners doctrine while Tennessee does not.

P & W’s complaint in the underlying action alleges two causes of action: the first for common law trademark infringement and the second for dilution and diminishment of P & W’s “famous mark” in violation of the Lanham Act.

The exclusion did not enumerate all intellectual property rights encompassed because it referenced the phrase “any intellectual property rights” citing Bragdon v. Abbott, 524 U.S. 624, 639 (1998) (noting that “the use of the term ‘such as’ confirms [that] the list is illustrative, not exhaustive”).

The question was whether the unfair competition count alleging infringement of common law rights also fell within the exclusion. The court took comfort from the reference in the exclusion that injury “arising out of any violation of any intellectual property rights” was excluded.

Federal trademark law does not preempt Maryland’s “broader consumer-oriented remedies provided by the common law of unfair competition.” Barnett v. Maryland State Bd. of Dental Examiners, 293 Md. 361, 379 (1982).

Id. at 437.

But for the alleged trademark violation, there would be no unfair competition claim. Notably, the court did not examine or evaluate whether there could be liability for unfair competition under the asserted claim, even if the trademark infringement claims were deemed not viable because the trademark rights did not vest in the claimant as asserted or the trademark was found to be invalid as presumably the answer to the complaint asserted as affirmative defenses.

The court also did not address with any clarity whether the mere use of P & W’s registered name, “Marvin J. Perry & Associates,” logo, website and subsequent launch of a similar-sounding website, www. marvin j perryinc. com “could be viewed as disparagement of P & W’s separate identity from MJP.”

Id. at 437.

No fact allegations of tarnishment associated with claims of trademark dilution were specifically alleged or referenced by the court and the presumption of disparagement argued by the insured was not even evaluated by the court following a brief mention.

There could be no tortious interference claim because there was no contract involved and tortious interference for business relationships required some underlying factual assertions equivalent to defamation, injurious falsehood, fraud, etc., which the court found absent.

The court deduced that the interference count was solely based on alleged misrepresentations that MJP was the same entity as P & W through its use of P & W’s trade name and trademark, in effect blurring, not tarnishment as the wrongful act was based purely on alleged wrongful use of trademark rights.

The cases cited by the insured were inapposite because they did not address the applicability of analogous intellectual property exclusions. To wit State Auto. Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of Am., 343 F. 3d 249, 253, 260 (4th Cir. 2003) and AMCO Ins. Co. v. Lauren-Spencer, 500 F. Supp. 2d 721, 729 (S. D. Ohio 2007).

The mere use of a letterhead and logo were no more than directed solicitations to the United States Department of State which are not considered “widespread dissemination.” See Monumental Life Ins. Co. v. U.S.F. & G., 94 Md. App. 505, 526-27 (1993). And in any event, the advertisements that fall within the exclusion for use of a “trademark, trade name … or other designation of source” thereby relieving Hartford of its defense duty.