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

as well as misappropriation.

Both Federal and St. Paul initially denied a defense, and thereafter St. Paul reconsidered, though subject to a right to seek reimbursement. The court found that allegations that KI displayed the CAMPUS furniture in its showroom without authorization does not amount to a claim KI improperly used S&P advertising materials.

The key issue in the court’s view is whether the unique aesthetic design of the furniture may be considered in and of itself to be an advertising idea or material such that its unauthorized use or display would constitute advertising injury under the relevant policy language. Id. at *8.

The court rejected KI’s suggestion that the product itself by virtue of its design constitutes “advertising.” The court reasoned:

It is not the product per se that is the advertising, because even the best product can lie dormant in a forgotten cellar somewhere and no one would say its intrinsic qualities alone had “advertised” it. 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.

Relying on New York case law, the court surveyed none that reached an opposite conclusion on this point.

[See] Accessories Biz, Inc. v. Linda and Jay Keane, Inc., 533 F.Supp.2d 381, 388 (S.D.N.Y.2008) (“L & J argues that the Samples themselves are a form of advertising, but New York courts have routinely held that the phrase ‘advertising idea’ does not include the product itself.”); 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”).

Id. at *9.

On closer examination, each of these cases deals with the precise policy language at issue or involves an improper assumption that liability attaches because the advertising aspect and nexus to same are met. The product may constitute a form of “advertising injury” offense under certain circumstances; i.e., it’s an advertising idea. Unique trade dress as well as design patent claims would appear to meet this criteria.

Recharacterizing the suit as one simply based on misappropriation of design and not its promotional use, the court does not parse the specific allegations, which suggest the latter.

Distinguishing other cases, the court found that false advertising fact allegations, which created a mistaken impression about the original product, could trigger a defense. Indiana Ins. Co. v. Super Natural Distributors, Inc., 2003 WI App 244, 2003 WL 22336427, at *10 (Wis. Ct. App. 2003); Superformance Int’l, Inc. v. Hartford Cas. Ins. Co., 203 F. Supp. 2d 587, 597 (E.D. Va.2002).

In Acuity Mutual Ins. Co. v. Bagadia, 750 N.W.2d 817 (Wis. 2008), the court found that sending samples of a trademarked or copyrighted product to potential customers met the causal nexus between injury and advertising activity and that advertising likely materially contributed to consumer confusion. Id. at 831. The court found, on the fact allegations, no injury alleged based on consumer confusion or any advertising of the product. Kreuger, 2008 WL 4962669, at *10.

The court found the absence of any competitive relationship between KI and S&P critical, as S&P had never developed or sold any of the furniture itself. KI was simply a former distributor who decided to create its own duplicative furniture line. In a telling part of the opinion, the court describes certain parts of the opinion where references to display or advertising of products are asserted as “essentially surplusage.” Id. at *11. The court continued:

These citations within the complaint are not a component of any injury (since they do not relate to the merits of any of the claims), but rather are offered as simply background material or evidence.

Id. at *11.

This attempt to parse what are fact allegations that are the thrust of the allegations does not prove that there is no possibility for coverage under the fact allegations noted that could relate to liability for the dissemination of misappropriated items as a separate ground for relief. The court found it telling that KI was not alleged to have stolen S&P’s advertising idea, material, slogan, style, or title. Id. at *12.

The court found that St. Paul’s failure to specify in its counterclaim a request for reimbursement of defense fees barred it from such relief. The court, after serving authority and determining that the right to reimbursement was a majority not minority rule, agreed to permit St. Paul the right to amend its pleading but not to recover relief thereon, which would be the subject of further proceedings.

the insured was only provided counsel by the insurer even though a right to independent counsel might otherwise have arisen had the reservation of rights letter been promptly sent with respect to a potentially covered copyright infringement lawsuit. Insurers must avoid ambiguity in reservations of rights since this will be resolved against them.

An alleged reservation of rights letter sent to the wrong ZIP code or wrong state was not effective to protect the insurer’s rights in this respect. Moreover, that letter lacked sufficient detail to constitute an effective reservation of rights and was never supplemented. These gaps in communication cannot be remedied by oral communications, which purportedly arose. As respects email communications that were cursory, and did not advise the insured of the full range of coverage issues, the court reasoned:

[C]learly Berklich’s two e-mail communications fall short of adequately informing Granite Ridge of the potential policy defenses and Harleysville’s potential conflict of interest given its likely control over Clancy’s representation, so that Granite Ridge could “intelligently choose” between retaining its own counsel or accepting the tender of defense counsel from Harleysville. Olivares, 894 N.E.2d at 594 (citing Royal Ins. Co., 582 N.E.2d at 1239).

Id. at *8.

A bare notice of a reservation of rights is inadequate information to inform the insured of a potential policy defense so that it can “intelligently choose” between retaining its own counsel and accepting the tender of defense counsel from the insurer. Id. at *9.

Estoppel arose under applicable Indiana law because the insurer never properly communicated its reservation of rights.

“[A]n insured suffers prejudice as a matter of law where an insurer, without reserving its rights and giving the insured an opportunity to determine whether to accept the tender of defense, assumes a complete defense of the underlying suit against the insured and controls the litigation for an extended period of time after becoming aware of a coverage defense.”

Id. at *10.

The court found estoppel, which precluded Harleysville from asserting any coverage defenses against Granite Ridge.  Id. at *12.