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

In the underlying suit Multi-Vet alleged that Premier manufactured and sold dog training collars bearing the designations “Gentle Spray Bark Citronella Anti-Bark Collar” and “Gentle Leader Spray Sense Anti-Bark Collar,” in competition with Multi-Vet's products, which bear the trademarked name, “GENTLE SPRAY®.” Id. at *2.

The pertinent claims were unfair competition of common law, trademark infringement in violation of the Lanham Act § 1114 and false designation of origin and violation of the Trademark Act, 15 U.S.C. § 1125(a).

At issue were alleged false association with the attributes and characteristics of Multi-Vet’s products with the dog training collars originating from Premier. The three part test adopted from a district court decision in Virginia, Solers, Inc. v. Hartford Cas. Ins. Co., 146 F. Supp. 2d 785, 793 (E.D. Va. 2001), included its third element advertising activities that caused harm. However, neither harm nor damages is the focus of offense-based coverage. The question the policy asks is where there’s a causal relationship between the advertising activities and the advertising injury offense and not the ultimate injury. Since Travelers’ policy language only requires that the “advertising injury” must be “caused by an offense committed in the course of advertising your goods, products or services … .” the Court’s construction adds words of limitation that are not in the policy. Id. at *2.

Following the eight corners rule, the Court ignored any facts not set forth in the complaint in its coverage analysis pursuant to a recent Fourth Circuit case – CACI Int’l, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 155 (4th Cir. 2009) (“CACI”), applying Virginia law, purportedly relying on Brenner v. Lawyers Title Ins. Corp., 397 S.E. 2d 100, 102 (Va. 1990). Id. at *5.

While not entering the fray as to whether the term “title” was as limited as Travelers urged “the title of the distinguishing name of the written, printed, or finished production;” “a similar distinguished name of a musical composition or a work of art,” or any form of business name as urged by the insured, the court found there was no causal nexus because Premier’s alleged activities did not occur in the course of advertising, or in the alternative, cause harm.

Adopting the Solers definition, claiming it was based on what the majority of cases have determined and finding the term “advertising” refers “unambiguously to the widespread distribution of promotional material to the public at large, or least to widely disseminated solicitation or promotion.” Id. at *7.

The court found these risk tests not satisfied.

The Multi-Vet Initial Complaint seeks an injunction against advertising in its prayer for relief, but it fails to allege any facts as to advertising at all, much less harm from advertising, in the allegations it placed before the New York federal court. In Solers, the Court found that solicitation did not constitute advertising. Id. at 795. Given this precedent, this Court finds that “sale” and “use,” which the Mutli-Vet Initial Complaint alleges without any further context, could not constitute advertising, or “widespread promotion” (as opposed to sale) of goods.

Id. at *8.

It did not consider it was implicit in the allegations that wrongful use occurred in connection with sale that that use would necessarily implicate advertising and was unwilling to look beyond the four corners of the complaint to evidence how the actual goods were sold, see evidence of advertising. Nor did the court agree that use of trademark applies advertising.

The court observed that in many cases where a trademark infringement action was asserted, courts readily found the causal nexus met because the factual allegations evidenced advertising.

Distinguishing the Fourth Circuit’s seminal decision, applying North Carolina law, State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of America, 343 F.3d 249, 259 (4th Cir. 2003), the court observed:

Even in State Auto, where the Fourth Circuit held that the use of the “Nissan” name on a website for a computer company owned by Mr. Uzi Nissan invoked a duty to defend because Nissan was a “quintessential example of a trademark functioning to advertise a company’s products,” State Auto, 343 F.3d at 258 . . . .

Id. at *9.

The court also found it significant that the complaint alleged that the “offending websites” were used “for advertisement purposes.” fn13, id. at 259, citing underlying complaint. Id. at *9. It was concerned that finding the advertising nexus met by mere claims of sale over importation was improper.

Absent reliance on CACI, reference to defendant’s website revealed advertisement of products that was readily available to the claimant as well as the court’s complaint. The court’s reliance on a narrow construction of duty to defend means that the duty to indemnify may be broader in this action since the website advertising might create ultimate liability and be a basis for judgment. Cases have readily found that scenario is an inappropriate one in which to deny a defense, and thus the impact of the rigorous application of the complaint allegations rule per CACI is to improperly address coverage in many scenarios where indemnity will thus be broader than defense duties.

The court’s discussion of why an advertising idea is implicated is of greatest interest.

[T]he use of another's advertising idea may include trademark infringement because to infringe upon someone's trademark, which is an advertising device, one improperly uses another's advertising idea to draw the consumer's attention to a product. Accordingly, we answer the third certified question, yes.

Id. at *6.

The court found that a trademark may be a product slogan and that trademark infringement potentially relates to the improper use of another slogan.

It finally found that a trademark infringement may occur when a party infringes upon another’s trade dress or slogan in its advertisement because “a trademark may serve as an element to the overall trade dress of a product.” Id. at *6.

“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.