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

hired by the producers of the ad and claiming to be a dog walker, calls two Lorriland employees were unaware they were speaking with an actor who “tries to sell dog urine he has collected to ‘you tobacco people’ because ‘dog pee is full of urea and that’s one of the chemicals in cigarettes.’ ” Id. at *2.

Lorillard asserted that the ad contained “false and misleading” information and ran afoul of Massachusetts law, which prohibits the taping of a telephone conversation without consent. American Legacy Foundation v. Lorillard Tobacco Co., Civ. No. 19406, 2002 WL 927383 at *1 (Del.Ch. Apr. 29, 2002). Id. at *1.

On January 18, 2002 Lorillard sent a letter entitled “Notice of Intent to Initiate Enforcement Proceeding Under the MSA. Therein it stated:

“[I]t has become abundantly clear that [plaintiff's] ‘truth campaign’ is not about conveying the truth about tobacco products to the American public, so much as vilifying and personally attacking tobacco companies and their employees.”

Id. at *3.

Following a preemptive declaratory judgment action against Lorillard under the MSA, Lorillard filed suit in Chancery Court in Delaware. Lorillard filed its answer in the Delaware action along with the seven counterclaims containing similar allegations to those made in the North Carolina action. The Delaware action proceeded on Lorillard’s counterclaims. Lorillard claims to have spent $17 million in its defense. The instant coverage complaint was filed on May 4, 2007.

Travelers never responded to three separate written tenders because its specialist was assigned to the matter was either promoted or reassigned. AIG and I&O under distinct policies declined a defense. Counsel for plaintiff in the underlying action, Wilmer, Cutler & Pickering, submitted the draft complaint threatening suit for libel and slander to its carriers. I&O claimed no knowledge of the underlying carrier. Scottsdale, the underlying carrier, eventually surfaced by claimed late notice.

The Lorillard counterclaim, in contrast to the initial demand letter, did not assert any express cause of action for libel or slander. It alleged essentially in its counterclaims that plaintiffs public statement that Lorillard was “trying to stop the truth® campaign” with its litigation were “false statements … consistent with ALF’s pattern of attacks upon, and vilification of, Lorrilard.” Id. at *9.

The Chancery Court concluded:

While Lorillard initially expressed an intent to file claims of libel and slander, Lorillard ultimately changed its strategy and opted to pursue strictly contractual claims. Lorillard III, 886 A.2d at *9. Within the Delaware Action, in a “procedural maneuver,” Lorillard specifically decided not to contest the truthfulness of plaintiff's ads. Id. at *28. Lorillard and plaintiff agreed, therefore, “that the matter presented [was] a straightforward contractual issue that turns on the legal interpretation of the words of the settlement agreement,” specifically, section VI(h) of the MSA. Id. at *8. Although an inquiry into plaintiff's underlying conduct was a necessary prerequisite to determining breach of that section-a lengthy exercise undertaken by the Chancery Court in Lorillard III-that (tortious) conduct was never the subject of a direct counterclaim by Lorillard. On appeal, the Delaware Supreme Court addressed the dispute between the parties as a contractual matter. Lorillard IV, 903 A.2d at 731 (“The primary question on appeal is whether any of ALF's advertisements in their ‘truth ®’ campaign violated the contractual language of the MSA prohibiting ‘vilification’ or ‘personal attacks.’ ”).

Id. at 10.

The court found that plaintiff is not a signatory to the MSA, which predated its creation, it is ultimately bound by it because of its bylaw provisions and public statements of ALF officers. Such bylaws and certificate of incorporation are contracts under settled law. Benihana of Tokyo, Inc. v. Behihana, Inc., 906 A.2d 114, 120 (Del. 2006). Id. at *11.

Exclusion (k) bars an express contract or agreement which breach is a basis for liability. The other policies were not implicated because there was no slander or libel claim which was preserved as factually asserted in connection with the pleading and the breach of contract exclusion otherwise applied.

The umbrella policy from National Union barred coverage because the plaintiffs’ truth® campaign is not an advertisement or if an advertisement, there were no claims asserted in tort within the advertising injury coverage.

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.