TRADE DRESS INFRINGEMENT
The Wisconsin Court of Appeal was called upon to determine if Ross Glove Company was entitled to coverage for defense or indemnity of a suit claiming it had infringed on the trade dress of another in Acuity, A Mutual Insurance Company v. Ross Glove Company, No. 2011AP1464 (Wis.App. 04/04/2012) The trial court granted judgment in favor of the insurer that its policy, specifically its “advertising injury” provision, does not afford coverage for the lawsuit brought against Ross Glove.
Ross Glove is a Wisconsin corporation engaged in the manufacture of cold weather neck and face protectors. Ross Glove had a business relationship with Cabela’s, Inc., a Delaware corporation. Cabela’s offered for sale the products manufactured by Ross Glove. On May 13, 2009, Seirus Innovative Accessories, Inc., filed an action in the United States District Court for the Southern District of California seeking damages from Cabela’s and Ross Glove for alleged patent infringements and trade dress infringement based on four of the cold-weather headwear products. Seirus’ amended complaint contains four claims for relief against Ross Glove, including three claims based on patent infringement and one claim based on unfair competition by trade dress infringement.
The commercial general liability (CGL) insurance policy issued by Acuity to Ross Glove was in effect at the time of the alleged infringements. The policy provides coverage for any damages Ross Glove becomes legally obligated to pay due to advertising injury. Acuity accepted the tender of defense while reserving its right to dispute liability coverage.
In February 2010, Acuity filed a declaratory judgment complaint against Ross Glove, asserting that its policy did not afford coverage for Seirus’ claims in the underlying action. According to Acuity, Seirus’ complaint did not trigger an initial grant of coverage because the underlying claims did not allege that Ross Glove engaged in “advertising activity.” Acuity further asserted that because the underlying claims alleged knowing, willful and intentional infringement, any arguable initial coverage would be excluded as a knowing violation of the rights of another.
Acuity’s duty to defend is governed by the terms of its insurance policy. A duty to defend is based upon the nature of the claim and not on the merits of the claim. It is the nature of the claim alleged against the insured which is controlling even though the suit may be groundless, false or fraudulent. An insurer may have a clear duty to defend a claim that is utterly specious because, if it were meritorious, it would be covered. Finally, when an insurance policy provides coverage for even one claim made in a lawsuit, the insurer is obligated to defend the entire suit.
The “advertising injury” provision in Acuity’s policy provides:
COVERAGE B – PERSONAL AND ADVERTISING INJURY LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of personal and advertising injury to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages….
This insurance does not apply to:
a. Knowing Violation of Rights of Another
Personal and advertising injury caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury.
i. Infringement of Copyright, Patent, Trademark or Trade Secret
Personal and advertising injury arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. However, this exclusion does not apply to infringement, in your advertisement, of copyright, trade dress or slogan.
SECTION V – DEFINITIONS
1. “Advertisement” means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters….
14. “Personal and advertising injury” means injury, including consequential bodily injury, arising out of one or more of the following offenses:
g. Infringing upon another’s copyright, trade dress or slogan in your advertisement.
THE UNDERLYING SUIT
To determine whether the allegations in the complaint give rise to the possibility of coverage under the advertising injury provision of the insurance policy, the court must make three inquiries:
- Does Seirus’ complaint state an offense covered under the advertising injury provision of Acuity’s policy?
- Does Seirus’ complaint allege that Ross Glove engaged in advertising activity?
- Does Seirus’ complaint allege a causal connection between the injury alleged and Ross Glove’s advertising activity?
In its fourth claim, Seirus alleges trade dress infringement by Ross Glove in violation of the federal Lanham Act, 15 U.S.C.A. § 1125(a). Specifically Seirus alleges the shape, form and appearance of its “PROTECTOR LINE” of products (all the identified products), as well as the packaging for the MASQUE™ line of products, have acquired a distinctiveness and meaning designating Seirus as the manufacturer and source of the products and packaging.
Seirus expressly identifies Ross Glove’s product packaging as a source of infringing activity. It is well established that trade dress encompasses the packaging of a product. The Court of Appeal concluded that a reasonable insured would understand the undefined policy term “notice” to include the packaging. Seirus also alleged that the packaging was “published.” The plain and ordinary meaning of “publish” as understood by a reasonable insured to bring to the public attention; announce.
The complaint seeks to hold Ross Glove liable for injury arising from the misrepresentation of the source of Ross Glove’s products, which, separately and together with the activities of Cabela’s in advertising and selling the packaged product, has resulted in confusion, mistake and deception as to the source and origin of the infringing packaged products. Not only is the packaging an advertising instrument, it is a source of Seirus’ alleged injury – consumer confusion and lost sales. In so concluding, we reject Acuity’s suggestion that Ross Glove, as the manufacturer of the infringing packaged products, could not also be engaged in advertising. This is so regardless of whether Cabela’s was also engaged in advertising. The packaging is an advertisement, and Seirus alleges that it is a cause of its injury – confusion on the part of buyers as to the packaged products’ origin and the resulting loss of sales.
Liberally construing Seirus’ complaint and drawing reasonable inferences therefrom, the appellate court concluded the complaint alleges both that Ross Glove engaged in activity covered under the advertising injury provision of the CGL insurance policy and that a causal connection exists between Ross Glove’s activities and Seirus’ alleged injuries.
Acuity’s policy excludes coverage for advertising injury if it was “caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury.” In support of its motion for declaratory judgment, Acuity points to paragraph 36, in which Seirus alleges that Ross Glove’s trade dress infringements were willful and done with the intent to cause harm, and seeks to recover treble damages under 15 U.S.C.A. § 1117(b).
The court noted that Acuity overlooked paragraph 35 of the underlying suit, in which Seirus alleged entitlement to damages, including lost profits, as a result of the non-intentional infringement. Intent is not a required element of trade dress infringement. The Lanham Act is a strict liability statute – there need not be an allegation of willfulness in order to succeed on the issue of liability.
Seirus’ complaint alleged trade dress infringement in Ross Glove’s advertisement which is a covered offense under Acuity’s policy. Since the complaint seeks to hold Ross Glove liable for trade dress infringement without any allegation of a knowing and intentional violation the policy’s exclusion was not available to preclude coverage. The trial court was reversed and Acuity was required to defend the insured, Ross Glove.
The “Advertising Injury” section of a CGL policy provides coverage for specifically stated offenses some of which do not fit within the general coverage grants of a CGL because there is no property damage or bodily injury. It is dangerous to analyze the “Advertising Injury” portion of a policy as if it was similar to the sections dealing with bodily injury and property damage.
This case teaches that an “advertisement” can be as simple as a package for a product since the package helps to sell the product to the public. If that package infringes — copies or emulates — the package used by another the insurer is obligated to defend the insured and probably will be required to indemnity the insured.
Intentional acts, by definition, are not covered by an insurance policy. However, when the plaintiff alleges both intentional and non intentional acts part of the action would be covered and the insurer will be required to defend the entire action.
© 2012 – Barry Zalma
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders.
He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant.
Mr. Zalma recently published the e-books, “Zalma on Insurance Fraud – 2012″; “Zalma on Diminution in Value Damages – 2012,”“Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Arson for Profit,” “Insurance Fraud,” and others that are available at www.zalma.com/zalmabooks.htm.