Hudson Ins. Co. v. Colony Ins. Co., No. 09-55275 (9th Cir. Nov. 5, 2010)
NFL Properties sued All Authentic for allegedly selling counterfeit National Football League jerseys. Hudson defended All Authentic, but Colony argued that its policy did not cover the claims that NFL Properties brought against All Authentic and refused to defend the suit. Hudson defended (its policy covered “advertising injury,” including “[i]nfringement of copyright, title or slogan,” but did not contain a trademark exclusion) and sought equitable contribution. The court of appeals affirmed summary judgment for Hudson, because the NFL Properties complaint alleged facts showing that All Authentic was potentially liable for slogan infringement, a claim covered by the Colony insurance policy.
The NFL complaint listed several specific causes of action for trademark infringement, trademark counterfeiting, trademark dilution, unfair competition, and deceptive acts and practices. For example, Paragraph 18 stated that All Authentic offered a counterfeit “Steel Curtain Custom Limited Edition Steelers Jersey” using numbers and colors associated with the Steelers and that “[t]he Steelers have strong common law rights in the mark ‘Steel Curtain’ and own a state registration for the mark “Steel Curtain … Pittsburgh Steelers.’”
In relevant part, the Colony insurance policy covered “personal and advertising injury,” defined as “injury … arising out of [the offense of] … [i]nfringing upon another's copyright, trade dress or slogan in your ‘advertisement.’” The Colony policy contained an exclusion providing that the policy did not apply to “‘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.”
Comment: Why do these policies distinguish trade dress/slogan from trademark? I understand that people are reluctant to change existing language, but modern TM no longer distinguishes these things, and it seems to me that the policies could be a lot clearer by cleaning up the language. As I understand it, the aim is to say: we’ll defend you if the ad is the source of the alleged infringement, but not for advertising an allegedly infringing product/service. Incidentally, that kind of language could have gotten Colony off the hook here.
After the NFL Action settled, Hudson sued Colony for equitable contribution because “[b]ased on the allegations in the NFL Action, All Authentic faced potentially covered liability for trade dress infringement and slogan infringement in All Authentic's advertisements.” The district court concluded that “by alleging that the insured infringed ‘Steel Curtain,’ the [NFL complaint] set forth a claim for slogan infringement that was potentially covered by the Colony Policy.” The court of appeals agreed.
“Colony faces an uphill battle from the beginning because the duty to defend in California is extensive.” Any lawsuit that creates a potential for indemnity triggers the duty to defend, and ambiguities are resolved in favor of finding coverage.
Colony first argued that no slogan infringement claims were made in the complaint. But it’s the facts alleged, not the names the underlying plaintiff applies to the facts, that matter. The complaint, fairly read, revealed that “Steel Curtain” is used to promote fan loyalty to the Steelers. This potentially stated a claim for slogan infringement because a “slogan” is a “brief attention-getting phrase used in advertising or promotion.” Thus, it didn’t matter that the NFL complaint never referred to “steel curtain” as a slogan and never listed slogan infringement as a cause of action (comment: which of course no plaintiff ever would, since slogan infringement is not a separately recognized cause of action and TM infringement/§43(a) is).
Colony then argued that NFL Properties and its “powerhouse international law firm” (aww, how sweet!) must have consciously “chose[n] not to advance [NFL Properties'] claim for slogan infringement, which [they were] clearly aware of.” The court found no merit in this argument.
Finally, Colony argued that, even if the NFL complaint stated a potential slogan infringement claim, “the NFL disclaimed any rights to that slogan in its complaint and thus could not have pursued a claim for slogan infringement.” The facts in the complaint failed to allege ownership of the “Steel Curtain” slogan or that NFL Properties had standing to enforce the slogan rights. However, California courts have “cast doubt” on the idea that a complaint must support all the elements of a cause of action to create potential liability. That there may be a good defense, even an ironclad one, obvious to the insurer doesn’t relieve it of its obligation to defend. California courts have found no duty to defend only when the underlying complaint “unambiguously” disclaims or concedes an element.
NFL Properties did not unambiguously concede that it lacked standing to bring a slogan infringement claim. Instead, it stated that it was jointly owned by the Member Clubs and that it protects the Clubs’ marks, then stated that the Steelers had common-law rights in “Steel Curtain.” This was an argument for standing, not a concession of its absence.