Saturday, January 27, 2007

Disparagement of a product class as advertising injury

Acme United Corp. v. St. Paul Fire & Marine Ins. Co., 2007 WL 186247 (7th Cir.)

A competitor sued Acme for making false and disparaging statements in Acme’s advertising (specifically, claims centered on the idea that in its ads and on its packages that its titanium scissor blades were better than stainless steel scissor blades, when its scissors contained negligible amounts of titanium). Acme tendered the lawsuit to its insurer St. Paul, which denied Acme’s request for coverage and disclaimed any duty to defend. Acme’s policy covered “advertising injury” (which was defined to include statements that disparaged others’ goods). Acme settled and sued St. Paul; the district court granted summary judgment to St. Paul, but the court of appeals reversed and remanded for entry of summary judgment in Acme’s favor and for a determination of damages.

The court of appeals found that the policy, and its use of the term “disparage,” was clear and unambiguous. The competitor’s complaint alleged that Acme made a false comparison, to the competitor’s detriment, sufficiently alleging “disparagement.” The district court denied coverage because, though the ads disparaged stainless steel scissors, they didn’t specifically disparage the competitor’s stainless steel scissors. The court of appeals found this unconvincing, given that the complaint specifically alleged that Acme’s statements were directed at the competitor’s products and that the competitor lost sales as a result. The court of appeals said it therefore didn’t need to decide whether an ad must specifically name another producer or product to “disparage” under the policy language, though it noted that the insurer could have written the policy to cover only situations in which a specific producer/product is named.

Comment: this really seems like a no-brainer: False advertising claims = advertising injury coverage. Assuming standing requirements are met, any producer of a product should be able to contest a party’s false advertising about that product, and that’s “advertising injury” under any reasonable interpretation of a standard advertising policy.


Anonymous said...

A competitor of ours is verbally slandering our company by stating that our product is a knock off of theirs. Does anyone know how to best proceed with this?

RT said...

I can't give specific legal advice -- and free legal advice from the internet is worth what you pay for it anyway -- but it sounds like you want to consult a lawyer with experience in advertising law.