Saturday, March 10, 2007

When Lanham Act violations aren't "advertising injury"

Federal Insurance Co. v. Symons Corp., 2007 WL 689679 (Cal. App. 1 Dist.)

Symons lost a large Lanham Act false advertising case, also involving state trade secrets claims. The Lanham Act claims involved misrepresentations of the strength, weight, and relative usefulness of Symons products as compared to its competitor’s. The jury awarded what the judge determined were duplicative damages, so the judge entered an award of $13 million.

Symons sought indemnification under its advertising injury policy. The trial court denied its claim, and the California court of appeal affirmed. The relevant policy defined advertising injury to include “[o]ral or written publication of material that ... disparages a person's or organization's goods, products or services,” or (2) “[m]isappropriation of advertising ideas or style of doing business.” Symons argued that (1) the Lanham Act claims involved disparagement of the competitor’s products, and (2) misappropriation of trade secrets that included marketing information constituted misappropriation of advertising ideas or style of doing business.

The court rejected both arguments. First, in determining a duty to indemnify, a court does not look at the nature of the insured’s conduct that caused the lawsuit, but rather at whether the judgment was entered on a theory actually covered by the policy. Not all negative comments about a competitor or claims of product superiority constitute disparagement, and the Lanham Act is written in the disjunctive, covering false (positive) claims about one’s own products as well as false (negative) claims about competitors’ products. Thus, the jury could have predicated its verdict on a finding that Symons falsely represented its own products. Symons did not meet its burden of showing that judgment was entered on a theory actually covered by the policy.

Second, nothing in the jury’s trade secret verdict necessarily covered misappropriation of advertising ideas or style of doing business. Four of the five allegedly misappropriated trade secrets covered product design or manufacture, while the fifth covered “marketing information, inlcuding … bottom-line cost information”; the jury found misappropriation of all five, but nothing in its verdict showed a causal link between the misappropriation and Symons’s advertising activity.

Takeaway message: Not every advertising injury is an “advertising injury”; insurers will define that term as narrowly as possible, and especially like to exclude core Lanham Act claims for an advertiser’s false representations about its own product.

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