Trademark infringement and punitive damages covered by advertising injury policy

Western Wisconsin Water, Inc. v. Quality Beverages of Wisconsin, Inc., 2007 WL 2119415 (Wis. App.)

Western, which bottles and sells La Crosse Premium Water for water coolers, sued Quality for trademark infringement based on a terminated distribution agreement. Quality sold its business to Crystal Canyon, which continued to use Western’s logo on its trucks, uniforms, and water bottles but sold water from Crystal Canyon after it finished its stock of La Crosse water. A jury found in Western’s favor, but the court granted judgment notwithstanding the verdict for lack of causation. The court of appeals reversed, relying on testimony from a few customers who were confused by the switch, though it directed the court to address Quality’s motion for remittitur of the damage award.

In case of a successful appeal, the trial court also ruled that Crystal Canyon’s insurer was obligated to cover the damages, including punitive damages, based on its advertising injury policy, and the court of appeals agreed. First, the court ruled that the definition of advertising injury that included “infringement of copyright, title or slogan” covered trademark infringement – the name of the business and other trademarks were “titles” for these purposes, even though the policy didn’t mention trademark. The court rejected the once-influential holding of Advance Watch Co. v. Kemper National Insurance Co., 99 F.3d 795 (6th Cir. 1996), that the insurance policy would have said “trademark” explicitly if trademark were covered. Instead, the court construed the policy in favor of coverage. It didn’t need to reach the insured’s argument that trademark was also covered under “misappropriation of advertising ideas or style of doing business.”

The advertising injury coverage excluded knowing falsity. The insurer argued that the jury finding that defendants’ conduct constituted an intentional disregard of the trademark owner’s rights could only mean that defendants knew they were making false representations. Here, however, Crystal Canyon didn’t try to pass off its own water as La Crosse water. Instead, it caused confusion by using the logo-marked trucks and uniforms and delivering remaining La Crosse water in inventory while simultaneously transitioning to Crystal Canyon. The jury finding of intentional disregard for rights, and of likely confusion, didn’t amount to a finding of known falsity. The actual bottles Crystal Canyon delivered were properly labeled – La Crosse for the remaining inventory, and Crystal Canyon thereafter. When a customer asked if she could get La Crosse from Crystal Canyon, defendants told her she couldn’t and directed her to Western.

Separately, Crystal Canyon’s conduct didn’t count as “oral or written publication of material,” which is another (and usually irrelevant) component of the knowing falsity exclusion. Crystal Canyon didn’t publish anything; it just used materials on hand. The court noted that the result would differ if Crystal Canyon added the logos after it bought the distributorship.