Thursday, December 30, 2010

False comparative advertising claim doesn't trigger insurance coverage

Clarcor, Inc. v. Columbia Casualty Co., 2010 WL 5211607 (M.D. Tenn.)

Clarcor sued Columbia for refusing to defend and indemnify against a suit by 3M, based on Clarcor’s advertising injury policy. The policy covered disparagement, use of another’s advertising idea, and infringing on copyright, trade dress, or slogan in an ad. It excluded advertising injury arising out of the failure of goods or services to conform with any statement of quality or performance made in an ad.

3M sued Clarcor for state and federal false advertising based on Clarcor’s alleged design of packaging and advertising for its new line of Purolator filters to resemble that of 3M's Filtrete line. 3M alleged that Clarcor made “false comparative performance claims,” including claims of"overall filtration efficiency," a "respiratory protection factor," and similarities in color.

For example, one 3M filter is the “Ultra Allergen,” sold in a purple package that labels the filter as "90% effective at attracting and capturing large airborne allergens like: pollen, mold spores and dust mite debris." Clarcor’s purple “Allergen” filter claimed "97% Overall Filtration Efficiency," which 3M alleged was false. In addition, 3M labels its filters with a Microparticle Performance Rating ("MPR"), designed to show how well each filter in its Filtrete product line performs relative to other Filtrete filters in the line. The Ultra Allergen has an MPR of 1250, while the red Micro Allergen has an MPR of 1000; 3M filters ranged from 300 to 2200. 3M alleged that Clarcor deliberately labeled its purple Allergen filter with a 1250 "Respiratory Protection Factor" ("RPF"), copying 3M’s MPR metric. The same thing happened with the red Micro Allergen and the Clarcor red filter. 3M alleged that these uses of colors, claims, and numbers falsely implied comparative superiority.

The court ruled that the claims were not covered by the policy. Clarcor argued that 3M set forth claims for disparagement because the alleged falsehoods harmed 3M. But false statements about Clarcor’s own product don’t state a claim for disparagement. Clarcor next argued that 3M set forth claims for use of another’s advertising idea: color scheme and numerical rating systems. But defendant argued that 3M was just setting forth its claim for false comparative advertising. Though I think Clarcor clearly has the better of this—it was the copying of 3M’s advertising ideas that allegedly turned Clarcor’s packaging into false comparative advertising—the court agreed with the insurer that this was just a false advertising claim. 3M didn’t allege a trademark in its color scheme or rating system. (But there’s a reason that the policy uses the term “advertising idea” and not “trademark”—indeed, had 3M alleged trademark infringement, the insurer would certainly have claimed an exclusion on that ground.)

An advertising idea is "an idea for advertising that is 'novel and new,' and 'definite and concrete,' such that it is capable of being identified as having been created by one party and stolen or appropriated by another." Purple isn’t a novel color, and Clarcor used its own rating system, RPF not MPR. (So what? If it is an information-conveying mechanism that has specific 3M-related meaning in the context of filters, as the complaint alleged, it seems like an advertising idea; the “novel and new” language seems more properly directed at instances where all the advertiser does is what everyone else does, e.g., claim superiority or some other standard technique.) The gravamen of the complaint was that Clarcor’s color scheme and rating system reinforced Clarcor’s false statements of filtering efficiency. Thus, 3M’s action didn’t involve an advertising idea. Nor did it allege claims for trade dress or slogan infringement, which would have required among other things allegations of secondary meaning.

Clarcor argued that its settlement with 3M, which required it to change packaging colors and rating scheme, was evidence that the preponderance of the dispute was related to copying 3M advertising ideas, but the test is the facts alleged in the complaint.

Finally, the failure to conform exclusion applied, because 3M’s complaint was that Clarcor’s product didn’t conform to its ads. Clarcor argued that 3M’s allegations about Clarcor’s use of color scheme and numerical rating weren’t statements of quality or performance, but the court disagreed (I found its reasoning a bit hard to follow, but it seems to be based on the idea that coverage is analyzed as if the claims in the complaint are true).

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