Implied disparagement covered by insurance, but no duty to defend because of TM exclusion

Tria Beauty, Inc. v. National Fire Ins. Co. of Hartford, 2013 WL 2181649 (N.D. Cal.)

Tria sells a laser hair-removal device for home use, and a light-based acne treatment product.  One competitor, Radiancy, sells competing products, and when Tria sued it for false advertising, Radiancy counterclaimed against Tria for false advertising and trademark infringement.  Tria sought coverage from its insurers, which was denied, and the court granted them summary judgment.  Though the disparagement clauses were triggered for both, exclusions applied for defendant Travelers.

Tria had coverage from National Fire through Jan. 1, 2010.  The policy covered advertising injury, including disparagement, with exclusions for failure to conform and infringement of trademark or other IP rights, but that exclusion didn’t apply to infringements in ads of “copyright, trade dress or slogan.”  The Travelers policy that followed also covered advertising injury, including disparagement, with similar exclusions for failure to conform and for infringement of trademark or other IP rights.  The Travelers exclusion didn’t apply to advertising injury arising out of infringement of copyright, title, or slogan, nor to any other personal injury or advertising injury alleged in any claim that also alleged such infringement.

In the underlying suit, Radiance challenged various advertising claims by Tria, including its claims that Tria Hair was safe, effective, and painless; that it was the first and only home laser hair removal device cleared by the FDA; that Tria Skin was “faster,” “superior,” “more powerful,” and more “advanced” than other acne treatment products on the market; and that it was “first and only” blue light acne treatment equivalent to blue light therapy available from dermatologists.  Radiancy also counterclaimed for infringement of its registered trademarks.

The court found that coverage was initially triggered by the implied disparagement of Radiancy’s products by Tria’s superiority claims. The policy language wasn’t limited to claims for disparagement that met the standards for trade libel; resolving ambiguity in favor of the insured, it was significant that the policy language didn’t delineate specific causes of action, leaving carveouts to the exclusions.  “Given this structure, reading the policy broadly to cover implied, ‘own-product’ disparagement would be consistent with a reasonable insured's objective expectations.”

However, Tria failed to show that the challenged statements took place during National Fire’s policy period.  Tria didn’t show that superiority claims (triggering implied disparagement coverage) were made during National Fire coverage, only that it claimed to be the first and only laser hair removal device cleared by the FDA for home use; because Radiancy’s product used a heated wire, these claims couldn’t be read to disparage Radiancy’s non-laser device.  Although they competed as a general matter, this wasn’t the same as a claim that Tria Hair was the only FDA-cleared product on the market.  Thus, this wasn’t plausibly read as implied disparagement.  Nor were statements by QVC hosts in the same ad attributable to Tria.  Tria argued that alleged statements on websites were within the policy period, but Radiancy only alleged a “last visited” date after that time.  Though impliedly disparaging statements may have existed before then, during the policy period, that was pure speculation.

The court turned to Travelers.  The nonconformity exception didn’t apply; it excluded coverage for injuries “arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [the insured's] advertisement.” But the alleged injury here came from implied disparagement.  “Here, the harm did not proceed from whether Tria's products were indeed superior. It arose out of the implication from Tria's advertising that Radiancy's products were inferior.”

However, the IP exclusion did apply.  It excluded, along with coverage for an enumerated list of IP claims, “any other ... ‘advertising injury’ alleged in any claim or ‘suit’ that also alleges any such infringement or violation.”   This was clear and explicit.  There need be no logical or legal link between the trademark infringement and implied disparagement claims for the exclusion to apply.  There was no potential for coverage and thus no duty to defend.