Monday, June 17, 2013

back pocket logo as "title" for advertising injury insurance purposes

H/T Marty Schwimmer:
CGS Indus., Inc. v. Charter Oak Fire Ins. Co., No. 11-2647-cv  (2d Cir. June 11, 2013)

Charter appealed from a judgment that it breached its duties to defend and indemnify to its insured, CGS, under its advertising injury policy. The court of appeals affirmed on the duty to defend and reversed on the duty to indemnify, since there was sufficient legal uncertainty about coverage to trigger the duty to defend.  The parties stipulated that damages were almost $400,000—the settlement plus CGS’s defense costs; the court remanded for an award just of defense costs.

In the underlying lawsuit, Five Four Clothing sued Walmart and CGS for trademark infringement based on CGS’s use of Five Four’s rear pocket stitching design, known as FF stitching, on jeans it supplied to Walmart.  Eventually, CGS settled by paying $250,000 on behalf of both parties (because of course Walmart required CGS to indemnify it).  Charter’s policy covered advertising injury, defined as injury arising out of one or more specifically listed offenses, including “[i]nfringement of copyright, title or slogan.”  It had the standard exclusion for knowing violation of rights.

Under Hugo Boss Fashions, Inc. v. Federal Insurance Co., 252 F.3d 608 (2d Cir. 2001), New York law distinguishes between the duty to indemnify and the duty to defend, applying “very different presumptions” to each.  If there’s a reasonable basis for a difference of opinion as to the meaning of the policy, the language is ambiguous and interpreted in favor of the insured. The duty to defend is broader than the duty to indemnify and an “even stronger presumption in favor of coverage” applies. To avoid that duty, an insurer “must demonstrate that the allegations of an underlying complaint place that pleading solely and entirely within the exclusions of the policy and that the allegations are subject to no other interpretation.”

Charter argued that the FF stitching was neither a “title” nor a “slogan” used in advertising.  The court of appeals agreed as to “slogan.”  The policy didn’t define slogan, but reference to “a body of law or an established custom” can fill in the gaps.  Neither New York law nor industry custom provided insight into the meaning of “slogan,” but the term could still be unambiguous if it had a clear meaning in federal law, which it did.  Complete federal judicial unanimity isn’t required, as long as there is an “overwhelming current of judicial opinion,” that is, a meaning used by “the vast majority of federal courts.” Using that standard, the vast majority of federal courts have defined “slogans” as “phrases used to promote or advertise a house mark or product mark, in contradistinction to the house or product mark itself.”

“To hold that the stitching design on a jeans pocket is a ‘slogan’ would stretch that definition beyond recognition, as the design is clearly not a ‘phrase.’” A slogan must be something other than the house mark or product mark itself; the FF stitching was in effect a house or product mark.  Here, too, there was no residual ambiguity over meaning to trigger the duty to defend.  Hugo Boss settled the meaning of “slogan” in advertising injury policies, and there had been no contrary developments in case law or commercial understanding.

However, the interpretation of “title” was a bit different.  Again, the term wasn’t defined in th epolicy, and neither New York law nor industry usage provided significant insight.  The “vast majority” of federal cases held that, in this context—“that is, in a list that includes ‘copyright’ and ‘slogan,’ but conspicuously does not include coverage of infringement of ‘trademarks’– ‘title’ means the name or appellation of a product, and does not cover design elements such as pocket stitching that may serve as a trademark designating the origin of the product.”  A title need not contain words—the court referred to the symbol of the artist currently known as Prince, also used as an album title—“we have no difficulty in concluding that the stitching on the back pocket of a pair of jeans cannot fairly be called the name or appellation of that pair of jeans.”  (The court found no need to decide whether “title” was necessarily limited to literary or artistic works.)

While this definition was clear enough to bar the duty to indemnify, if there was any residual uncertainty about whether a court would find the term unambiguous, then Charter still had a duty to defend.  Insurers may refuse to defend only “cases in which the policy is so clear that there is no uncertainty in fact or law.”  So here: “while the vast majority of federal cases unambiguously define ‘title’ to mean a word or phrase, a handful define title in a way that could arguably include a design or symbol similar to the pocket stitching at issue here.” One court defined “title” as “names and related trademarks,” then noted that “trademark” is defined as a “‘word, name, symbol, or device, or any combination thereof used by a person . . . to identify and distinguish his or her goods.’” Another court held that infringement of a stylized “D” logo fell under “infringement of title”; still another found that “the language clearly suggests coverage of claims where there are allegations of infringing a company’s mark or slogan.”  These cases were mistaken to reason that, because a trademark can be a title, and a symbol is a trademark, infringement of the symbol is infringement of title.  But they created enough legal uncertainty to give rise to a duty to defend, at least until the uncertainty around the term was resolved.  Thus, Charter’s failure to defend breached the policy.  Charter should’ve begun defense and immediately sought a declaratory judgment as to the meaning of “title.”

Charter next argued that the injury alleged by Five Four didn’t stem from “advertising.”  But the insurer must defend no matter how groundless the suit may be if the allegations in the underlying complaint, liberally construed, are within the scope of the policy.  The underlying complaints consistently alleged “wrongful acts, including advertising.”  “If Charter believed that Five Four did not intend to allege advertising by CGS or that CGS did not advertise the jeans, Charter should have begun to defend and immediately sought a bill of particulars to resolve any ambiguity in the pleadings.”  To the extent that Charter argued that its duty to defend terminated once discovery responses demonstrated that CGS and Walmart never advertised the jeans, Charter had not so argued below and had instead stipulated to damages, waiving this argument.

Nor did the knowing violation exclusion help Charter. Though the underlying complaint alleged willful infringement, the Lanham Act claims could succeed without such a showing. “Our inquiry ends there: as at least one of the claims in the Underlying Action did not require intent, Charter was required to defend the entire action.” The cases cited by Charter were distinguishable—in one, the defendant “approached a local manufacturer to produce a cheaper, low-quality knock-off product; marketed the counterfeit product in packaging indicating it was a genuine creation manufactured in Denmark, both blatantly false; and then fraudulently misled the plaintiff about sales.  In another, the plaintiff was a serial infringer.  “Here, the complaint alleges merely that CGS sold jeans with similar pocket stitching to Five Four’s jeans, not that CGS marketed the jeans as genuine Five Four jeans, or that it was a serial infringer. From the facts alleged in the complaint … it is possible that CGS unintentionally infringed on Five Four’s pocket design.”

No comments:

Post a Comment