disguising antitrust violations with false public statements isn't ad injury

Epson Electronics America, Inc. v. Tokio Marine and Nichido Fire Insurance Co., 2013 WL 3811203 (N.D. Cal. July 19, 2013)

Epson was one of dozens of entities that allegedly engaged in a price-fixing conspiracy for TFT-LCD (thin film transistor liquid crystal display) flat panels incorporated into various products.  The resulting nearly thirty cases were consolidated in a multidistrict litigation proceeding; they included twelve alleged violations of unfair competition or deceptive trade practice statutes.  Epson sought defense coverage from its insurer Tokio. The court held that it wasn’t entitled to coverage because the claims in the underlying litigation didn’t allege advertising injury.

The underlying plaintiffs either incorporated panels into their electronic devices or sold products incorporating the panels.  They alleged that the defendants, including Epson, were liable for making false promotional “public statements” giving untrue reasons for the relatively high prices they were charging for their products.  The defendants allegedly falsely reported that price increases resulted from shortages and undercapitalization.  They allegedly reported to the media that their fabricating plants were operating at full capacity even when they weren’t, publicly stated that demand outstripped supply, claimed that prices were high because of component shortages, etc.

The underlying policy defined an “advertisement” as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.”  And advertising injury meant, among other things, “The use of another’s advertising idea in your ‘advertisement.’”

The duty to defend is broad as long as the underlying claim may fall within the policy.  Epson argued that the possibility of coverage was enough.  Though Epson was right that neither the labels nor the theories of the underlying action were dispositive and the issue was whether the facts pleaded might support a covered claim, the underlying allegations must still show some injury arising out of the use of another’s advertising idea. Epson’s argument stretched the policy language beyond any reasonable interpretation.

In California, courts ask whether the insured was engaged in advertising at the time of the alleged injury, whether the allegations created potential liability under one of the covered offenses, and whether there was a causal connection between the alleged injury and the advertising.  Here, the specific allegations in the underlying complaint that Epson argued were ads were various statements by representatives of other companies made in the media, to investors, etc., purporting to explain price increases. Even assuming that an inference was justified that Epson representatives made similar statements in similar contexts, these weren’t properly characterized as “advertisements.”

Plus, this wouldn’t be “use of another’s advertising idea.”  Epson’s theory was that the idea of misrepresenting the reasons for price increases came from the other members of the alleged conspiracy, and therefore it was using that idea when it made similar statements.  But the policy language “on its face plainly contemplates some kind of misappropriation claim.”  Even assuming that the underlying plaintiff isn’t required to plead misappropriation of its own advertising idea, there was still no basis to construe the policy this broadly.  The underlying claims weren’t for use of another’s advertising idea, but for statements that were allegedly false and misleading.