Uncertainty over trade dress triggered insurer's duty to defend

Bridge Metal Indus., LLC v. The Travelers Indemnity Co., No. 11–4228, 2014 WL 928876 (2d Cir. Mar. 11, 2014)

The court of appeals affirmed the district court decision finding trade dress to be “title” for purposes of an advertising injury policy. Bridge Metal’s policy covered “advertising injury,” defined to include the “[i]nfringement of copyright, title or slogan, provided that claim is made or ‘suit’ is brought by a person or organization claiming ownership of such copyright, title or slogan.” The underlying actions alleged that Bridge Metal used National Lighting Company’s designs, know-how, and other IP to create light fixtures almost identical to National’s, which among other things allegedly infringed National’s recognized trade dress. The actions were ultimately dismissed, but Bridge Metal sought payment of its defense costs.

The duty to defend is broader than the duty to pay.  In CGS Indus., Inc. v. Charter Oak Fire Ins. Co., 720 F.3d 71 (2d Cir. 2013), the court of appeals determined that the term “title” was not broad enough to trigger an insurance company’s duty to indemnify in a case arising from the alleged infringement of a clothing company’s distinctive “rear pocket stitching design.” However, the insurer nonetheless had a duty to defend in CGS Industries due to a “handful” of cases that “define[d] title in a way that could arguably include a design or symbol similar to the pocket stitching at issue here.” The legal uncertainty created an “at least temporary [ ] duty to defend.”

The prior confusion in the case law over “title” “encompassed confusion over not only trademarks, but also the related concept of trade dress.” Because of the doctrinal confusion over “title” at the time of the policy, Travelers’s duty to defend was triggered.

But was this “advertising injury” arising from “advertising activities”? The question is whether advertising contributed materially to the injury (not whether the injury could have taken place without the advertising).  “A complaint does not claim an advertising injury if it alleges only the manufacture, importation, and sale of infringing goods without claiming harm arising from advertising, and where it seeks relief ‘without reference to preventing any type of false, misleading or injurious advertising.’”  Here, both underlying actions alleged advertising injury because they alleged that Bridge Metal copied National’s distinctive trade dress “to make consumers think that Bridge Metal’s light fixtures originated from, or were connected with, National’s and marketed the fixtures to the public with that purpose in mind.” Both complaints alleged that Bridge Metal used misappropriated information to “market” and “advertise” lighting fixtures and requested relief going to those activities.  “The advertising and marketing of Bridge Metal’s products constituted at least a part of the harm that National allegedly suffered, and thus, the district court correctly concluded that the underlying actions alleged advertising injury.”

Travelers argued that a policy exclusion for injury arising out of breach of contract applied, since the underlying dispute resulted from failed merger talks that included a confidentiality agreement.  But NY applies a “but for” test; it was at least plausible that but-for causation was lacking here, since National’s right to protect its trade dress, which antedated its confidentiality agreement with Bridge Metal, could be infringed regardless of the contract. The key wrong was the alleged copying of National’s designs, not the breach of the confidentiality agreement.

Travelers also lost on the exclusion for a “knowing violation.” The underlying actions alleged violations of the Lanham Act and conversion, which don’t require intent to deceive.  Thus, Travelers was required to defend.