Hartford Casualty Ins. Co. v. Swift Distribution, Inc., No.
S207172, 2014 WL 2609753 (Cal. June 12, 2014)
The California Supreme Court here provides a relatively rare
state court interpretation of the scope of an advertising-related insurance
policy. Hartford insured Swift (here,
Ultimate) for claims arising from “[o]ral, written, or electronic publication
of material that slanders or libels a person or organization or disparages a
person’s or organization’s goods, products or services.” A third party, Dahl, sued Ultimate, alleging
patent and trademark infringement, false designation of origin, and damage to business,
reputation, and goodwill based on Ultimate’s sale of a media cart. Hartford denied coverage on the ground that
the underlying suit didn’t allege disparagement.
The duty to defend is broad.
It can be triggered by the allegations of the complaint, or where
extrinsic facts known to the insurer (whether disputed or undisputed) suggest
that the claim may be covered.
The court nonetheless held that a claim of disparagement “requires
a plaintiff to show a false or misleading statement that (1) specifically
refers to the plaintiff’s product or business and (2) clearly derogates that
product or business. Each requirement must be satisfied by express mention or
by clear implication.” These limits
derive from the common law tort of disparagement, which has been shaped by
First Amendment considerations even as applied to nonmedia defendants.
These specificity requirements “significantly limit the type
of statements that may constitute disparagement, especially since
advertisements and promotional materials often avoid express mention of
competitors,” though the court noted that other courts “have found certain
kinds of statements to specifically refer to and derogate a competitor’s
product or business by clear implication.” This can occur when a false or
misleading statement necessarily
refers to and denigrates a competitor’s product. A total superiority or uniqueness claim may
clearly or necessarily disparage another party without expressly mentioning
them.
The underlying complaint here alleged infringement and
dilution, and attached Ultimate’s ads, which didn’t name the Multi-Cart or any
other competing product. Ultimate
offered two theories of disparagement: the first focused on Dahl’s claim that
the products’ similarity in design and product name led to confusion, while the
second involved false statements of superiority that allegedly implied the
inferiority of Dahl’s product.
Even if the use of Ultimate’s “Ulti-Cart” could reasonably
imply reference to Dahl’s “Multi-Cart,” there was no disparagement. Consumer confusion does not by itself mean
disparagement. Intentional mimicry,
without more, doesn’t derogate or malign the subject of copying. Even assuming it’s true that confusing
consumers into thinking that you offer a high-quality product and then offering
them a cheap knock-off is derogatory to the trademark owner, because confused
consumers will believe that the cheap knock-off represents the legitimate
product’s actual quality, no such conduct was alleged here. Instead, Dahl repeatedly asserted that the
two products were “nearly identical, folding transport carts.” “A false or
misleading statement that causes consumer confusion, but does not expressly
assert or clearly imply the inferiority of the underlying plaintiff’s product,
does not constitute disparagement.”
Ultimate argued that its 2010 product catalog disparaged the
Multi-Cart by asserting the superiority of the Ulti-Cart: “Ultimate Support
designs and builds innovative, superior products,” provides “unique support
solutions that are crafted with unparalleled innovation and quality and
accompanied by superior customer service,” and the Ulti-Cart has “patent-pending
folding handles and levers.” The catalog was referenced in the complaint and
should be considered, but were insufficient. Except for the patent-pending
statement, the statements were general descriptions of the company. And “superior” doesn’t necessarily imply a
derogatory comparison; according to the dictionary, it may be used to describe
something “[o]f great value or excellence; extraordinary” or “notably excellent
of its kind: surpassingly good.” Nor
does “patent-pending” guarantee that a patent will be granted or that the
product is of higher quality. These statements weren’t specific enough to call
into question Dahl’s proprietary rights in his product or to suggest that the
Ulti-Cart had any important, unique feature.
Instead, they were mere puffing.
“Were we to adopt Ultimate’s theory of disparagement, almost any
advertisement extolling the superior quality of a company or its products would
be fodder for litigation.” That would be
a free speech problem.
Posts
3 comments:
RT, Do you think dilution claims would satisfy this standard?
I do not, unless they satisfy the common law/constitutionalized test for diaparagement, which tarnishment will rarely do because it doesn't have to be fact-based and usually isn't factual in any sense. This is of course purely a choice of the policy writer. But the court's interpretation here sensibly borrows the meaning of disparagement from the case law, and in disparagement, even commercial disparagement, factual falsity is required (as of course it constitutionally should be for dilution too).
I do not, unless they satisfy the common law/constitutionalized test for diaparagement, which tarnishment will rarely do because it doesn't have to be fact-based and usually isn't factual in any sense. This is of course purely a choice of the policy writer. But the court's interpretation here sensibly borrows the meaning of disparagement from the case law, and in disparagement, even commercial disparagement, factual falsity is required (as of course it constitutionally should be for dilution too).
Post a Comment