Use of mark on product isn't "ad" for insurance purposes

Crum & Forster Specialty Ins. Co. v. Willowood USA, LLC, No. 6:13–cv–01923, 2014 WL 3797673 (D. Or. Aug. 1, 2014)

Willowood was sued for trademark infringement and related causes of action by a former licensor, and sought insurance coverage.  The court granted the insurers’ motion for summary judgment because the claims didn’t allege covered advertising injury.

The underlying case involved a suit by Repar over Willowood’s use of the mark Tebucon for a pesticide; Repar sued after Willowood stopped buying the key ingredient from it and continued to use “Tebucon” in the name of its products.

In relevant part, Willowood’s insurance covered “material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services,” “[t]he use of another’s advertising idea in your ‘advertisement,’” and “[i]nfringing upon another’s copyright, trade dress or slogan in your ‘advertisement.’”  The policy didn’t define various key terms, so the court considered whether they had a plain meaning.  If they were susceptible to more than one plausible interpretation, they had to be understood reasonably in the context of the whole policy.  At that point, they were construed against the insurer.

As to disparagement, the court found that the insurers’ more narrow definition of “disparagement” as the specific tort of commercial disparagement or trade libel wasn’t the only plausible interpretation of the term.  However, that didn’t lead to coverage here, where the underlying lawsuit sought recovery under theories of implied-in-fact contract, quasi-contract/unjust enrichment, trademark infringement, and unfair competition.  None of those torts were covered as such, so the court looked to whether the allegations supporting the claims constituted a claim for conduct covered by the policy.  The underlying lawsuit alleged that Willowood’s use of Tebucon was likely to confuse consumers and was causing irreparable harm to Repar’s goodwill and reputation for quality.  Willowood argued that this indicated the possibility that Repar would put on evidence of Willowood’s lower quality, thus arguing for disparagement by the implicit association of the parties’ products.  But the court wasn’t willing to speculate about potential factual determinations.

Willowood argued that Repar’s allegations implied a false statement of affiliation by Willowood, thus constituting trade libel and disparagement.  The court was reluctant to find this interpretation reasonable—Repar alleged appropriation, not disparagement. In any event, the gravament of the allegations remained in trademark and were thus specifically excluded under the policy. 

What about “use of another’s advertising idea”?  Repar’s use of the Tebucon mark was indeed an idea, and an advertising idea at that—“a conception intended to attract public attention to a product.” However, the appropriation needed to be in an “advertisement” to be covered, and the underlying complaint only alleged that Willowood used the mark in connection with its products.  That isn’t inherently an “advertisement.” “The mere sale of a product bearing another’s mark does not constitute an advertisement. If it were otherwise, the Trademark Exclusion … would be completely superfluous; any applicable Trademark Exclusion would be subsumed by the exception: ‘this exclusion does not apply to infringement, in your “advertisement.”’”

The insurers also argued that the trademark exclusion and the exclusion for claims arising out of breach of contract applied.  The latter exclusion excluded Repar’s claim for breach of implied-in-fact contract, and was not saved by the exclusion to the exclusion covering “an implied contract to use another’s advertising idea in your ‘advertisement’” for the reason given above.  Similarly, the trademark exclusion covered the trademark infringement claim, including the “unfair competition” claim under §43(a).  Although that statutory provision is broader than §32, the analysis under the two provisions is often identical, and it was here.  Assuming that Repar’s allegations under §43 also included false advertising, the only form of advertising identified in the underlying complaint was the use of the Tebucon mark, which wasn’t enough.