Illinois court finds insurance coverage for alleged trade dress infringement

State Farm Fire & Cas. Co. v. Advanced Inventory Management, Inc., No. 1-22-0662, 2022 IL App (1st) 220662-U (Ill. Ct. App. Dec. 15, 2022)

The court of appeals reversed summary judgment in favor of an insurer, and ordered partial summary judgment for the insured, on the duty to defend in underlying litigation based on advertising injury coverage for trade dress infringement (depicting allegedly infringing products) in the insured’s advertising. The court of appeals remanded on whether State Farm had any duty to indemnify AIM for a settlement paid to resolve the underlying lawsuit.

The underlying suit was filed by Ethicon against AIM, alleging that AIM sold Ethicon surgical devices and other Ethicon devices that were either counterfeit, stolen, altered, expired, or misbranded. It alleged federal trademark infringement, false description, false advertising, and dilution and related state claims, including breach of an earlier settlement. It specifically alleged that AIM used Ethicon’s “Trademarks” and “Trade Dress” in “advertisements” and “in connection with the sale, offering for sale, distribution, or advertising” of Ethicon devices. The relevant policies provided liability coverage for personal and advertising injury. The exclusions excluded, inter alia, knowing violations, breach of contract, and advertising injury “[a]rising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your ‘advertisement’. However, this exclusion does not apply to infringement, in your ‘advertisement’ of copyright, trade dress or slogan.”

The underlying complaint sufficiently alleged that at least some of the alleged infringement was of trade dress, and that some of the trade dress infringement occurred in advertising, which triggered the duty to defend. As usual, the exclusion for intentional acts didn’t apply to avoid the duty to defend, even though the underlying complaint was replete with allegations of intentional infringement, since liability could be established under the Lanham Act without intent.

Comment: The insurer's attempt is probably to distinguish the trade dress of an advertising format (a fairly natural coverage for advertising injury) from standard trademark infringement, but because--paging Mark McKenna--trademark has become so expansive and mushy, including allowing pretty much anything to be trade dress, and because it's pretty common for ads to depict the underlying product the defendant has to sell, writing that exclusion is very difficult.