12014 ACC-SoCal In-House Counsel Conference

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Marketing and Advertising Injuries – Are You Covered?

January 22, 2014Los Angeles, California

Sponsored by K&L Gates LLP

Panelists: Seth A. Gold and David P. Schack

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Seth A. Gold– Partner– K&L Gates LLP– seth.gold@klgates.com

David P. Schack– Partner– K&L Gates LLP– David.schack@klgates.com

Panelists

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False advertising/IP and the challenges for coverage

CGL policies contain coverage for “personal and advertising injury” (PI/AI)– Disparagement Coverage– Privacy Coverage– Limited IP Coverage

PI/AI coverage can be in-house lawyer’s best friend

Agenda

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False advertising

Media Liability Coverage—broader coverage for media companies

Cyber Coverage—may offer broader coverage for media type liability

CGL—typical basic liability policyfor businesses

Types of Coverage

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Virtually all Commercial General Liability (CGL) policies contain coverage for “personal and advertising injury” (PI/AI)

PI/AI coverage includes:1) Disparagement Coverage 2) Privacy Coverage3) Limited IP Coverage

Without respect to the title of a particular claim.

Coverage for “Personal and Advertising Injury” (PI/AI)

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Covers oral/written publication of material that:– Slanders or libels a person or organization

or – Disparages a person’s or organization’s goods,

products or services

1) Disparagement Coverage

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Powerful tool for triggering insurer’s duty to defend for a variety of types of litigation –Disparagement Coverage can be basis for coverage if there is any allegation that defendant disparaged plaintiff’s goods, products or services.

–It may not cover all false advertising claims.

1) Disparagement Coverage (cont.)

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Disparagement is not defined in the CGL policy

It can be construed very broadly to mean

1) “To lower in rank or reputation: degrade

2) To depreciate by indirect means (as invidious comparison): speak slightingly about.”

1) Disparagement Coverage (cont.)

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Duty to defend may be triggered in false advertising types of cases if… There is any allegation defendant stated plaintiff’s products were

inferior to those of defendant.

Types of claims:

Lanham Act §43(a) claims

Cal. Bus. & Prof. Code §17500 claims

Unfair competition

Example: Pharmaceutical companies “battling it out”

Need a claim for “damages”

1) Disparagement Coverage (cont.)

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May be basis for triggering duty to defend in other types of business disputes:

1) Interference with contract/prospective economic advantage

Plaintiff alleges defendant asserted it had a contract with a third party in derogation of plaintiff’s rights.

2) Disputes over ownership rights

Plaintiff alleges defendant improperly advised third parties that defendant, rather than plaintiff, had ownership rights in real property, intangible property, intellectual property, etc.

1) Disparagement Coverage (cont.)

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May be basis for triggering duty to defend in other types of business disputes:

3) “Badmouthing”

Plaintiff makes isolated allegations in a complaint that defendant engaged in “badmouthing” of plaintiff to third parties; took incidental potshots.

May trigger even if technical causes of action might otherwise not be covered.

Courts have found duty to defend even in antitrust suits, where such allegations exist.

1) Disparagement Coverage (cont.)

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May be basis for triggering duty to defend in other types of business disputes:

4) Defamation

Slander and libel causes of action clearly trigger duty to defend under Disparagement Coverage.

Definition of defamation

Example: Drug companies “battling it out” with press releases and communications to competitors

1) Disparagement Coverage (cont.)

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Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc., 207 Cal.App.4th 969 (2012)

Versatile alleges that Charlotte Russe’s “fire sale” of People’s Liberation Branded apparel at “close-out prices” caused damage to and diminished the People’s Liberation Brand.

Charlotte Russe tendered to Travelers under the Disparagement Coverage. Travelers denied coverage, and in coverage litigation, the trial court granted summary judgment in Travelers’ favor.

The Court of Appeal reversed finding a duty to defend and no need for the underlying action to allege all elements of trade libel.

The California Supreme Court declined to review.

Current Issue in Disparagement Coverage

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Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4th 915 (2012).

Dahl sued Swift Distribution, Inc. dba Ultimate Support Systems (“Ultimate”) claiming that Ultimate’s “Ulti-Cart” infringed patents and trademarks held by Dahl for its “Multi-Cart” and diluted Dahl’s trademark.

Ultimate tendered defense of the Dahl action to Hartford arguing that, inter alia, (i) Dahl had alleged Ultimate’s advertising misled the public to believe that Ultimate’s inferior product was made by Dahl thus damaging Dahl; and (ii) such allegations triggered Hartford’s duty to defend under the Disparagement Coverage.

The trial court granted summary judgment in favor Hartford and the Court of Appeal affirmed finding no allegation of disparagement in the Dahl Action and disagreeing with the decision in Charlotte Russe.

The Court of Appeal found that Ultimate’s advertising did not refer to Dahl’s product directly or by implication.

The Supreme Court has granted review of Swift Distribution.

Current Issue in Disparagement Coverage (con’d)

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Covers oral or written publication of material that violates a person’s right of privacy

Can be triggered in a variety of cases where plaintiff alleges dissemination of information violates privacy rights.

2) Privacy Coverage

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Example: Claims of unlicensed/unapproved use of a person’s image in defendant’s advertising may trigger duty to defend.

Right of Publicity Statute—basedon common law right to privacy

2) Privacy Coverage

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Covers infringing on another’s copyright, trade dress, or slogan in your “advertisement.”

Insurers have narrowed IP coverage in CGL policies over time.

3) Limited IP Coverage

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Limited IP Coverage is the coverage for IP claims that remains in standard CGL policy. Important coverage in suits alleging copyright and trade dress

infringement.

Those suits often include claims of infringement by defendant’s advertising.

3) Limited IP Coverage (cont.)

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Plaintiffs often allege infringement over a period of years.

Those allegations may trigger earlier CGL policies with broader IP coverage.

3) Limited IP Coverage (cont.)

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A basis for triggering insurer’s duty to defend, based on limited allegations In cases that would not otherwise be covered.

Under California law, once duty to defend is triggered, insurer must defend entire case. Even uncovered claims/causes of action.

Insurer would avoid paying defense costs only to extent it can show legal services are “solely allocable” to an uncovered claim. This is a very difficult standard for insurer to meet.

PI/AI coverage – In-House Lawyer’s Best Friend

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Almost all CGL policies contain coverage for “personal and advertising injury.”

Disparagement coverage is a powerful tool for triggering insurer’s duty to defend.

Privacy coverage can be triggered in cases where plaintiff alleges dissemination of information violates privacy rights.

Significant Take-Away Points

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Allegations of infringing on another’s copyright, trade dress, or slogan may trigger earlier CGL policies with broader IP coverage.

Under California law, once duty to defend is triggered, insurer must defend entire case.

Significant Take-Away Points

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11th Annual In-House Counsel ConferenceJanuary 22, 2014 (Los Angeles, CA)

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