chevron-down Created with Sketch Beta.
November 05, 2012 Articles

Coverage for Trademark, Patent Infringement, and Antitrust Actions

Insurers have sought to secure from courts policy constructions that close scrutiny of their policy language would not sustain, to avoid potential coverage in trademark, patent, and now antitrust lawsuits

by David A. Gauntlett

Beginning in 1995, some insurers issued multimedia policies to corporations that were not specialized media companies. In crafting these policies, they adapted broad versions of early forms of commercial general liability (CGL), adding new exclusionary language. The exclusions expressly eliminated coverage for patent infringement and antitrust violations, as well as other related claims. Although these exclusions were readily available to the same insurers who sold CGL policies, those insurers failed to incorporate the exclusions into the multimedia policies. Instead, insurers have urged courts to narrowly construe coverage (as if these narrowing exclusions were in force), with varying degrees of success.

Thereafter, insurers have sought to secure from courts policy constructions that close scrutiny of their policy language would not sustain, to avoid potential coverage in trademark, patent, and now antitrust lawsuits.

Principles Applicable to Offense-Based Coverage

This article traces a growing awareness among courts that label-centric arguments by insurers or narrow fact constructions by courts that ignore or minimalize the impact of incomplete facts and avoid drawing favorable inferences from the facts cannot avoid the duty to defend.

Facts, not labels, are germane to the analysis of potential coverage, which cannot be limited to proof of all elements of any torts potentially falling within the covered offenses.[1] Indeed, many offenses are not limited to a singular tort. As but one recent example, the court in Hudson Insurance Co. v. Colony Insurance Co., 624 F.3d 1264, 1267 (9th Cir. 2010), rejected Colony’s argument complaining about the absence of an express claim for slogan infringement because “the insurer’s duty is not measured by the technical legal cause of action pleaded in the underlying third party complaint, but rather by the potential for liability under the policy’s coverage as revealed by the facts alleged in the complaint or otherwise known to the insurer.”

Equally critical, forums like California,[2] Minnesota,[3] New York,[4] and, to a growing extent, Illinois[5] look to facts beyond the complaint, including those “known to the insurer” where pertinent facts include a potential for amendment of the complaint in the underlying action to establish a defense. Facts “known to the insurer” embraces active involvement by defense counsel in clarifying the import of potentially covered claims by enhancing facts for properly proving potential coverage.

Insurance Coverage for Intellectual Property Lawsuits

Trademark Infringement
To suggest there is a split of authority over coverage for the trademark infringement offense of “misappropriation of advertising ideas or style of doing business” far overstates the case. Advance Watch Co. v. Kemper ’National Insurance Co.[6] was savagely criticized by virtually every court to address this issue. The Eleventh Circuit, applying Florida law, summed up this criticism:

[T]o adopt [the Sixth Circuit’s] reasoning here would do violence to principles of liability insurance policy construction . . . which start with the basic premise that terms of an insurance contract must be given their plain, ordinary and generally accepted meanings viewed from the perspective of the average person, with insuring language given its broadest possible sweep and exclusionary language the narrowest possible reach.[7]  

Patent Infringement
Absent public policy consideration,[8] such claims may readily evidence potential coverage, as the Supreme Court of Nebraska determined in Union Insurance Co. v. Land & Sky, Inc.. It concluded that “Land and Sky may be potentially liable for inducing or contributing to a patent infringement under § 271(b) due to its advertising activities.”[9]

In 1986, the piracy coverage in the 1976 ISO policy was replaced by “misappropriation of advertising ideas or style of doing business” coverage. It was held to potentially implicate coverage in 2004, in a case in which the court analyzed a business method patent.[10] That patent covered an advertising technique or methodology, which the court found potentially implicated the “misappropriation of advertising ideas” offense.

Defining advertising as the “action of calling something to the attention of the public” in DISH Network Corp. v. Arch Specialty Insurance,[11] the Tenth Circuit found that any definition of advertising adopted would be met by the claims in the underlying dispute, even though each user had a discrete and singular interaction with the website, because these features were available for broad public access. Nor was the casual nexus an impediment because harm was alleged from the website usage.[12]

The 1998 policy form, addressing “use of another’s advertising idea in your ‘advertisement,’” evidences even broader coverage than “misappropriation of advertising ideas.”[13] Critically, the content of the patent claims themselves are facts the court must consider in analyzing a defense, even under the narrow complaint allegations rule that some jurisdictions have adopted.

Antitrust Coverage

Potential Coverage for Disparagement, Defamation, and False Advertising
Concluding that an indirect action for disparagement/defamation might trigger a defense, the Seventh Circuit in Del Monte Fresh Produce N.A., Inc. v. Transportation Ins. Co., 500 F.3d 640, 645 (7th Cir. 2007), assumed the following:

Del Monte next lays out a list of “allegations supporting liability for disparagement/defamation based on theft of Del Monte’s ‘proprietary’ pineapple seeds.” Yet when we turn to the actual complaints, we find that each one is based on fraud or knowingly false acts. Not one could lead to relief on a showing of negligent conduct alone.

The court’s finding that the “knowledge of falsity” exclusion barred a defense for claims of fraud may no longer reflect Illinois law.[14] In an earlier decision, the Seventh Circuit engaged in an equally problematic analysis of potential coverage for an antitrust lawsuit by ignoring grounds for liability that would have avoided the purportedly iron-clad exclusion it relied on.[15]

Decisions Finding No Coverage for False Advertising Allegations Embedded Within Antitrust Claims Are Not Well Reasoned
Two casesTrailer Bridge, Inc. v. Illinois National Insurance Co.[16] and Rose Acre Farms, Inc. v. Columbia Cas. Co. [17] —analyzed claims labeled “antitrust.” Despite these courts’ contrary assumption, there is no reason parties cannot directly contract to cover antitrust exposure because potential coverage could not arise under offense (f), “use of another’s advertising idea in your ‘advertisement’”—under the facts asserted.[18] This is also true for patent[19] and trademark[20] lawsuits.

The Trailer Bridge panel adopted a restrictive interpretation of “use” that erroneously reads into the policy words it does not contain, contrary to Florida law.[21] But the policy requires that the advertising idea originate with the underlying claimant, as several federal circuit courts have found.[22]

Even under the former misappropriation offense form, the Ninth Circuit held it could not “discern any contextual, public-policy, or logical significance to who owns the legal rights to the advertising idea in question.” [23] So long as the insured did not originate the idea, the policy covers any advertising idea use meeting the other policy requirements. The ambiguity doctrine “does not allow courts to rewrite contracts [or] add meaning that is not present[.]”[24]

Trailer Bridge was accused of misusing an advertising idea to explain rising prices by falsely advertising that prices were market-driven (for example, by fuel costs). This advertising idea was not alleged to have originated with Trailer Bridge but was attributed to other freight companies. Trailer Bridge was named as the last of 13 corporate and individual defendants. Five defendants, employees of the entities that controlled 59 percent of the cabotage market, pleaded guilty to criminal antitrust violations. Trailer Bridge merely gave testimony to a grand jury. But it was sued for allegedly joining with others and using the same false advertising claim used by other defendants, that cabotage prices were market-driven and fair. That false advertising idea allegedly was integral to the conspiracy.

If customers were not misled about the reason for higher prices and thus induced to pay them, the conspiracy likely would not have caused harm. The false advertising idea was essential, but Trailer Bridge was dismissed with prejudice from the underlying suit.[25] Trailer Bridge could not logically be the originator of the advertising idea it was sued for using where other parties were found more responsible and even criminally culpable.

The panel erred in affirming that the interview was not an advertisement solely because although it “could . . . lead to additional customers for Trailer Bridge,” its purpose “seems to be informational”; and Trailer Bridge did not pay for the interview’s publication or “direct[] its content.”[26] Where the interview informed and attracted customers and supporters, other speculative purposes are irrelevant. The panel acknowledged the interview “could conceivably lead to additional customers or supporters.”[27] The policy’s definition of  “advertisement” does not require that a published statement be for the sole purpose of attracting customers and supporters. The definition also does not require an insured to pay for a published statement or that the insured be the sole director of the advertisement’s content. Nor did the definition call for a “paid advertisement,” as the panel adopting the district court’s decision improperly assumed.

The panel’s suggestion that to qualify as an advertisement, the insured must be the sole director of its content is unsupported. Logic compels the reverse when the advertisement is in the form of a published interview where the interviewee presumptively directs the contents of his or her responses to the interviewer’s questions. Such answers—like the chief executive officer’s (CEO’s) submission to the interview process itself—can be for no purpose other than “attracting customers or supporters.” That is the CEO’s job.

Illinois National could have defined “purpose” in the policy if it intended a restrictive meaning within its “advertisement” definition requiring a payment.[28] Although the portions of Trailer Bridge’s advertisement quoted in the underlying complaint (alleged false statements about cabotage pricing) sufficed to establish an advertisement, the entire interview/advertisement transcript established it even more definitively by promoting Trailer Bridge as having “fairly unique assets,” “put[ting] it in the best position to consistently deliver overall supply chain economics,” “50% more freight capacity,” and “integrated barge vessels” with “significant favorable cost comparisons relative to self-propelled vessels.” These interview points underscored complaint allegations—lowered “[p]rice in an all-inclusive sense [which] starts with the freight rate[.]”[29]

In Rose Acre Farms, Inc. v. Columbia Casualty Co., origination of the advertising idea by “another” was explicitly alleged. Rose Acre was sued for using in its advertising United Egg Producers’ (UEP’s) previously developed “false[] represent[ations] that reduced egg supply and higher prices were ‘as a result of husbandry concerns.’”[30] The plaintiffs alleged that the UEP created a certification program of “animal husbandry guidelines.” Rose Acre obtained UEP certification number 198 by agreeing to comply publicly with UEP’s previously established claim, alleged by claimants to be false, that egg prices increased because of husbandry concerns.

The Seventh Circuit, sub silentio, presumed Rose Acre was advertising in compliance with UEP’s guidelines during CNA’s[A1]   policy period as a member of the UEP. But Rose Acre was not a UEP member at the time of the initial advertising within the pertinent policy period. The Seventh Circuit’s understanding of the facts is contradicted by those revealed in the record. Although these factual errors call into question the outcome in Rose Acre, the court’s findings distinguish that case from those in which false advertising claims would support an independent assessment of liability.

Despite the complaint’s label as “antitrust,” the operative test, as Judge Posner noted in Curtis-Universal, Inc. v. Sheboygan Emergency Medical Services, Inc., is the pertinent fact allegations leading to recovery: “What is important is . . . whether that conduct as alleged in the complaint is at least arguably within one or more of the categories of wrongdoing that the policy covers.”[31] A commentator observes that Judge Posner was the author of both Rose Acre Farms and Curtis-Universal, whose lack of apparent consistency is evident on perusal of both opinions.[32]

Rose Acre’s website’s content as it appeared on September 26, 2011 (after oral argument, the day the panel viewed it) was the panel’s focus. The opinion misperceived the critical issue of when Rose Acre became a member of the UEP. When the UEP launched the animal husbandry campaign targeted by the claimants, Rose Acre was not a member of the UEP. Nor, critically, was it a member of the UEP when it launched the advertisements on its website provided to CNA, which triggered false advertising assertions based on Rose Acre’s press releases claiming higher costs of green egg-production to humanely foster happy chickens leading to higher retail egg prices. Notably, the district court made no contrary findings on this point.

The panel also conflated “use” with “misappropriation,” leading to the presumption that potential coverage was barred with respect to Rose Acre because the UEP cannot be “another” since the panel presumed that Rose Acre was a member of the UEP at all times. But the facts as pled and made known to CNA establish that for at least a portion of the time Rose Acre was advertising its compliance with UEP guidelines (during CNA’s policy period) it was not a member of the UEP.

The panel’s “what if the advertising idea was created by Rose Acre’s advertising agency” hypothetical is specious because the agency would be Rose Acre’s agent and thus indistinguishable from Rose Acre. But the facts were otherwise. Rose Acre’s use of the accused advertising idea without the UEP’s permission for a period of time meets the panel’s test as articulated.

The panel acknowledged, begrudgingly, that there is at least a “faint implication” in the underlying fact allegations that Rose Acre’s eggs are more expensive “than they would be if [Rose Acre] did not give more weight to its chickens’ mobility and social opportunities than to the cost of their eggs.”[33] But it did not recognize that this “faint implication” suffices to trigger potential coverage under Indiana law.[34]

Both the Trailer Bridge and Rose Acre courts ignored a recent decision finding coverage for statutory false advertising claims under the “use of another’s advertising idea in your ‘advertisement’” offense:

Certainly Edizone has alleged “use” of those advertising ideas in the Cloud Nine Defendants’ advertisements. . . . Edizone alleges a claim under the Utah Truth in Advertising Act, which specifically requires allegations of deceptive trade practices occurring in advertising. “The purpose of [the Utah Truth in Advertising Act] is to prevent deceptive, misleading, and false advertising practices and forms in Utah.” Utah Code Ann. § 13-11a-1. Clearly, the crux of a cause of action for violation of the Utah Truth in Advertising Act is advertising.[35]

This case is fully in accord with an earlier ruling by the Minnesota Supreme Court that a travel company’s use of the term “Hobbit” to describe its travel agency’s capitalization on goodwill surrounding Tolkien’s literary works alleged false advertising using that phrase and fell within the policy.[36] The same result arose where a pharmaceutical company’s use of “Lipitor” to describe its cholesterol-reducing drug alleged to unfairly compete with the legitimate producer of the drug, Pfizer, triggered false advertising coverage.

The Analytical Approach of the Seventh and Eleventh Circuits Adds Words Not in the Policies
The decisions of the Rose Acre and Trailer Bridge courts bothpresume that courts may add words of limitation to policies by evaluation “of another” to be brought by the claimant or one directly injured by the insured. This is contrary to the rule that courts cannot add words of limitation to insurance policies under the guise of interpretation, as held in Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc.[37] In Charlotte, the court refused to read into the policy a requirement that accusations against the insured must include all the essential elements of the trade libel tort in order to establish personal injury coverage for disparagement. In a decision consistent with other seminal decisions,[38] the court reasoned as follows:

That phraseology makes coverage for disparagement an alternative to coverage for libelous materials, not an element of that coverage. Under it, the policy covers publication of material either that slanders or libels a person or organization, or that disparages a person’s or organization’s goods, products or services; both are not required.[39]


The evolution of court decisions addressing coverage for three distinct tort clusters—trademark, patent, and antitrust violations—reflects a similar pattern: initial resistance, a purportedly definitive federal court of appeals decision denying a defense, and subsequent and more nuanced analysis of the policy language in light of the facts that create liability to ascertain circumstances, where despite the label, potential coverage may arise. Subsequently, an insurer response often includes exclusionary language.

Notably, each case generated unsuccessful petitions for rehearing and rehearing en banc whose arguments subsequent cases either adopted or considered as more viable bases for finding coverage. Whether the same fate will befall the antitrust coverage decisions must await further case law development. The pertinent policy language that potentially embraces coverage for antitrust lawsuits requires further parsing because of the disconnect between coverage based on facts and exclusions based on labeled claims for relief.

Keywords: coverage exclusion, defamation, disparagement, duty to defend, false advertising, liability

David A. Gauntlett is a principal at Gauntlett & Associates, Irvine, California.


[1] Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc., 2012 WL 2356477, at *6 (Cal. Ct. App. June 21, 2012).
[2] Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal. 2005) (“[T]he facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.”).
[3] COMSAT Corp. v. St. Paul Fire & Marine Ins. Co.,246 F.3d 1101, 1106–7 (8th Cir. 2001).
[4] See Emp’rs Ins. of Wausau v. Duplan Corp., 899 F. Supp. 1112, 1124 (S.D.N.Y. 1995) (observing that “the insurer had a duty to defend, because the complaint’s could be amended to allege covered defamation”) (citing Fitzpatrick v. Am. Honda Motor Co., 78 N.Y.2d 61, 65 (1991)); Harrington Haley LLP v. Nutmeg Ins. Co., 39 F. Supp. 2d 403, 409 (S.D.N.Y. 1999) (amended claims included the submission of “non-RICO” theories falling outside the scope of uncovered claims, even though the non-RICO claims evidencing potential coverage were dismissed).
[5] Pekin Ins. Co. v. Precision Dose Inc.,968 N.E.2d 664, 676 (Ill. App. Ct. 2012).
[6] Advance Watch Co. v. Kemper Nat’l Ins. Co., 99 F.3d 795, 802 (6th Cir. 1996).
[7] Hyman v. Nationwide Mut. Ins. Co.,304 F.3d 1179, 1189–90 (11th Cir. 2002) (“The majority of courts outside the Sixth and Eighth Circuits to confront this question, including one applying Florida law, have rejected the reasoning of that case …. Even state courts in Michigan, the state whose law the Sixth Circuit applied in Advance Watch, have criticized the holding in that case …. [T]o adopt [the Sixth Circuit’s] reasoning here would do violence to principles of liability insurance policy construction well established under Florida law. . . .”).
[8] Aetna Cas. & Sur. Co. v. Superior Court of Cal. (Watercloud Bed Co., Real Parties in Interest),19 Cal. App. 4th 320, 330 (Cal. Ct. App. 1993).
[9] Union Ins. Co. v. Land & Sky, Inc., 247 Neb. 696, 704 (Neb. 1995).
[10] See Int’l, Inc. v. American Dynasty Surplus Lines Ins. Co., 85 P.3d 974, 976 (Wash. Ct. App. 2004) (“Misappropriation of an advertising idea may be accomplished by the ‘wrongful taking of another’s manner of advertising’[.]”) (pay per view website); Hyundai Motor Am. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 600 F.3d 1092, 1101 (9th Cir. 2010) (build your own website); DISH Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010, 1019–20 (10th Cir. 2011).
[11] DISH Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010, 1024 (10th Cir. 2011).
[12] DISH Network, 659 F.3d at 1024.
[13], Inc. v. Atl. Mut. Ins. Co., No. C05-00719RSM, 2005 WL 1711966, at *9 (W.D. Wash. July 21, 2005).
[14] Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., No. 11 C 4736, 2012 WL 2424606, at *6 (N.D. Ill. June 21, 2012) (citing Cincinnati Ins. Co. v. Am. Hardware Mfgs. Assn., 898 N.E.2d 216, 240 (Ill. App. Ct. 2008)).
[15] BASF AG v. Great Am. Assurance Co., 522 F.3d 813, 821–22 (7th Cir. 2008). As a perusal of the petition for rehearing reveals, the BASF panel ignored evidence presented on a distinct statutory claim for relief that would have permitted a direct action where indirect injury occurred for disparaging statements the court refused to consider. The Illinois Deceptive Trade Practices Act (DTPA), 815 Illinois Compiled Statutes 510/2, provided that “[a] person engages in a deceptive trade practice” when the person “disparages the goods, services, or business of another by false or misleading representation of fact.” The DTPA expressly stated that “[i]n order to prevail in an action under this Act, a plaintiff need not prove competition between the parties.” The underlying plaintiffs alleged they suffered injury as a result of the insured’s disparaging statements about competing products, which caused them to buy the insured’s products instead of cheaper alternatives. The disparagement caused the plaintiffs to pay more for that type of product than they otherwise would have paid.
[16] Trailer Bridge, Inc. v. Ill. Nat’l Ins. Co., 657 F.3d 1135, 1145 (11th Cir. 2011).
[17] Acre Farms, Inc. v. Columbia Cas. Co., 662 F.3d 765, 768 (7th Cir. 2011).
[18] UnitedHealth Group Inc., v. Columbia Cas. Co., 836 F. Supp. 2d 912, 919 (D. Minn. 2011) (providing coverage for antitrust liability by endorsement).
[19] Behringer Saws Inc., v. Travelers Indem. Co. of Ill., No. Cl-01-0025, 2003 WL 21962949, at *5 (Pa. Com. Pl. June 30, 2003).
[20] Fireman’s Fund Ins. Co. v. Bradley Corp., 660 N.W.2d 666, 671 (Wis. 2003).
[21] See Lenhart v. Federated Nat’l Ins. Co., 950 So. 2d 454, 457 (Fla. Dist. Ct. App. 2007) (“[W]hen an insurer fails to define a policy term having more than one meaning, the insurer cannot argue a narrow or restrictive interpretation of the coverage provided.”).
[22] Am. Simmental Ass’n v. Coregis Ins. Co., 282 F.3d 582, 588 (8th Cir. 2002) (challenged “full-blood” cattle designation was not claimant’s); Native Am. Arts, Inc. v. Hartford Cas. Ins. Co., 435 F.3d 729, 734 (7th Cir. 2006) (“Indian made” advertising idea did not belong to claimant).
[23] Hyundai Motor Am. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 600 F.3d 1092, 1101 (9th Cir. 2010).
[24] Continental Cas. Co. v. City of Jacksonville, 654 F. Supp. 2d 1338, 1343 (M.D. Fla. 2009).
[25] Trailer Bridge, Inc. v. Ill. Nat’l Ins. Co., No. 3:09-cv-1135-J-20MCR, 2010 WL 2927424, at *3 (M.D. Fla. July 22, 2010).
[26] Trailer Bridge, Inc. v. Ill. Nat’l Ins. Co., 657 F.3d 1135, 1143 (11th Cir. 2011).
[27] Trailer Bridge, 657 F.3d at 1143.
[28] State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1076 (Fla. 1998) (“[W]hen an insurer fails to define a term in a policy, ... the insurer cannot take the position that there should be a ‘narrow, restrictive interpretation of the coverage provided.’”) (citation omitted).
[29] Petition for Reh’g, Trailer Bridge, Inc. v. Ill. Nat’l Ins. Co.,No. 10-13913 (11th Cir. filed Sept. 27, 2011).
[30] Rose Acre Farms, Inc. v. Columbia Cas. Co., 772 F. Supp. 2d 994, 1001 (S.D. Ind. 2011).
[31] Curtis-Universal, Inc. v. Sheboygan Emergency Med. Servs., Inc., 43 F.3d 1119, 1122  (7th Cir. 1994).
[32] David M. Simon, “Do ‘Advertising Injury’ Insurance Policies Cover Antitrust Actions?,” Ins. & Reinsurance Rev., Dec. 2011.
[33] Rose Acre Farms, Inc. v. Columbia Cas. Co., 662 F.3d 765, 767–68 (7th Cir. 2011).
[34] See Carolina Cas. Ins. Co. v. Estate of Studer, 555 F. Supp. 2d 972, 978 (S.D. Ind. 2008) (holding that if the complaint alleges facts bringing the claim “within the potential indemnity coverage of the policy,” the insurer must defend).
[35] Ohio Cas. Ins. Co. v. Cloud Nine, LLC, 464 F. Supp. 2d 1161, 1168 (D. Utah 2006).
[36] Gen. Cas Co. of Wis. v. Wozniak Travel, Inc.,762 N.W.2d 572, 580 (Minn. 2009); see also Ohio Cas. Ins. Co. v. Albers Med., Inc., No. 03-1037-CV-W-ODS, 2005 WL 2319820, at *4 (W.D. Mo. Sept. 22, 2005).
[37] Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc., 2012 WL 2356477, at *7 (Cal. Ct. App. June 21, 2012).
[38] Winklevoss Consultants, Inc. v. Fed. Ins. Co., 11 F. Supp. 2d 995, 1000 (N.D. Ill. 1998) (“[T]he policy offense of “disparagement” is not synonymous with common law commercial disparagement.”); Terra Nova Ins. Co. v. Fray-Witzer, 449 Mass. 406, 418 (Mass. 2007) (“[C]ourts should ‘consider whether clearer draftsmanship by the insurer “would have put the matter beyond reasonable question.” ’ ”).
[39] Charlotte Russe Holding, 2012 WL 2356477, at *7.

Copyright © 2012, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).