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Published: May 1, 2007
Author: Jodi Yin
Do you own or operate a business that regularly advertises its goods, products or services? Do you insure a business that engages in competitive advertising on any scale? If you fall into either of these broad categories, take a moment to review the business' insurance policy and determine whether it contains an "advertising injury" provision. This often overlooked provision has become the focus of a growing number of lawsuits nationwide.
Most commercial general liability insurance policies, advertiser's liability insurance policies, and some umbrella policies offer businesses a valuable, albeit little known, form of protection against claims of "advertising injury." Advertising injury is a loss to another person or business that is caused by an offense committed in the course of advertising. Covered offenses typically include libel, slander, defamation, violation of a right of privacy, piracy or misappropriation of ideas, or infringement of copyright, trademark, title or slogan.
In recent years, claims of "advertising injury" have typically arisen in the context of intellectual property. As the commercial value of intellectual property has increased, so, too, has the number of lawsuits over intellectual property rights. Because these lawsuits often involve complex legal issues, they can cost hundreds of thousands of dollars to defend.
It comes as no surprise then that a business served with a lawsuit alleging an advertising injury will quickly tender defense of the suit to its insurance company. A recent issue of hot debate in Wisconsin, and nationwide, is whether and when insurers have a duty to defend and/or indemnify claims of trademark and copyright infringement under the "advertising injury" liability provisions of many standard commercial general liability policies.
Acuity v. Bagadia, UNIK Assoc., LLC, Symantec Corp., & Quarterdeck Corp. (Ct. App. Apr. 25, 2007). In Acuity, a Wisconsin-based business named UNIK Associates, LLC ("UNIK") sold computer software to resellers. UNIK purchased the software at liquidation or closeout sales for discounted prices. This software included several trademarks owned by Symantec Corporation, such as NORTON SYSTEMWORKS, NORTON ANTIVIRUS, NORTON UTILITIES, and NORTON GHOST. The software also included CLEANSWEEP, a trademark owned by Quarterdeck Corporation. UNIK advertised SystemWorks® products through trade magazines, telephone marketing, direct mailings, and samples. When a potential customer requested a SystemWorks disk from UNIK, UNIK would ship a sample disk to the potential customer after inspecting it to make sure the disk appeared authentic. Once the customer approved the sample, UNIK would order the remainder of the shipment from its supplier. The disks contained copies of Symantec's copyrighted programs and its trademarks.
Symantec Corporation and Quarterdeck Corporation sued UNIK in federal court in Oregon alleging copyright infringement and asserting numerous trademark claims. They obtained a judgment against UNIK for almost $1 million.
Shortly after litigation began in Oregon, Acuity, one of UNIK's insurers, commenced an action in Wisconsin state court seeking a declaration that its policy with UNIK did not cover the damages in the Oregon suit. The circuit court found Acuity liable for the entire amount of damages. The Wisconsin Court of Appeals also held that coverage existed after it answered the following three questions affirmatively: (1) Did the damages arise from an enumerated offense in the policy? (2) Did UNIK engage in advertising? (3) Was there a causal connection between UNIK's advertising and Symantec's damages?
1. Did Damages Arise from an Enumerated Offense?
The policy at issue indemnified UNIK against " [a]dvertising injury caused by an offense committed in the course of advertising your goods, products, or services." The policy defined "advertising injury" as an injury arising out of "[m]isappropriation of advertising ideas or style of doing business," or "[i]nfringement of copyright, title, or slogan." Because Acuity conceded that copyright infringement was an enumerated offense in the policy, the court answered this first inquiry with respect to the copyright infringement claim in the affirmative.
While Acuity did not concede that trademark counterfeiting was an enumerated offense, the court held that it was included within the enumerated offense of infringement of title because NORTON SYSTEMWORKS, NORTON ANTIVIRUS, etc. could be reasonably characterized as "titles" of programs they describe.
2. Did UNIK Engage in Advertising?
The court next decided whether a narrow or broad definition of "advertising" should be applied. While some courts define advertising to include only "widespread announcement or distribution of promotional materials directed at the 'public at large,'" others include within the definition "any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business." The court held that the latter, broad definition of advertising should apply, and UNIK's advertisements in trade magazines and its mailings of samples constituted advertising for purposes of the copyright infringement claims.
For purposes of the trademark counterfeiting claims, the court also answered this second question in the affirmative. Based on UNIK's use of at least some of Symantec's trademarks in trade magazines, telephone marketing, and direct mailings, the court held that UNIK was engaged in advertising.
3. Was there a Causal Connection between UNIK's Advertising and Symantec's Harm?
According to Wisconsin law, a business' advertising does not need to be the only cause of harm in an advertising injury claim. The advertising must "contribute materially" to the harm. For purposes of the copyright infringement claim, the court determined that there was a causal connection between UNIK's sending of samples to potential customers and the harm caused to Symantec by UNIK's copyright infringement. This is because UNIK's practice of offering samples to potential customers made it more likely that harmful sales to these customers would occur.
For purposes of the trademark counterfeiting claim, the court emphasized that the central element of a trademark infringement claim was present in this case. The central element of a trademark infringement claim is a similarity of marks that is likely to confuse consumers about the source of the product. The court held that a similarity of marks was obviously present in this case. By using Symantec's trademarks in its advertising, UNIK gave the impression that it was selling legitimate Symantec software when it was not. In fact, UNIK conceded that consumer confusion was likely to result from its actions. With respect to both the copyright infringement and trademark counterfeiting claims, the court answered this final question in the three-part test affirmatively.
As demonstrated by the Wisconsin appellate court's holding in Acuity v. Bagadia, UNIK Assoc., LLC, Symantec Corp., & Quarterdeck Corp., "advertising injury" insurance coverage provides valuable and broad protection to policyholders for complex and often expensive litigation.
Jodi S. Yin is an attorney with Axley Brynelson, LLP. For more information, contact Ms. Yin at 608.283.6781 or jyin@axley.com.
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