Marketing and Advertising Injuries Are You Covered? January 22, 2014 Los Angeles, California. Sponsored by K&L Gates LLP

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1 [add logo of sponsor] Marketing and Advertising Injuries Are You Covered? January 22, 2014 Los Angeles, California ed by K&L Gates LLP Panelists: Seth A. Gold and David P. Schack #IHCC12 1

2 Panelists Seth A. Gold Partner K&L Gates LLP David P. Schack Partner K&L Gates LLP _2 2

3 Agenda 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 _3 3

4 Types of Coverage False advertising Media Liability Coverage broader coverage for media companies Cyber Coverage may offer broader coverage for media type liability CGL typical basic liability policy for businesses _4 4

5 Coverage for Personal and Advertising Injury (PI/AI) 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 Coverage 3) Limited IP Coverage Without respect to the title of a particular claim _5 5

6 1) Disparagement Coverage 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 _6 6

7 1) Disparagement Coverage (cont.) Powerful tool for triggering insurer s duty to defend for a variety of types of litigation Disparagement Coverage can be basis for coverage if t is any allegation that defendant disparaged plaintiff s goods, products or services. It may not cover all false advertising claims _7 7

8 1) Disparagement Coverage (cont.) 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 _8 8

9 1) Disparagement Coverage (cont.) Duty to defend may be triggered in false advertising types of cases if T 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 claims Unfair competition Example: Pharmaceutical companies battling it out Need a claim for damages _9 9

10 1) Disparagement Coverage (cont.) 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 _10 10

11 1) Disparagement Coverage (cont.) 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, w such allegations exist _11 11

12 1) Disparagement Coverage (cont.) 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 _12 12

13 Current Issue in Disparagement Coverage Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc., 207 Cal.App.4 th 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 _13 13

14 Current Issue in Disparagement Coverage (con d) Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 210 Cal.App.4 th 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 _14 14

15 2) Privacy Coverage Covers oral or written publication of material that violates a person s right of privacy Can be triggered in a variety of cases w plaintiff alleges dissemination of information violates privacy rights _15 15

16 2) Privacy Coverage Example: Claims of unlicensed/unapproved use of a person s image in defendant s advertising may trigger duty to defend. Right of Publicity Statute based on common law right to privacy _16 16

17 3) Limited IP Coverage Covers infringing on another s copyright, trade dress, or slogan in your advertisement. Insurers have narrowed IP coverage in CGL policies over time _17 17

18 3) Limited IP Coverage (cont.) 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 _18 18

19 3) Limited IP Coverage (cont.) Plaintiffs often allege infringement over a period of years. Those allegations may trigger earlier CGL policies with broader IP coverage _19 19

20 PI/AI coverage In-House Lawyer s Best Friend 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 _20 20

21 Significant Take-Away Points 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 w plaintiff alleges dissemination of information violates privacy rights _21 21

22 Significant Take-Away Points 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 _22 22

23 11 th Annual In-House Counsel Conference January 22, 2014 (Los Angeles, CA) _23