2d Circuit Holds No Duty to Defend Intellectual Property Claim

In its recent decision titled Feldman Law Group v. Liberty Mut. Ins. Co., 2012 U.S. App. LEXIS 7787 (2d Cir. Apr. 18, 2012), the United States Court of Appeals for the Second Circuit, applying Pennsylvania law, had occasion to consider whether a claim for copyright and trade dress infringement involving designer jewelry triggered coverage under a general liability policy as an advertising injury.

Feldman Law Group (“FLG”), as the assignee of the insured, The Hyman Companies, sued Liberty to recover its costs in defending Hyman in a suit brought by Van Cleef & Arpels Logistics, S.A.  The suit alleged that Hyman violated Van Cleef’s copyright and trade dress, specifically with respect to the design of certain jewelry.  Liberty had denied a duty to defend or indemnify Hyman on the basis that Van Cleef’s suit did not allege an advertising injury, since the complaint made no reference to “advertising,” defined by the Liberty policy as a “paid announcement that is broadcast or published in the print, broadcast or electronic media to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” The Southern District of New York held in Liberty’s favor on motion to dismiss.

On appeal, the Second Circuit agreed that the underlying suit contained no allegations that would qualify as an advertising injury offense, or that would even qualify as advertising in the first instance.  Rather, the suit related to Hyman’s efforts to reproduce, copy and imitate Van Cleef intellectual property, i.e., its jewelry designs.  The court specifically rejected FLG’s argument that the generic allegation in the complaint alleging that Hyman “offered [the jewelry] for sale and/or distributed copies of the [protected intellectual property]” constituted an advertising injury offense.  As the court explained:

FLG urges us to infer that the references to reproduction and distribution "by sale and other means" could refer to the placement of a "paid announcement" in the public media. Such references, however, are far too general to support the conclusion that Van Cleef's complaint encompassed an injury resulting from any paid advertisement by Hyman, when the complaint specifically and repeatedly refers only to Hyman's conduct in "designing" jewelry "that is confusingly similar" to Van Cleef's design, and "reproducing such design without authorization and distributing copies thereof," thus infringing its trade dress and copyright.  The factual allegations of the complaint thus specifically invoke Hyman's design, manufacture and sale of infringing goods, but nowhere discuss, allege or allude to any advertisement of those goods.

The court went on to note that even if the complaint could be construed as alleging advertisement, advertisement of misappropriated goods, in and of itself, does not constitute an advertising injury offense as defined by the Liberty policy.  For instance, Van Cleef did not allege that its intellectual property was misappropriated as a result of Hyman’s advertising.  Citing to the seminal Pennsylvania decision in Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 20 F. Supp. 2d 798, 803 (M.D. Pa. 1998), aff’d, 193 F.3d 742 (3d Cir. 1999), the court noted that “the advertisement, and not the product being advertised, must itself infringe the underlying plaintiff's rights.”  The court further rejected FLG’s argument that Hyman’s possible use of catalogues and circulars to advertise its jewelry constituted “advertising” as defined by the Liberty policy, which required a paid announcement in public media.  Circulars and catalogues, explained the court, did not fall within this definition.