Insurance Coverage for Trademark Infringement
Review your policy now so you know what to expect if you're sued
You open the days mail and come across a certified letter from a law firm youve never heard of. Its a cease-and-desist letter from attorneys for Nike Inc., one of many being sent in a nationwide attempt to stop the manufacture and sale of jewelry the sportswear giant believes incorporates one of its trademarks. In the past year, Nike learned some retailers sell Nike earrings, rings, bracelets, charms and pendants, none of them manufactured, licensed or authorized by Nike. The company says these knockoffs infringe on one or more of its registered trademarks (see Professional Jeweler, July 2000, p. 126).
Who do you call first? Nike? The sales representative who sold you the jewelry? Youll want to speak with both of them, but the first person to contact is your attorney. The second is probably your commercial liability insurance agent. If youve invested a lot of money in the jewelry in question, you need answers to several questions quickly. One of the most important is whether you have insurance coverage that applies to the claim Nike has made against you.
Unfortunately, there probably isnt a simple answer. But an understanding of some key terms in your insurance policy will help. The main thing to remember is your insurance policy is a contract between you and your insurance company. In exchange for your premium payments, an insurer is legally obligated to do certain things. Those things are written in the policy.
There are standard forms of commercial liability insurance, but the actual policies companies write vary from the standard form; its important to look at your own policy. Insurance law is primarily state rather than federal, so the way policy terms are interpreted varies from state to state. The policy language we examine in this article is from a Jewelers Mutual Insurance Co. commercial liability policy. Youll probably find similar language in your policy. But when dealing with insurance and insurance law, similar can be very different. Our purpose is to alert you to what steps you can take to get the greatest benefit from any possible coverage.
The Language in Your Policy
Understanding the language in your policy will help you determine whether it covers the cost of a trademark infringement case. Here is some of the actual language and what it means:
Personal Injury Liability/Advertising Injury Liability
We pay all sums which an insured becomes legally obligated to pay as damages due to personal injury or advertising injury to which this insurance applies.
- We cover: b. advertising injury arising out of an offense committed in the course of advertising your goods, products or services.
It may not be readily apparent what this language has to do with trademark infringement. But look back at the Definitions section of the policy and youll see the term advertising injury in a statement such as this:
|Advertising injury means injury ... arising out of one or more of the following offenses:
B. Misappropriation of advertising ideas or style of doing business.
C. Infringement of copyright, title, slogan, trademark or trade name.
Provision C is important. Trademark infringement may constitute an advertising injury if it arises in the course of advertising something, says William P. Herrbold, vice president of claims for Jewelers Mutual. This can be print or broadcast advertising, but simply displaying goods in the store is not sufficient.
Even if youve advertised the allegedly infringing goods, your insurance policy may not cover you. Almost every policy excludes coverage for intentional actions. Look again in the Definition section and youll probably find a provision very much like this one:
|We do not pay for advertising injury arising out of willful violation of an ordinance, statute or regulation by an insured or with the insureds consent.
This one means pretty much what it says. Trademarks, trade dress and copyright are all covered by law or judicial interpretations of law. A willful violation of these laws occurs anytime you sell goods you know infringe someone elses rights. Obviously, you have a better chance of getting coverage if theres a dispute as to the validity of the trademark owners claim.
Some Allegations Covered, Some Not
Your coverage is often affected by the claims made against you. If someone alleges in a lawsuit you knowingly sold infringing goods, it would appear you dont have coverage. But this isnt always true. In most cases, some allegations are covered and some are not. When this happens, your insurer will send you a Reservation of Rights letter. This tells you the insurer will defend you against the claim, but that you allegedly did something that isnt covered so you may want to retain your own attorney to defend that claim. In most states, you must do so at your own expense.
If it turns out the company suing you proves you sold infringing goods but cant prove you did so knowingly, your insurer would be liable for the damages. If the company proves you infringed its trademark knowingly, you would not have coverage.
The most important things to remember:
- Speak with your insurance company as soon as you become aware of a claim.
- Dont try to settle the claim yourself.
- Make no offers or statements concerning your position or practices.
Taking either of the last two actions could void whatever coverage you have.
In an age when trademarks, trade dress, copyrights and logos are becoming increasingly expensive to create, increasingly valuable and more rigorously defended, its crucial you review your insurance coverage before someone makes a claim against you so you know what to do if it happens.
Another way to protect yourself is with an Additional Insured Vendors endorsement. Available from your supplier or manufacturer, this makes you an insured under that companys policy. It protects you in the event a third party claims goods you sold infringe a trademark or copyright.
by William H. Donahue Jr.
William H. Donahue Jr. is an attorney practicing in New Jersey.