Trade dress infringement

Risk & Insurance, Sept 2, 2002 by Seth B. Schafler

The advertising injury endorsement to liability insurance policies has engendered a great deal of litigation over the years. Although much has been resolved, the applicability of the advertising injury provision to claims of trade dress infringement remains in some dispute.

A number of courts have found that trade dress infringement claims are outside the scope of advertising injury. In one case, for example, a policy issued to the Advance Watch Co. covered "misappropriation" of advertising ideas or style. The U.S. Court of Appeals for the Sixth Circuit said that the phrase "misappropriation of advertising ideas or style" referred to a category of actionable conduct separate from trade dress infringement.

There is confusion concerning when an advertising injury is "caused" by advertising within the meaning of standard business insurance policies. Various courts have held that the actual copying of trade dress, rather than advertising that depicts such copied trade dress, is the cause of an alleged injury. As one court said, it was not the insured's advertising in itself that provoked the plaintiff's claim, it was "the shape and appearance" of the insured's products.

Yet other courts have found the causal nexus requirement met where advertisements depicted products with confusingly similar trademarks or trade dress.

Recently, the U.S. Court of Appeals for the Second Circuit issued a decision in which it held that the advertising injury provision of a liability insurance policy obligated an insurer to defend a claim that an insured had infringed a competitor's trade dress where the insured had included the allegedly infringing trade dress in advertisements.

The case arose when Celestial Seasonings Inc., filed a complaint against R. C. Bigelow Inc., in which Celestial contended that Bigelow had introduced its herbal teas in packaging with trade dress similar to that of Celestial's boxes.

Bigelow asserted that Celestial's claims of trade dress infringement fell within the scope of the advertising injury provision in its insurance policy because Bigelow had depicted the allegedly infringing trade dress in its published ads. The insurer rejected Bigelow's claim and Bigelow filed suit. The district court ruled in the insurer's favor and Bigelow appealed to the Second Circuit.

The Second Circuit first noted that the insurer's policy defined "advertising injury" to include the "copying" of advertising ideas or style. The court said that the term "copying" did not suggest a traditional tort that so readily could be considered distinct from trade dress infringement, as the court had ruled in the Advance Watch case with respect to the misappropriation tort. Thus, it concluded, to the extent that Bigelow allegedly had copied Celestial's packaging and had displayed Bigelow's packaging in published advertisements, the Celestial complaint sufficiently alleged that Bigelow had copied Celestial's "advertising ideas or advertising style" within the plain meaning of the words in the insurance policy.

The Second Circuit next addressed the causation requirement. It observed that the trial court had concluded that because "the creation of the infringing product must precede its advertisement, the latter can hardly be the cause of the former."

But the Second Circuit stated, where an advertising injury is alleged, the relevant causation issue with regard to insurance coverage is not whether "the injury could have taken place without the advertising," but "whether the advertising did in fact contribute materially to the injury." Bigelow's ads displayed the allegedly infringing trade dress. If, as Celestial alleged, Bigelow's copied trade dress created consumer confusion, the ads could be found to have contributed to such confusion, the circuit court continued. Bigelow thus was entitled to believe that Celestial would try to use the ads to prove the likelihood of consumer confusion that it claimed resulted from trade dress infringement.

The Second Circuit concluded that Bigelow had demonstrated a plausible interpretation of the policy that would cover the underlying allegations in Celestial's complaint. It held that the insurer had a duty to defend Bigelow in the underlying action.

Seth B. Schafler is a senior counsel in the New York office of Proskauer Rose LLP and a member of the law firm's litigation department. He can be reached at sschafler@proskauer.com.