Washington Court Holds Product Misappropriation Not An Advertising Injury

This article discusses a recent decision in Evanston Ins. Co. v. Clartre, Inc., 2016 U.S. Dist. LEXIS 7289 (W.D. Wash. Jan. 21, 2016), by the United States District Court for the Western District of Washington.

At issue in Clartre was Evanston’s coverage obligations to Clartre, Inc. and its individual owner with respect to an underlying litigation involving alleged misappropriation of the claimant’s wood-treatment chemical technology by essentially passing the product off as its own.  In particular, the underlying suit alleged that Clartre continued to “market, advertise and sell [their] products” as being treated with claimant’s product despite demands that it cease and desist from such use, and despite an arbitration ruling that Clartre must refrain from such conduct.  Among other things, claimant’s complaint alleged that Clartre made false, misleading or deceptive representations to the public, government agencies and contractors concerning its product.  The suit alleged causes of action for misappropriation of trade secrets and confidential information, violation of the Lanham Act, and violation of Washington’s Unfair Business Practices and Consumer Protection Act.

Evanston, which insured Clartre under three successive general liability policies, agreed to provide a defense under a reservation of rights, but later sought a declaratory judgment that the underlying suit did not constitute a claim for “advertising injury,” and that even if it did, various exclusions applied to bar coverage.

The policies issued by Evanston provided coverage, in relevant part, for “advertising injury” in the course of “advertising” or “in your advertisement.”  One of the Evanston policies defined “advertising injury” to include the offense of “misappropriation of advertising ideas or style of doing business” but not including trademark, title, slogan or service mark infringement.  The other Evanston defined “advertising injury” to include the offenses of “use of another’s advertising idea in your ‘advertisement’” and infringement of another’s copyright, trade dress or slogan in your advertisement.

Clartre contended that the allegation that it had made false, misleading or deceptive representations concerning its own product qualified as the advertising injury offense of misappropriation of an advertising idea.  Noting that the underlying suit did not allege any advertisement in the first instance, the court nevertheless disagreed with Clartre’s contention, observing that misappropriation of an advertising idea, under Washington law, is the wrongful taking of another’s manner of advertising or of the manner in by which one advertises its goods or services.  This is different, noted the court, from trying to sell another’s goods as one’s own.  The court explained this distinction:

In other words, misappropriation of an advertising idea involves stealing the manner in which another entity advertises goods, emulating their form, logo, or trade dress, and does not extend to appropriating another entity’s goods and passing them off as your own.

Because Clartre was alleged to have falsely represented that its products were treated with claimant’s product, rather than to have misappropriated the manner in which claimant marketed its own goods, the court concluded that the underlying suit did not allege the advertising injury offense of misappropriation of another’s advertising idea.

The court concluded similarly with respect to the question of whether the underlying suit alleged the advertising injury offenses of misappropriation of trade dress or “style of doing business.”  The court reached this conclusion on the basis that the underlying suit did not allege that Clartre tried to emulate the “look and styling” of claimant’s product or trade dress.  Notably, the court drew a distinction between appropriation of a product’s image, which would constitute an advertising injury offense, with appropriation of the product itself.

While the court concluded that the underlying suit did not allege an advertising injury offense that would trigger coverage under any of the Evanston policies, the court nevertheless continued its analysis by observing that certain causes of action in the underlying complaint would be precluded as a result of exclusions applicable to infringement of intellection property and publication with knowledge of falsity.