No Duty to Defend False Advertising or Copyright Infringement Claims Under "Advertising Injury" Provision of CGL Policy
April, 2005
In Skylink Technologies, Inc. v. Assurance Co. of America, 400 F.3d 982 (7th Cir. 2005), the U. S. Court of Appeals for the Seventh Circuit ruled that a CGL carrier owed no duty to defend false advertising or copyright infringement claims under the policy's advertising injury provision.
Facts
Skylink sells universal transmitters and key pads that are used to operate several different kinds of garage door openers, including the Chamberlain Group, Inc. (“Chamberlain”) model. Most garage door openers operate by sending a single code from the transmitter to the receiver. But Chamberlain's openers use a “rolling code” technology. This technology changes the transmitted code every time the door is opened so that burglars have a more difficult time gaining access to a garage – a burglar may be able to steal a single code but cannot steal multiple codes. Chamberlain, one of Skylink's competitors, secured a copyright for the “rolling code” software.
Skylink sold a transmitter and keypad that it manufactured that could be used to open garage doors outfitted with Chamberlain's “rolling code” technology, but the code did not change when the door was opened with the Skylink product, thus negating Chamberlain's security feature. Chamberlain sued Skylink for false advertising on the ground that Skylink's advertisements incorrectly asserted that the Skylink transmitters were “compatible” with Chamberlain's “rolling code” technology. Chamberlain also asserted a claim for copyright infringement, contending that Skylink infringed upon Chamberlain's copyright by selling a product designed to avoid or bypass the “rolling code” technology.
Skylink then filed the instant declaratory judgment action against its CGL insurer, claiming that the policy's definition of “advertising injury” triggered the duty to defend. The policy defined advertising injury as an injury arising out of one or more of the following offenses:
A) Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services;
B) Oral or written publication of material that violates a person's right of privacy;
C) Misappropriation of advertising ideas or style of doing business; or
D) Infringement of copyright, title or slogan.
However, the policy excluded coverage for “advertising injury arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your advertisement.”
The trial court found no duty to defend and granted summary judgment to the insurer.
Analysis
The Seventh Circuit affirmed the grant of summary judgment to the insurer.
The Court first rejected Skylink's contention that Chamberlain's allegations involved disparagement under Paragraph (A) above. The Court noted that “disparagement” means “to lower in esteem or reputation” and “to discredit or bring reproach upon by comparing with something inferior.” Skylink's statement on its package that its product was compatible with Chamberlain's technology did not do either of these:
In a clear case of disparagement resulting from a false comparison – imagine Skylink ran a series of print ads that said “Burglars prefer Chamberlain transmitters” – the damage is done by the ad itself. That is, Chamberlain's reputation has been hurt as soon as the customer sees the ad. By contrast, Chamberlain's reputation would not be affected by a potential customer seeing the packaging for Skylink's Model 30 universal transmitter or Model 89 keypad, which said only that the product was compatible with Chamberlain's rolling code technology. Chamberlain's suit alleges damage to its reputation not because of Skylink's packaging but because the Skylink products did not utilize the rolling code technology. (400 F.3d at 985)
The Court then rejected Skylink's arguments that the Chamberlain suit fell under either the misappropriation clause of the policy (Paragraph (C) above) or the copyright infringement clause (Paragraph (D) above). The Court reasoned that Chamberlain did not assert either misappropriation or infringement, but rather asserted the failure to live up to an advertised promise, i.e. the failure to use Chamberlain's “rolling code” technology.
Learning Point:
Insureds frequently look to expand advertising injury coverage beyond its enumerated boundaries, Here, the court correctly took a common sense approach in rejecting the insured's strained arguments trying to force-fit claims into the enumerated offenses and ignoring operative exclusions listed in the policy.•
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