‘Patent Pending’ Claim Not Enough For Duty

By Don R. Sampen, published, Chicago Daily Law Bulletin
[July 25, 2017]

The 1st District Appellate Court recently held that an underlying complaint did not trigger the insurer’s duty to defend a claim based on “personal and advertising injury” coverage, because the insured’s advertisement in question did not identify the claimant’s product with sufficient specificity.

The insured in Green4All Energy Solutions Inc. v. State Farm Fire & Casualty Co., 2017 IL App (1st) 162499 (June 19, 2017), was represented by Bishop Diehl & Lee Ltd. in Schaumburg. SmithAmundsen LLC represented the insurer, State Farm.

Green4All advertised for sale a specialty water meter that increased the efficiency of water meter readings by eliminating entrained water bubbles. According to the underlying complaint subsequently filed against it, Green4All included in its advertisements a statement that its product had a “patent pending.”

In February 2015, Flow Dynamics LLC filed the underlying complaint claiming that Green4All’s advertisements were false and competitively harmful. Three counts of its complaint alleged that Flow marketed a similar product and that Green4All’s sale of the product constituted patent infringement.

In a fourth count, Flow alleged that Green4All did not in fact have a patent pending; that the patent application referred to by Green4All was really Flow’s patent application; and that Green4All’s marketing implied that Green4All invented the product when such was not the case.

Green4All tendered the defense to its liability insurer, State Farm, based on the allegations of Count 4. The State Farm policy provided, among other types of protection, coverage for “personal and advertising injury.” That coverage, as relevant here, applied to claims arising out of publications by the insured that “disparaged” the claimant’s goods or services, subject to various exclusions.

State Farm refused the tender.

Thus, following settlement of the underlying case, Green4All brought the instant coverage action. It alleged breach of the duty to defend and sought “bad faith” remedies under Section 155 of the Illinois Insurance Code.

Upon cross-motions for summary judgment, the trial court ruled in favor of State Farm. It did so on the ground that the underlying complaint did not allege that Green4All’s commercial literature identified or made a disparaging statement about Flow’s product. Green4All took this appeal.

Analysis

In an opinion by Justice Mary Lane Mikva, the 1st District affirmed. She pointed out that Green4All’s marketing of its product as “patent pending” is a neutral designation that does not qualify as a statement about the quality of Green4All’s product or how well it performs.

The underlying complaint also failed to allege that Green4All made any comparison of its own product to Flow’s and did not allege that Green4All’s literature even mentioned Flow’s product or disparaged Flow in any way.

Flow’s allegations about the disparaging “effect” of the advertising, moreover, Mikva noted, did not change the fact that a disparaging statement was required. The requirement of a statement about a competitor’s goods was recognized in Lexmark International Inc. v. Transportation Insurance Co., 327 Ill.App.3d 128 (2001). Here, however, Green4All’s only statement was about its own product.

Mikva also disagreed with Green4All’s argument that it was not necessary for Green4All to have mentioned Flow or its products to trigger coverage. The cases relied on by Green4All involved direct or indirect product comparisons, resulting in the denigration of the claimant’s products. Here, on the other hand, the marketing of Green4All’s product as “patent pending,” whether true or false, was not an express or implied statement of comparison with any other product.

Hence, the Flow complaint contained no allegations sufficient to constitute a claim of disparagement. Thus, the court affirmed in favor of State Farm.

Key point

For a claim to constitute product disparagement for purposes of triggering personal and advertising insurance coverage, the insured must be alleged to have made a disparaging statement sufficient to identify the claimant’s goods or services.

A statement of “patent pending” directed to the insured’s own product is not sufficient.