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July 2003
(Issue No. 1: Decisions published June 16–30)
Under Pennsylvania Law, Advertising Injury Clause In Insurance Policy Covered Insured For Trademark Infringement Claim
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CAT Internet Services, Inc., et al. v. Providence Washington Insurance Co., et al.
(3rd Cir. June 17, 2003), 2003 U.S. App. LEXIS 11911 [ordering publication of prior November 18, 2002 unpublished opinion – 2002 U.S. App. LEXIS 28127]
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 Court Opinion
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 Case Snapshot:
| Trademark Issue: |
 Insurance Coverage
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| Case Overview: |
Insurance coverage dispute. Insurer appealed summary judgment in favor of insureds.
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| Holding: |
Advertising Injury Clause Covers Trademark Infringement Claims Against Insured Under Pennsylvania Law: When a complaint alleges that an insured misappropriates and uses trademarks or ideas in connection with marketing and sales and for the purpose of gaining customers, the conduct constitutes "misappropriation of an advertising idea or style of doing business" under Pennsylvania law.
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| The Dispute: |
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The underlying action against insured: 2000 Magazines.com Inc. sued the insureds, CAT Internet Services, Inc. ("CAT") and Internet Supply, Inc. ("INS"), alleging that CAT's and INS's Internet domain name, MAGAZINE.COM, infringed the 2000 Magazines.com Inc.'s name and trademark, MAGAZINES.COM.
The coverage dispute: The insurer refused to defend under the advertising injury provisions of its standard commercial liability policies.
The advertising injury clause:
"Advertising injury" means 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.
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| Procedural Posture: |
Appeal of summary judgment for insured.
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| Ruling: |
Affirmed.
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Key Points:
Advertising Injury Clause Covers Trademark Infringement Claims Against The Insureds
 Insurance policies governed by Pennsylvania law are interpreted according to a reasonable insured's understanding rather than the narrow legal meaning of policy terms.
Court rejects insurer's argument that a domain name is not "advertising" because it was not part of a marketing campaign.
 In the [underlying] action the plaintiff charged [the insureds] with ... trademark infringement through misuse of the domain name MAGAZINE.COM for the purpose of selling pornographic materials and magazines. Under Pennsylvania law that constituted a claim of 'misappropriation of advertising ideas or style of doing business' ... triggering Providence's duty to defend.  [p. 12]
Prior Third Circuit decision distinguished:
- Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999) is not applicable because it involved unfair competition based on misappropriating trade secrets, which the court held was not covered by the advertising injury provision in the policy.
Prior Pennsylvania decision denying coverage distinguished:
- Sorbee International Ltd. v. Chubb Custom Insurance Co., 1999 PA Super 178, 735 A.2d 712 (Pa. Super. 1999) is not applicable because it was a false advertising case, not a trademark infringement case ––
- "Affirming the trial court's judgment in favor of the insurance carrier, the court [there] stated ' ... nothing in the ... counterclaim suggests that Simply Lite is accusing Sorbee of stealing an original, novel advertising idea. Simply Lite is instead claiming that Sorbee has not met the requirements for using these terms to describe its product.' Id. at 715." [p. 11]
Analysis
As more courts find coverage under advertising injury provisions, the battle will shift to the scope of exclusions added by insurers in response.
- For example, Superformance Int'l, Inc. v. Hartford Casualty Insurance Co., 2003 U.S. App. LEXIS 11559 (4th Cir., June 11, 2003), recently held that a policy exclusion for "infringement of trademark" precluded coverage for trademark infringement, dilution, and trade dress claims against the insured.
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