COURT OF APPEALS DECISION DATED AND FILED |
NOTICE |
April 8, 1999 |
This opinion is subject to further
editing. If published, the official version will appear in the bound volume
of the Official Reports. |
Marilyn L. Graves Clerk, Court of Appeals of Wisconsin |
A party may file with the Supreme Court
a petition to review an adverse decision by the Court of Appeals. See § 808.10 and Rule 809.62, Stats. |
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STATE OF WISCONSIN |
IN COURT OF APPEALS DISTRICT IV |
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Diversified
Investments Corporation d/b/a
Pacific Cycle U.S.A., a Wisconsin corporation,
Plaintiff-Appellant, v. Regent
Insurance Company, an insurance company licensed to do business in the State
of Wisconsin,
Defendant-Respondent. |
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APPEAL from a judgment of the circuit court for Dane County: paul B. higginbotham, Judge. Affirmed.
Before Eich, Vergeront and Roggensack, JJ.
EICH, J. Diversified Investments
Corporation, d/b/a Pacific Cycle U.S.A., appeals from a summary judgment
declaring that its insurer, Regent Insurance Company, does not have a duty to
indemnify it under the “advertising injury” provisions of its commercial
general liability policy for sums paid by Pacific to settle certain third-party
claims. The circuit court denied
coverage, ruling that the claim alleged against Pacific in the underlying
action was not one for acts committed “in the course of” Pacific’s advertising
activities, as required by the terms of Regent’s policy. We agree and affirm the judgment.
The
facts are not in dispute. GT Bicycles
is a California corporation engaged in the design, manufacture and marketing of
a high-end line of bicycles with a distinctive design and color
combination. GT sued Pacific—a
Wisconsin corporation that distributes, promotes and sells bicycles to several
retail chain outlets, such as Toys R Us—in federal court in California,
claiming that Pacific and Toys R Us were advertising and selling bicycles
bearing the same color schemes, names, and “unique product configuration” as
GT’s bicycles. The complaint asserted
six causes of action. Four were claims
for trademark infringement under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)
(1996), involving various bicycle names; the fifth was a federal law claim for
unfair competition; and the sixth was for unfair competition and deceptive
trade practices under California law.
Specifically,
GT alleged that Pacific used four of GT’s trademarked model names in the
“marketing, advertising, promotion and sales” of its own bicycles. It also claimed that Pacific, after learning
of GT’s distinctive trademarked “triple-triangle” bicycle frame and unique blue
and yellow color combination, proceeded to design and manufacture imitation
bicycles that were “virtually identical [to] and indistinguishable” from GT’s
product, thereby creating a “likelihood to cause consumer confusion, deception
and mistake” between the GT bicycles and the Pacific models. GT also alleged that Pacific’s use and
“willful copying” of GT’s trademarks caused GT “irreparable injury” and that,
as a result of its unlawful acts, Pacific “made substantial profits to which it
is not equitably entitled.” Finally,
GT’s federal unfair competition claim alleged that Pacific’s use of GT’s unique
“product configuration trade dress” constituted a “false designation of
origin,” which was likely to mislead the public into believing that Pacific’s
bicycles were actually manufactured by GT.
Pacific
tendered defense of the action to its insurer, Regent, who accepted the tender
under a reservation of rights. Pacific
eventually settled the case, paying $237,500 to GT; and when Pacific sought
reimbursement from Regent, Regent denied coverage. Pacific then brought this action seeking a declaratory judgment
that the “advertising injury” provisions of Regent’s policy covered the loss
and directing Regent to indemnify it for the $237,500 settlement. In its policy, Regent agreed to pay any
damages Pacific might incur because of “advertising injury … caused by an
offense committed in the course of advertising your goods, products or
services.” So far as is relevant here,
the term “advertising injury” is defined in the policy as “injury arising out
of one or more of the following offenses: ... c. misappropriation of
advertising ideas or style of doing business; or d. infringement of copyright,
title or slogan.”
The
circuit court, relying heavily on Advance Watch Co., Ltd. v. Kemper Nat’l
Ins. Co., 99 F.3d 795 (6th Cir. 1996),
concluded that Regent did not have a duty to indemnify Pacific, and granted its
motion for summary judgment dismissing Pacific’s complaint. The court ruled that GT’s action did not
stem from Pacific’s “advertising,” but from the design of the bicycles
themselves. As such, said the court,
the underlying action did not trigger Regent’s duty to indemnify Pacific for
advertising injury liability “because the injury is not caused by an offense
committed in the course of advertising,” as required by the terms of the
policy.
When
the material facts are undisputed and the issue involves only the
interpretation of an insurance contract, a question of law is presented which
is appropriately resolved on summary judgment.
See Smith v. State Farm Fire & Cas. Co., 127 Wis.2d
298, 301, 380 N.W.2d 372, 374 (Ct. App. 1985).
We review summary judgments de novo, employing the same methodology as
the trial court. Green Spring
Farms v. Kersten, 136 Wis.2d 304, 315,
401 N.W.2d 816, 820 (1987). The
methodology is well-known and need not be repeated here. See State Bank v. Elsen,
128 Wis.2d 508, 511-12, 383 N.W.2d 916, 917-18 (Ct.
App. 1986). And while our review is de
novo, we have often recognized that we may, and often do, benefit from the trial
court’s analysis of the issues. Lomax
v. Fiedler, 204
Wis.2d 196,
206,
554 N.W.2d 841, 844-45 (Ct.
App. 1996). Insurance policies
are construed like other contracts, and the objective is to ascertain and carry
out the intentions of the parties. Sprangers
v. Greatway Ins. Co., 182 Wis.2d 521, 536, 514 N.W.2d 1, 6 (1994). The test is what a reasonable person in the
position of the insured would have understood the words in the policy to
mean. Id. And where the policy terms are unambiguous,
we need not interpret them, but merely apply them to the facts at hand. Kremers-Urban Co. v. American
Employers Ins. Co., 119 Wis.2d 722, 736, 351 N.W.2d 156, 163 (1984).
Pacific
argues that the policy covers the trademark/trade dress claims raised in the
underlying action because: (1) the claims constitute one or more of the
enumerated offenses within the definition of “advertising injury”—specifically,
“misappropriation of advertising ideas or style of doing business,” and
“infringement of copyright, title or slogan”; and (2) the offenses were
committed “in the course of” Pacific’s advertising activities. We disagree.
Advertising
an infringing product is not enough to establish the insurer’s liability under
an advertising injury clause. There
must be some nexus—some causal connection—“between the ground of asserted
liability and the insured’s advertising activities before there is coverage or
a duty to defend.” Advance Watch,
99 F.3d at 806. The insured’s
advertising “must have been the cause of whatever injury is alleged in the
underlying suit.” Robert Bowden,
Inc. v. Aetna Cas. & Sur. Co., 977 F. Supp. 1475, 1480 (N.D. Ga.
1997). This causal requirement is also
a matter of common sense, for it comports with the insured’s objectively
reasonable expectations of coverage. As
the Bowden court said: If there were no such requirement, “then a
great many acts which have at best a remote relationship to advertising content
would be covered” by the clause. Id.
at 1481 (quoted source omitted).
Virtually
every business that sells a product or service advertises, if only in the sense
of making representations to potential consumers. If no causal relationship were required between “advertising
activities” and “advertising injuries,” then “advertising injury” coverage,
alone, would encompass most claims related to the insured’s business.
Heil Co. v. Hartford
Accident & Indem. Co., 937 F. Supp.
1355, 1365 n.6 (E.D. Wis. 1996) (quoting Bank of the West v. Superior
Court, 833 P.2d 545, 560 (Cal.
1992)). And in National Union
Fire Ins. Co. v. Siliconix Inc., 729 F.
Supp. 77, 80 (N.D. Cal. 1989), the court stated:
The
definition of “advertising” is quite broad and may encompass a great deal of
activity. Thus, [if not for the causal
requirement] a great many acts may fall within the ambit of advertising,
extending advertising injury coverage far beyond the reasonable expectations of
the insured.
In Heil, the court held that an advertising
injury liability clause similar to the one in Regent’s policy did not cover
allegations of patent infringement because the underlying complaint[1] failed to demonstrate how the offense could have been
caused by advertising activity. Id.,
937 F. Supp. at 1366. While the
plaintiff in that case attached an advertisement for the infringing product to
the complaint, the complaint itself did not mention any advertising activity
and alleged only that the infringement was caused by the sale and manufacture
of the infringing product. On that
record, the court concluded that the insurer had failed to allege or establish
the required causal connection between the alleged patent infringement and an
advertising activity “despite the fact that the infringing product was
advertised and may have been sold, in part, through advertising.” Id. at 1366-67.
Similarly,
the court in Microtec Research, Inc. v. Nationwide Mut. Ins. Co.,
40 F.3d 968 (9th Cir. 1994), concluded that an advertising injury provision
identical to Regent’s was not invoked by allegations that the insured had
passed off its competitor’s computer compiler code as its own. The court reasoned that even though the
complaint used words, such as “marketing” and “representing,” which, if taken
in isolation, appeared to suggest a claim for advertising injury, when they
were read in the context of the entire complaint, they alleged injury caused by
misappropriation of the code, not by the advertising itself. Id. at 971. Emphasizing the “nexus” requirement, the Microtec
court stated that “the injury for which coverage is sought must be caused by
the advertising itself,” and continued: “[A] claim for patent infringement does
not fall within the advertising injury coverage, ‘even though the insured
advertises the infringing product, if the claim of infringement is based in the
sale or importation of the product rather than its advertisement.’” Id., quoting Bank of the
West, 833 P.2d at 559.
Finally,
in Advance Watch the Court of Appeals considered whether an
advertising injury provision—again, one identical to that in Regent’s policy—covered
allegations of trademark and trade dress infringement. The plaintiff, Cross Company, alleged that
Advance Watch had advertised and sold pens which “too closely resembled”
Cross’s trademarked pens in shape and appearance. Cross also alleged that Advance Watch had published a catalog
depicting the imitation pens, and requested that Advance Watch be enjoined from
advertising them further. Rejecting
Cross’s position that its insurer had a duty to defend the action under the
advertising injury clause, the court held that, although the underlying
complaint alleged that Advance Watch had advertised the infringing product, the
gravamen of Cross’s complaint was not the advertising itself, but that Advance
Watch’s pens “too closely resembled Cross’[s] writing instruments.…” Id., 99 F.3d at 806-07. Because it was the design of the pens, not
the advertising, that caused the injury, coverage was denied:
[I]t was not Advance’s
advertising in itself which provoked Cross’[s] claim; it was the fact that in
each advertisement which depicted a Pierre Cardin writing instrument, there
was, according to Cross, a writing instrument deceptively similar in shape and
appearance to Cross’[s] writing instruments.
[W]e
conclude that even if Advance could be said to have misappropriated Cross’[s]
advertising ideas or style of doing business, it cannot reasonably be said to
have done so in the course of advertising its writing instruments, when it is
the shape and appearance of the writing instruments themselves which Cross claimed
to have caused injury.
Id.
In
this case, the circuit court found the reasoning and policy considerations in Heil,
Advance Watch, and Microtec to be “enormously
persuasive.” Relying particularly on Advance
Watch—which, as we have noted, involves facts very similar to those in
this case—the circuit court concluded as follows:
The
gravamen of the underlying action is that [Pacific] manufactured bikes which
looked like, and had the same name, as bikes previously manufactured by GT,
thereby generating GT’s claims of trademark infringement, unfair competition,
and deceptive trade practice. It is
true that the complaint also contains the words “advertising,” “promotion,” and
“marketing,” and that the complaint seeks an injunction retraining these
activities. However, it was not
[Pacific]’s advertising itself which provoked the underlying action; it was the
fact that the advertisements depicted a bike which was deceptively similar in
design, color, and name to GT’s bikes.
It is the sameness of the design, color, and name which had caused
injury to GT, not the advertisements.
The underlying action does not trigger Regent’s duty to indemnify
[Pacific] for advertising injury liability because the injury was not caused by
an offense committed in the course of advertising.
Our
independent review of the record and relevant authority—aided by the circuit
court’s thorough and thoughtful decision—satisfies us that the court was
correct in denying coverage based on Pacific’s failure to establish the
requisite causal nexus between the injury alleged in the underlying action and
an advertising injury under the terms of Regent’s policy.
Pacific
disagrees. It says that trademarks are
themselves a form of advertising and, as a result, an infringing product almost
always infringes “in the course of advertising”; and it points out that none of
the cases relied upon by the circuit court and Regent, except Advance
Watch, dealt with trademark or trade dress infringement. According to Pacific, cases such as Heil
and Microtec are distinguishable and “stand on a completely
different footing than claims for trademark or trade name infringement.” This is important, says Pacific, because
“the interests protected (and, hence, the mechanism of harm) depend on which
type of claim involved.” Relying on J.A.
Brundage Plumbing & Roto-Rooter, Inc. v. Massachusetts Bay
Ins. Co., 818
F. Supp. 553 (W.D.N.Y. 1993), vacated in light of settlement, 153
F.R.D. 36 (W.D.N.Y. 1994), and similar cases, Pacific explains that the use of
a trademark or trade dress—as opposed to a patent or copyright—is to prevent
consumer confusion as to the origin or manufacturer of the goods; and it says
that in order to have this effect, one must announce the mark or dress to
intended consumers through advertisements.
Poof Toy Prod., Inc. v. United States Fidelity & Guar. Co.,
891 F. Supp. 1228, 1235-36 (E.D. Mich. 1995). Thus, according to Pacific, in trademark/trade dress claims, the
infringing product is itself a form of advertising, and cases such as Advance
Watch—where the court held that exhibition of the trademark did not
constitute advertising per se—must be discounted as an “exception to the
trend.”
What Pacific is saying is that the requisite causal nexus can be established by the simple act of holding a product with an infringing mark or dress out for sale. We disagree. It is true that denying coverage in this case would be inconsistent with the notion expressed in J.A. Brundage. It is also true that Advance Watch is no more binding on us than J.A. Brundage, as both are federal court cases. See Thompson v. Village of Hales Corners, 115 Wis.2d 289, 307, 340 N.W.2d 704, 713 (1983) (decisions of federal district and appellate courts are not binding on state courts in Wisconsin or anywhere else). We have not hesitated, however, to adopt the reasoning of federal court decisions when we find that reasoning persuasive. See State v. Boettcher, 144 Wis.2d 86, 96-97, 423 N.W.2d 533, 538 (1988); Streff v. Town of Delafield, 190 Wis.2d 348, 356-57, 526 N.W.2d 822, 825 (Ct. App. 1994). That is the situation here. We are persuaded by the reasoning of the Advance Watch line of cases, and we adopt that reasoning here. We therefore reject Pacific’s argument that simply marketing a product which bears an infringing mark or dress—here, Pacific’s bicycles with GT’s trademarked design and names—satisfies the requirement that there be a causal connection between the injury alleged in the underlying action and advertising activities.[2] Because we so hold, we need not address the other arguments advanced by Pacific.
By
the Court.—Judgment affirmed.
Not recommended for publication in the official reports.
[1] The “underlying complaint” in this proceeding is, of course, that of the third parties who initially sued Pacific Cycle.
[2] We do not see any difference between the causal requirement in trademark infringement cases, and in cases involving copyright or patent infringement. We agree with the district court’s statement in Robert Bowden, Inc. v. Aetna Cas. & Sur. Co., 977 F. Supp. 1475, 1481 n.3 (N.D. Ga. 1997), that “[t]he requisite level of causation between advertising and alleged injury should not vary with the particular type of intellectual property in question.”