November 20, 2014
Given the high costs of defending intellectual property claims, the first move of businesses targeted by such suits often is to scour the company’s liability insurance policies for language that requires their insurers to pick up the costs of defense. Although specialty policies designed to cover intellectual property claims are available, they are cost-prohibitive for many businesses. Consequently, businesses turn to their commercial general liability (CGL) insurance for coverage.
As I explained in a previous post, few intellectual property claims fit easily within the language of the standard form CGL policy. However, the absence of potential coverage for the majority, or even most, of the claims in a lawsuit is not determinative of the insurer’s duty to defend. In order to force its insurer to fund a defense for the entire lawsuit, an insured need only point to a single potentially covered claim.
The claim most likely to trigger a duty to defend is product disparagement or trade libel. Standard form commercial General Liability policies now include coverage for “injury … arising out of … [o]ral, written or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services[.]” The California Supreme Court’s recent decision in Hartford Casualty Insurance Co. v. Swift Distribution, Inc., 59 Cal.4th 277, 326 P.3d 253, 172 Cal.Rptr.3d 653 (2014), sheds new light on what a complaint must allege to trigger coverage for product disparagement or trade libel, the factual background of which is discussed in my previous post on lower courts’ rulings.
Product Disparagement Defined
The supreme court’s opinion begins by clarifying the elements of the previously murky tort of product disparagement, which has had many names in California and elsewhere, including “trade libel,” “injurious falsehood,” and “slander of goods.” After surveying the case law, the court emphasized that “courts have required that the defendant’s false or misleading statement have a degree of specificity that distinguishes direct criticism of a competitor’s product or business from other statements extolling the virtues or superiority of the defendant’s product or business.” The court noted that the specific reference requirement “serves the important objective of forestalling vexatious lawsuits over perceived slights that do not specifically derogate or refer to a competitor’s business or product. “ (Citations and internal quotations omitted).
Customer Confusion Not Enough
Customer confusion resulting from the similarity of the insured’s product and the competitor’s product, the court explained, “may support a claim of patent or trademark infringement or unfair competition in certain circumstances, but it does not by itself support a claim of disparagement.” Imitating another’s product is, in the court’s view, the exact opposite of disparagement—“it is the highest form of flattery.” Thus, the mere possibility that customers might be deceived and hold the claimant responsible for defects is not enough to trigger the insurer’s duty to defend.
Specific Reference Need Not Be Express
The court acknowledged that the requirements of specific reference and derogation may be satisfied by implication, but concluded that language in the insured’s product catalog touting the superiority of its product over all others did not implicitly disparage the claimant’s product. My next post will discuss examples of statements that may disparage a competitor’s product by implication.