The Trademark Problem: Casualty Insurance’s Dirty Little Secret

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by Leib Dodell

It has always been surprising to me that trademark issues receive so little attention in the insurance community. It’s almost as if trademark claims are the dirty little secret of casualty insurance, both on the standard commercial and specialty professional sides of the house.

There is no question that in the marketplace at large, trademark claims are a significant and growing problem. Both the number of trademarks in use and the number of new trademark registrations continue to increase year over year.

According to statistics maintained by the U.S. Patent and Trademark Office, in the first quarter of 2013 there were 1,867,353 trademarks registered and actively maintained in use, compared with 1,752,599 in first-quarter 2012. New trademark registrations continue to climb as well—243,459 in fiscal year 2012, up from 221,090 in 2010.

As you might expect, trademark-related litigation has continued to escalate as well. According to the Mitchell Study on Trademark Litigation, there were 18,118 initial claims of trademark infringement over the five-year period from 2003 to 2007 (the most recent year for which data are available). This compares with 12,905 claims over the same five-year period ten years earlier—a 40 percent increase.

The nationwide median cost of taking a trademark case to trial is $300,000, according to the American Intellectual Property Law Association.

And this is not just a U.S. problem.  In China, for example, one of the fastest growing economies in the world, the average annual increase in trademark litigation between 2002 and 2011 was 39.8 percent.

Despite these numbers, and despite the fact that trademarks are one of the most important pieces of intellectual property that a company can own and one of key building blocks of commerce generally, the insurance community still hasn’t figured out how or where to properly and effectively insure this exposure. Before we dive into the insurance details, let’s do a very quick review of trademark law generally.

Understanding Trademark Law

A trademark is a distinctive design, picture, emblem, logo or wording (or combination thereof) that identifies certain goods or services as those provided by a specific person or enterprise. (When used in connection with the services as opposed to goods, technically it is called a “service mark” rather than a trademark.)

The holder of a trademark has the legal right to exclusive use of the mark with respect to those products or services, and can prevent unauthorized use of the mark or a confusingly similar mark in order to prevent consumer confusion as to the origin of the goods or services.

Unlike patents or copyrights, which expire after fixed period of time, trademark rights can be maintained indefinitely.

The trademark holder may—but is not required to—register the mark with the appropriate national registry, which in the U.S. is the Patent and Trademark Office. There is also an international trademark registry maintained in Madrid.

A successful plaintiff in a trademark action is entitled to a range of remedies including the plaintiff’s lost profits as a result of the infringement, disgorgement of the defendant’s profits, an injunction preventing further use of the mark, and the plaintiff’s attorneys’ fees. There is also the potential for treble damages under the federal Lanham Act.

Insured Or Not?

The starting point in any analysis of insurance coverage for trademark claims is the Commercial General Liability (“CGL”) policy, and more specifically the “advertising injury” provisions contained in the CGL. Given the prominence of trademarks in our economy and the volume of trademark claims over the past few decades, one would think there would be some clarity as to whether and to what extent trademark infringement claims are covered by the CGL.

Indeed, since trademarks are essential to virtually all advertising—after all, it’s difficult to advertise without any way of identifying the source of goods or services—one might expect that trademark infringement would be at the core of an insurance coverage expressly named “advertising injury.”

Unfortunately, this is not the case. There has been and continues to be tremendous confusion and uncertainty on this issue.

“Advertising injury” was originally introduced to the CGL policy in 1976, and the language has been modified multiple times since then. Many of the published court cases involve the 1986 version of the standard ISO CGL form. The definition of “advertising injury” in the 1986 ISO form contains two covered offenses that are relevant to the discussion of potential coverage for trademark infringement:  “misappropriation of advertising ideas and styles of doing business,” and “infringement of copyright, title or slogan.”

This disastrous language is at the root of much of the uncertainty and confusion regarding trademark coverage.

While “misappropriation” is a recognizable legal concept, as far as I am aware the phrases “advertising ideas” and “styles of doing business” have no legal meaning whatsoever and had never appeared in any pertinent statutes or court decisions when they were incorporated into the CGL.

Similarly, while “infringement of copyright” is a clear-cut legal concept, neither “title” nor “slogan” is a meaningful legal term.  While some titles or slogans might be trademarks, these terms have no legal significance and are not helpful in determining whether a particular cause of action might be covered.

The term “trademark” itself does not appear anywhere in the 1986 form, leaving courts and other analysts at a complete loss in attempting to determine whether these provisions were intended to provide trademark infringement coverage. As might be expected, this has resulted in massive confusion, literally thousands of coverage disputes, and millions of dollars in wasted premium dollars.

There are many published opinions reaching different conclusions on the scope of trademark coverage in the CGL, and one can find support for virtually any interpretation of this language.  Simply put, it was a total mess.

ISO materially revised the advertising injury provisions again in 2001. The phrase “misappropriation of advertising ideas and styles of doing business” was replaced by “the use of another’s advertising idea in your advertising.” The phrase “infringement of copyright, title or slogan” was replaced with “infringing upon another’s copyright, trade dress or slogan in your advertisement.”

ISO also added what might have been a helpful exclusion, stating that advertising injury coverage does not extend to claims “arising out of copyright, patent, trademark, trade secret or other intellectual property rights.” However, the form also provides that this exclusion does not apply to “infringement, in your advertisement, of copyright, trade dress or slogan.”

To say that these amendments were not terribly helpful would be an understatement. We now have what appears to be a straightforward trademark exclusion, but with a puzzling carveback for trade dress and slogan in an advertisement. Does this mean that trademark claims are excluded, but trade dress claims (in an advertisement) are covered?

Trade dress is a close cousin of trademark—it refers to the distinctive design of a product or its packaging, as opposed to a name or logo, that identifies the source of that product to consumers (think of the distinctive design of a Cola-Cola bottle). It would be quite odd if trade dress claims were covered by the CGL, but trademark claims were not.

And what are we to make of the carveback for “slogan”? As noted above, the term slogan has no particular legal significance. Are we supposed to conclude that trademark claims arising out of “slogans” are covered, but similar claims arising out of words, logos, etc., are excluded?

Again, that would be rather nonsensical. Needless to say, coverage disputes over trademark claims continue to proliferate under the 2001 ISO form, with no clarity over the scope of trademark coverage and continued waste and inefficiency.

More Problems Ahead

This problem is only going to get worse. For several reasons, the growth of the Internet will continue to drive an increase in trademark claims. First, domain names are an extremely fertile ground for trademark disputes, since there is no requirement to prove legal ownership of a particular domain before registering it.  As we continue to add new “top level domains” (such as .biz, etc.), disputes over domain name ownership will continue to increase.

Second, the Internet makes it much more likely that two businesses using the same or confusingly similar marks in distinct geographical regions will come into contact with each other—Bob’s Bike Shop in Seattle, for example, might have peacefully coexisted with Bob’s Bike Shop in Miami, but only one of them can own www.bobsbikeshop.com.

This is a problem that cries out for a solution. While it is true that here are some specialty professional liability insurance products that might provide the necessary coverage, particularly media liability policies, this is not currently an effective approach, for several reasons.

First, these specialty policies are geared toward traditional media and technology companies; they are rarely marketed to or purchased by the standard commercial Main Street businesses that need the coverage most.

Second, there is surprising uncertainty over the scope of trademark coverage even under specialty professional liability policies. For example, media liability policies are designed to cover claims arising out of “content.” The specific content that is covered by the policy is usually scheduled in the Declarations Page, typically with language such as “all books and magazines published by the Insured.”  If the schedule is not written broadly enough, the insured’s trademarks might not in fact be covered.

Moreover, many media liability policies contain exclusions that, intentionally or not, cast doubt on the scope of trademark coverage. For example, one leading media policy contains an exclusion for claims arising from any “actual or alleged unfair or deceptive trade practices with respect to the advertising and sale of the insured’s own goods, publications or services.” Since trademark infringement if often considered an unfair trade practice, this type of exclusion could jeopardize coverage.

There are two potential avenues for resolution of this problem—either clarification of the CGL language (and perhaps an optional coverage endorsement) that would squarely address trademark coverage, or the development of a standalone trademark coverage product along with an effective distribution strategy to reach the standard commercial marketplace.

Until one of these solutions is reached, we will continue to see defeated policyholder expectations and massive waste of premium dollars.

 

Leib Dodell is currently working with ANV, a global specialty insurance group, to develop new specialty insurance products in the United States. He is formerly CEO of Media/Professional Insurance and ThinkRisk Underwriting Agency, and is currently a member of the Board of Trustees of the Professional Liability Underwriting Society (PLUS). He can be reached at leibdodell@gmail.com.


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Comments

  • May 16, 2013 at 7:44 pm
    James Guerrero says:

    I learned reading the article. Trademark disputes would seem to beg the question of what is covered clearly, howevers why aren’t the writers more free to write the trademark coverage more correctly, which begs the question more. Does ISO have some hold on the writing of trademark coverage?

  • May 16, 2013 at 7:55 pm
    Ron Agee says:

    Excellent article. I am interested in Patent or Trademark protection for a client or few. Thank you for sharing and keeping on your communication list.

    Ron

  • May 23, 2013 at 12:56 am
    MrInsBrokerSF says:

    Excellent article – thanks!
    Any discussion of ISO forms tends to fail in a serious way by not addressing what percentage of insured’s a currently covered by non ISO forms of proprietory BOPs, and other sorts of packages. Of course it’s possible, and maybe even probable that all of these other non ISO forms present the same coverage problems, but most of us don’t know that, just like we didn’t know how naked we all are in addition to our
    clients before reading this article.

    ISO: Indifferent Society of Obfuscators?

    As I’ve said before:

    1> Define it using current legal
    terms (terms defined and
    understood, not jargon).
    2> Cover it or exclude it, and
    stop, all the crazy exceptions
    where you only find coverage by
    reading an exclusion!
    3> Stop relying on old court case
    tested language, and write new
    clear and simple as you can make
    them forms.
    4> Figure out that people, business
    owners, and even corporations
    need certain coverages, and it’s
    our job to either provide them,
    or clearly identify them as NOT
    COVERED!
    5> It’s the height of
    irresponsibility to fail to do
    provide basic coverage that your
    insurance company knows is
    needed, and then while they brag
    far and wide about how great they
    are, they leave your clients and
    you agents with this great FALSE
    since of security. Why not just
    add Bernie Madoff to the end of
    each offending insurance
    company’s name? I see no good
    way for us agents to cover
    ourselves against this sort of
    blatant E&O exposure. What am I
    missing?

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