LEBAS FASHION IMPORTS OF USA, INC., Plaintiff and Appellant, v. ITT HARTFORD INSURANCE GROUP, Defendant and Respondent.
Lebas Fashion Imports of USA, Inc. (“Lebas”), appeals from a summary judgment granted in favor of ITT Hartford Insurance Group (“Hartford”) on Lebas' first amended complaint for breach of an insurance contract and breach of the implied covenant of good faith. After Lebas had been sued in federal court for trademark infringement, Hartford, which had issued a commercial general liability (“CGL”) policy to Lebas, denied coverage and refused to provide Lebas with a defense on the ground that the policy did not provide coverage for a claim based on trademark infringement. Lebas thereafter settled the federal suit and commenced this action.
We agree with Lebas that the “advertising injury” coverage provided under Hartford's CGL policy does extend to a claim for trademark infringement. A potential for coverage thus existed and Hartford owed Lebas a duty to defend the federal action. We therefore reverse the judgment.
FACTUAL AND PROCEDURAL BACKGROUND1
Lebas is an importer and wholesaler of men's clothing in Los Angeles and sells and distributes goods under different brand names. Lebas had obtained a CGL policy from Hartford which was effective during the period October 15, 1991 through October 15, 1992.
On June 15, 1992, Parfums Guy Laroche, a Societe Anonyme (similar to a United States corporation, but organized under the laws of the Republic of France) and Cosmair, Inc., a Delaware Corporation (collectively, “Guy Laroche”) 2 filed an action in the United States District Court for the Central District of California in which Lebas was named as the defendant. In this action, Guy Laroche alleged that it was engaged in the manufacture, distribution and sale (on a worldwide basis) of high fashion perfumes and cosmetic products under its trade name and trademarks, “DRAKKAR” and “DRAKKAR NOIR.” 3 It was also alleged that prior to June 15, 1992, Lebas had adopted and commenced to use the name “DRAKKAR” on its clothing products, including men's suits, and to advertise those clothing products under the name(s) “DRAKKAR” and “DRAKKAR NOIR.” In addition, it was alleged that Lebas had filed an application with the United States Patent and Trademark Office to register the name “DRAKKAR” as its own (an application to which Guy Laroche had filed opposition).4
Lebas tendered defense of this action to Hartford. After concluding that the claims asserted against Lebas were not potentially covered under its CGL policy, Hartford denied coverage and refused a defense. The relevant portion of the CGL policy with which we are concerned is that which provides coverage for “advertising injury.”
Under its policy, Hartford promised to “pay those sums that [Lebas] becomes legally obligated to pay as damages because of ․ ‘advertising injury’ ․”; and the policy also stated that Hartford would “have the right and duty to defend any ‘suit’ seeking those damages.” In addition, the policy provided that the “advertising injury” to which it applied was limited to “an offense committed in the course of advertising [Lebas'] goods products or services.” The term “advertising injury” was defined to mean an “injury arising out of one or more of the following offenses: a. ․ [¶] b ․[ 5 ] [¶] c. Misappropriation of advertising ideas or style of doing business; or [¶] d. Infringement of copyright, title or slogan.” (Italics added.) There is no claim by Hartford that any exclusion contained in the policy has any application to the coverage issue. Thus, the insuring clause provisions quoted above are the only portions of the policy with which we are concerned.
After Hartford refused to provide a defense, Lebas undertook to and did settle the underlying action with Guy Laroche. Lebas entered into a stipulated consent judgment which required the payment of monetary damages and an injunction restraining any future use of the name “DRAKKAR.” Lebas then filed this action against Hartford for its breach of contract and bad faith refusal to defend and indemnify Lebas in the underlying action. Hartford moved for summary judgment, claiming that there never was any potential for coverage under the policy and therefore no duty to either defend or indemnify had ever arisen. Lebas opposed the motion, arguing that coverage was available under the “advertising injury” provisions of the policy.
On February 17, 1994, the trial court granted Hartford's motion after it concluded that the relevant policy provisions were clear and unambiguous and that no coverage was provided for a trademark infringement. Judgment was entered on March 3, 1994 and this timely appeal by Lebas followed.
The sole question before us is whether an alleged trademark infringement is potentially covered by policy language promising coverage for (1) the misappropriation of advertising ideas or style of doing business or (2) the infringement of copyright, title or slogan. This is an issue which has not heretofore been directly addressed by any California court and involves the construction and application of relatively new standard policy language contained in many post 1986 CGL policies.
1. Standard of review.
Summary judgment is properly granted when the evidence in support of the moving party establishes there is no issue of fact to be tried. (Code Civ.Proc. § 437c; Molko v. Holy Spirit Assn. (l988) 46 Cal.3d l092, 1107, 252 Cal.Rptr. 122, 762 P.2d 46.) If the trial court determines there is no triable issue of fact, it determines the legal issues in the case. (Taylor v. Fields (l986) l78 Cal.App.3d 653, 659, 224 Cal.Rptr. 186.) Summary judgment is proper if and only if the affidavits in support of the motion, strictly construed, contain facts sufficient to entitle the moving party to a judgment, and those of the opposing party, liberally construed, fail to show there is a material issue of fact. (Molko v. Holy Spirit Assn., supra, 46 Cal.3d at p. 1107, 252 Cal.Rptr. 122, 762 P.2d 46.) Appellate review of a summary judgment motion consists of a de novo review of the pleadings presented to the trial court in support of, and in opposition to, the motion. (AARTS Productions, Inc. v. Crocker National Bank (l986) l79 Cal.App.3d 1061, l064–l065, 225 Cal.Rptr. 203.)
As there is no dispute as to the relevant facts which we have summarized above, we exercise our independent judgment as to their legal effect. The sole issue with which we are concerned, involves the meaning, construction and application of the language of the policy. That is a pure issue of law. (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 35, 221 Cal.Rptr. 171.)
2. The Duty To Defend Depends On A Potential For Coverage.
It is now settled that an insurer must defend any action which potentially seeks damages within the coverage of the policy. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275, 54 Cal.Rptr. 104, 419 P.2d 168.) This obligation can be excused only when the third party complaint “ ‘can by no conceivable theory raise a single issue which could bring it within the policy coverage.’ ” (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153, quoting from Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 276, fn. 15, 54 Cal.Rptr. 104, 419 P.2d 168, italics added by Montrose court.) “In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.” (Ibid.; italics in original.) Any doubt as to whether the facts give rise to a duty to defend is resolved in the insured's favor. (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 607, 222 Cal.Rptr. 276, disapproved on another point in Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at pp. 296–298, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)
However, while the duty to defend is broad, it is not unlimited. It is entirely dependent upon a showing by the insured that the third party claim for which it seeks a defense is one for damages which potentially fall within the policy coverage. It is the nature and kind of risk covered by the policy which both defines and limits the duty to defend. (Dyer v. Northbrook Property & Casualty Ins. Co. (1989) 210 Cal.App.3d 1540, 1547, 259 Cal.Rptr. 298.) Of course, once a potential for coverage is established as to at least one of the claims asserted against the insured, “the insurer is obligated to defend against all of the claims involved in the action, both covered and noncovered, until the insurer produces undeniable evidence supporting an allocation of a specific portion of the defense costs to a noncovered claim. [Citations.]” (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.)
3. General Principles of Trademark Infringement.
A trademark is defined under the relevant federal statute (15 U.S.C. § 1127) as “any word, name, symbol or device or any combination thereof ․ [¶] (1) used by a person, or [¶] (2) which a person has a bona fide intention to use in commerce and applies ․ [¶] to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.”
An infringement of a trademark is defined as an act committed by any person who, without the consent of the registrant shall: “(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or [¶] (b) reproduce, counterfeit, copy, or colorably imitate a registered mark and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive. (15 U.S.C. § 1114.)
“A trademark serves three distinct and separate purposes: (1) It identifies a product's origin, (2) it guarantees the product's unchanged quality, and (3) it advertises the product. Injury to the trademark in any of its offices as an identifying, guaranteeing or advertising device should suffice to constitute an infringement thereof.” (Callmann, The Law of Unfair Competition, Trademarks and Monopolies (4th ed. 1994) § 21.06, at p. 41, italics added, fn. omitted.) In addition, allegations of trademark infringement amount to a claim of unfair competition. “The traditional trademark infringer gets sales unfairly from a competitor by leading consumers to think that the infringer's product or service is of higher quality than it is.” (Curtis–Universal v. Sheboygan E.M.S., Inc. (7th Cir.1994) 43 F.3d 1119, 1124.)
Contrary to cases involving patent infringement, where the infringing activity usually involves the making, using or selling of the patented invention, and thus may not occur in the course of the insured's advertising activities (see, e.g., Iolab Corp. v. Seaboard Sur. Co. (9th Cir.1994) 15 F.3d 1500, 1506; National Union Fire Ins. Co. v. Siliconix, Inc. (N.D.Cal.1989) 729 F.Supp. 77, 79), a trademark infringement by the insured will frequently, if not necessarily, occur in the course of the insured's act of advertising its products. Thus, we do not have the problem, presented in other circumstances (see e.g., Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1275, 10 Cal.Rptr.2d 538, 833 P.2d 545), of determining whether a nexus exists between the insured's advertising activity and the alleged infringement. We will, at least for the purposes of this opinion, accept as true the proposition that Lebas' alleged trademark infringement occurred in the course of its advertising activities and that the required nexus existed.6 However, that still requires us to resolve the question as to whether Lebas' infringing acts constituted an “advertising injury” as defined in the Hartford policy.
4. Trademark Infringement Is Covered By Hartford's “Advertising Injury” Policy Provisions.
Prior to 1986, coverage for advertising injury was defined differently than it is under Hartford's policy. The 1973 standard Insurance Services Office (“ISO”) form defined “advertising injury” to include: “Injury arising out of an offense committed during the policy period occurring in the course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan.” (Italics added.) Coverage for trademark infringement was expressly excluded.
In 1986, this definition was modified significantly. Advertising injury is now defined under the relevant portion of Hartford's policy as an injury arising from either (1) “misappropriation of advertising ideas or style of doing business” or (2) “infringement of copyright, title or slogan.” The offenses of unfair competition and piracy have been deleted, as has the exclusion for trademark infringement. While these changes might suggest that a potential for coverage of a claimed trademark infringement might now exist, they are hardly conclusive. The terms “misappropriation,” “advertising idea” and “style of doing business” are not defined.
Lebas relies on such lack of definition to argue that the terms are ambiguous and that they should therefore be construed in its favor because its expectation of a defense was objectively reasonable. Hartford, on the other hand, argues that the term “misappropriation,” as used in the policy, refers only to the common law tort and not to federal statutory trademark protection.7 It further contends that the misappropriation of an “advertising idea” which is covered by the policy is limited to the circumstance where one party is presented with an idea or plan for an advertising campaign or promotion by another, who has a protectable property interest in that idea, and the first party uses the idea without compensation to its creator. Similarly, Hartford argues that misappropriation of a “style of doing business,” as that term is used in an insurance policy, refers solely to a company's manner of operating its business or, to put it simply, its “trade dress.” (See, e.g., St. Paul Fire & Marine v. Advanced Interventional Systems, Inc. (E.D.Va.1993) 824 F.Supp. 583, 585 affd. (1994) 21 F.3d 424 [applying California substantive law].)
It is now settled that the absence from the policy of a definition of particular terms does not necessarily establish that such terms are ambiguous. (Bay Cities Paving & Grading Inc. v. Lawyers' Mutual Ins. Co. (1993) 5 Cal.4th 854, 866, 21 Cal.Rptr.2d 691, 855 P.2d 1263.) The Supreme Court recently described the general principles which must guide a court in its resolution of claims of ambiguity in insurance policy language. “While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. [Citation.] The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Civ.Code, § 1636.) If contractual language is clear and explicit, it governs. (Civ.Code, § 1638.) On the other hand, ‘[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.’ (Id. § 1649; [Citation.].) This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, ‘the objectively reasonable expectations of the insured.’ [Citation.] Only if this rule does not resolve the ambiguity do we then resolve it against the insurer. [Citation.] [¶] In summary, a court that is faced with an argument for coverage based on assertedly ambiguous policy language must first attempt to determine whether coverage is consistent with the insured's objectively reasonable expectations. In so doing, the court must interpret the language in context, with regard to its intended function in the policy. [Citation.] This is because ‘language in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract.’ [Citation.]” (Bank of the West v. Superior Court, supra, 2 Cal.4th at pp. 1264–1265, 10 Cal.Rptr.2d 538, 833 P.2d 545; first italics added by this court; latter italics added by the Bank of the West court.)
What this requires us to do is to try and determine the parties' mutual intention solely from the words used. However, if two or more constructions of a word or phrase are reasonable then an ambiguity exists. (Bay Cities Paving & Grading Inc. v. Lawyers' Mutual Ins. Co., supra, 5 Cal.4th at p. 867, 21 Cal.Rptr.2d 691, 855 P.2d 1263.) While we cannot adopt a strained construction of any term in order to create an ambiguity and we must read the policy language in the context of the instrument as a whole (ibid.), we cannot but conclude that Lebas is correct in its assertion that the policy terms “misappropriation,” “advertising idea” and “style of doing business” do not have a single, plain and clear meaning. Although Hartford insists that the ordinary and popular usage of the terms “misappropriation,” “advertising idea” and “style of doing business” suggests only one meaning, thus precluding a conclusion of ambiguity, we disagree.8
It is equally reasonable, for example, to limit the term misappropriation to its technical common law sense (see fn. 7, ante ) as it is to ascribe to it the more general meaning of “to take wrongfully.” (See, e.g., Dogloo, Inc. v. Northern Ins. Co. of New York (C.D.Cal.1995) 907 F.Supp. 1383, 1388–1389.) Similarly, while the misappropriation of an “advertising idea” certainly would include the theft of an advertising plan from its creator without payment, it is also reasonable to apply it to wrongful taking of the manner or means by which another advertises its goods or services. (See e.g., Advance Watch Co., Ltd. v. Kemper Nat. Ins. Co. (E.D.Mich.1995) 878 F.Supp. 1034, 1039.) As we have already explained, one of the basic functions of a trademark is to advertise the product or services of the registrant. For the same reason, a trademark could reasonably be considered an integral part of an entity's “style of doing business.” One need look no further than today's current crop of expensive television commercials advertising high fashion jeans or heavily endorsed athletic shoes to know the truth of that statement.
Given these multiple reasonable meanings and connotations which may be found in the new policy language defining the advertising injury offense of misappropriation, we must attempt to resolve the resulting ambiguity by interpreting the language used in the sense in which Hartford believed that Lebas must have understood it at the time of policy issuance; or, to put it another way, we must look to the objectively reasonable expectations of Lebas. We do this by examining the language in the context of its apparently intended function in the policy.
The policy expressly provides coverage for advertising injury claims. While it is true that the language we consider was adopted contemporaneously with the deletion of the offense of “unfair competition,” it does not follow that trademark infringement was likewise eliminated as a covered act. Trademark infringement is an act of unfair competition; but it also amounts to the wrongful taking of another's identifying mark and necessarily occurs in the course of advertising. In other words, trademark infringement involves a very specific kind of unfair competition. It appears to us that the purpose of the phrase “misappropriation” of either an “advertising idea” or a “style of doing business” is an attempt to restrict or more narrowly focus the broader coverage potentially encompassed by the general term, “unfair competition.” When read in the context of the elimination of the trademark infringement exclusion, it would appear objectively reasonable that “advertising injury” coverage could now extend to that offense.
Thus, in our view, it is not necessarily true that elimination of the trademark infringement exclusion was because it was no longer needed in light of the deletion of unfair competition as a covered offense. It could well represent a conscious recognition of trademark infringement as an offense subject to advertising injury coverage. Certainly, the fact that the trademark exclusion was dropped from the policy could contribute to the objectively reasonable expectation that a trademark infringement was now a covered act under the advertising injury clause. Such a result is entirely consistent with a significant number of federal cases which have decided that a trademark is both an “advertising idea” and a “style of doing business” and its misappropriation is an advertising injury offense. (J.A. Brundage Plumbing v. Massachusetts Bay Ins. (W.D.N.Y.1993) 818 F.Supp. 553, 557 [vacated after settlement, 153 F.R.D. 36, 38 (W.D.N.Y.1994)]; P.J. Noyes Co. v. American Motorists Ins. Co. (D.N.H.1994) 855 F.Supp. 492, 494–495; Advance Watch Co., Ltd. v. Kemper Nat. Ins. Co., supra, 878 F.Supp. 1034, 1039; Poof Toy Products, Inc. v. U.S. Fid. & Guar. Co. (E.D.Mich.1995) 891 F.Supp. 1228, 1234; Union Ins. Co. v. The Knife Co., Inc. (W.D.Ark.1995) 897 F.Supp. 1213, 1216; Dogloo Inc. v. Northern Ins. Co. of New York, supra, 907 F.Supp. 1383, 1389–1390.)
We therefore conclude that the allegations of Guy Laroche's complaint charging Lebas with trademark infringement were sufficient to charge the commission of an act covered under the policy. This was enough to establish a potential for coverage under Lebas' policy and Hartford had a duty to provide a defense.9 It was thus error for the trial court to enter summary judgment in Hartford's favor.
The judgment is reversed. The matter is remanded for further proceedings consistent with the views expressed herein. Lebas shall recover its costs on appeal.
1. The relevant facts upon which we rely are essentially undisputed and are disclosed by the papers filed with the trial court in support of and in opposition to Hartford's motion for summary judgment.
2. Cosmair is the exclusive United States manufacturer and distributor of perfumes and cosmetic products bearing the trademarks issued to and owned by Guy Laroche.
3. The complaint alleged that Guy Laroche had duly registered and applied to register these trademarks with the United States Patent and Trademark Office, and that the same had been issued, in 1973, 1986, 1987, 1988 and 1990.
4. Guy Laroche's complaint alleged six causes of action against Lebas (Federal Trademark Infringement, Federal Unfair Competition, California Common Law Unfair Competition, California Common Law Trademark Infringement, California Statutory Unfair Competition and California Statutory Trademark Dilution); however, they were all based on the same essential facts which supported the initial claim of federal trademark infringement.
5. Subparagraphs a. and b. describe two other “offenses” constituting advertising injury, but they are not claimed by Lebas to be involved in this case. Those are: “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; ․”
6. Moreover, as we have noted, Guy Laroche's complaint expressly alleged that Lebas' infringement of the trademark specifically included the use of the names “DRAKKAR” and “DRAKKAR NOIR” in advertisements of Lebas' products.
7. Hartford relies heavily on the now vacated and superseded (sub. opn. [N.D.Cal.1994] 900 F.Supp. 1246) decision in American Economy Ins. Co. v. Reboans, Inc. (N.D.Cal.1994) 852 F.Supp. 875, where the court first noted that common law misappropriation has three elements, none of which involves the confusion of source element required for a trademark infringement claim. Those three elements are: (1) the plaintiff “has made a substantial investment of time, effort and money into creating the thing misappropriated such that the court can characterize that ‘thing’ as a kind of property right,” (2) the defendant “has appropriated the ‘thing’ at little or no cost, such that the court can characterize defendant's actions as ‘reaping where it has not sown’ ” and (3) the defendant “has injured plaintiff by the misappropriation.” (Id. at p. 879, citing J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition (3d ed. 1992) § 10.25.)The American Economy court went on to state that while a viable trademark infringement claim depends upon a showing of consumer confusion, “Common law misappropriation is different. Its sole purpose is to create quasi-property rights, and Congress has stated that a person has a property right in a word or style—things that would otherwise be subject to a First Amendment challenge—only if the word or style is distinctive and another's use of it would likely cause consumer confusion. ‘If there can be such a thing as “misappropriation” of another's trademark, irrespective of distinctiveness and likelihood of buyer confusion, then a big step has been taken to wipe out the law of trademarks.’ [Citations.] Recognizing a property right in an advertising idea or style of doing business that would not be protected under the Lanham Act would undermine the ‘purposes and objectives of Congress.’ [Citations.] Accordingly, it cannot be done.” (Id. at pp. 880–881.) The court then concluded, “Until 1986, the standard ISO CGL form included ‘unfair competition’ as a covered class of advertising injuries, and explicitly excluded injuries resulting from trademark, service mark, and trade name infringement. In 1986, ISO revised the standard form: unfair competition was eliminated in favor of misappropriation of advertising ideas and style of doing business, and the trademark, service mark and tradename exclusion was eliminated. As [the insurer points out], the trademark infringement exclusion had been necessary when the policy insured unfair competition claims, because ‘unfair competition’ includes counterfeiting and trademark infringement. After unfair competition was replaced with misappropriation of advertising ideas and style of doing business, however, the exclusion was redundant, because one could not misappropriate a trademark.” (American Economy, supra, 852 F.Supp. at p. 882.) Hartford presses this same argument here.
8. Webster's Third New International Dictionary (1981) page 1442, defines “misappropriate” to mean, among other things, “to appropriate dishonestly for one's own use” and “to appropriate wrongly or misapply in use.” The word “idea” is defined as a “presentation of sense, concept, or representation,” as well as: “an object of a concept,” “a conception or standard of any perfection,” “a visible representation of a conception” and “a product of reflection or mental concentration: a formulated thought or opinion.” (Id. at p. 1122.) Finally, the word “style” is defined, among other words, as a “mode of expressing thought in oral or written language.” Examples include, “a manner of expression characteristic of an individual, a period, a school, or other identifiable group” as well as “the manner, tone, or orientation assumed in discourse.” (Id. at p. 2271.)
9. In view of this conclusion we need not reach or discuss Lebas' argument that a trademark infringement also constitutes an infringement of “title” or “slogan.”
CROSKEY, Associate Justice.
KLEIN, P.J., and KITCHING, J., concur.