Tuesday, 5 August 2008

IP risk: when it's time to sue the insurer

The newsletter of US-based law firm Lewis Brisbois Bisgaard & Smith LLP carried a recent note on Raymond Manzarek, et al. v St Paul Fire & Marine Ins. Co., 519 F.3d 1025 (9th Cir. March 25, 2008).

In brief, this dispute arose after Manzarek and members of his band were liable for infringing the name, trade mark and logo of legendary band The Doors. St Paul had provided insurance cover in policies that included the following provisions:
"Advertising injury liability. We’ll pay amounts any protected person is legally required to pay as damages for covered advertising injury that:

• results from the advertising of your products, your work, or your completed work and

• is caused by an advertising injury offense committed while this agreement is in effect.

Advertising injury offense means any of the following offenses:

• Libel, or slander, in or with covered material.

• Making known to any person or organization covered material that, disparages the business, premises, products, services, work, or completed work of others.

• Making known to any person or organization covered material that violates a person’s right of privacy.

• Unauthorized use of any advertising idea or advertising material, or any slogan or title, of others in your advertising.

• Advertising means attracting the attention of others by any means for the purpose of:

• seeking customers or supporters; or

• increasing sales or business.

Advertising idea means a manner or style of advertising that others use and intend to attract attention in their advertising.

But we won’t consider information used to identify or record customers or supporters, such as a list of customers or supporters, to be an advertising idea.

Advertising material means any covered material that:

• is subject to copyright law; and

• others use and intend to attract attention in their advertising".
The St Paul policies also included a “Field of Entertainment Limitation Endorsement”, which narrowed the scope of coverage afforded by the policies. The endorsement read as follows:
"Field of Entertainment. We won’t cover personal injury or advertising injury that results from the content of, or the advertising or publicizing for, any

Properties or Programs which are within your Field of Entertainment Business.

Properties or Programs means any of your properties, products, programs, materials or other matter.

Field of Entertainment Business includes the following;

• The creation, production, publication, distribution, exploitation, exhibition, advertising and publicizing of product or material in any and all media such as motion pictures of any kind and character, television programs, commercials or industrial or educational or training films, phonograph records, audio or video tapes, CDs or CD ROMs, computer online services or Internet or Web site pages, cassettes or discs, electrical transcriptions; music in sheet or other form, live performance, books or other publications.

• The ownership, operation, maintenance or use of radio and television broadcasting stations. CATV systems, cinemas, stage productions with living actors, and any

• similar exhibition or broadcast media.

• The ownership, operation maintenance or use of merchandising programs, advertising, or publicity material, characters or ideas; whether or not on your premises or in your possession at the time of the alleged offense".
Manzarek and his band tendered the defence of the underlying lawsuits to St Paul which, relying on the endorsement, dclined to defend them against the lawsuits. Subsequently Manzarek et al filed a complaint for declaratory relief and bad faith against St Paul, which responded by removing the action to the United States District Court and filing a motion to dismiss, arguing that potential coverage was not afforded under its policies based on the endorsements.

The District Court agreed and entered judgment in favour of St Paul two years ago, but the Court of Appeals reversed this decision. In its view the endorsements did not apply to bar all potential claims against Manzarek and his band relative to the use of “The Doors” logo for advertising purposes. Further, since potential coverage was afforded under the St Paul policies to Manzarek et al for the underlying lawsuits, their claims for breach of the implied covenant of good faith and fair dealing should not have been dismissed.

Readers can draw their own conclusions regarding the strength of St Paul's legal position, but one thing is clear -- at least from a European perspective. At a time when IP liability insurance is viewed with relative caution, if not suspicion, by many would-be policy-holders, litigation between the insured and the business bearing the risk is always going to be bad business and should be avoided if it all possible.

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