Wednesday, April 20, 2011

Trademark Bullies and Insurance Coverage Against Infringement Claims

     Trademark Bullying occurs when trademark owners, especially large companies, file frivolous and abusive lawsuits, especially against smaller companies that are competitors.  The Patent and Trademark Office ("PTO") has said a trademark bully "could be described as a trademark owner that uses its trademark rights to harass and intimidate another business beyond what the law might be reasonably interpreted to allow." An epidemic of trademark bullying has occurred in the U.S., so much so that federal legislation has been passed and the PTO has undertaken surveys and studies to address trademark bullying and the litigation tactics of trademark bullies. The Trademark and Technical Conforming Amendment of 2010 directs the Secretary of Commerce to "study and report" to Congress on how small businesses are being harmed. 

     Many times the big company ("Bigco") will write the small company ("Littleco") a cease and desist letter, or just go ahead and file a lawsuit alleging all sorts of intellectual property infringement such as trademark, trade dress, service mark, unregistered trade name, domain name or just unfair competition or false advertising.  Many small companies have to capitulate even if they really have done nothing wrong because of the high cost of litigation.  Indeed, the American Intellectual Property Owners Association ("AIPLA") ran a survey in 2007 and determined that just the lawyer fees and costs of taking a trademark case to resolution has an average cost per party of $700,000.  Very few small and growing businesses have the capital to fight such a fight, regardless of whether they are right or wrong.  For these companies the prospect of defending themselves is simply out of the question.  

     What can such a company do?  The very first thing they need to do is check all of their insurance policies, because without even knowing it they might be covered by their existing or even an expired policy.  Most companies have a CGL or basic Commercial and General Liability Policy.  Almost all of these policies have some kind of coverage for what is called "advertising injury."  This means there is some kind of coverage for a claim made that some kind of marketing has caused harm.  Trademark infringement usually fits into the definition of advertising injury in a CGL policy.  Insurance companies have in recent years been writing form policies that do more and more to limit coverage for trademark claims, but that is not the end of the story, a full legal analysis must be done to determine the rights of the insured.  Personal, business or umbrella policies may also provide coverage for claims such as defamation, libel, slander or disparagement.  The disparagement claim might trigger a duty to defend an entire case under one of these kinds of policies. 

     It is a very technical and complicated legal analysis to determine whether your company is actually covered against a lawsuit.  It involves a full comparison of the allegations in the complaint or the cease and desist letter to the wording of the policy.  Most states including Georgia weight the analysis heavily in favor of the insured as to the duty to pay for a lawyer to defend the claim.  If ANY allegation triggers the duty to defend, the insurer has to defend all of the allegations.  Thus, although one of the allegations might be for trademark infringement, which might be excluded from the policy, other allegations, such as false advertising, might be covered.  It only takes one covered allegation for the insurer to have to pay to defend the case.  

     There is more good news.  Usually if the insurer takes up the defense it will do so under a "reservation of rights" which means that if certain facts come to light it has the right to not pay any damages or the right to come back after their money paid in fees.  This is often a reservation of the right to deny coverage if intentional infringement is discovered by the insurance company.  Usually the victim of a trademark bully has no intention whatsoever to infringe, so there is little to worry about.  However, because the insurer has reserved certain rights, it would be a conflict for the insurance company to be able to pick its own lawyers to defend the case.  This is another place where it is imperative to have an experienced intellectual property coverage attorney involved.  The insurance company will usually try to hire the cheapest lawyers they can find to handle the case, not a higher priced higher quality lawyer.  But in this situation, Littleco usually has the right to pick a more experienced and skilled intellectual property attorney, and the insurance company has to pay the fees.  There are also companies such as IPISC that sell insurance that will specifically covers intellectual property claims.  You can also purchase intellectual property coverage from some insurance companies as an endorsement to an existing CGL policy.  After a lawsuit is filed it is too late to get insurance for what has happened already. But if you are reading this and have not had the misfortune of getting hit with a trademark bullying lawsuit yet, it would be wise to consider making sure you are covered.

    If you get a lawsuit or a cease and desist letter from a bully, It is a mistake for the accused company to simply talk to their insurance agent or the insurance company directly without legal representation in the process of making a claim for coverage.  Often the insurance company will initially deny coverage and the insured has to have someone skilled to fight to get a legal defense covered.  Many times the agent will not be aware that there is coverage under the policy for intellectual property claims.  Other insurance companies are very willing to pay to defend claims when the policy requires it, but a claim has to made to find out.  Often the law on whether defense costs must be paid by the insurer is unsettled or murky and good, persistent lawyering could influence the decision.  We have had four cases in the past year where we were hired by the insured to review the case and the insurance and to guide the client through the claims process.  In each case eventually the defense was picked up by the insurance company, and we ended up being chosen by the client, with the approval of the insurance company, to defend the case.  One of these cases we settled recently for no payment to the plaintiff, and no change in the trade name of the client.  Only some adjustments to the advertising took place. So if you get bullied get the right lawyer to help you out.  It could save your brand, and save your company.