Trademark is not advertisement under insurance coverage, rules court

In Sport Supply Group Inc v Columbia Casualty Co, the US Court of Appeals for the Fifth Circuit has affirmed a lower court ruling that, under Texas law, a trademark is not an advertisement and hence expenses incurred because of allegations of trademark infringement are not covered by the 'advertising injury' clause in an insurance policy.

The case originated from a licensing dispute between Sport Supply and MacMark. The companies had entered into a licensing agreement under which Sport Supply attained limited rights to use MacMark's MACGREGOR trademark on sporting goods. MacMark accused Sport Supply of exceeding the scope of the licence by attempting to sell products bearing the MACGREGOR trademark on the Internet. In response, Sport Supply brought an action, seeking a declaration that it was not in breach of the agreement. MacMark filed a counterclaim for trademark infringement. The parties settled their dispute. Sport Supply was not required to pay any compensation.

Sport Supply subsequently requested its insurer, Columbia Casualty, to reimburse defence costs, alleging that it spent considerable money defending the counterclaim. Columbia Casualty refused, taking the position that the claim was not covered under its policy. Sport Supply insisted that the trademark infringement claim was covered by the 'advertising injury' provisions of the policy, and brought the instant action.

The case turned on whether, under Texas law, Sport Supply's alleged trademark infringement constituted "misappropriation of [an] advertising idea". The policy covered advertising injury caused by an offence committed in the course of advertising Sport Supply's goods, products or services, and defined advertising injury as an injury arising out of "[m]isappropriation of advertising ideas" or "infringement of copyright, title or slogan". Sport Supply argued that the trademark infringement fell within this definition and therefore was covered under the policy. The court found that although theoretically a trademark could constitute advertising, in this particular case, it did not. Analyzing Texas law, the court stated the following rational:

"Under Texas law, it appears that the term 'advertising' in an insurance policy is used in a conventional sense: to refer to a public announcement (such as on a billboard, in a newspaper, on a signpost, or in a television or radio commercial) that 'induces the public to patronize' a particular establishment or to buy a particular product. In other words, the term 'advertising' refers to a common device for soliciting business. As we have seen, Texas law does not appear to view a trademark as a marketing device. Texas law has adopted the more conventional understanding of a trademark as a label that serves primarily to identify and distinguish products. Thus, under Texas law, the MACGREGOR trademark would not appear to be 'advertising'. It follows that the idea for the MACGREGOR trademark is not an 'advertising idea', and that the infringement of the MACGREGOR trademark could not be seen as the 'misappropriation of [an] advertising idea'."

Accordingly, the court held that Sport Supply was not entitled to reimbursement for any of its defence costs.

Howard J Shire, Kenyon & Kenyon, New York

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