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What Uncommon Claims Have in Common: All Depend on Trademark Infringement

Thursday, September 8, 2011

Cherilyn Zavatsky | Bloomberg Law Citizens Insurance Co. of America v. Uncommon, LLC, No. 10 C 7764, 2011 BL 224228 (N.D. Ill. Aug. 31, 2011) The U.S. District Court for the Northern District of Illinois ruled in favor of an insurer, concluding that a commercial general liability insurance policy exclusion for intellectual property claims applied to all counterclaims against the insured because each counterclaim arose out of the insured’s alleged trademark infringement. The court relied on the principle that factual allegations, not the legal theories underpinning claims against the insured, govern the insurer’s duties.

Uncommon v. UncommonGoods

Uncommon, LLC sells customizable cellular phone cases through its website, getuncommon.com. UncommonGoods, LLC also operates a website, uncommongoods.com, through which it sells various items, including accessories and cellular phone cases and laptops. UncommonGoods sent letters to Uncommon asserting that Uncommon’s use of the name “Uncommon” infringed on its trademarks. In response, Uncommon filed suit seeking a declaration that it did not infringe on UncommonGoods’ trademarks. UncommonGoods filed counterclaims alleging, among other things, common law trademark infringement, violations of the Lanham Act, 15 U.S.C. §§ 1114 and 1125(a), unfair competition, deceptive trade practices, tortious interference with business practices, and unjust enrichment. The claims and counterclaims were settled and dismissed. Prior to settlement, Uncommon had notified its commercial general liability (CGL) insurer, Citizens Insurance Company of America, of its lawsuit against UncommonGoods and the counterclaims against it. Citizens denied coverage and filed suit against Uncommon seeking a declaration that it had no duty to defend or indemnify Uncommon against UncommonGoods’ counterclaims. Uncommon moved for summary judgment and Citizens moved for judgment on the pleadings.

Court Poses (and Answers) Three Questions

Uncommon’s CGL policy provided coverage for “personal and advertising injury,” but excluded coverage for such injuries “[a]rising out of the infringement of . . . trademark . . . or other intellectual property rights. . . . However, this exclusion does not apply to infringement, in your ‘advertisement’, of . . . slogan” (intellectual property exclusion). Citizens argued that because all of UncommonGoods’ counterclaims arose out of the trademark infringement allegation, the intellectual property exclusion barred coverage. Uncommon contended that the underlying claims for unfair competition, deceptive trade practices, tortious interference with business practices, and unjust enrichment (non-trademark infringement counterclaims) were not excluded from coverage by the intellectual property exclusion because each of those claims could proceed independently of the trademark infringement claims. The court determined that the resolution of the coverage dispute depended on three questions: (1) whether Uncommon could escape application of the intellectual property exclusion by the mere fact that the non-trademark infringement counterclaims can and do arise from non-trademark infringement conduct; (2) how the non-trademark infringement counterclaims are differentiated from those that trigger the intellectual property exclusion and those that do not; and (3) whether the non-trademark infringement counterclaims would not have arisen but for the trademark infringement counterclaims. The court answered “no” to the first question, reasoning that under Illinois law, it is the factual allegations, not the legal theories posited by the claimant, that govern an insurer’s duty to defend. Accordingly, the legal theories set forth in the non-trademark infringement counterclaims were not dispositive. The application of the intellectual property exclusion depended on the conduct giving rise to those claims. The court also pointed out that the intellectual property exclusion applied to claims “arising out of” trademark infringement claims. With regard to the second question, the court concluded that the intellectual property exclusion would apply to non-trademark claims if the non-trademark claims would not have arisen but for the alleged trademark infringement. Thus, regardless of any legal theories posited, the intellectual property exclusion may apply if the non-trademark infringement claims cannot proceed independently of the trademark infringement claims. The court’s response to the second question led it to conclude that UncommonGoods’ non-trademark infringement claims would not have proceeded independently but for its trademark infringement claims. Each of the counterclaims arose out of Uncommon’s alleged use of UncommonGoods’ trademarks. Accordingly, the court held that Citizens sufficiently demonstrated that all of the counterclaims alleged by UncommonGoods, including the non-trademark infringement counterclaims, fell within the intellectual property exclusion. The court also rejected Uncommon’s argument that “uncommon” was a slogan, thus bringing it within the exception to the exclusion, because the settled legal meaning of “slogan” excludes the trademarked name of a company. Therefore, the court granted Citizen’s motion for judgment on the pleadings and denied Uncommon’s motion for summary judgment. Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy. ©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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