Cat Internet Ser v. Providence

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
6-17-2003
Cat Internet Ser v. Providence
Precedential or Non-Precedential: Precedential
Docket No. 01-4166
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PRECEDENTIAL
Filed November 18, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-4166
CAT INTERNET SERVICES, INC.,
INTERNET SUPPLY, INC.
Appellees
v.
PROVIDENCE WASHINGTON INSURANCE CO.,
YORK INSURANCE COMPANY,
Appellants
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Court Judge: Honorable Anita B. Brody
(D.C. Civil No. 00-CV-3238)
Argued October 29, 2002
Before: SLOVITER, FUENTES, Circuit Judges, and
DEBEVOISE,* Senior District Judge
(Opinion filed: November 18, 2002)
* Honorable Dickinson R. Debevoise, Senior United States District Judge
for the District of New Jersey, sitting by designation.
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Michael F. Aylward, Esq. (Argued)
Morrison, Mahoney and Miller
250 Summer Street
Boston, MA 02210-1181
Eugene J. Maginnis, Jr., Esq.
Dugan, Brinkmann, Maginnis
and Pace
Suite 1400
1880 John F. Kennedy Boulevard
Philadelphia, PA 19103
Attorneys for Appellants
Stephen Levin, Esq. (Argued)
81 Big Oak Road, Suite 100
Morrisville, PA 19607
Attorney for Appellees
Laura A. Foggan, Esq.
John C. Yang, Esq.
Seth J. Blonder, Esq.
Wiley Rein & Fielding LLP
1776 K Street, N.W.
Washington, D.C. 20006
Attorney for Amicus Curiae
Complex Insurance Claims
Litigation Association
OPINION OF THE COURT
DEBEVOISE, Senior District Judge:
Appellants, Providence Washington Insurance Company
(“Providence Washington”) and York Insurance Company
(“York”) (collectively “Providence”) appeal from the District
Court’s order granting summary judgment in favor of
appellees on their claim that the advertising injury
provisions of Providence’s standard commercial liability
policy entitled them to coverage in a Tennessee lawsuit in
which appellees were named as defendants. We agree with
the District Court and will affirm.
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I. Facts and Procedural History
In February 2000 Magazines.com Inc. (The “Tennessee
Plaintiff ”), sued appellees, CAT Internet Services, Inc.
(“CAT”) and Internet Supply, Inc. (“INS”), charging that
through the use of CAT’s and INS’s Internet domain name,
MAGAZINE.COM, CAT and INS infringed the Tennessee
Plaintiff ’s name and trademark, MAGAZINES.COM for the
purpose and with the effect of diverting sales of magazines
and other products to their own affiliates, some of which
were competitors of the Tennessee Plaintiff. The complaint
in the Tennessee action charged statutory and common law
trademark and trade name infringement as well as injury to
business reputation and common law unfair competition.
The complaint in the Tennessee action contained a
number of allegations concerning the advertising activities
of the parties and the damage that CAT’s and INS’s use of
the domain name MAGAZINE.COM caused the Tennessee
Plaintiff. It was alleged that the Tennessee Plaintiff ’s
“MAGAZINE.COM web site has engaged in a number of
advertising campaigns since its inception . . .” (App. 22a).
As to CAT and INS, the complaint charged that “[INS] is a
close affiliate of CAT and is in the business of operating
hardcore pornography web sites and related online services
. . . and marketing ‘click-through advertising and marketing
arrangements to the online adult and hardcore
pornography industries. [INS] and CAT have made use of
the MAGAZINE.COM domain name to redirect traffic to
hardcore pornography sites.’ ” (App. 19a). One form of relief
that the Tennessee Plaintiff sought was an order “enjoining
any further use of the domain name and mark
MAGAZINE.COM in connection with (a) the online sale or
promotion of magazine subscriptions, and (b) pornographic
or adult content not suitable for viewing by children or
gambling.” (App. 30a).
After notice of the Tennessee Plaintiff ’s suit, CAT’s and
INS’s insurers, Providence Washington and York, declined
to undertake their defense under the advertising injury
provisions of their standard commercial liability policies.
The pertinent provisions of the policies provided:
1. Business Liability
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a. We will pay those sums that the insured
becomes legally obligated to pay as damages
because of “bodily injury”, “property damage”,
“personal injury” or “advertising injury” to which
this insurance applies. . .
b. This insurance applies to:
(2) “advertising injury” caused by an offense
committed in the course of advertising your
goods, products or services . . .
“Advertising injury” was defined in the policy as:
“Advertising injury”means injury arising out of one or
more of the following offenses:
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;
c. Misappropriation of advertising ideas or style of
doing business; or
d. Infringement of copyright title or slogan.
Following Providence’s refusal to provide coverage for the
Tennessee Plaintiff ’s claims, CAT and INS commenced an
action for declaratory relief and damages in the District
Court. The parties filed cross-motions for summary
judgment. The District Court granted CAT’s and INS’s
motion, ruling that Providence had a duty to defend the
Tennessee litigation.1 This appeal followed.
1. The District Court denied the cross-motions for summary judgment on
CAT’s and INS’s claim pursuant to 42 Pa. Cons. Stat. §8371 based on
Providence’s claimed bad faith in refusing to accept coverage for the
Tennessee litigation. Subsequently the parties entered into a high/low
settlement agreement with respect to that claim giving Providence the
right to appeal the ruling as to coverage under the policies.
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II. The District Court Opinion
The claimed damages demanded of Providence relate
solely to the duty to defend. Applying Pennsylvania law to
the coverage issue, the District Court noted that the
insurer’s “duty to defend is broader than the duty to
indemnify, because a duty to defend arises ‘whenever an
underlying complaint may potentially come within the
insurance coverage.’ Frog, Switch [& Mfg. Co., Inc. v.
Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999)]. . . If
a single allegation of a complaint is potentially covered by
a policy, an insurer has an obligation to defend its insured
against all claims until there is no possibility of recovery for
a covered claim.” (Slip. Op. at 7).
Addressing the question whether the complaint in the
Tennessee litigation alleged an “advertising injury” within
the meaning of the policies, the District Court held that it
did. It concluded that under Pennsylvania law the
advertising injury provisions cover trademark infringement
as a “misappropriation of an advertising idea or style of
doing business,” a view with which our court has in dicta
suggested agreement. Frog, Switch, 139 F.3d at 749. (Slip.
Op. at 8,9).
Distinguishing Sorbee International Ltd. v. Chubb Custom
Insurance Co., 735 A. 2d 712 (Pa. Super. 1999), the District
Court found that “the allegations of the Tennessee
Complaint . . . do allege trademark infringement that is a
‘misappropriation of an advertising idea or style of doing
business’ ” (Slip. Op. at 10), thus asserting an “advertising
injury” that triggered Providence’s obligation to defend
under the policies.
III. Jurisdiction and Standard of Review
The District Court had diversity jurisdiction pursuant to
28 U.S.C. §1332(a)(1). We have jurisdiction under 28 U.S.C.
§1291, as this is an appeal from a final judgment of the
District Court. We review the District Court’s grant of
summary judgment de novo. Fogleman v. Mercy Hosp., Inc.,
283 F.3d 561, 566 n.3 (3d Cir. 2002). Summary judgment
was proper if, viewing the record in the light most favorable
to Providence, there is no genuine issue of material fact and
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CAT and INS are entitled to judgment as a matter of law.
The parties agree that there is no genuine issue of fact on
the policy coverage issue.
IV. Discussion
The insurance contracts which are the subject of this
case are governed by Pennsylvania law. The policies were
issued by a Pennsylvania agent to Pennsylvania
corporations. Pennsylvania conflict of laws principles
dictate that an insurance contract is guided by the law of
the state in which it is delivered. See Travelers Indem. Co.
v. Fantozzi, 825 F. Supp. 80, 84 (E.D. Pa. 1993).
Providence urges that the District Court misinterpreted
dicta in this court’s holding in Frog, Switch and ignored the
Pennsylvania Superior Court’s holding in Sorbee
International and thus erred in holding that a trademark
infringement dispute involving competing Internet domain
sites sought recovery for “misappropriation of an
advertising idea or style of doing business.” At oral
argument Providence’s counsel advanced the position that
listing a domain site name such as “MAGAZINE” is not
“advertising” within the meaning of the policy as it was not
part of a marketing campaign to sell CAT’s or INS’s
products to the consuming public. It would follow,
according to Providence, that misuse of the domain name
as charged in the Tennessee litigation did not cause an
“advertising injury.”
In Frog, Switch insurance carriers that had issued
policies covering “advertising injury” were asked to defend
a claim for theft of trade secrets, unfair competition and
reverse passing off. A Frog, Switch competitor had sued
Frog, Switch alleging that Frog, Switch entered the dipper
bucket market using proprietary trade secrets, confidential
business information and technology that belonged to the
competitor. The complaint included two causes of action for
false advertising and reverse passing off under the Lanham
Act, 15 U.S.C. §1125(a). Frog, Switch requested its two
insurance carriers to defend the suit. Both refused. Frog,
Switch brought an action against them, claiming coverage
under the advertising injury clause. We held that “[t]he
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allegation that Frog engaged in unfair competition by
misappropriating trade secrets relating to the manufacture
of a product line does not allege misappropriation of
advertising ideas or styles of doing business as such.” 193
F.3d at 748.
We explained in Frog, Switch that “the complaint does not
allege that Frog misappropriated methods of gaining
customers; it alleges that Frog misappropriated information
about the manufacture of dipper buckets and then
advertised the resulting product.” 193 F.3d at 748. This
distinguishes Frog, Switch from the instant case in which
INS and CAT were charged with the wrongful use of
MAGAZINE.COM as a method of gaining customers. This
distinction was most recently articulated in our opinion in
Green Machine Corporation v. The Zureck - American
Insurance Group, 313 F.3d 837, 839 (3d Cir. 2002) where
we stated, “[w]e have recently held that ‘to be covered by
the policy, allegations of . . . misappropriation have to
involve an advertising idea, not just a nonadvertising idea
that is made the subject of advertising.’ ”
In Advance Watch Co. v. Kemper National Ins. Co., 99
F.3d 795, 803 (6th Cir. 1996), the court, applying Michigan
law, held that the “advertising injury” offense of
“misappropriation of advertising ideas or style of doing
business” did not include trademark or trade dress
infringement because the policy language did not mention
the word “trademark.” In Frog, Switch we noted the sharp
criticism that has been leveled at Advance Watch and
stated that “(i)t may also stand in some tension with our
decision in Granite State Insurance Co. v. Aamco
Transmissions, Inc., 57 F.3d 316 (3d Cir. 1995), which
declares that insurance policies governed by Pennsylvania
law will be interpreted according to a reasonable insured’s
understanding rather than the narrow legal meaning of
policy terms.” Frog, Switch, 193 F.3d at 747.
We now hold that when a complaint alleges that
an insured misappropriates and uses trademarks or
ideas in connection with marketing and sales and for the
purpose of gaining customers, the conduct constitutes
“misappropriation of an advertising idea or style of doing
business” under Pennsylvania law.
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This result is consistent with the Pennsylvania Superior
Court’s decision in Sorbee International, 735 A.2d 712. In
litigation in the United States District Court for the Eastern
District of New York a competitor charged Sorbee with
improper use of the terms “low calorie,” “sugar free,” “fat
free,” and “cholesterol free” in its candy package labeling.
Sorbee sued its insurance carrier in Pennsylvania to require
the carrier to defend, characterizing the claim against it as
a claim of “misappropriation of advertising ideas”. Affirming
the trial court’s judgment in favor of the insurance carrier,
the court stated “. . . nothing in the Simply Lite
counterclaim suggests that Simply Lite is accusing Sorbee
of stealing an original, novel advertising idea. Simply Lite is
instead claiming that Sorbee has not met the requirements
for using these terms to describe its product.” Id. at 715.
Relevant to the instant case is the court’s observation that
“[i]t makes sense that a trademark infringement action
would be covered by an insurance policy that applies to
‘misappropriation of advertising ideas’ because a trademark
— like the brand name DRAKKAR NOIR — is an advertising
idea that may be created and ‘owned,’ and thus wrongfully
taken or ‘stolen’ ” Id. at 716.
In the Tennessee action the plaintiff charged CAT and
INS with, among other things, trademark infringement
through misuse of the domain name MAGAZINE.COM for
the purpose of selling pornographic materials and
magazines. Under Pennsylvania law that constituted a
claim of “misappropriation of advertising ideas or style of
doing business.” CAT and INS established that at least one
claim in the Tennessee action complaint potentially fell
within the policy’s advertising injury coverage, triggering
Providence’s duty to defend.
For the foregoing reasons, we will AFFIRM the judgment
of the District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit