The issue in this appeal is whether the "advertising injury" provision of an insurance policy required the insurer to provide a defense for its insured against a claim that the insured company's advertisements disparaged another company's products. In this case, "Company A" advertised its product, which
Specifically, in an underlying action, Gary-Michael Dahl (Dahl), who manufactured and sold the "Multi-Cart," sued Swift Distribution, Inc., doing business as Ultimate Support Systems, Inc., Michael Belitz, and Robin Slaton (Ultimate), for patent and trademark infringement, unfair competition, dilution of a famous mark, and misleading advertising arising from Ultimate's sale of its product, the "Ulti-Cart." Ultimate tendered defense of Dahl's action to its insurer, Hartford Casualty Insurance Company (Hartford), which refused to defend it in the Dahl action. In a subsequent action for declaratory relief against Ultimate, Hartford sought a declaration that it had no duty to defend or indemnify Ultimate in the Dahl action. The trial court granted Hartford's motion for summary judgment and Ultimate appeals.
We find that Ultimate's advertisements did not expressly refer to Dahl's Multi-Cart and did not "disparage" Dahl's Multi-Cart product or business, and there was no coverage or potential for coverage for "advertising injury" under the Hartford insurance policy. Thus Hartford had no duty to defend Ultimate in the Dahl action, and the trial court correctly granted summary judgment for Hartford. We affirm the judgment.
Hartford issued a liability insurance policy to Swift Distribution, Inc., doing business as Ultimate Support Systems for the period January 29, 2009, to January 29, 2010. The Hartford policy's insuring agreement stated: "We will pay those sums that the insured becomes legally obligated to pay as damages because of ... `personal and advertising injury' to which this insurance applies. We will have the right and duty to defend the insured against any `suit' seeking those damages. However, we will have no duty to defend the insured against any `suit' seeking damages for ... `personal and advertising injury' to which this insurance does not apply."
On January 26, 2010, Dahl filed an action against Ultimate, Dahl v. Swift Distribution, Inc., in U.S. District Court, Central District of California. The Dahl complaint alleged that Dahl owned a U.S. patent to a "convertible transport cart," which he had sold as the "Multi-Cart" collapsible cart since 1997. The Multi-Cart can be manipulated into eight configurations, and is used to move music, sound, and video equipment quickly and easily. The U.S. Patent and Trademark Office issued a patent to Dahl for the "Multi-Cart" mark. The Dahl complaint alleged that Ultimate impermissibly manufactured, marketed, and sold the "Ulti-Cart," which infringed patents and trademarks for Dahl's Multi-Cart and diluted Dahl's trademark. The complaint attached advertisements for the Ulti-Cart, which do not name the Multi-Cart, Dahl, or any other products other than the Ulti-Cart.
Ultimate made three demands upon Hartford to defend it the Dahl action under the Hartford insurance policy. Hartford denied coverage to Ultimate for the Dahl action and stated that Hartford had no duty to defend or indemnify Ultimate. Hartford filed a complaint for declaratory relief against Ultimate seeking a declaration that it had no duty to defend or indemnify Ultimate in the Dahl action.
While the Hartford complaint was pending, counsel for Ultimate notified counsel for Hartford that the court in the Dahl action granted Ultimate's motion for summary adjudication as to Dahl's two patent infringement claims. Subsequently counsel for Ultimate notified counsel for Hartford that the Dahl action had settled.
Hartford and Ultimate filed motions for summary judgment or in the alternative summary adjudication. The trial court entered an order granting summary judgment in favor of Hartford and denying Ultimate's motion. The judgment entered in favor of Hartford determined that Hartford had no duty to defend or indemnify Ultimate in the Dahl action. Ultimate filed a timely notice of appeal.
Ultimate claims on appeal that the Dahl action alleged facts that constituted the potentially covered offense of disparagement.
Any party to an action may move for summary judgment on a cause of action or defense — a plaintiff contending that there is no defense to the action, a defendant contending that the action has no merit. (Code Civ. Proc., § 437c, subd. (a); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 [107 Cal.Rptr.2d 841, 24 P.3d 493] (Aguilar).)
The party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that it is entitled to judgment as a matter of law. A triable issue of material fact exists only if the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion. (Aguilar, supra, 25 Cal.4th at p. 850.) "[I]f a plaintiff who would bear the burden of proof by a preponderance of evidence at trial moves for summary judgment, he must present evidence that would require a reasonable trier of fact to find any underlying material fact more likely than not." (Id. at p. 845.)
A plaintiff moving for summary judgment has met its burden of showing that there is no defense to a cause of action if it has proved each element of the cause of action entitling it to judgment on that cause of action. Once the plaintiff has met that burden, the burden shifts to the defendant to show the existence of a triable issue of one or more material facts as to that cause of action or a defense thereto. The defendant may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists, but instead must set forth specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto. (Code Civ. Proc., § 437c, subd. (p)(1); Aguilar, supra, 25 Cal.4th at p. 849.)
The court must grant the motion if all the papers submitted show there is no triable issue as to any material fact — that no issue requires a trial as to any fact that is necessary under the pleadings and the law — and that the moving party is entitled to a judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c); Aguilar, supra, 25 Cal.4th at p. 843.)
The duty to defend is broad, but not unlimited. The nature and kinds of risks covered by the policy define its scope. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19 [44 Cal.Rptr.2d 370, 900 P.2d 619].) The insurer need not defend where extrinsic facts eliminate the potential for coverage despite allegations in the complaint which suggest potential liability (ibid.), and where the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage. (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 300.)
Ultimate cited specific paragraphs of the Dahl complaint as containing elements of a claim of disparagement.
Unfair Competition Under the Lanham Act: Dahl's claim for unfair competition under the Lanham Act (15 U.S.C. § 1125(a)) alleged that Ultimate
Misleading Advertising: In a cause of action for untrue and/or misleading advertising, the Dahl complaint alleged that Ultimate violated Business and Professions Code sections 17500 and 17505 by falsely claiming to be the manufacturer, wholesaler, or importer, or to own or control the intellectual property, factory, or other source of supply, of the Multi-Cart and Dahl's mark. This cause of action alleged that these violations caused Dahl's potential clients to contact Ultimate to buy its infringing product. It further alleged that through the false designation of origin, Dahl's intellectual property, mark, and patents were being inaccurately associated with Ultimate.
Allegations in Dahl's Application for a Temporary Restraining Order: Dahl's application for a temporary restraining order alleged: (1) that Ultimate marketed a knockoff of Dahl's "Multi-Cart," and by dropping the "M" from "Multi-Cart," adopted a nearly identical name for its cart that created a likelihood of confusion with Dahl's "Multi-Cart" trademark; (2) that Ultimate's use of a nearly identical mark was detrimental to Dahl's trade reputation and goodwill; (3) that if not enjoined by the court, Ultimate's use of the confusingly similar "Ulti-Cart" mark would cause confusion in the public and loss of sales and customers to Dahl; (4) that the infringing "Ulti-Cart" mark would be used to Dahl's detriment since he would have no control over the nature and quality of Ultimate's carts; (5) that any fault with those goods would adversely affect Dahl's future sales and would tarnish his name and reputation; (6) that industry and the consuming public recognized the "Multi-Cart" mark as associated with Dahl and as having a reputation for high quality and the patented design Dahl invented; and (7) that Ultimate's use of the "Ulti-Cart" mark and name would cause confusion or mistake, or would deceive the public as to the source of Ultimate's goods and services.
Dahl also responded to Ultimate's second set of interrogatories in the Dahl action. Dahl's responses essentially repeat the allegations of the complaint.
To determine whether Hartford owes a duty to defend, we compare allegations of the Dahl complaint, Dahl's application for a temporary restraining order, and Dahl's responses to interrogatories to the terms of the Hartford insurance policy.
The Hartford policy provided insurance coverage for "`personal and advertising injury' caused by an offense arising out of your business." The policy defined "personal and advertising injury" to include "injury ... arising out of ... [o]ral, written or electronic publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services."
The injurious falsehood must specifically refer to the derogated property, business, goods, product, or services either by express mention or reference by reasonable implication. (Total Call Internat., Inc. v. Peerless Ins. Co., supra, 181 Cal.App.4th at p. 170, quoting Blatty v. New York Times Co. (1986) 42 Cal.3d 1033, 1046 [232 Cal.Rptr. 542, 728 P.2d 1177] ["plaintiff must allege that `the statement at issue either expressly mentions him or refers to him by reasonable implication.'"].) Dahl's complaint, application for a temporary restraining order, and responses to Ultimate's discovery do not allege that Ultimate's advertisements specifically referred to Dahl by express mention.
Ultimate argues that Dahl's complaint alleged that Ultimate's use of "Ulti-Cart," a name similar to Dahl's "Multi-Cart," referred to Dahl and Dahl's product by reasonable implication. Dahl's complaint primarily alleged that because of its similarity to Dahl's "Multi-Cart," Ultimate's use of the "Ulti-Cart" name misled the public into believing that Ultimate's products were the same as Dahl's, were approved by Dahl, or were affiliated with Dahl's "Multi-Cart" products.
The parties have cited the recent case of Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. (2012) 207 Cal.App.4th 969 [144 Cal.Rptr.3d 12] (Charlotte Russe). In Charlotte Russe, the manufacturer of "People's Liberation" brand apparel sued the insured retailer. The manufacturer claimed that the retailer, which had contracted to become the exclusive sales outlet for People's Liberation apparel, breached its contract and damaged the People's Liberation brand and trademark by marking down prices for the apparel. This advertising allegedly suggested to consumers that People's Liberation products were of inferior quality. (Id. at pp. 972-973.) Charlotte Russe held that the allegations in the complaint could reasonably be interpreted to allege that the insured retailer disparaged the People's Liberation brand, and that the advertising injury provision of an insurance policy provided coverage of, and the insurer had a duty to defend the insured against, this claim of disparagement. (Id. at p. 981.) We disagree. As discussed below, we believe such a conclusion has no objectively reasonable basis.
More importantly, we disagree with the theory of disparagement apparently recognized in Charlotte Russe. There the manufacturer alleged that the People's Liberation brand was identified in the market as premium, high-end goods but the retailer's steeply discounted prices implied that those products were not premium, high-end goods. The manufacturer "therefore pled that the implication carried by the [retailer's] pricing was false." (Charlotte Russe, supra, 207 Cal.App.4th at p. 979.) In spite of the requirements that there be a publication (Shanahan v. State Farm General Ins. Co. (2011) 193 Cal.App.4th 780, 789 [122 Cal.Rptr.3d 572]) that specifically refers to the plaintiff (Total Call Internat., Inc. v. Peerless Ins. Co., supra, 181 Cal.App.4th at p. 170), Charlotte Russe held that this reduced pricing was enough to constitute disparagement, which triggered the duty to defend. We fail to see how a reduction in price — even a steep reduction in price — constitutes disparagement.
We also question whether the insured could have objectively reasonable expectations (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265 [10 Cal.Rptr.2d 538, 833 P.2d 545]) that the insurer would provide a defense and indemnity coverage for a claim made against the insured for placing goods on sale at a reduced price. The insurance policy in Charlotte Russe provided coverage for "`publication of material that slanders or libels a person or organization or disparages a person's or organization's goods,
Ultimate cites a series of cases from federal courts and from the courts of other states. These cases do not bind California courts. (Nagel v. Twin Laboratories, Inc. (2003) 109 Cal.App.4th 39, 55 [134 Cal.Rptr.2d 420]; US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 905 [28 Cal.Rptr.3d 894].) These cases are also distinguishable or inapplicable.
In Acme United Corp. v. St. Paul Fire & Marine Ins. Co. (7th Cir. 2007) 214 Fed.Appx. 596, a competitor sued Acme for allegedly making false and disparaging statements about the competitor's products by stating on its product packaging that its scissors and paper trimmers were bonded with titanium, which made them superior to stainless steel scissors and paper trimmers which were not bonded with titanium. Acme's insurer denied coverage and disclaimed any duty to defend under the advertising injury liability provision of the policy, which indemnified the insured for damages for advertising that disparaged the products of others. (Id. at pp. 596-598.) Acme United Corp. concluded that the competitor's complaint sufficiently alleged that Acme's advertisements were directed at the competitor's products and that Acme disparaged the competitor's products through a false comparison. These allegations of advertising injury offense triggered the insurer's duty to defend Acme against the competitor's complaint. (Id. at pp. 600-601.) Dahl's complaint, by contrast, does not allege that Ultimate's advertisements falsely compared the Ulti-Cart to Dahl's Multi-Cart. Thus Dahl's complaint did not allege the disparagement by false comparison that occurred in Acme United Corp.
In Liberty Mutual Ins. Co. v. OSI Industries (Ind.Ct.App. 2005) 831 N.E.2d 192, Thermodyne sued OSI and Beltec for advertising and selling a "Temperfect Oven," which contained flat aluminum plate shelving that Thermodyne claimed was unique and a trade secret. Thermodyne's lawsuit alleged that through an agent's statements, OSI and Beltec claimed ownership of the development of the Thermodyne oven and its flat aluminum plate shelving technology, which disparaged the Thermodyne oven by creating confusion about which company, OSI/Beltec or Thermodyne, had the rights to and produced an oven with the unique technology. This triggered the insurer's duty to defend under the advertising injury provision of the policy. (Id. at p. 199.) Dahl's complaint does not allege that Ultimate made statements claiming ownership of unique technology of the Multi-Cart or that Ultimate
Ultimate cites E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co. (N.D.Cal. 2008) 590 F.Supp.2d 1244 for the proposition that disparagement by implication is actionable under California law. (Id. at p. 1252.) In E.piphany, Inc., Sigma sued E.piphany, alleging that E.piphany falsely advertised its software products as "all Java" and "fully J2EE," which gave its products an unfair and undeserved advantage over Sigma and other competitors which in fact did offer "all Java" and "fully J2EE" software. (Id. at pp. 1249-1250.) E.piphany sued its insurer seeking a declaration that the insurer had a duty to defend. E.piphany, Inc., found that Sigma's complaint alleged that E.piphany falsely stated that it was the only producer of "all Java" "fully J2EE" software and that E.piphany suggested that its competitors' technology was behind E.piphany's technology. Thus the Sigma complaint alleged that E.piphany's false claims about the superiority of its own products necessarily implied the inferiority of Sigma's competing products. (Id. at p. 1253.) E.piphany, Inc., held that the Sigma complaint contained disparagement allegations potentially covered by the insurer's policy and thus triggered the insurer's duty to defend. (Id. at p. 1254.)
As we have explained, the Dahl complaint did not allege that Ultimate disparaged Dahl's products by implication. The Dahl complaint contained no allegations that Ultimate's advertising falsely stated it was the only producer of a product with features also available on Dahl's "Multi-Cart;" that Ultimate's advertising suggested that its competitor's technology was behind that of Ultimate; or that Ultimate made false claims about the superiority of the Ulti-Cart which necessarily implied the inferiority of Dahl's competing product. Ultimate's advertisements did not disparage another's product, either expressly or by implication; they said nothing about a competitor's product.
In Michael Taylor Designs, Inc. v. Travelers Property Casualty Co. of America (N.D.Cal. 2011) 761 F.Supp.2d 904, a furniture manufacturer, Ivy Rosequist, sued Michael Taylor Designs, Inc. (MTD), for breach of contract and violation of the Lanham Act. Rosequist's complaint alleged that MTD distributed promotional materials containing photographs of Rosequist's furniture, but displayed cheap, synthetic knockoffs of Rosequist's products in its showroom, which misled and confused customers about the origin of those products and diluted and tarnished Rosequist's trade dress. (761 F.Supp.2d at pp. 907-908.) MTD sued the insurer seeking a declaration that the insurer had a duty to defend the trade dress infringement claim alleged in the original complaint.
The Dahl complaint alleges no comparable conduct by Ultimate. It does not allege that Ultimate displayed photos of the Multi-Cart in advertisements and then steered customers to purchase the Ulti-Cart, or led customers to believe the Ulti-Cart was Dahl's own product. Thus even under the analysis of Michael Taylor Designs, Inc., the Dahl complaint did not allege disparagement and did not create a possibility of coverage under the advertising injury provision of the Hartford insurance policy.
Finally, Ultimate cites Burgett, Inc. v. American Zurich Ins. Co. (E.D.Cal. 2011) 830 F.Supp.2d 953 as clarifying an insurer's duty to defend a claim of disparagement by implication. In Burgett, Persis International and Richards (Persis) sued Burgett for falsely representing to another company, Samick, that it had valid and enforceable rights to the "SOHMER" trademark, which Persis alleged that it owned. The Persis complaint alleged that by entering into a licensing agreement with and accepting compensation from Samick, and by holding itself out to Samick and the world as rightful owner of the SOHMER trademark, Burgett induced and was contributorily liable for Samick's acts of trademark infringement and unfair competition. Burgett's insurer, Zurich, declined to defend Burgett in the Persis action, asserting that the personal and advertising injury provision did not provide coverage and that the trademark exclusion excused Zurich from defending the action. (Id. at pp. 957-958.)
The Burgett court found that Burgett represented to Samick that it was the only holder of the SOHMER trademark (which implied that Burgett's right to use the SOHMER trademark was superior to that of Persis), represented that Persis did not have the rights to the SOHMER trademark, and created a likelihood of confusion or misunderstanding about the source, sponsorship, or approval of Persis's goods. Burgett held that the Persis complaint alleged sufficient facts to establish the potential for coverage of its claim of disparagement by implication, which triggered Zurich's duty to defend Burgett in the Persis action. (Burgett, Inc. v. American Zurich Ins. Co., supra, 830 F.Supp.2d at pp. 963-964.)
The judgment is affirmed. Costs on appeal are awarded to plaintiff Hartford Casualty Insurance Company.
Klein, P. J., and Croskey, J., concurred.