Insurance Company Win Makes Coverage More Difficult

2019 is shaping up to be a pretty unfriendly year for trademark infringement plaintiffs. A pending Supreme Court decision and case involving insurance for advertising injury could make trademark infringement costs prohibitive for millions of small businesses leaving them without a realistic avenue for recourse when their trademarks are being infringed. When small businesses cannot receive assistance with the cost of litigation, then defendants are incentivized to make branding decisions based on their perceptions of a plaintiff’s ability to pay for litigation. In the end, a market filled with more confusingly similar marks may exist, which ultimately harms consumers.

The First Circuit Court of Appeals recently decided a case involving insurance coverage for advertising injury. Small businesses pay for policies that include this type of coverage, but these policies generally make an exception for trademark infringement. Meaning if the advertising injury involves a trademark infringement claim, then the insurance is not obligated to cover the claim.

The argument over this advertising injury clause always centers around whether the infringing trademark plead in the complaint also functions as an “advertising idea” or “slogan.” If this dual functionality exists, then Courts have been more receptive to find that coverage exists. Unfortunately, the First Circuit Court of Appeals recently slammed the door on there ever being coverage for an infringing trademark that also functions as an “advertising idea.” The Court held that even if a trademark can qualify as an advertising idea, the exclusion nevertheless avoids coverage for a resulting infringement claim. Consequently, there will never be coverage for a trademark infringement claim in the First Circuit because plaintiffs do not bring claims for “advertising idea infringement” they bring claims for “trademark infringement.”

Additionally, the Supreme Court will decide whether a plaintiff must prove intent before being allowed to recover the defendant’s profits from its infringing act. Assuming the Supreme Court decide this issue in favor of requiring evidence of bad faith intent, the small market there is for contingent trademark infringement cases or third-party financing for trademark infringement litigation will dry up. The reason lawyers take contingent fee cases or there is third-party litigation is the possibility for a plaintiff to recover a large monetary damage award. Sometimes these fee arrangements result in frivolous litigation, but frivolous litigation is the minority of cases.

Where are small businesses to go if insurance coverage is more difficult or impossible to obtain and no attorney will take the plaintiff’s case on a contingency? The Trademark Trial and Appeal Board is not an option because the TTAB does not have the authority to issue injunctions. Small businesses will have to turn to legal aid clinics, but there are not enough of them to adequately service the number of small businesses in the U.S. The legal system needs a small business favorable option for markets to function fairly.

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