The Ninth Circuit ruled that the insurer providing a defense in a trademark infringement case was entitled to equitable contribution from another insurer that improperly refused to defend.  See  Hudson Ins. v. Colony Ins., No. 09-55275 (9th Cir. Nov. 5, 2010)[here].

   In the underlying suit, NFL Properties LLC accused All Authentic Corporation of making and selling counterfeit NFL jerseys.  Further, All Authentic offered a counterfeit "Steel Curtain Custom Limited Edition Steelers Jersey" on its website.  The complaint alleged that All Authentic had no authorization by NFL Properties to use any NFL Marks in connection with its jerseys.

  All Authentic tendered to its two insurers, Colony and Hudson.  Colony denied coverage, while Hudson defended under a reservation of rights. 

   The Colony policy covered "personal and advertising injury", defined as "injury . . . arising out of [the offense of infringement] . . . in your 'advertisement.'"  The policy excluded "personal and advertising injury arising out of the infringement of copyright, patent, trademark . . ."  However, this exclusion did not apply to infringement in advertisement of "copyright, trade dress or slogan." 

   Hudson's defense costs in the underlying case were in excess of $900,000.  The underlying case eventually settled.  Hudson then sued Colony for equitable contribution for 50% of its defense costs.  Hudson argued Colony should have defended because based on the allegations in the underlying complaint, All Authentic faced potentially covered liability for slogan infringement in All Authentic's advertisements.  The district court granted Hudson's motion for partial summary judgment, concluding that by alleging that the insured infringed the phrase "Steel Curtain," the underlying complaint set forth a claim for slogan infringement that was potentially covered.

   The Ninth Circuit affirmed, rejecting each of Colony's arguments.  Colony first argued there was no claim of "slogan infringement" made in the complaint, and neither an insured nor a court could speculate about unpled claims to manufacture a potential for coverage.  But the complaint alleged that All Authentic sold a "Steel Curtain Limited Edition Steelers Jersey" on its website, which read "Steel Curtain" across the back and had the number of four Pittsburgh Steelers players.  This potentially stated a claim for slogan infringement.  It did not matter that the complaint never referred to "steel curtain" as a slogan and never listed slogan infringement as a cause of action.

   Next, Colony argued the court should not find potential liability for slogan infringement because NFL Properties must have consciously chosen not to advance such a claim.  The technical label on a cause of action, however, did not dictate the duty to defend whether the claimed cause of action was omitted out of negligence or for strategic adversarial reasons. It only mattered whether the facts alleged or otherwise known by the insurer suggested potential liability. 

   Finally, Colony argued that even if the underlying complaint stated a potential slogan infringement claim, the NFL disclaimed any rights to that slogan in its complaint and thus could not have pursued a claim for slogan infringement.  The Ninth Circuit noted, however, that NFL Properties did not expressly disclaim a slogan infringement claim.  Instead, the complaint stated that the Pittsburgh Steelers had strong common law rights in the mark "Steel Curtain." 

   Therefore, a duty to defend a potential slogan infringement claim existed.  Colony had a duty to defend All Authentic and Hudson was entitled to equitable contribution.

    Thanks to fellow Damon Key blogger Mark Murakami (http://www.hawaiioceanlaw.com/) for the heads up on this case.