Internet Library of Law
and Court Decisions

Cat Internet Systems, Inc., et al. v. Providence Washington Insurance Co., et al.

Court holds that insurers who issued a "business owners" policy and a "commercial umbrella liability" policy covering losses caused by an "advertising injury" have a duty to defend their insureds in an action alleging, inter alia, trademark infringement. Such claims, held the Court, fall within the policy's coverage for injury arising out of the "misappropriation of advertising ideas or style of doing business," which the policy includes within the definition of covered advertising injuries.

Plaintiff Cat Internet Systems, Inc. ("CIS") is the owner of the domain name "magazine.com." Plaintiff Internet Supply Inc. ("ISI") is apparently a closely affiliated entity that operates adult-themed web sites.

ISI obtained a "business owner's" policy from defendant York Insurance Company, and a "commercial umbrella liability" policy from defendant Providence Washington Insurance Co. (collectively the "Insurance Policies"). CIS was listed as an "additional insured" on each policy. Each policy insured against designated damages caused by an "advertising injury," and obligated the insurers to defend any suit seeking such damages. "Advertising injury," as defined by the policies included injury arising out of the "misappropriation of advertising ideas or style of doing business" or "infringement of copyright, title or slogan."

Magazines.com Inc. commenced an action against ISI and CIS in Tennessee (the "Tennessee Action"). Magazines.com owned a Tennessee registered trademark in magazines.com, which mark and domain name it utilized in connection with its web-based magazine subscription business. According to Magazines.com, defendants had used their domain name Magazine.com, first to direct traffic to a pornographic web site, and then to direct traffic to various direct competitors of Magazines.com. Claiming such actions constituted statutory and common law trademark infringement and dilution, and unfair competition, Magazines.com commenced the Tennessee Action.

Plaintiff sought to have their insurers defend them in the Tennessee Action. When the insurers refused, plaintiffs commenced this suit, alleging that the failure to defend constituted a breach of the parties' contract, and bad faith. The District Court granted plaintiffs' motion for summary judgment, finding that defendants had a duty to defend the Tennessee Action under the Insurance Policies. No decision was reached on the bad faith claim.

In reaching this conclusion, the Court, applying Pennsylvania law, held that a trademark infringement claim fell within the ambit of "advertising injury" as that phrase was defined in the Insurance Policies. As stated above, this definition expressly included injury arising out of a "misappropriation of advertising ideas or style of doing business." Said the Court:

The threshold question is whether these claims are an "advertising injury" covered under the policies' advertising injury categories. ... We will follow Frog, Switch's lead and likewise predict that the Pennsylvania Supreme Court would rule that trademark infringement is a covered offense. … [T]he Tennessee Complaint alleges the misappropriation of the trademark itself, "magazines.com". As the Frog, Switch Court explained, 'A trademark depends for its effectiveness on communicating a message to consumers about the marked good, which is the essence of advertising." 193 F.3d at 749. … Therefore, under Frog, Switch, the trademark infringement alleged by the Tennessee Complaint constitutes "misappropriation of advertising ideas or style of doing business."