United States: Coverage

The underlying action arose out of a dispute between two lighting fixture manufacturers: the insured, Peerless, and its competitor, Columbia. Both companies sought to supply overhead lighting fixtures to General Motors. General Motors had previously used Columbia's indirect luminairs.

Peerless submitted a bid and shipped a sample of its standard fixture to the project site. General Motors rejected the fixture because it shined too much light on the ceiling and did not spread the light sufficiently to the sides.

In response, Peerless modified the fixture and sent a new sample. General Motors ultimately awarded Peerless the supply contract.

Columbia claimed that the modified product infringed its patent and violated the trade dress protections of the Lanham Act. The trade dress of a product is its total image and overall appearance and may include features such as size, shape, color or color combinations, texture, graphics, or even particular sales techniques.

The complaint alleged that Columbia's indirect luminairs have a unique decorative image that is inherently distinctive and which identifies [Columbia's] goods and distinguishes them from goods of others. Peerless has manufactured an infringing imitation of Columbia's indirect luminair and offered it for sale and use in the General Motors expansion facility.

The complaint further alleged that this decorative appearance was inherently distinctive or had acquired secondary meaning. As a result of promotional and marketing efforts and the quality of Columbia's products, Columbia's trade dress had become widely and favorably known, constituting a valuable asset and a symbol of goodwill. Peerless's manufacture and offer for sale of its lighting fixtures, as seen in General Motors' sample room, allegedly infringed Columbia's trade dress in that Peerless's infringing trade dress was likely to cause confusion, mistake, or deception of the public between Columbia's product and Peerless's product.

The insurer refused to defend Peerless, asserting that the allegations in the Complaint do not meet the definition of Advertising Injury and the Advertising Injury alleged did not occur in the course of advertising your goods, products or services as defined in your policy.

Peerless sued the insurer. The trial court found a duty to defend, but not to indemnify, noting that Columbia had alleged trade dress infringement involving only one product. Peerless had provided three mock-ups of the fixture for General Motors, but only the third mock-up was at issue on the Columbia complaint. Representatives of Columbia testified that Peerless's advertising or promotion of the product formed no part of Colombia's claim against Peerless. Moreover, Peerless's vice president for engineering testified that the third mock-up was designed expressly for General Motors and that he was not aware of any marketing or promotion of that product beyond the specific transaction with General Motors.

The Court of Appeal agreed, but went even further, finding not only no duty to indemnify, but no duty to defend.

The Court of Appeal recognized that federal courts have found trade dress infringement claims to constitute advertising injury, citing American Economy Ins. Co. v. Reboans Ins. and Poof Toy Products Inc. v. U.S. Fid. & Guar. Co. The court then turned to the split in authorities over what constitutes advertising and adopted the majority rule set forth in the Vermont case of Select Design v. Union Mut. Fire. Ins. Co. The Vermont court found that mere solicitation of customers did not amount to advertising.