High 5 Sportswear, Inc. v. H5G, LLC

Citations: 237 F. Supp. 3d 674; 2017 U.S. Dist. LEXIS 23937; 2017 WL 680510Docket: Case No. 3:15-cv-00401

Court: District Court, S.D. Ohio; February 20, 2017; Federal District Court

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Selective Insurance Company of America’s Motion for Summary Judgment was granted by the Court, leading to the dismissal of H5G, LLC's First Amended Third-Party Complaint. H5G had alleged that Selective was obligated to defend and indemnify it in a trademark infringement and cybersquatting lawsuit brought by High 5 Sportswear, Inc. After Selective denied H5G's claim under their commercial insurance policy, H5G initiated a third-party complaint seeking declaratory judgments regarding Selective’s duties under the policy, along with damages for breach of contract and bad faith denial of the claim.

The Court found that Selective demonstrated the absence of any genuine material facts, thus entitling it to summary judgment on all claims. The Insurance Policy issued to H5G on June 2, 2015, provided coverage for personal and advertising injury liability, including a duty to defend against related lawsuits, but only for claims that fell within the policy’s definitions and coverage territory. The summary judgment effectively concluded that Selective had no duty to defend H5G against High Five's claims, as per the terms of the Insurance Policy.

The Insurance Policy defines 'advertisement' as a notice aimed at attracting customers, including material published online, with only the parts relevant to goods or services considered advertisements. 'Personal and advertising injury' includes various offenses such as false arrest, malicious prosecution, wrongful eviction, and defamation, as well as violations of privacy rights and intellectual property infringements. However, coverage for personal and advertising injury has exclusions: it does not apply to injuries caused knowingly by the insured, injuries from material published before the policy period, infringement of intellectual property rights (except advertising ideas), unauthorized use of another's name or product in misleading contexts, and other specified exclusions.

In the High Five lawsuit, initiated on or about May 1, 2015, High Five requested H5G to stop using the 'High Five' name and related imagery. After H5G rejected a proposed settlement, High Five filed a lawsuit asserting six causes of action against H5G for alleged infringement of its trademarks, including violations of the Lanham Act and common law rights. The claims include direct infringement and false designation of origin due to the likelihood of confusion with High Five's Marks.

High Five claims that H5G engaged in bad faith by using the High Five Marks, specifically citing the registration of the domain name high5gear.com as an act of cybersquatting, violating 15 U.S.C. § 1125(d). Additionally, High Five asserts that H5G used marks likely to confuse consumers with its own, constituting deceptive trade practices under Ohio Rev. Code § 4165. Furthermore, High Five accuses H5G of unfair competition, claiming misappropriation of its name, reputation, and goodwill under Ohio common law.

On November 18, 2015, H5G filed a claim with Selective under the 'personal and advertising injury liability' provision of its insurance policy, requesting a defense in the High Five Lawsuit. Selective denied this claim on December 28, 2015, arguing that the allegations of trademark infringement and cybersquatting were not covered by the policy.

Subsequently, on February 26, 2016, H5G filed a First Amended Third-Party Complaint against Selective, seeking a declaratory judgment for Selective's duty to defend and indemnify H5G regarding alleged personal and advertising injuries. H5G also claims damages for Selective’s breach of the insurance policy and for bad faith denial of coverage. On March 14, 2016, Selective responded, denying all allegations in H5G’s complaint.

Selective's Motion for Summary Judgment asserts that it has no duty to defend H5G because the allegations fall outside the policy's coverage, specifically citing that they pertain to trademark infringement and cybersquatting, which are excluded. Selective also highlights four specific policy exclusions that it claims apply to deny coverage. H5G counters that the allegations relate to trade dress infringement, which should be covered, disputes the applicability of the exclusions, and contends that the bad faith claim shouldn’t be dismissed until discovery is completed to demonstrate Selective’s bad faith in denying coverage.

Summary judgment under Rule 56 of the Federal Rules of Civil Procedure is granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The moving party must initially demonstrate the absence of a genuine issue by presenting relevant evidence from pleadings, depositions, and affidavits. The burden then shifts to the nonmoving party, which must produce specific facts indicating a genuine issue for trial, rather than relying solely on pleadings or previous allegations. The nonmoving party cannot merely show metaphysical doubt but must provide evidentiary support for its claims. If the nonmoving party requires additional discovery, it must inform the court and file an affidavit detailing the necessary discovery or request additional time. When assessing the evidence, courts must assume the nonmoving party's evidence is true and draw inferences in their favor. However, the presence of minimal evidence is insufficient to avoid summary judgment; there must be enough for a jury to reasonably find in favor of the nonmoving party. Courts are not required to comb through the record for supporting facts but can rely on the evidence highlighted by the parties.

An insurance policy is fundamentally a contract, and courts apply established contract principles to interpret its provisions. Unambiguous language is interpreted according to its plain meaning, preventing courts from altering provisions that would impose unanticipated risks on insurers. Conversely, ambiguous language must be construed in favor of the insured. The interpretation of an insurance policy is a legal question. 

In Wisconsin, a three-part analysis determines an insurer's duty to defend an insured: 

1. The court first assesses if the insurer’s duty to defend is initiated by the coverage granted in the policy, relying solely on the allegations within the complaint without considering external facts. If any claim in the lawsuit is covered, the insurer must defend the entire suit. 

2. If the policy does not cover the alleged claims, the analysis concludes here, with no duty to defend.

3. If the claims invoke the duty to defend, the court then reviews policy exclusions to see if any negate coverage.

In the context of "Personal and Advertising Injury Liability," Selective argues its duty to defend was not triggered as High Five’s allegations were outside the policy's terms. High Five counters this by referencing the Wisconsin Supreme Court case Fireman’s Fund, where the court determined that allegations of trade secret misappropriation fell within the insurance policy’s coverage for advertising injury. The court highlighted that definitions within the policy encompassed injuries from trademark infringement, thereby triggering the insurer’s duty to defend based on the allegations presented.

The complaint alleges that the insured committed an offense under the advertising injury provision of their insurance policy, with reasonable inferences suggesting it involves trade dress infringement, which the parties recognize as an advertising injury. The insurance policy in question defines 'personal and advertising injury' to include infringement upon copyright, trade dress, or slogans in advertisements, but explicitly excludes coverage for claims arising from infringement of copyright, patent, trademark, trade secret, or other intellectual property rights. Unlike the Fireman’s Fund case, which confirmed coverage for trademark infringement, this case does not recognize such coverage. H5G argues that the policy's inclusion of trade dress and slogan infringement implies coverage for trademark infringement, attempting to equate slogan infringement with trademark infringement. However, the definition of a slogan, as established by the Sixth Circuit, requires it to convey a secondary meaning beyond identifying a product or its source. The Second Circuit further distinguishes slogans from house marks and product marks, asserting slogans are promotional phrases rather than the trademarks themselves. H5G claims ownership of the High Five Marks, which include variations of their company name and do not function as advertising phrases. Consequently, the High Five Marks do not qualify as slogans, as they do not provide a distinct reminder apart from the product’s identity.

H5G contends that High Five's claims resemble trade dress infringement or false designation of origin under the Lanham Act, citing the Fireman’s Fund case. In Fireman’s Fund, the court recognized that false designation of origin claims are encompassed within trade dress infringement, particularly when involving misappropriated product designs. Trade dress is defined as a product's overall image, including features like size, shape, color, texture, and graphics. H5G argues that High Five's assertions about similarities in marks lead to customer confusion regarding product origin, indicating trade dress infringement. However, it is argued that treating these trademark claims as trade dress infringement is erroneous since trademark and trade dress are distinct under the Lanham Act, as established in Gibson Guitar Corp. v. Paul Reed Smith Guitars, LP. The Lanham Act defines trademarks as identifiers for goods, while trade dress refers to product design or packaging that carries secondary meaning. The High Five Marks are determined to be trademarks, not trade dress, as they do not represent the total image of High Five’s products. Consequently, High Five's claims must be based on trademark infringement for Selective's duty to defend to be triggered under the Insurance Policy. Furthermore, the claims do not qualify as "personal and advertising injury" under the policy’s plain meaning. Selective asserts that it has no duty to defend High Five based on four exclusions in the policy: knowing violation of rights, material published prior to the policy period, infringement of intellectual property, and unauthorized use of another’s name or product. H5G disputes the applicability of these exclusions.

The analysis of insurance coverage begins by determining if the policy covers the claims. If not, the inquiry concludes. If there is potential coverage, the next step involves examining exclusions for any that might bar coverage. The first consideration is whether an exclusion is ambiguous; ambiguous exclusions must be interpreted against the insurer. Each exclusion is assessed separately, with clear exclusions enforceable.

Two specific exclusions are addressed: the Prior Publication Exclusion and the Intellectual Property Exclusion. The Prior Publication Exclusion denies coverage for personal and advertising injury from material published before the policy period. Selective Ins. argues this exclusion applies because H5G's alleged infringing website was created in November 2009, before the policy's effective date of June 4, 2015. H5G contends the complaint does not allege prior infringement; however, the complaint states the website was created on or about November 5, 2009, which is after the registration of several High Five trademarks, indicating that the exclusion applies.

The Intellectual Property Exclusion also denies coverage for claims arising from the infringement of intellectual property rights. It includes an exception for infringement related to advertising, but High Five's claims pertain to trademark infringement and cybersquatting, which do not fall under this exception. As a result, this exclusion also effectively denies coverage.

The court finds that both exclusions preclude coverage for High Five's claims, and therefore does not consider additional exclusions.

Selective Insurance of America is granted summary judgment regarding H5G's claim for breach of the duty to defend, as there are no genuine issues of material fact concerning this duty. Since Selective is not obligated to defend H5G, H5G's claim for indemnification also fails. The Court notes that the duty to indemnify is contingent upon H5G being found liable, which makes H5G's claim premature. The claims in the High Five Lawsuit do not fall under the 'personal and advertising injury' provisions of the Insurance Policy, thus negating Selective's duty to indemnify. 

H5G's bad faith claim is dismissed as Selective has a reasonable basis for denying coverage; the policy does not cover the claims against H5G, meaning H5G cannot demonstrate the absence of a reasonable basis for Selective's denial. H5G has not indicated any discoverable evidence that could change this conclusion. 

Finally, H5G's breach of contract claim fails due to Selective's lack of duty to defend or indemnify. Consequently, Selective is entitled to summary judgment, resulting in the dismissal of H5G's First Amended Third-Party Complaint. The interpretation of the Insurance Policy is governed by Wisconsin law.