Skylink Technologies, Inc. v. Assurance Company of America

Citations: 400 F.3d 982; 74 U.S.P.Q. 2d (BNA) 1157; 2005 U.S. App. LEXIS 4108; 2005 WL 566730Docket: 04-2005

Court: Court of Appeals for the Seventh Circuit; March 11, 2005; Federal Appellate Court

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Skylink Technologies, Inc. initiated a lawsuit against Assurance Company of America, asserting that Assurance was contractually required to defend Skylink in two lawsuits brought by competitor The Chamberlain Group, Inc. The district court denied Skylink's summary judgment motion while granting Assurance's, prompting Skylink to appeal. The Seventh Circuit Court of Appeals reviewed the case de novo, emphasizing the need to interpret the underlying complaint favorably for Skylink.

Chamberlain, which produces garage door openers featuring 'rolling code' technology for enhanced security, sued Skylink on grounds of false advertising and copyright infringement, alleging that Skylink's products do not genuinely operate compatibly with Chamberlain's technology as advertised. Skylink argued that Assurance's insurance policies, which included commercial general liability and umbrella coverage from 1999 to 2002, obliged Assurance to defend against claims of 'advertising injury,' which encompasses various offenses, including copyright infringement and disparagement of products.

However, the insurance policies explicitly excluded coverage for 'advertising injury' linked to products failing to meet advertised quality or performance standards. This provision played a crucial role in the court's decision regarding Assurance's duty to defend Skylink in the lawsuits initiated by Chamberlain.

Skylink asserts that Chamberlain's lawsuit alleges disparagement based on Skylink promoting its products as 'compatible' with Chamberlain's rolling code technology. Chamberlain counters that while a Skylink transmitter can open a door with rolling code technology, it actually disables this feature, leading customers to mistakenly believe they are using compatible products. Consequently, any product failures would be wrongfully attributed to Chamberlain, harming its reputation. Skylink argues that Chamberlain's complaint essentially claims its products do not meet the advertised compatibility, a claim excluded under the Skylink-Assurance contract.

Skylink references the definition of 'disparage' and claims that Chamberlain's assertion of false comparison harms its reputation. While some courts recognize disparagement from false comparisons, Skylink contends that its packaging merely states compatibility, not a direct comparison that would harm Chamberlain's reputation. Unlike a disparaging advertisement, the packaging alone does not damage Chamberlain's reputation; the injury stems from Skylink’s products not utilizing rolling code technology, not from the packaging itself.

Additionally, Skylink claims that Chamberlain's lawsuit falls under the misappropriation clause of its insurance policy due to mentions of 'rolling code' technology and 'SECURITY' on its packaging. Citing relevant case law, Skylink argues that these phrases constitute unauthorized advertising ideas. However, the core of Chamberlain's complaint is about Skylink's failure to deliver on the advertised promise rather than misappropriation.

Lastly, Skylink addresses Chamberlain's copyright infringement claim, asserting it constitutes an advertising injury, referring to Chamberlain's allegation of a violation of 17 U.S.C. 1201(a)(2).

Skylink has engaged in the manufacture, importation, and sale of a Model 39 universal transmitter and a Model 89 keypad, which are specifically designed to circumvent a technological measure, lack any significant purpose other than this circumvention, and are marketed for that purpose. This conduct violates 17 U.S.C. 1201(a). Chamberlain's claims focus on the harm caused by the circumvention of the rolling code technology, rather than the packaging of the products. Chamberlain does not contest Skylink's marketing practices unless they falsely claim to utilize rolling code technology. Consequently, Assurance has no obligation to defend Skylink in related legal actions, and the district court's decision is upheld. Assurance acknowledges a potential lack of conflict between California and Illinois law but concurs with the application of Illinois law as determined by the district court.