Are Counterfeit Goods Covered in a Commercial General Liability Policy?
This question whether counterfeit or "knockoff"goods are covered under a Commercial General Liability policy has become more relevant as knockoff products grow in popularity in the U.S.
Brand owners are filing suit against other retailers who are using their brand name without authorization. An example is the recent $19.4 million judgment against Costco Wholesale for selling rings advertised as “Tiffany” rings, though the rings were not actual rings from the Tiffany jeweler, just similar in cut and style.1 According to the OECD, $461 billion of world trade in 2013, which represents 2.5% of global imports, were in counterfeited goods.2 These statistics include all physical counterfeit goods, the most common of which is footwear;3 however, trademarks are even infringed on strawberries and bananas.4
As a result, insurance carriers should be paying close attention to both the definition of “advertising injury” and “advertisement” - as well as recent court cases - to determine to what extent their policy covers claims involving knockoff products. This point was made in a recent Gen Re publication, “Are Claims Arising Out of ‘Knockoff’ Goods ‘Advertising Injury’?” by Jim Pinderski and Michael DiSantis of Tressler LLP.
The Pinderski article reminds us that the typical definition of “advertising injury” in a CGL policy includes the advertising idea or intellectual property claims, but only if an “advertisement” is involved. The definition of “advertising injury” often does not include intellectual property claims that do not involve an “advertisement.” As described in the article, conflicting court cases have led to some claims involving knockoff products being covered by a CGL policy and other claims involving “knockoff” products not being covered by a CGL policy. This often depends on the jurisdiction and definition of “advertisement” in the policy.
The Pinderski article also discusses several court cases that have interpreted the definition of “advertisement.” Interestingly, the article discusses how some courts have broadly construed the definition of “advertisement,” while others have not. For example, in one of the discussed cases, E.S.Y., Inc. v. Scottsdale Ins. Co.5, the court found that a hangtag on a piece of merchandise was an “advertisement” and coverage was owed to the insured. In contrast, United States Fidelity & Guaranty Co. v. Fendi Adele S.R.L.6, held that a brand and logo used for product identification is not an “advertisement.”
Since this is a growing issue and a potentially expensive one, insurers should be paying close attention to the development of case law and claim trends. A great place to start would be to read the Pinderski article. The article not only discusses the cases mentioned above in greater detail, but also the causation requirements and the prior publication exclusion as they relate to “advertising injury” in the CGL.
- "Costco owes Tiffany $19.4 million for fake Tiffany rings, judge rules." CNBC, August 14, 2017.
- "Trade in Counterfeit and Pirated Goods." OECD, April 8, 2016.
- Ibid at Note 2.
- Ibid at Note 2.
- 139 F, Supp 3d 1341, 1355 (S.D. Fla. 2015).
- 823 F. 3d 14d (2d Cir. 2016).