Liability Insurer May Have to Cover Knockoff Jewelry Site for Allegedly Violating Reese Witherspoon’s Right of Publicity

kateHave you always wanted to own “The One Ring to Rule Them All” of Lord of the Rings fame?  Do you dream of an engagement ring just like Kate Middleton’s?  Your dreams can come true with a visit to Emitations.com, a website that sells costume jewelry, including imitations of celebrity baubles.  There you can search for “Middleton” and find several versions of the famous royal sapphire-and-diamond band, next to pictures of the Duchess herself wearing the real thing.  But… if you long for your very own copy of Reese Witherspoon’s engagement ring, you’re too late.

Emitations has apparently removed its replica of Witherspoon’s ring, or at least stopped referring to it by her name, since the celebrity sued the website’s parent company, Marketing Advantages International, in June 2013.  Witherspoon’s suit, pending in California state court, asserts claims of violation of right of publicity, violation of common law right of privacy, common law trademark/trade name infringement, common law trade dress infringement, and common law slogan infringement, arising from Emitations’s unauthorized use of her name and image to sell jewelry, in particular a knockoff of her engagement ring.

The Insurance Battle0620-reese-witherspoon-emitations-2

In response to the lawsuit, Marketing Advantages notified Maryland Casualty Company. Maryland had issued Marketing Advantages a Commercial General Liability insurance policy covering, among other things, “advertising injury” that Marketing Advantages might inflict on third parties.  Maryland agreed to pay Marketing Advantages’ defense costs in the Witherspoon suit, but reserved its right to dispute coverage. It then filed a declaratory judgment action against Marketing Advantages and Witherspoon, asserting that it had no duty under the policy to defend or indemnify Marketing Advantages.  Witherspoon and Marketing Advantages moved to dismiss or stay the insurer’s case on the ground that a federal court should abstain from deciding issues that are raised in a prior pending state action.  In an order issued in January, the federal court agreed, but decided to stay the action pending resolution of the underlying litigation, rather than dismiss it outright and subject the insurer to the risk of a potential time bar.

Exceptions and Exclusions

In arguing that its policy does not cover the Witherspoon suit, Maryland pointed to the policy’s intellectual property exclusion, which bars coverage for advertising injury “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.”  However, an exception to the exclusion provides that “this exclusion does not apply to infringement, in your ‘advertisement’ of copyright, trade dress, or slogan.”

The effect of this exclusion-and-exception is generally to clarify that the insurance is not intended to cover all claims of intellectual property infringement, but rather only those infringements that happen in the context of advertisements.  Due to the different list of harms in the exception and the exclusion, however, it can be argued that there is coverage for infringement in an advertisement of copyright, trade dress, or slogan, but not for infringement of other forms of intellectual property such as trademarks – which are listed in the exclusion but not in the exception – or, presumably, right of publicity.  While Witherspoon has not raised claims of copyright infringement, she has included counts of trade dress infringement and slogan infringement, which fall within the exception to the exclusion and would appear to invoke coverage.

A Claim by Any Other Name…

In California, however, the duty to defend is judged not simply by comparing the policy with the causes of action named in the complaint, but rather by looking at the alleged facts underlying the complaint (or otherwise known to the insurer).  Thus, Maryland argued that the court should recognize that Witherspoon’s complaint is in fact based exclusively on use of her name and image and does not properly sound in trade dress or slogan infringement.  Indeed, Maryland accused Witherspoon’s counsel of “deliberately mislabeling” her causes of action so as to shoehorn the claim into the policy’s coverage and avoid the application of California precedent holding that right of publicity claims are non-covered intellectual property claims.

Without directly addressing Maryland’s accusations of overly creative complaint-drafting, the federal court concluded that it was being asked to decide issues that should be left up to the state court in the first instance.  In particular, the court held that the coverage issue turned on whether Witherspoon had “stated a claim for infringement of trade dress or slogan.”

Although the opinion does not specify, presumably the court means that the question is whether Witherspoon has stated a claim sufficiently supported by factual allegations to survive a motion to dismiss.  Clearly, the question is not whether she stated the claims on the face of her Complaint – she unquestionably did.  Nor can the question be whether she has stated claims on which she will prevail, since the insurer’s duty to defend is based on claims brought, not ultimate liability.  Rather, as Maryland argued, coverage is judged based on whether the facts Witherspoon has alleged would support a covered claim, such that there is some possibility of Marketing Advantages being held liable for a covered injury.

The problem with this outcome, from Maryland’s perspective, is that it is not a party to the underlying litigation, and its policyholder, Marketing Advantages, has no incentive to bring a motion to dismiss two causes of action that, if successful, would deprive it of insurance coverage.  As articulated in its opposition to the motion to dismiss or stay, Maryland fears that it will have to choose between continuing to pay defense costs, and paying Witherspoon to settle the suit, without an opportunity to litigate the issue of coverage under the policy.

Meanwhile, fans can continue to buy jewelry “inspired by” other celebrities’ bling, though Emitations is careful to point out that the celebrities pictured on its site have not sponsored or endorsed its products.  Rather, Emitations.com claims that its use of the celebrity pictures and names is “for informational purposes only, in order to demonstrate the similarity of Emitations.com’s products with those worn by celebrities.”

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