Three recent decisions, two published from the California Court of Appeals, and one unpublished from the Ninth Circuit, address the boundaries of coverage for implicit disparagement claims under California law emphasizing both the limitations and opportunities for such claims.

For intellectual property practitioners, these cases highlight why a number of typically asserted IP claims may create coverage falling outside the scope of intellectual property exclusions, even when the labeled causes of action are expressly excluded from coverage.

Two Courts Of Appeal Tussled With The Scope Of The Doctrine Of Implicit Disparagement

Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc.,
207 Cal. App. 4th 969, 981 (2012)

Charlotte Russe addressed the retailer Charlotte Russe’s use of hangtags and other visual displays to promote significantly discounted goods, that allegedly falsely implicated that the claimant’s goods were not of high value even though there was no direct statement denigrating its products.

Hartford Cas. Ins. Co. v. Swift Distribution, Inc.,
__ Cal. Rptr. 3d __, 2012 WL 5306248 (Cal. Ct. App. (2d Dist.) Oct. 29, 2012)

Analyzing trademark infringement claims premised on use of the name “Ulti-Cart” to mislead by implied reference to “Multi-Cart” where advertisements for Ulti-Cart only referred to the product, the court drew distinctions between claims of blurring which were not covered as they alleged no more than palming off another’s goods as one’s own, and tarnishment where implicit statements denigrating another’s product could be inferred.

Both Agree With Michael Taylor Designs, Inc. v. Travelers Property Cas. Co. of Am., No. 11-16052, 2012 WL 5385598 (9th Cir. (Cal.) Nov. 5, 2012)

Swift distinguished its facts from Michael Taylor, but criticized Charlotte Russe.  Charlotte Russe was more nuanced.  It relied alternatively upon analytical principles Swift did not address. These included the: (1) potential for coverage where the pleadings may be amended to state a covered claim; (2) “Disparagement” coverage was not limited to claims for “trade libel”; (3) California expressly rejected the “all elements” rule, concluding that aspects of disparagement such as falsity need not be expressly alleged.

            Michael Taylor was affirmed post-dating Swift

Swift was brought to the Ninth Circuit panel’s attention via a 28(j) letter, but the Court elected not to address that decision.  This was no surprise as it specifically distinguished a series of implicit disparagement coverage cases including the district court decision in Michael Taylor Designs, Inc. v. Travelers Property Casualty Co. of America, 761 F. Supp. 2d 904 (N.D. Cal. 2011).  Both cases are consistent with the analysis in Michael Taylor.