LEGAL GUIDE
Written by attorney Mark E. Wiemelt | Jan 26, 2011

Dealing With Trademark Bullies

As the United States Trademark Office has stated, a trademark bully "could be described as a trademark owner that uses its trademark rights to harass and intimidate another business beyond what the law might be reasonably interpreted to allow." Trademark bullies are considered such a problem that legislation has been passed and the United States Trademark Office has begun studies to address trademark bullying and the litigation tactics of trademark bullies. Indeed, the Trademark and Technical Conforming Amendment of 2010 directs the Secretary of Commerce to "study and report" to Congress on "The extent to which small businesses may be harmed by litigation tactics attempting to enforce trademark rights beyond a reasonable interpretation of the scope of the rights granted to the trademark owner."

Occasionally, small businesses receive threatening letters from their larger competitors' attorneys alleging trademark, service mark, tradename, domain name or trade dress infringement, false advertising or unfair competition. All too often, these businesses agree to cease and desist the allegedly infringing activities, regardless of the merits of their competitors' claims, simply because they wish to avoid or cannot afford the costly litigation process. Unfortunately, many of these businesses fail to realize that they have a current or expired insurance policy which obligates the insurance company to defend and indemnify them in lawsuits involving intellectual property rights.

In addition, insurance brokers, insurance agents and insurance companies sometimes advise businesses that their policies do not provide infringement defense coverage, even when coverage exists. Insurance companies may even reject the tender of the case and deny coverage in cases when coverage exists. Worse yet, attorneys without experience in these matters sometimes accept the insurance company's rejection of the tender and denial of coverage and advise businesses that coverage does not exist. As a result, businesses faced with a cease and desist demand or a lawsuit involving intellectual property rights should have their case reviewed by attorneys familiar with intellectual property and insurance coverage law.

Typical Commercial General Liability (CGL) policies contain "advertising injury" provisions which may trigger coverage in lawsuits involving intellectual property. To be covered, the alleged infringements must have occurred in the course of advertising activities. However, even if the policy contains the "advertising injury" language, coverage issues may arise.

For example, the typical complaint for infringement of intellectual property rights includes additional counts for intentional or willful infringement. Most CGL policies contain language expressly excluding intentional acts. Fortunately, intentional acts in the context of malice or specific intent, which are not covered, may be distinguished from willfulness in the context of infringement, which may be covered. If the carrier chooses to defend under a reservation of rights with respect to the intentional or willful counts, a conflict of interest is created and the insured may have the right to select independent defense counsel. In such situations, the carrier may also be responsible for payment of the independent defense counsel's fees because its duty to defend is broader than its duty to indemnify.

Of course, it may not always be in the defendant's best interest to trigger insurance coverage. This decision should be made by counsel familiar with the merits of the intellectual property claims, as well as the insurance coverage issues.

Our experienced Chicago trademark attorneys offer a free initial consultation for intellectual property matters, including a preliminary review of cease and desist letters, websites, infringement complaints or lawsuits, and business insurance policies to determine the possibility of insurance coverage and a defense funded by the insurance company in the event of a lawsuit. Upon completion of the free review, we selectively defend trademark infringement lawsuits at no cost to the client.

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