Texas Court Holds No Duty to Defend Claims of Monopolistic Practices

In its recent decision in Uretek United States v. Cont’l Cas. Co., 2015 U.S. Dist. LEXIS 18610 (S.D. Tex. Feb. 17, 2015), the United States District Court for the Southern District of Texas had occasion to consider a general liability insurer’s coverage obligations with respect to allegations of anticompetitive conduct.

Continental insured Uretek under a commercial general liability policy. Uretek brought suit against a competitor, Applied Polymerics (“Applied”), for alleged infringement of a patent regarding a pavement-lifting process. Applied, in turn, asserted counterclaims against Uretek for: (1) false representation under the Lanham Act; (2) monopolization and attempted monopolization under the Sherman Act; and (3) unfair and deceptive trade practices under North Carolina state law. Applied’s counterclaims were premised on the theory that Uretek made misrepresentations to competitors and customers regarding the scope of its patent. These misrepresentations, claimed Applied, were made with the intent of having an anti-competitive effect in that they led potential customers into believing that Applied and other competitors of Uretek into believing that only Uretek could provide certain services.

Uretek sought coverage from Continental for Applied’s counterclaim, primarily as the personal and advertising injury offense of “oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products, or services.” Continental, however, took the position that Applied’s counterclaim did not involve disparagement of Applied, or its goods, products, or services, and thus did not constitute a covered personal and advertising injury offense.

On motion for summary judgment Uretek advanced three arguments as to why the counterclaim came within the policy’s coverage, each of which was rejected by the court.

First, Uretek pointed to an allegation in the counterclaim whereby Applied asserted that Uretek’s conduct had the effect of disparaging the services of Applied and others.   The court observed, however, that the counterclaim did not contain any allegation that Uretek specifically disparaged Applied or its services. Instead, Uretek was alleged to have made misrepresentations regarding its own services in an attempt to coerce potential bidders into believing that Uretek was the sole legal provide of such services services. This distinction was crucial to the court, which concluded that deceptive statements concerning the scope of Uretek’s own patent could not be construed as disparagement of another’s services. As the court explained:

If Applied had alleged that Uretek told customers that Applied had infringed the ‘831 Patent, the Court would agree that the alleged communication constituted “disparage[ment]” under the Policy and triggered CCC’s duty to defend. … But the Applied Countersuit did not allege or imply that Uretek ever invoked the name or services of any competitor in its communications with customers.

Uretek also asserted that Applied’s assertion of a claim under the Lanham Act necessarily triggered coverage under the Continental policy as the personal and advertising injury offenses of “use of another’s advertising idea in your ‘advertisement’” and/or “[i]nfringing upon another’s copyright, trade dress or slogan in your ‘advertisement,’” since these are the very harms addressed by the Lanham Act. The court, however, rejected this assertion, concluding that the mere inclusion of a Lanham Act claim does not necessarily trigger coverage, but instead that coverage is determined by the facts supporting the Lanham Act claim. These factual allegations, explained the court, did not demonstrate the requisite infringement or misappropriate of intellectual property:

Applied’s decision to sue under the Lanham Act, as opposed to any other legal theory, has no bearing on whether Continental owed Uretek a duty to defend. The relevant question is whether the factual allegations underlying Applied’s Lanham Act claim correspond to the Policy’s coverage of claims asserting “personal and advertising injury.” As discussed above, they do not. Applied sought relief under the Lanham Act based on misleading statements perpetuated in the marketplace regarding the scope of the ‘831 Patent. Nowhere did Applied allege that Uretek had wrongfully appropriated Applied’s advertising idea, copyright, trade dress, or slogan, and the Policy’s coverage of such claims is irrelevant.

 Finally, the court considered and rejected Uretek’s assertion that Uretek’s misrepresentations concerning its own patent protections in any way pertained to Applied’s own advertising ideas.

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