EKCO Group, Inc. v. Travelers Indemnity Co.

          United States Court of Appeals
                      For the First Circuit


No. No. 01-1029

                        EKCO GROUP, INC.,

                       Plaintiff, Appellee,

                                v.

         THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS,

                      Defendant, Appellant.


         APPEAL FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF NEW HAMPSHIRE

     [Hon. Joseph A. DiClerico, Jr., U.S. District Judge]


                              Before

                       Boudin, Chief Judge,

                    Torruella, Circuit Judge,

                  and Barbadoro,* District Judge.


     William T. Corbett with whom Laura A. Brady, Drinker Biddle
& Shanley LLP, John A. Lassey, Jennifer L. Murphy and Wadleigh,
Starr & Peters, P.L.L.C. were on brief for appellant.
     Gordon A. Rehnborg, Jr. with whom Doreen H. Connor and
Wiggin & Nourie, P.A. were on brief for appellee.



    *Of the District of New Hampshire, sitting by designation.
                          December 10, 2001



           BOUDIN, Chief Judge.     This case presents, once again,

see Liberty Mut. Ins. Co. v. Metro. Life Ins. Co., 260 F.3d 54

(1st Cir. 2001), the vexing question of how to interpret an

"advertising injury" clause in a general commercial liability

("GCL") policy.     EKCO Housewares, Inc., a subsidiary of EKCO

Group, Inc. (collectively "the EKCO companies"), markets kitchen

products, some of which it makes itself.          Among its products are

metal    tea   kettles,   which   are   sold   to    K-Mart,    a   large,

independent chain of retail stores.        In 1998, Chantal Cookware

Corporation of Houston, Texas, brought suit in federal court in

Texas against EKCO Housewares, K-Mart and others.                   Chantal

Cookware Corp. v. Vitrex Gourmet Corp., No. H-97-3978 (S.D. Tex.

1998).

           The   complaint   in   the   Chantal    case,   as   ultimately

amended, charged that the EKCO tea kettle (its "Royale" 2.5

quart kettle) resembled in design and ornament Chantal's best

selling tea kettle (its "Classic" 2.5 quart kettle) and that the

defendants were    liable for trade dress infringement and unfair

competition under both the Lanham Act, 15 U.S.C. § 1125(a)

(1994), and state law, and for infringement of a design patent


                                  -2-
covering Chantal's kettle, 35 U.S.C. § 271 (1994 & Supp. V

1999).   Chantal said that EKCO had deliberately copied the well

known design, features, and packaging of Chantal's tea kettle,

that the EKCO version was a low quality replica, and that the

production and sale of the EKCO tea kettle had damaged Chantal.

          Travelers Indemnity Company of Illinois ("Travelers")

had insured EKCO Group and EKCO Housewares under GCL policies

covering successive time periods from 1993 to 1997.           The EKCO

companies notified Travelers of the Chantal lawsuit, asserting

that Travelers was obligated to defend and indemnify.         Although

the Travelers policies provided various coverages, the provision

invoked by the EKCO companies insured them against liability

for, and promised to defend suits based upon, "advertising

injury   caused   by   an   offense   committed   in   the   course   of

advertising your goods, products or services."          This coverage

was subject to several limitations.         The policy defined the

phrase "advertising injury" as follows:

          1. "Advertising injury" means injury arising
          out of one or more of the following
          offenses:

                  a. Oral or written publication
                  of material that slanders or
                  libels     a     person     or
                  organization or disparages a
                  person's   or   organization's
                  goods, products or services;



                                  -3-
                 b. Oral or written publication
                 of material that violates a
                 person's right of privacy;

                 c.     Misappropriation    of
                 advertising ideas or style of
                 doing business; or

                 d. Infringement of copyright,
                 title or slogan.

         Travelers refused to defend, and the EKCO companies

thereupon brought suit against Travelers in New Hampshire state

court seeking a declaration that Travelers was obligated to

defend the Chantal lawsuit.   EKCO Group, which had purchased the

policies for itself and affiliated companies, has ties with New

Hampshire.   Travelers removed the case to federal district court

in New Hampshire, claiming jurisdiction based on diversity of

citizenship.   28 U.S.C. § 1332.   Thereafter, the Chantal lawsuit

was settled.   The EKCO companies hope to recover their defense

costs and amounts paid in settlement.

         In the federal action, both sides moved for summary

judgment, and on November 29, 2000, the district court filed a

decision in favor of the EKCO companies.   Applying New Hampshire

law to construction of the policy, the district court held inter

alia that the trade dress and unfair competition claims made by

Chantal against EKCO Housewares fell within the policy coverage

for advertising injury, that the injuries were caused by an



                               -4-
offense committed in the course of advertising EKCO's goods, and

that certain exclusions relied upon by Travelers did not apply.

             Travelers appealed to this court.                Thereafter,       the

EKCO companies filed a motion, joined by Travelers, to dismiss

EKCO   Housewares    as    a     party-plaintiff;       the    purpose    was    to

preserve federal jurisdiction, it having become clear belatedly

that   EKCO     Housewares,        like     Travelers,        is   an    Illinois

corporation.        EKCO    Group    is     a   proper    plaintiff,       having

contracted for the policies in question, and both sides have

stipulated that rulings as to EKCO Group's rights will control

as to EKCO Housewares despite its dismissal.                  Precedent permits

us to grant the requested motion, Newman-Green, Inc. v. Alfonzo-

Larrain, 490 U.S. 826, 833 (1989), and we now do so.

             Turning to the merits, we note that the parties agree

that   New   Hampshire     law    controls      the   interpretation      of    the

policies.     This position is colorable (EKCO Group had its main

office there when it contracted for coverage), so we accept it,

Merchants Ins. Co. of N.H., Inc. v. U.S. Fid. & Guar. Co., 143

F.3d 5, 8 (1st Cir. 1998), observing that the pertinent precepts

of New Hampshire law appear much like those of other states.

Because the interpretation of the insurance policy in this case

presents a question of law, see Ross v. Home Ins. Co., 773 A.2d




                                      -5-
654, 656 (N.H. 2001), we review the district court's ruling and

construe the policy de novo.

             Needless to say, the advertising injury provision is,

at least in certain applications, unclear and has provoked a

good deal of litigation.       E.g., Liberty, 260 F.3d at 54.                New

Hampshire, like most states, tends to favor the insured where

the policy is genuinely ambiguous and the choice is between two

plausible readings, one providing coverage and the other not.

Fed. Bake Shop v. Farmington Cas. Co., 736 A.2d 459, 460 (N.H.

1999).   But plausibility is a matter of degree, and a policy may

be unclear in some respects and clear enough in others.

             In this case, under the plain terms of the policy there

is coverage only if two different conditions are satisfied.

First, there must be injury "arising out of" a defined offense;

here   the   only   listed   offense   claimed     by   EKCO    Group   to    be

applicable is "[m]isappropriation of advertising ideas or style

of doing business."       Second, the offense in question "must be

committed in the course of advertising your [the insured's]

goods,   products    or   services."     As   we    shall      see,   the    two

provisions cannot be construed wholly in isolation from one

another.

             It is by no means impossible, by piecing together

dictionary definitions, to read the policy language in question


                                   -6-
to provide coverage here for the EKCO companies.            This is

easiest to do (and most defensible) for the first part of the

pertinent    offense   definition--the   term   "misappropriation"--

although even here the coverage might be debated.        This is so

because it is not easy to match Chantal's claims to whatever

remains of the evanescent common law tort so labeled (EKCO does

not even try), and it is uncertain whether the policy used the

term in a generic sense.

            There is no general common law rule against using the

ideas, inventions and practices of others, absent deception or

wrongful acquisition.     See Prosser & Keeton on Torts 1020-22

(5th ed. 1984).    Rather, the label "misappropriation" has been

used to describe a judicially created tort where, in narrow

categories or for special reasons, common law protection has

been given to a few intangibles.1      Chantal's design patent claim

is statutory, and its trade dress claim would more commonly be

described in common-law jargon as "passing off," "trademark" or

"unfair competition."


    1 The classic case is Int'l News Serv. v. Assoc. Press, 748
U.S. 215 (1918), now obsolete as a federal doctrine but possibly
still available under state law in unusual cases.          Nat'l
Basketball Ass'n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir.
1997). Restatement (Third) of Unfair Competition § 38 cmt. c,
at 412 (1995); id. reporters' note cmts. a and b. The original
Restatement of Torts did not use the term, and the Restatement
of Unfair Competition uses it only generically to encompass
trade secret law and right of publicity.

                                 -7-
           Alternatively, the policy reference to misappropriation

might be read not as a technical legal reference but generically

to include any tort, statutory or otherwise, for which wrongful

acquisition is an element.         Both trade dress and design patent

suits are based in part on wrongful appropriation in this latter

sense.         If     everything     turned   on     the    reference      to

"misappropriation," the canon that policies be construed in

favor of the insured might resolve the case for EKCO, Fed. Bake

Shop,    736   A.2d    at   460,   although   this   is    not   a   foregone

conclusion.2

           The other part of the offense definition--that the

misappropriation be of an advertising idea or style of doing

business--is harder to satisfy, but perhaps not linguistically

impossible.         To call a real teapot intended for sale as a

kitchen utensil an "advertising idea" is not a natural usage:

the phrase refers more readily to an advertising concept or plan

for an advertising campaign (both of which could indeed be



    2 Other circuits have viewed the omission of specific
references (e.g., to trademark) as precluding coverage. Callas
Enters., Inc. v. Travelers Indem. Co. of Am., 193 F.3d 952, 956-
57 (8th Cir. 1999); ShoLodge, Inc. v. Travelers Indem. Co. of
Ill., 168 F.3d 256, 260 (6th Cir. 1999); Advance Watch Co., Ltd
v. Kemper Nat'l Ins. Co., 99 F.3d 795, 806 (6th Cir. 1996)
(product itself not "advertising"). See also Curtis-Universal
v. Sheboygan Emergency Med. Serv., Inc., 43 F.3d 1119, 1123 (7th
Cir. 1994) (refusing to construe "unfair competition" in its
broadest sense in predecessor policy).

                                     -8-
misappropriated).     And "style of doing business" seems even more

remote to the teapot; the phrase is commonly used, in the legal

context, to refer to a theme or motif of packaging of products

or of the business venue itself, such as the Mexican restaurant

decor involved in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S.

763 (1992).

            Still, a distinctively designed teapot could, assuming

secondary meaning, be seen as both a concrete product and as an

insignia triggering a favorable association in the public's mind

with the manufacturer, just as an ordinary trademark device or

name might do.     I.P. Lund Trading ApS & Kronin, Inc. v. Kohler

Co., 163 F.3d 27, 51-52 (1st Cir. 1998) (concurring opinion).

To this extent the physical teapot itself might be deemed to

function as an "advertising idea" for Chantal.            The district

court took this view and then, by a kind of substitution, deemed

EKCO Housewares's         production and sale of the same teapot to

satisfy     the   other     requirement   of   the   policy--that   the

misappropriation be "committed in the course of advertising your

[EKCO's] goods, products or services."

            This approach to construing the policy presents three

problems.     The first is that it requires      one to read at least

some of the policy language unnaturally.        Yes, EKCO's production

and sale of the teapot could be described as "advertising . . .


                                   -9-
[EKCO's         teapot]"    in    at    least    two   different     senses:     in    the

technical sense that the teapot itself might--assuming secondary

meaning, Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S.

205, 216 (2000)--falsely suggest that Chantal was the source,

and in the banal sense that every product displayed or depicted

is an advertisement for itself and its obvious features.                         But to

describe this case of product copying as a case about EKCO's

advertising is surely a very strained way to speak.

                 Although    the       term    "advertising"       has   a     range    of

meanings,         the one that leaps to mind in reading this policy is

what       is    surely     the    most       common   use:   as    a    reference     to

advertising in newspaper, radio, television or other familiar

media where the advertisement is an activity or item distinct

from the product being advertised.                     This is so even though, as

the district court pointed out, the dictionary also permits the

term "advertising" to be used, with equal legitimacy in the eyes

of     lexicographers,            to    mean     any   form   of    "calling     public

attention" to something else ( e.g., her tan was an advertisement

for    summer       vacations;         his     athletic   ability,       for   vigorous

exercise, etc.).3


       3
     The Random House Dictionary of the English Language 29 (2d
ed. 1987) ("The act or practice of calling public attention to
one's product . . . esp. by paid announcement in newspapers,
over radio or television, on billboards, etc."); The American
Heritage Dictionary 82 (2d ed. 1992) ("The action of attracting

                                               -10-
            The second problem with the approach in this case is

that it is a slippery slope to unacceptable outcomes.               Imagine

that Chantal's claim was not for trade dress but solely based on

a design or utility patent, say, because EKCO had copied a

Chantal electric tea kettle shaped like a furnace that boiled

water in 15 seconds.          Certainly, the EKCO tea kettle itself

could    still   be   described   as    "advertising"--in    the   "calling

public    attention     to"   sense--its     own   evocative   design    or

technical prowess; but linguistic awkwardness aside, surely no

one imagines that a policy covering "advertising injury" was

intended to provide coverage for ordinary patent violations.

See St. Paul Fire & Marine Ins. Co. v. Advanced Intercontinental

Sys., Inc., 824 F. Supp. 583, 586 (E.D. Va. 1993), aff'd, 21

F.3d 424 (4th Cir. 1994).

            Coverage on the present facts requires that one stretch

the term "advertising" in a way that has no natural stopping

point short of absurd results.           The obvious remedy is to read

the term both in the coverage and definitional provisions to

refer to conventional advertising--something separate from the

product--which also happens to be the term's most familiar

usage.      So   to   restrict    the    term   does   not   banish   every


public attention to a product or business."); Black's                   Law
Dictionary 55 (7th ed. 1999) ("The action of drawing                    the
public's attention to something to promote its sale.").

                                   -11-
uncertainty--such       as     whether     a     one-off    prospectus       or     a

salesman's oral pitch is "advertising," see Liberty, 260 F.3d at

64-66--but does avoid impossible applications.

           Finally,     this    narrower       reading     coheres   with    other

language    in    the    same     two     provisions--the         coverage        and

definitional paragraphs.          To speak of "the course of advertising

your goods" suggests some distinction between producing and

selling the goods on the one hand and "advertising" them on the

other; and all of the definitions of covered offenses apart from

"misappropriation" make clear (in two cases) or imply (in the

last)    that    the    drafter     had     in      mind   something      akin     to

conventional     advertising       ("oral      or    written     publication       of

material" causing libel or invasion of privacy; infringement of

copyright, title, or slogan).

           In the end, we are left to choose between two different

concepts of "advertising":              the familiar bundle of business

activities associated with that term and the far broader concept

of inviting public attention, deliberately or not and by any

means.     Although     the    bare     language      of   the   policy    is     not

conclusive, the more natural reading and the only one that

avoids outlandish results is the former.                   It is worth adding

that if the latter, open-ended definition were employed, it is




                                      -12-
hard to see how an insurer could even begin to calculate risks

and set premiums.

              Problems of application arise in insurance cases about

which neither side has ever thought.         And in those cases, if the

policy language is unclear, the answer is not automatically to

include or exclude but instead to use the "construe against"

canon to help choose among reasonable readings.                   Taking this

policy as a whole, only the conventional reading of the term

"advertising" is reasonable, even if it too is blurred at the

edges.

              On appeal, EKCO says briefly that it did advertise the

Royale   in    the   conventional   sense   as    well:    it    depicted   its

teapot, for example, in a printed brochure and in its 1997

annual report.       But here EKCO has shifted ground as to just what

it regards as the "misappropriation" charged by Chantal and

ignored the policy requirement that the defined offense--here,

allegedly misappropriation of advertising ideas or style of

doing    business--be    "committed   in    the   course    of    advertising

[EKCO's] goods . . . ."         Put differently, there must be some

causal    connection     running    from    the    offense       through    the

advertising to the injury.4


    4Bank of the West v. Superior Court of Contra Costa County,
833 P.2d 545, 558-59 (Cal. 1992) (en banc) (collecting cases);
Lazzara Oil Co. v. Columbia Cas. Co., 683 F. Supp. 777, 780

                                    -13-
           Nothing in the Chantal complaint suggests that it was

concerned with EKCO's design of its brochures or annual reports

or that the graphics or typography were invented by or borrowed

from Chantal.    The misappropriation offenses charged by Chantal

in its complaint were the physical reproduction and sale of a

look-alike teapot by EKCO.    That physical reproduction and sale

were not done "in the course of" making brochures or annual

reports.   The latter is advertising, to be sure, but not where

the offenses charged by Chantal occurred.

           In 1998--after the events in this case--the insurer

organization that drafts standard form language for insurers to

use altered the provisions that relate to advertising injury.

See generally In re Ins. Antitrust Litig., 938 F.2d 919 (9th

Cir. 1991).     The new language (which Travelers may or may not

have adopted) does provide coverage for infringement of trade

dress in "your advertisement" as well as copyright violation or

misappropriation in advertising; but the changed language also

expressly defines "advertisement" as "a notice that is broadcast




(M.D. Fla. 1988), aff'd, 868 F.2d 1274 (11th Cir. 1989); A.
Meyers & Sons Corp. v. Zurich Am. Ins. Group, 545 N.E.2d 1206,
1209 (N.Y. 1989).    But see John Deere Ins. Co. v. Shamrock
Indus., Inc., 696 F. Supp. 434, 440 (D. Minn. 1988), aff'd, 929
F.2d 413 (8th Cir. 1991).

                               -14-
or published to the general public or specific market segments

about your good, products, or services . . . ."5

           EKCO mentions this 1998 change, suggesting that the

narrowed definition contrasts with the prior language.              Where a

defendant in a trip-and-fall case makes expensive repairs to the

premises   before    trial,   it       may   or   may   not   (depending   on

circumstances) be reasonable to infer that the defendant thought

the prior state of the premises unsafe (although doubt about the

strength of this inference is one reason why such evidence may

be barred, see Fed. R. Evid. 407 & advisory committee's notes.)

But expression can always be made clearer and to change language

in   a   policy     is   simply    a     precaution     against   recurrent

misunderstanding.

           We have not discussed the case law at any length

because there are no New Hampshire cases directly in point and

those from other courts are divided.6             It is true that the two


     5
     Insurance   Service   Office,  Inc.,   Commercial   General
Liability Coverage Form (1999) CG 00 01 07 98, § 5, reprinted in
1 International Risk Management Institute, Inc., Commercial
Liability Insurance, IV.T.150 (Supp. 2001)
     6Compare Bay Elec. Supply, Inc. v. Travelers Lloyds Ins.
Co., 61 F. Supp. 2d 611, 617 (S.D. Tex. 1999), and Am.
Employers' Ins. Co. v. DeLorme Publ'g. Co., 72 F. Supp. 2d 64,
75-76 (D. Me. 1999), with Callas, 193 F.3d at 952, and Advance
Watch, 99 F.3d at 802-07. The only New Hampshire Supreme Court
case we could find construing the advertising injury provisions
is not directly in point, although it did not adopt a
particularly generous reading. First Bank & Trust Co. v. New

                                   -15-
circuit courts construing such policies favor Travelers,                         see

note 1, above, but      their reasoning is different from our own.

In particular, the Sixth Circuit's categorical approach in Sho

Lodge, 168 F.3d at 260, might seem to exclude any possibility of

advertising    injury     based    on    a     trademark   or    trade      dress

violation.    By contrast, we can ourselves imagine a possible

claim if, in the course of a published advertisement, a rival's

trademarked insignia were misappropriated.

          There   are   a   host    of   difficult    questions          that    the

policy, at least in its present form, could present.                            What

happens   when    there     is     conventional       advertising          in     an

unconventional medium (e.g., an advertisement for some other

product on t-shirts or ballpoint pens); and how should one

analyze   a   claim   directed     to    the    appearance      of   a    pirated

trademark depicted in a newspaper advertisement where the harm

flows directly from the publication?             Such variations, however,

need not be addressed in order to resolve the present case.

          The motion to dismiss EKCO Housewares is granted, and

the judgment of the district court is               reversed and the case

remanded for further proceedings consistent with this opinion.

That our own view differs from the very thoughtful opinion of

the district judge in this case merely underscores that the


Hampshire Ins. Group, 469 A.2d 1367 (N.H. 1983).

                                    -16-
issue is a difficult one, which we are obliged to decide   de

novo.

         It is so ordered.




                             -17-