Houbigant Inc v. Fed Ins Co

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit

7-6-2004

Houbigant Inc v. Fed Ins Co
Precedential or Non-Precedential: Precedential

Docket No. 03-1286

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 PRECEDENTIAL GERARD H. HANSON
MARILYN S. SILVIA
UNITED STATES COURT OF (argued)
APPEALS Hill Wallack
FOR THE THIRD CIRCUIT 202 Carnegie Center
Princeton, N.J. 08543
No: 03-1286 Attorney for Federal Insurance
Company, Appellee
HOUBIGANT, INC.;
ESTABLISSEMENT HOUBIGANT, ALFRED C. CONSTANTS, III
Caron, Constants & Wilson
Appellants 201 Route 17 North
Rutherford, N.J. 07070
v. Attorney for Fireman’s Fund Insurance
Companies, Appellee
FEDERAL INSURANCE COM PANY;
FIREMAN’S FUND INSURANCE
COMPANIES OPINION OF THE COURT

Appeal from the United McKEE, Circuit Judge.
States District Court
Houbigant, Inc. and Establissment
for the District of New Jersey
Houbigant (collectively, “Houbigant”)
(Civil Action No. 01-cv-05993)
appeal the district court’s order granting
District Judge: Hon. Mary L. Cooper
Federal Insurance Company’s (“Federal”)
motion for summary judgment and
Argued: November 7, 2003
denying Houbigant’s cross motion for
summary judgment.1 For the reasons
Before: McKEE, SMITH, and
discussed below, we will reverse the
GREENBERG, Circuit Judges.
judgment of the district court and remand
for further proceedings consistent with this
(Opinion Filed July 6, 2004)
opinion.
JOHN W. SCHRYBER (argued)
Patton and Boggs
2550 M Street, N.W. 1
Houbigant also appealed the district
Washington, D.C. 20037 court’s grant of summary judgment in
favor of Fireman’s Fund Insurance
ROBERT D. CHESLER Companies, an excess insurer. However,
Lowenstein Sandler the parties have indicated that the dispute
65 Livingston Avenue between Houbigant and Fireman’s Fund
Roseland, N.J. 07068 has been settled. Thus, that appeal is
Attorneys for Appellants moot.
 I. BACKGROUND indicating that the Chantilly fragrance was
produced by the Insureds. R. at 728-48.
Houbigant has been in the business
Houbigant claimed tort damages in excess
of creating and manufacturing fragrances
of $99 million3 and a separate claim for
for more than 200 years. Between 1994
contractual damages in excess of $105
and 1996 Houbigant entered into a series
million resulting from the Insured’s
of licensing agreements with Dana
conduct. R. at 744-54. The Insureds
Perfumes Corporation and Houbigant
notified their insurer, Federal, of the
(1995) Ltee. Ltd. (“Insureds”). R. at 734;
pending claim.
see also R. at 815-57. Under the
agreement, the Insureds were granted a At that time, the Insureds were
license to manufacture and sell certain covered by two policies issued by Federal:
Houbigant fragrances and use the (1) the Commercial General Liability
trademarks associated with them. R. at policy (“CGL policy”); and (2) the
818-19. However, the Insureds were Commercial Excess Umbrella policy
required to manufacture, package, and (“Umbrella policy”). The CGL policy
label Houbigant products in accordance provides coverage for “advertising injury,”
with particular specifications in order to R. at 499, which is defined, in relevant
ensure authenticity and quality. R. at 824. part, as “injury . . . arising solely out of . .
. infringement of trademarked or service
marked titles or slogans,” where such
The Insureds eventually filed for
infringement is “committed in the course
Chapter 11 bankruptcy. Shortly thereafter,
of advertising of [the insured’s] goods,
Houbigant filed a bankruptcy claim against
products or services . . . .” R. at 512.
the Insureds alleging that they had directly
However, the policy excludes coverage of
or contributorily infringed Houbigant’s
any advertising injury “arising out of
“trademarked titles” and breached
breach of contract,” R. at 505, or “an
Houbigant’s contractual obligations by: (1)
infringement, violation or defense of any .
selling a “watered-down” version of
. . trademark or service mark or
Houbigant’s “Chantilly” fragrance; (2)
certification mark or collective mark or
selling the “know-how” and physical
trade name, other than trademarked or
components required to make Chantilly
service marked titles or slogans.” R. at
and three other fragrances to unlicensed
507.
fragrance producers who sold the products
worldwide;2 (3) using the Houbigant name
to sell non-Houbigant products; and (4) 3
Houbigant also sought treble
damages, attorneys fees, and
prejudgment interest under §1117(b). In
2
The other fragrances involved were total, Houbigant alleged that the Insureds
“Lutece,” “Rafinee,” and “Demi-Jour.” tort liability was in excess of $320
R. at 739. million.

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 The Umbrella policy contains two Houbigant subsequently initiated
separate coverage provisions. Coverage this diversity action against Federal
A, entitled “Excess Follow Form Liability seeking indem nification under the
Insurance,” covers “that part of the loss . . implicated policies pursuant to the
. in excess of the total applicable limits of assignment it received as part of the
[the] underlying insurance [policy] . . .” settlement with the Insureds. The court
under the same terms as said policy. R. at ruled that there was no coverage under
278. Coverage B of the Umbrella policy, either policy, and that Federal was not
entitled “Umbrella Liability Insurance,” bound by the settlement approved by the
covers “damages the insured becomes bankruptcy court. This appeal followed.4
legally obligated to pay by reason of
II. A. Policy Coverage
liability imposed by law or assumed under
an insured contract because of . . . Although we find that both policies
advertising injury . . . .” R. at 279. This cover the conduct of the Insureds, the story
includes injury “arising solely out of . . . takes some telling. Thus, we will address
infringement of copyrighted titles, slogans each policy in turn.
or other advertising materials,” where such
1. CGL Policy
infringement is “committed in the course
of advertising . . . .” R. at 288-89. a. Trademarked Titles
Coverage B also excludes breach of
As stated above, Houbigant
contract claims. R. at 285.
alleged that the Insureds: (1) sold a
Federal denied coverage under both “watered-down” version of Houbigant’s
policies. Nonetheless, Houbigant and the “Chantilly” fragrance; (2) sold the
Insureds agreed to settle the tort claims for “know-how” and physical components
an unsecured $50 million. Under the terms required to make Chantilly and three
of the agreement, Houbigant obtained the other fragrances to unlicensed fragrance
right to “prosecute any cause of action producers who sold the products
against [Federal], at Houbigant’s sole worldwide; (3) used the Houbigant name
expense, arising from any failure by to sell non-Houbigant products; and (4)
[Federal] to indemnify the [Insureds] indicated that the Chantilly fragrance
liability to Houbigant with respect to [the
tort claims].” R. at 760. The parties also
4
agreed that Houbigant’s recovery would be We have jurisdiction to consider this
limited to indemnification under the appeal under 28 U.S.C. § 1291. We
implicated Federal insurance policies. The review the district court’s grant of
bankruptcy court approved the settlement, summary judgment de novo, applying the
finding that it was “fair, reasonable, . . . same standard as the district court. Penn.
and entered into following good faith, Coal Ass’n. v. Babbitt, 63 F.3d 231, 236
arms length negotiations . . . .” R. at 813. (3d Cir. 1995).

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was produced by the Insureds. R. at 728- collective mark or trade name, other than
48. There is no question that these trademarked or service marked titles or
allegations, if true, constitute trademark slogans.” R. at 507 (emphasis added).
infringement in violation 15 U.S.C. § Based on the wording of this exclusion,
1125(a)(1)5 and that Houbigant would be it is clear that a trademarked title is
entitled to damages pursuant to § 1117. regarded as a subset or type of
trademark. However, the policy does not
However, the CGL policy “does
offer any further explanation or
not apply to . . . advertising injury . . .
definition of the term. Thus, we must
arising out of . . . infringement, violation
first determine whether Houbigant’s
or defense of any . . . trademark or
marks constitute “trademarked titles.”
service mark or certification mark or
The insurance contracts in
question were entered into in New
5
Section 1125(a)(1) provides: Jersey, and we are thus bound by the
controlling law of that state.6 However,
Any person who, on or in connection the New Jersey Supreme Court has yet to
with any goods or services, or any define the term “trademarked title.”
container for goods, uses in commerce Therefore, “we must consider relevant
any word, term, name, symbol, or device, state precedents, analogous decisions,
or any combination thereof, or any false considered dicta, scholarly works, and
designation of origin, false or misleading any other reliable data tending
description of fact, or false or misleading convincingly to show how the highest
representation of fact, which– court in the state would decide the issue
(A) is likely to cause confusion, or to at hand.” Packard v. Provident Nat.
cause mistake, or to deceive as to the Bank, 994 F.2d 1039, 1046 (3d
affiliation, connection, or association of
such person with another person, or
6
as to the origin, sponsorship, or approval We must apply the forum state’s
of his or her goods, services, or choice of law rule. General Star Nat.
commercial activities by another person, Ins. Co. v. Liberty Mut. Ins. Co., 960
or F.2d 377, 379 (3d Cir. 1992) (citation
(B) in commercial advertising or omitted). With respect to insurance
promotion, misrepresents the nature, disputes such as this, the New Jersey
characteristics, qualities, or geographic Supreme Court has held that “the law of
origin of his or her or another person’s the place of the contract will govern the
goods, services, or commercial activities, determination of the rights and liabilities
shall be liable in a civil action by any of the parties under the insurance
person who believes that he or she is or policy.” State Farm Mut. Auto. Ins. Co.
is likely to be damaged by such act. v. Simmons’ Estate, 84 N.J. 28, 37
(1980).

-4-
Cir.1993). (citing Voorhees v. Preferred Mut. Ins.
Co., 607 A.2d 1255, 1259 (N.J. Sup. Ct.
We begin our analysis with Villa
1992)). The Villa court then considered
Enters. Mgmt., Ltd. v. Fed. Ins. Co., 821
the term, “trademarked title.” Inasmuch
A.2d 1174 (N.J. Super. Ct. Law Div.
as that New Jersey court’s analysis is so
2002), a New Jersey trial court decision
germane to our inquiry, we will quote its
that addresses the very issue before us.7
analysis at length:
In fact, not only does Villa address the
same issue, it actually involves the same In this policy, coverage is
insurer, Federal. In Villa, Federal not extended for titles and
refused to defend or indemnify the slogans generally but only
insured against damages stemming from for trademarked and
an alleged advertising injury arising out service-marked titles and
of the insured’s use of the term “VILLA slogans. The ordinary
PIZZA,” a trademark and service mark insurance consumer faced
owned by another company. with Federal’s language of
coverage and exclusion
The court in Villa began its
would not begin with the
analysis with a review of the law
assumption that
governing interpretation of insurance
‘trademarks, service marks,
policies in New Jersey. See id. at 1182-
certification marks,
83. The court found two principles
collective marks and trade
particularly helpful. First, “the words of
names’ are a subset of
an insurance policy should be given their
‘trademarked or service-
ordinary meaning.” Id. at 1182 (quoting
marked titles or slogans,’
Longobardi v. Chubb Ins. Co. of New
but rather would begin with
Jersey, 582 A.2d 1257, 1260 (N.J. Sup.
the converse assumption.
Ct. 2002) (internal quotation marks
The question thus
omitted)). Second, “any ambiguity must
becomes: How are
be resolved in the insured’s favor.” Id.
trademarked or service-
marked titles or slogans
different from all other
7
It is important to note that the Villa trademarks and service
decision, although decided prior to the marks?
district court’s decision in this case, was
not published until several months after
the district court ruled on the parties’ Trademarks and service
cross motions for summary judgment. marks are devices used in
Thus, the district court did not have the connection with the sale or
benefit of the reasoning in Villa when it advertisement of products
adjudicated this dispute.

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or services of particular (Corel ® WordPerfect ®)
merchants to distinguish or slogans (Ponds’ ‘The
them from similar products Skin You Love to Feel’),
or services of others and they may also be symbols
identify the source of the or emblems (McDonalds’
trademarked products or golden arches M ®).
service-marked services. Indeed, a color
The Lanham Act states that configuration is a ‘device’
the term ‘trademark’ for the purposes of the
includes ‘any word, name, Lanham Act definition.
symbol, or device, or any Shakespeare Co. v. Silstar
combination thereof, Corp. of America Inc., 802
adopted and used by a F.Supp. 1386 (D.S.C.
manufacturer or merchant 1992), rev’d on other
to identify his goods and grounds, 9 F.3d 1091 (4th
distinguish them from Cir. 1993). Purely audible
those manufactured or sold marks may be registered, 3
by others.’ 3 Callmann on Callmann, supra, at n. 4,
Unfair Competition, and so too may a fragrance
Trademarks and be registered as a mark.
Monopolies, § 17:1 (Louis See In re Clark, 17
Altman ed., 4th ed. 2002). U.S.P.Q.2d 1238 (TTAB
According to Callmann, an 1990).
even broader definition
was proposed for Article 6
of the Paris Convention Viewed in this fashion, no
and that was ‘any mark or tortured examination of
medium that can be various definitions of ‘title’
conceived by the senses, need be made. Under the
that is capable of Federal policy before us,
distinguishing advertising injuries arising
merchandise, products or from a claim of
services of a ... person infringement of a
from those of another.’ trademarked or service-
marked title (i.e., any
trademarked or service-
Although trademarks and
marked name) is entitled to
service marks certainly
defense and
may be trademarked or
indemnification whereas
service-marked titles
advertising injuries arising

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 from a claim of New Jersey law.8 Nevertheless, the
infringement of other Palmer court came to a different
trademarked or service- conclusion than the Villa court. The
marked words, symbols or Palmer court first noted that the
devices are not covered, “definition of ‘title’ cannot subsume the
nor claims of infringement definition[] of trademark . . . .
based on certification Otherwise, all or part of the exclusion
marks, collective marks clause becomes meaningless.” Id. at
and unregistered trade 574. The court concluded that “defining
names. This analysis is ‘title’ to mean ‘any name’ would
consistent with the plain abrogate the policy language excluding
meaning of the clauses in coverage for trade name infringement
ordinary language using the because trade names . . . are the subset of
broadest definition of ‘title’ names used by a person to identify his or
recognized by all cited her business or vocation.” Id. (citation
authorities, legal and and internal quotation marks omitted).
linguistic, and follows the In order to avoid this result, the Palmer
mandate of Longobardi to court limited the meaning of “title” to
give insurance policy “the name of a literary or artistic work.”
language its plain meaning. Id.
We are not required to follow
Villa, see C.I.R. v. Bosch’s Estate, 387
Id. at 1185-87 (footnotes omitted).
U.S. 456, 465 (1967), 9 and we are
Ultimately, the Villa court found that a
reasonable insured would believe the
term “title” includes “any name, . . . 8
appellation, . . . epithet, [or] . . . word by Under California law: (1) “[the
which a product or service is known.” court] must give [policy] terms their
Id. at 1187. ordinary and popular sense”; and (2)
“ambiguities are generally construed
However, Federal argues that the against the party who caused the
California Supreme Court’s decision in uncertainty to exist (i.e., the insurer) . . .
Palmer v. Truck Ins. Exchange, 988 P.2d .” Palmer, 988 P.2d at 572-73 (internal
568 (Cal. 1999) offers a more persuasive citations and quotations marks omitted).
basis for distinguishing trademarked
9
titles from other types of trademarks. In C.I.R., the Supreme Court held
The applicable California insurance law that the ruling of a “lower state court[]”
is essentially the same as the relevant is “not controlling . . . where the highest
court of the State has not spoken on the
point.” 387 U.S. at 465 (citation and
internal quotation marks omitted).

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certainly not bound by Palmer. 111 (N.J. 1983) (internal quotation marks
However, the court’s reasoning in Villa omitted)). Thus, the only basis for
persuades us that the New Jersey Palmer’s more narrow interpretation of
Supreme Court would agree with that trademarked title was its concern that
trial court’s analysis if faced with this defining “title” broadly to include any
issue. As an initial matter, there can be name would conflict with the policy’s
no dispute that “title” has several exclusion of coverage of advertising
meanings, including: (1) “[a]n injury arising out of trade name
identifying name given to a book, play, infringement. However, this concern
film, musical composition or work of ignores the statutory distinction between
art”; (2) “[a] general or descriptive “trademarks” and “trade names.” The
heading, as of a book chapter . . .”; and Lanham Act defines a “trademark,” in
(3) “[a] descriptive appellation: relevant part, as “any word, name,
EPITHET . . . .” Villa, 821 A.2d at 1181 symbol, or device, or any combination
(quoting Webster’s II New College thereof . . . used by a person . . . to
Dictionary at 1157). Under New Jersey identify and distinguish his or her goods
law, “[w]here the policy language . . . from those manufactured or sold by
supports two meanings, one favorable to others and to indicate the source of the
the insurer and the other to the insured, goods . . . .” 15 U.S.C. §1127 (emphasis
the interpretation favoring coverage added). In contrast, “trade name” is
should be applied.” Id. at 181 (quoting defined as “any name used by a person to
Lundy v. Aetna Casualty, 458 A.2d 106, identify his or her business or vocation.”
Id. (emphasis added). Thus, the statutory
definition of trademark limits the scope
of the term trademarked title and
However, “an intermediate appellate
distinguishes it from trade names.
state court [decision] . . . is a datum for
ascertaining state law which is not to be Another more fundamental
disregarded by a federal court unless it is problem with the analysis in Palmer is
convinced by other persuasive data that that it ignores the purpose of a
the highest court of the state would commercial insurance policy. As the
decide otherwise.” Id. (citation and Villa court points out, “[w]ho, reading
internal quotation marks omitted). the policy at issue, would think for a
Because Villa is only a trial court second that it would cover infringement
decision, it is not necessarily entitled to of Catcher in the Rye Bread ® but not
such deference. Nonetheless, we Wonder Bread ®?” 821 A.2d at 1187.
consider the Villa decision to the extent An insured would not reasonably assume
that the quality of its analysis convinces that a commercial insurance policy only
us that the New Jersey Supreme Court covers literary or artistic titles and not
would decide the issue similarly. ordinary product titles. Moreover,
Packard, 994 F.2d at 1046.

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limiting trademarked titles to literary or b. Advertising Injury
artistic works would “create an
In order for the advertising injury
ambiguity rather than resolve one . . . .”
provision of the CGL policy to apply, the
id. Not only would it “send insureds on a
conduct in question must have been
quixotic quest for literary works the title
“committed in the course of adverting of
of which coincidently mirrored the
[the insured’s] goods, products or
registered title alleged to have been
services.” R. at 512. In Tradesoft
infringed,” Id., it would create endless
Technologies, Inc. v. Franklin Mut. Ins.
litigation over what constitutes literary or
Co., Inc., 746 A.2d 1078 (N.J. Super. Ct.
artistic work. As Justice Blackmun has
App. Div. 2000), the court also addressed
so aptly noted, “[r]easonable people
the same policy language at issue here.
certainly may differ as to what
There, the insured was sued for patent
constitutes literary or artistic merit.”
and trademark infringement as well as
Pope v. Illinois, 481 U.S. 497, 506
several common law causes of action.
(1987) (Blackmun, J., concurring in part
Id. at 140.11 The court held that “in order
and dissenting in part).
for there to be coverage [under the
Thus, we accept the more policy] there must be a causal connection
straightforward definition of “title” set between the advertising and the injury . .
forth in Villa, and define trademarked . .” Id. at 152 (citing Frog, Switch &
title as any name, appellation, epithet, or Mfg. v. Travelers Ins. Co., 193 F.3d 742,
word used to identify and distinguish the 751 n.8 (3d Cir. 1999)). In other words,
trademark holder’s goods from those “the advertising activities must cause the
manufactured or sold by others. injury–not merely expose it.” Id. at 152
Houbigant’s house mark and product (citation and internal quotation marks
mark (e.g., “Chantilly”) falls within this omitted). The court held that the patent
definition. See Hugo Boss Fashions, Inc. infringement claim, which simply
v. Fed. Ins. Co., 252 F.3d 608, 619 n.7 consisted of an alleged offer to sell the
(“The term ‘house mark’ refers to a patented product, was not covered by the
company name or line of products, while advertising injury provision of the policy
the term ‘product mark’ refers to the
name of a particular product. Thus,
‘Ford’ is a house mark and ‘Mustang’ is Boss involved “trademarked slogans,”
a product mark.”) (citing McCarthy on and offers no insight into the meaning of
Trademarks and Unfair Competition § trademarked title.
7:5 (4th ed.)). 10
11
The additional causes of action
were misappropriation of trade secrets,
10
Federal also relies on the decision breach of contract, tortious interference
in Hugo Boss in support of its definition with a contractual relationship, and
of trademarked title. However, Hugo unfair competition.

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because such conduct was “not within allegations that an insured was trading on
the commonly understood meaning of the recognizable name, mark, or products
‘advertising ideas’ or ‘style of doing configuration (trade dress) of the
business.’” Id. at 150. On the other underlying plaintiff.” Id.
hand, the court noted that the trademark
In contrast, the underlying
infringement claim was “obviously
plaintiff in Frog, Switch simply alleged
covered by the policy . . . .” Id. 151 n.1
that the insured “took the [product]
(emphasis added).
design and lied about the design’s
As stated above, Tradesoft relied, origin.” Id. We therefore held that the
in part, on our opinion in Frog, Switch. advertising injury provision of the policy
There, a competitor of the insured filed a was not implicated by the complaint. As
complaint alleging that the insured we later noted in Green Mach. Corp. v.
entered the particular product market by Zurich-American Ins., 313 F.3d 837, 840
using the competitor’s proprietary trade (3d Cir. 2002), “[a]dvertising injury is
secrets, confidential business not . . . the same thing as advertising per
information, and technology se. Rather, “[a]dvertising injury is the
misappropriated by a former employee. misappropriation of another’s advertising
Frog, Switch, 193 F.3d at 745. The idea or concept.” Id. Similarly, in Green
competitor also alleged that the insured Machine, a competitor filed a complaint
“falsely represented that it had developed against the insured, alleging infringement
a new and ‘revolutionary’ design for [the of a patented method of cutting concrete.
product], and falsely depicted [the The only connection to advertising was
product] with [its own] logo.” However, an allegation that the insured advertised
“[t]he parts and components sold in the method to others. See id. In other
commerce by [the insured] as its own word, the only advertising idea in
were really [the competitors’s] products question was the very idea to advertise,
made by use of stolen drawings . . . .” Id. nothing more. As in Tradesoft, this was
In considering whether this was an insufficient to implicate the advertising
advertising injury, we observed: “to be injury provision of the policy. See id.
covered by the policy, allegations of
Thus, in order to invoke the
unfair competition or misappropriation
advertising injury provision, the injury in
have to involve an advertising idea, not
question must have been caused by the
just a nonadvertising idea that is made
advertising activity itself. The insured
the subject of advertising.” Id. at 748.
must have misappropriated an
We then considered several district court
advertising idea, not just an idea that
cases where a “passing off” claim was
later became the subject of an advertising
held to have caused an advertising injury.
campaign. Here, the injury in question
See id. at 749 (citations omitted). We
was the result of alleged trademark
noted that each of those cases “involved
infringement. In Frog, Switch, we

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discussed the close relationship between matter at hand.
trademarks and advertising: “[a]
Federal also cites Advance Watch
trademark can be seen as an ‘advertising
Co., Ltd. v. Kemper Nat. Ins. Co., 99
idea’ [because] [i]t is a way of marking
F.3d 795 (6th Cir. 1996). In Advance
goods so that they will be identified with
Watch, a competitor of the insured filed a
a particular source.” Id. (citing Northam
complaint alleging, inter alia, that
Warren Corp. v. Universal Cosmetic,
writing instruments sold by the insured
Co., 18 F.2d 774, 774 (7th Cir. 1927)
diluted the distinctiveness of the
(“[a] trademark is but a species of
competitor’s mark and thereby infringed
advertising, its purpose is to fix the
the competitor’s trademark. In finding
identity of the article and the name of the
no coverage under the policy, the Court
producer in the minds of the people who
of Appeals for the Sixth Circuit
see the advertisement . . . .”)).
reasoned:
Trademarks, therefore, have the same
purpose as advertising. In the present action, we
conclude that the
Federal cites several cases from
reasonable expectation of
other circuits that it argues more
these parties as to coverage
narrowly proscribe the scope of
rests on the fact that
“advertising.” However, we are not
‘misappropriation of
persuaded. For example, Federal cites
advertising ideas or style of
EKCO Group, Inc. v. Travelers Indem.
doing business’ refers to a
Co. of Ill., 273 F.3d 409 (1st Cir. 2001).
grouping of actionable
There, the Court of Appeals for the First
conduct fairly well
Circuit found that “a real teapot intended
delimited by case law, and
for sale as a kitchen utensil” was not an
does not refer to another,
advertising idea. Id. at 413. The court
distinct grouping of
held that there was a “distinction
actionable conduct which
between producing and selling the goods
has come to be commonly
on the one hand and ‘advertising’ them
referred to in case law and
on the other . . . .” Id. at 414. The same
in legal treatises as
distinction exists here. That is to say,
‘trademark and trade dress
there is a distinction between the
infringement.’
Houbigant’s trademarks (i.e., the
advertising), and the production and sale
of its perfumes (i.e., the goods). In fact,
Id. at 804. Thus, Advance Watch is at
without the use of Houbigant’s marks,
odds with Tradesoft as well as our
there would be no claim against the
decision in Frog, Switch, both of which
Insureds in the first instance. Therefore,
hold that trademark infringement is an
EKCO is clearly distinguishable from the
advertising injury. However, Advance

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Watch has been “sharply criticized for include injury “originating from,”
ignoring the real contours of intellectual “having its origins in,” “growing out of,”
property litigation . . . .” Frog, Switch, or “flowing from” the contractual
193 F.3d at 747. Therefore, we are not relationship. Callas Enters., Inc. v.
persuaded by the reasoning in Advance Travelers Indem. Co. of Am., 193 F.3d
Watch. Instead, we hold that the injury 952, 955-56 (8th Cir. 1999) (citing
caused by the Insureds’ infringement of Assoc. Indep. Dealers, Inc. v. Mutual
Houbigant’s trademarks is an advertising Service Ins. Co., 229 N.W.2d 516 (Minn.
injury. 12 1975)). Other courts have employed a
“but for” test; in other words, the injury
c. Contract Exclusion
is only considered to have arisen out of
Federal’s CGL policy expressly the contractual breach if the injury would
excludes coverage for “advertising injury not have occurred but for the breach of
arising out of breach of contract.” R. at contract. Hugo Boss, 252 F.3d at 623
505 (emphasis added). Although their n.15 (citing Mount Vernon Fire Ins. Co.
bankruptcy claim against the Insureds v. Creative Hous. Ltd., 668 N.E. 2d 404
contains both breach of contract and tort (N.Y. 1996)).
allegations, R. at 728-48, Houbigant only
While the New Jersey Supreme
seeks to enforce the underlying insurance
Court has not endorsed either test, at
policy insofar as it relates to the latter.
least one New Jersey appellate decision
We must therefore determine if the
applied a “but for” analysis under similar
alleged torts are excluded from coverage
circumstances. The policy in Tradesoft
by the “arising out of” contract
also contained a breach of contract
exclusion.
exclusion, and the injury there
At least one state court has undoubtedly flowed from the contractual
construed such language broadly to relationship between the parties.13 Yet,
in determining if the exclusion applied,
the court considered whether any of the
12
Following argument in this matter, tort claims constituted an advertising
Federal submitted two additional cases injury. Moreover it did this without
pursuant to Federal Rule of Appellate further reference to the contract
Procedure 28(j), Information Spectrum, exclusion. Tradesoft, 746 A.2d 1085-
Inc. v. Hartford, 834 A.2d 451 (N.J.
Super. Ct. App. Div. 2003) and Westport
13
Reinsurance Mgmt., LLC v. St. Paul Fire The insured–a company formed by
& Marine Ins. Co., 80 Fed. Appx. 277 two former employees of the underlying
(2003). However, we do not need to plaintiff–was only able to engage in the
discuss these cases because they simply alleged torts because of information
follow the causation analysis set forth in those employees obtained while under
Tradesoft and Frog, Switch. contract with the plaintiff.

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1087. 2. Umbrella Policy
Our situation is analogous. Federal also issued an Umbrella
Although the relationship between policy, which contains two separate
Houbigant and the Insureds is coverage provisions, Coverage A and
contractual, the actions of the Insureds Coverage B. We must also examine each
were independently tortious.14 The of these provisions.
contractual relationship was not endemic
a. Coverage A
to the Insureds infringing of Houbigant’s
trademarks. Therefore, the contract Coverage A of the Umbrella
exclusion does not apply to Houbigant’s policy is entitled “Excess Follow Form
tort claims. Liability Insurance” and covers “that part
of the loss . . . in excess of the total
applicable limits of [the] underlying
insurance [policy] . . . .” R. at 278. This
14
Federal also argues that under New is known as a “follow form” policy.
Jersey law we must look at the gravamen Under such a policy, “the parties agree
of Houbigant’s complaint, which it that the coverage issues presented turn
contends lies in contract. In support of solely on the interpretation of the
this proposition, Federal relies primarily underlying polic[y].” Piper Jeffray Co.,
on Harleysville Ins. Cos. v. Garitta, 785 Inc. v. Nat’l Union Fire Ins. Co., 967
A.2d 913 (N.J. 2001). In Harleysville, F.Supp. 1148, 1151 (D. M inn. 1997).
the New Jersey Supreme Court looked at Here, the underlying policy is the CGL
the gravamen of a wrongful death action policy. Thus, based upon the foregoing
to determine the applicability of a policy discussion, we conclude that Houbigant’s
exclusion barring coverage for bodily claim is covered by Coverage A of the
injury that was “expected or intended” by Umbrella policy.
the insured. However, Harleysville is not
b. Coverage B
inconsistent with Tradesoft; the two
cases simply address different questions. Coverage B of the Umbrella
In Harleysville, the court was forced to policy is entitled “Umbrella Liability
make a decision about the focus of a Insurance” and covers “damages the
single claim (i.e., whether the injury was insured becomes legally obligated to pay
expected or intended). On the other by reason of liability imposed by law or
hand, in Tradesoft, there were two types assumed under contract because of . . .
of claims (tort and contract), which the advertising injury . . . .” R. at 279.
court considered separately. Thus, the Under Coverage B “advertising injury”
decision in Harleysville has no bearing includes “injury . . . arising solely out of .
on the matter at hand, which, like . . infringement of copyrighted titles,
Tradesoft, deals with two independently slogans or other advertising materials”
actionable types of claims. and “committed in the course of

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advertising.” Id. at 288-89 (emphasis was not an ‘advertising
added). Basic rules of grammar suggest material’ as defined by the
that “copyrighted” modifies “titles,” umbrella policy and never
“slogan,” and “other advertising mentioned that the
material.” However, in Platinum Tech., ‘advertising material’
Inc. v. Fed. Ins. Co., 2000 WL 875881 needed to be copyrighted.
(N.D. Ill., June 28, 2000) (“Platinum I”), (Complaint, Ex. H, at 11).
the Northern District of Illinois More importantly, the
considered the same policy language and umbrella policy states the
found that “the term ‘copyrighted’ did ‘umbrella liability adds a
not modify ‘other advertising materials.’” broadening measure of
Id. at *4 (emphasis added). 15 The court coverage against many of
reasoned: the gaps in and between the
underlying coverages’ of
A reading of the plain
the primary policy.
language of the umbrella
(Complaint, Ex. F, at
policy does not support a
Introduction). The primary
requirement that
policy covers only
‘advertising material’ be
infringement of
copyrighted. Moreover,
copyrighted advertising
Federal’s prior
materials as an advertising
interpretation of the
injury. (Complaint, Ex. E,
umbrella policy only
at 19). Thus, based on the
further supports this court’s
fact that the umbrella
finding. Federal
policy broadens the
specifically denied
coverage, it is consistent
coverage because it found
with this court’s finding
that the PSC’s trademark
that advertising materials
need not be "copyrighted"
15 in order to be covered
The Northern District of Illinois
under the umbrella policy.
issued a subsequent decision granting in
part and denying in part cross motions
for summary judgment. 2001 WL Id.
109814 (N.D. Ill., Feb. 2, 2001). This
Even though we disagree with
decision was later reversed and
much of the court’s reasoning, we will
remanded by the Seventh Circuit Court
look to New Jersey’s collateral estoppel
of Appeals on issues unrelated to the
rules to determine if the Platinum I
meaning and scope of the policy
decision estops Federal from re-litigating
provision at issue here. 282 F.3d 927
the same issue here. Semtek Intern. Inc.
(7th Cir. 2002).

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v. Lockheed Martin Corp., 531 U.S. 497, mentioned that the ‘advertising material’
508-09 (2001). Under new Jersey law, needed to be copyrighted . . . .”
Platinum I, 2000 WL 875881, at *4
[c]ollateral estoppel may
(emphasis added). The court’s decision
apply if the party asserting
was therefore based, at least in part, on
the bar demonstrates that:
an argument that was specific to the facts
(1) the issue to be
of that case. Here, however, Federal
precluded is identical to the
denied coverage based on the entire
issue decided in the first
advertising injury provision in Coverage
proceeding; (2) the issue
B, quoting the clause in its entirety in its
was actually litigated in the
denial letter. R. at 716, 721. Given the
prior action, that is, there
different circumstances, we conclude that
was a full and fair
Federal is not estopped from re-litigating
opportunity to litigate the
the scope of the term “other advertising
issue in the prior
material.” Moreover, based on the plain
proceeding; (3) a final
meaning of the statute and the clarity of
judgment on the merits was
Federal’s denial letter, we find that
issued in the prior
“copyrighted” does modify “other
proceeding; (4)
advertising material.” Thus, Coverage B
determination of the issue
is inapplicable since none of the
was essential to the prior
trademarks at issue are copyrighted.
judgment; and (5) the party
However, given our conclusion that the
against whom issue
Insureds satisfy the requirements of the
preclusion is asserted was a
CGL policy and Coverage A, the absence
party to or in privity with a
of Coverage B is of little import.
party to the prior
proceeding. B. Settlement Agreement
Having addressed all of the issues
related to policy coverage, the only
Pace v. Kuchinsky, 789 A.2d 162, 171
question remaining is whether the
(N.J. Super. Ct. App. Div. 2002). There
settlement of the bankruptcy claim was
is no question that the latter four
“reasonable in amount and entered into in
requirements are met in this case.
good faith.” Griggs v. Bertram, 443 A.2d
However, we are not as certain about the
163, 173 (N.J. 1982). This, of course, is a
first requirement. The Platinum I court
question of fact, which we cannot resolve
relied on the fact that “Federal
in the first instance. However, Houbigant
specifically denied coverage because it
argues that Federal is bound by the
found that the [the insured’s] trademark
bankruptcy court’s finding that the
was not an ‘advertising material’ as
settlement agreement was fair, reasonable,
defined by the umbrella policy and never
and entered into in good faith. R. at 813.

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We disagree. 813. This is insufficient to support a
finding of reasonableness under state law,
In a diversity action, we apply the
nor does it afford us a basis of review.
preclusion rules of the forum state, unless
The same would be true even assuming
they are incompatible with federal
that the Insureds’ motion in support of the
interests. Semtek, 531 U.S. at 508-09.
settlement is incorporated by reference
Under New Jersey law, a court must
into the bankruptcy court’s decision. The
clearly state its rationale for finding that a
Insureds’ motion, like the bankruptcy
settlement agree men t is fair and
court’s order, fails to address the merits of
reasonable. See Jefferson Ins. Co. v.
the tort claim; rather, it simply states that
Health Care Ins. Exch., 588 A.2d 1275
litigating the tort claims would be
247 (N.J. Super. Ct. App. Div. 1991)
“complex and expensive.” R. at 775. We
(remanding, in part, because the record did
therefore conclude that the bankruptcy
not indicate the reasoning behind the trial
court’s settlement is not binding on
judge’s finding that a settlement was fair
Federal.
and reasonable). As we noted in Vargas v.
Hudson County Bd. of Elections, 949 F.2d IV.
665, 674 (3d Cir. 1991), “[i]n deciding
Based on the foregoing analysis, we
whether a settlement is prudent and
will reverse the judgment of the district
reasonable, a court must consider the risk
court and remand the case for a plenary
to the settling parties. It is the extent of
hearing to determine whether the
the defendants’ exposure to liability and
bankruptcy settlement was reasonable and
not mere allegations in the plaintiffs’
entered into in good faith.17
complaint that govern the appraisal of
reasonableness.” 16 Here, the bankruptcy
court merely voiced the words “fair” and
“reasonable,” but failed to state any
specific basis for such a finding. The
court only noted that it had considered the
“statements of all parties and any
objections thereto,” as well as the
“pleadings and proofs of claim.” R. at

16
There is no evidence that these
17
rules are inconsistent with federal law. Our ruling does not suggest that the
In fact, we have held that a bankruptcy district court would be unjustified in
court must consider, inter alia, “the finding the settlement fair and reasonable
probability of success in litigation. . . .” on remand if it reaches that conclusion
before approving a settlement. In re after a proper analysis and articulates that
Martin, 91 F.3d 389, 393 (3d Cir. 1996). analysis on the record.

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