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State Farm doesn’t have to defend firm in trademark case

State Farm

A federal appeals court affirmed a ruling in State Farm Fire & Casualty Co.’s favor, in a decision based on the sometimes subtle distinction between trade dress and trademark infringement.

Two commercial insurance policies issued by State Farm to Fairfield, New Jersey-based Dedicated Business Systems International LLC  covered injuries arising out of trade dress but excluded those arising out of trademark infringement, according to Friday’s ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in State Farm Fire and Casualty Co. v. Jason Hines; Dedicated Business Systems International LLC; Tri-State Communication Services LLC.

For a time, DBSI was an authorized reseller of the communications technology of Durham, North Carolina-based Avaya Inc., which has trademarks registered with the U.S. Patent and Trademark Office, according to the ruling.

The authorized reseller arrangement terminated in 2013, but DBSI and one of its officers, Jason Hines, allegedly continued to access Avaya software license portals without Avaya’s authorization, earning a “handsome profit,” the ruling said.

Avaya sued DBSI and the officer, charging trademark infringement and copyright infringement. In response, State Farm appointed counsel to defend the company and the officer but reserved the right to withdraw if it determined the claims were outside the policies’ scope.

It subsequently filed suit against the company and the officer in U.S. District Court in Newark, New Jersey, seeking a declaratory judgment it did not have to defend nor indemnify the defendants because its policies did not cover Avaya’s trademark or copyright infringement claims.

The district court ruled in the insurer’s favor and was affirmed by a three-judge appeals court panel.

 The “concepts of trademark and trade dress have much in common, with trade dress often treated as a subspecies of trademark,” the ruling said.

But the claims for each “have distinct elements,” the ruling said. A claim for trademark infringement must involve a valid and legally protectable mark owned by the plaintiff that, when used by the defendant, is likely to create confusion, it said.

In this case, the ruling said, the “operative complaint never mentions ‘trade dress.’ Nor does it provide a basis for reasonably inferring such a claim,” it said, in affirming the lower court’s ruling.

Policyholder attorney Eugene Killian Jr., of The Killian Firm P.C. in Iselin, New Jersey, said in a statement, “I do not feel that the decision is correct, because the term trade dress is inherently ambiguous and should have encompassed the allegations made against Jason” and the appellate panel “did not give the policyholder the benefit of the doubt as required.”
The insurer’s attorney did not respond to a request for comment.