The United States Second Circuit Court of Appeals recently held that the selling of goods with a counterfeit brand label did not constitute covered advertising injury. In U.S. Fidelity & Guar. Co. v. Fendi Adele S.R.I., 823 F.3d 146 (2d Cir. 2016), the insured, Ashley Reed Trading, Inc. was in the business of purchasing and selling off-price branded handbags and other luxury goods. Ashley Reed was insured by USF&G which provided coverage for defined “advertising injury.” The policy defined “advertising injury” as “attracting the attention of others by any means for the purpose of seeking customers or supporters or increasing sales or business.” The policy set forth four advertising injury offenses, including the “use of another’s advertising idea” or other “advertising” and the “infringement of another’s copyright, trade dress or slogan in your ‘advertising.'”
Ashley Reed was sued by Fendi. Fendi argued that Ashley Reed had committed trademark counterfeiting, false designation of origin, trademark dilution and unfair competition. Fendi prevailed against Ashley Reed.
Applying New York law, the Second Circuit held that the USF&G policies did not cover the sale of counterfeit goods as being advertising injury. Construing the policy language in light of common speech and the reasonable expectations of the parties, the Court found that a difference existed between placing a counterfeit brand label on a handbag and the act of soliciting customers through the medium of printed advertisements or other media. The Court also found that Ashley Reed could not reasonably have expected coverage for damages based on the profits Ashley Reed improperly made from selling goods that it knew bore a false designation or origin.