Disparagement is not “Patent Pending”

On Behalf of | May 24, 2018 | Firm News

Some insurance policies do not specifically define the term “disparagement” in the policy. When the term “disparagement” is not defined, the courts will come up with a workable definition. As an example, in Lexmark International, Inc. v. Transportation Insurance Co., 327 Ill.App.3d 128, 140, 160 Ill.Dec. 658, 761 N.E.2d 1214 (2001), the court defined “disparagement” as constituting “words which criticize the equality of one’s goods or services.” The court in Lexmark further explained this concept:

To qualify as disparagement, there must be statement[s] about a competitor’s goods which [are] untrue or misleading and [are] made to influence or tend to influence the public not to buy. [citation omitted] Disparagement has been found where there are allegations the insured, in its advertising, criticized the quality of the underlying plaintiff’s product as being inferior.

Id. The Illinois courts have broken the concept of disparagement down into three constituent elements whereby the statement “(1) must be about a competitor’s goods or services, (2) must be untrue or misleading, and (3) must have been made to influence or tend to influence the public not to buy those goods or services.” Pekin Insurance Co. v. Phelan, 343 Ill.App.3d 1216, 1220, 278 Ill.Dec. 805, 799 N.E.2d 523 (2003).

In Green4All Energy Solutions, Inc. v. State Farm Fire & Casualty Co., 2017 Ill.App.1st 1162499, 2017 WL 26561003 (filed June 19, 2017), the court considered whether State Farm was obligated to defend a disparagement claim brought against its insured where it was alleged that the insured had falsely marked its product as being “patent pending” when, in reality, it was the competitor’s product for which a patent application had been filed.

The court noted that the reference to “patent pending” was set forth in the insured’s commercial literature regarding the insured’s product. The court found that the insured’s statement about its own product, without any language comparing it to the competitor’s product, did not constitute a disparaging statement which would give rise to a disparagement claim under the policy’s advertising injury coverage. In order to constitute disparagement, the relevant statement needed to be about the competitor’s goods or services. Reference to one’s own product as being “patent pending” was not a disparagement of the competitor’s goods or services. Therefore, the court affirmed the trial court’s grant of summary judgment in favor of State Farm, finding there was no duty to defend the lawsuit.