Is Advertising Injury in the Bag?

Is advertising injury in the bag? In a recent decision the United States Second Circuit Court Of Appeals found that the sale of counterfeit branded goods was not covered as advertising injury.

In United States Fidelity & Guaranty Co. v. Fendi Adele S.R.I., 823 F.3d 146 (2nd Cir. 2016), the United States Court of Appeals held in favor of USF&G finding that USF&G’s policy did not provide coverage for the legal liability of its insured for selling counterfeit handbags and other goods with counterfeit brand labels.

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 under two liability policies for “advertising injury.” Under the policies, “advertising injury” was defined by the policies as the act of “attracting the attention of others by any means for the purpose of seeking customers or supporters or increasing sales or business.” The policies listed four advertising injury offenses which included the “use of another’s advertising idea in your ‘advertising,'” as well as “infringement of another’s copyright, trade dress or slogan in your ‘advertising.'”

Ashley Reed was sued by Fendi for allegedly selling counterfeit Fendi goods and for trademark counterfeiting, false designation of origin, trademark dilution and unfair competition.

Applying New York law, the Second Circuit Court of Appeals found that Ashley Reed did not engage in any advertising of the counterfeit goods Fendi had alleged that it suffered injury because of the sales of the counterfeit goods, not because of Ashley Reed’s advertising activities. The Court rejected Fendi’s argument that Ashley Reed’s use of the Fendi mark constituted advertising within the policies’ broad definition of “attracting the attention of others by any means for the purposes of seeking customers or increasing sales or business.” The Court found that there was a difference between placing a counterfeit brand label on a handbag and the act of soliciting customers through printed advertisements or other media.