                                                                                                                           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Precedential or Non-Precedential: Precedential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.

                                               -2-
        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).


                                                -3-
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.

                                              -5-
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

                             -6-
       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).

                                                 -7-
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.

                                              -8-
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.

                                               -9-
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

                                              -10-
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

                                              -11-
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.

                                              -12-
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

                                             -13-
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).

                                             -14-
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.

                                           -15-
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.

                                                 -16-
