Why it matters: An appeal court in California let an insurer off the hook in a highly publicized intellectual property dispute over Buckyballs. The court held that the policy’s intellectual property exclusion applied broadly to include unfair competition claims arising from the alleged unauthorized use of a name or likeness, a violation of the right of publicity, the Lanham Act and California’s Unfair Competition Law. The estate of Buckminster Fuller—a designer and inventor known for creating the geodesic dome—sued the company behind “Buckyballs,” touted as the world’s most popular desk toy, “inspired and named after” Fuller. The product’s insurer declined to provide a defense based on an intellectual property exclusion in the applicable policy. Affirming a trial court, the appellate panel found the exclusion to be “conspicuous, plain, and clear,” and declined to adopt the argument that the policy did not apply to right of publicity claims even though it did not explicitly delineate all the types of intellectual property rights excluded in the clause. The court effectively ruled that a title to an exclusion or policy provision did not limit the otherwise clear import of the exclusion itself.

Detailed discussion: In 2012, the Estate of Buckminster Fuller sued Maxfield & Overton Holdings, LLC for unfair competition under both California’s Unfair Competition Law and the federal Lanham Act, invasion of privacy (appropriation of name and likeness), and unauthorized use of name and likeness based on Maxfield’s manufacture and distribution of products under various trademarks that capitalized on Fuller’s name and works, including the trademark “Buckyball.”

Maxfield tendered defense of the action to its insurer, Alterra Excess and Surplus Insurance Company. Alterra thereafter filed suit against both Maxfield and the Estate, seeking a declaration that its policy did not provide coverage for the underlying claims.

The Estate argued that the intellectual property exclusion must be construed against Alterra because it is “ambiguous and does not address Lanham Act/unfair competition claims.”

The trial court rendered judgment in favor of Alterra, finding it had no obligation to defend or indemnify Maxfield in the underlying action. The Estate appealed.

The court of appeal affirmed, holding that the policy’s intellectual property exclusion precluded coverage.

The policy provided coverage for “personal and advertising injury” but contained an exclusion for “Infringement of Copyright, Patent, Trademark or Trade Secret,” which stated: “‘Personal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your ‘advertisement.’ However, this exclusion does not apply to infringement, in your ‘advertisement,’ of copyright, trade dress or slogan.”

The court of appeal held that the exclusion met all necessary tests to satisfy the requirements of being plain, clear, and conspicuous. The exclusion appeared under the bold-faced heading “Exclusions,” with each separate exclusion given its own “bold-faced title,” the court noted, positioned in a place and printed in a form that would attract the reader’s attention.

The title of the exclusion did not limit the scope of its application, the court held—just because the title of the exclusion read “Infringement of Copyright, Patent, Trademark or Trade Secret” it could still reasonably be understood to apply generally to “intellectual property rights.” That the exclusion did not specifically address Lanham Act/unfair competition claims was not determinative, the court found.

The court quoted extensively from Aroa Marketing, Inc. v. Hartford Ins. Co. of the Midwest (2011) 198 Cal.App.4th 781, a lawsuit brought by a model for unauthorized use of her image and likeness: “The right of publicity, like copyright, protects a form of intellectual property that society deems to have some social utility. Thus, the right of publicity is an intellectual property right, and right of publicity claims would be excluded from coverage under the intellectual property rights exclusion…. Aroa contends the intellectual property rights exclusion does not apply to right of publicity claims because the right of publicity is not specifically listed in the exclusion. We disagree. The exclusion applies when the injury arises out of ‘any violation of any intellectual property rights.’ Even if this language is interpreted narrowly against the insurer, it clearly applies to bar claims based on the right of publicity, as that right has been held to be an intellectual property right.”

The Alterra court found that reasoning dispositive, and dismissed an objection to the casual use of “intellectual property exclusion” or “IP exclusion” in referring to the exclusion. As a result, the court held that the “intellectual property exclusion” applied to bar coverage, and affirmed summary judgment for the insurer.

To read the opinion in Alterra Excess and Surplus Insurance Co. v. Estate of Buckminster Fuller, click here.