Opinion
A111641
4-30-2007
TOSOH SET, Plaintiff and Appellant, v. HARTFORD FIRE INSURANCE COMPANY, Defendant and Respondent.
NOT TO BE PUBLISHED
Tosoh SET (Tosoh) appeals from a summary judgment entered in favor of its insurance carrier, Hartford Fire Insurance Company (Hartford), in an action for breach of Hartfords duty to defend Tosoh against a complaint filed by one of Tosohs competitors. Whether Hartford owed Tosoh a duty to defend turns upon whether the advertising injury coverage of the Hartford insurance policies provides coverage for an advertisement that disparages a competitors products or services by inference, without specifically naming the competitor. We conclude Hartfords duty to defend was triggered by an allegation that Tosoh falsely claimed it alone had developed the detailed specifications and tolerances required for certain replacement component parts used in semiconductor manufacturing equipment, a statement that disparaged its competitors products and services by implying they were measurably inferior. Accordingly, we reverse the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
The Applied Materials Lawsuit
Tosoh promotes itself as a manufacturer of shielding for certain equipment used in the semiconductor and disk drive manufacturing business. On May 29, 2001, Applied Materials, Inc. (Applied Materials), one of Tosohs competitors, filed suit against Tosoh and others in federal district court in California (hereafter the "Applied Materials lawsuit" or "Applied Materials complaint"). (Applied Materials, Inc. v. LTD Ceramics, Inc., et al., N.D. Cal., No. C01-20478JF.) Applied Materials sought damages and injunctive relief for copyright infringement, misappropriation of trade secrets, breach of contract, tortious interference with contractual relations, unfair competition in violation of California common law, tortious interference with prospective economic advantage, and false advertising in violation of the Lanham Act (15 U.S.C. § 1125(a)(1)(B)).
As alleged in its complaint, Applied Materials designs, develops, manufactures, and sells semiconductor fabrication equipment to companies such as Intel and AMD, which use the equipment to manufacture computer chips. Applied Materials also designs and sells the replacement component parts for its semiconductor fabrication equipment. Applied Materials does not manufacture most of the component parts, however. Instead, third-party vendors manufacture the parts based on detailed drawings, designs, and specifications prepared by Applied Materials. These third-party vendors are contractually obligated to preserve the confidentiality of Applied Materials proprietary information and to sell the parts to no one other than Applied Materials. LTD Ceramics, Inc. (LTD), named as a defendant in the Applied Materials complaint, was one such third-party vendor over a ten-year period.
According to the Applied Materials complaint, LTD manufactured component parts using Applied Materials confidential information and sold the parts to Tosoh, which then marketed and sold them to existing and potential customers of Applied Materials. The gravamen of the complaint is that Tosoh was improperly marketing and selling replacement parts manufactured using Applied Materials proprietary and confidential information.
Tosoh focuses in part on paragraph 93 of the Applied Materials complaint, a set of allegations supporting a cause of action for false advertising in violation of the Lanham Act. Applied Materials alleged the following in paragraph 93: "The acts described above, including the use and adulteration of Applied Materialss blueprints, plans and drawings, constitute false advertising and unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125 in that defendants have misrepresented the nature, origin, characteristic [sic] and quality of their goods in connection with the advertisement, promotion and sale of their replacement component parts. Defendants also falsely advertised that [Tosoh] has designed its parts, thereby implying that the parts were manufactured legitimately and not through the use of misappropriated design and specification trade secrets that were developed by Applied Materials. Specifically, [Tosoh] falsely advertises in the following ways: (1) that [Tosoh] is the `only company to develop all the detailed specifications and tolerances needed to perform true, comprehensive parts and inspections; (2) [Tosoh] `takes responsibility for optimizing both the performance and the management of the industrys process kits; (3) that [Tosoh] can handle `any kit component redesign a customer might wish, calling upon our extensive design capabilities and knowledge and knowledge base of detailed kit specifications. These statements and more are deceptive, likely to cause confusion, and likely to influence the purchasing decisions of customers in the replacement part market who seek to purchase from companies that legitimately design and manufacture the parts." Applied Materials alleged it sustained damages as a result of the defendants unfair competition and false advertising.
The Hartford Insurance Policies
Tosoh claims coverage under two commercial general liability policies issued to it by Hartford (the Hartford policies). The first Hartford policy has a policy period commencing August 18, 1998, while the second Hartford policy is a renewal of the first, with a policy period commencing August 18, 1999. Both policies contain identical relevant provisions.
The named insureds on the two policies are "S.E.T. Incorporated" and "S.E.T., Incorporated." "S.E.T." is an abbreviation for "Semiconductor Equipment Technology," a corporate name used until the company was acquired by Tosoh SET Holding Company in July 2000. In connection with the acquisition, the company changed its name to Tosoh SET. Hartford, which initially questioned whether Tosoh was its insured, ultimately agreed that Tosoh is the named insured with standing to pursue the lawsuit that is the subject of this appeal.
The salient provisions of the Hartford policies are the insuring agreements and the definitions of "advertising injury" and "advertisement." The insuring agreements of the Hartford policies provide in relevant part: "We will pay on behalf of the insured all sums that the insured shall become legally obligated to pay as damages because of . . . "advertising injury" or "personal injury" to which this policy applies. We will have the right and duty to defend any "claim" or "suit" seeking those damages." Thus, the Hartford policies require Hartford to defend any suit against Tosoh seeking damages for advertising injury.
In relevant part, the Hartford policies define "advertising injury" as follows: " `Advertising injury means injury arising out of one or more of the following `offenses: [¶] a. Oral or written publication of material in your `advertisement that slanders or libels a person or disparages a persons or organizations goods, products or services . . . ." "Advertisement" is defined in endorsements to the Hartford policies to mean "a dissemination of information or images that has the purpose of inducing the sale of your goods, products or services through: [¶] (1) (a) Radio; [¶] (b) Television; [¶] (c) Billboard; [¶] (d) Magazine; [¶] (e) Newspaper; or [¶] (2) Any other publication that is given widespread public distribution. [¶] However, `advertisement does not include the design, printed material, information or images contained in, on or upon the packaging or labeling of any goods or products."
The Tender of Defense and the Coverage Litigation
Tosoh tendered the defense of the Applied Materials lawsuit to Hartford. Hartford denied coverage, maintaining it had no obligation under the Hartford policies to defend Tosoh against the Applied Materials lawsuit. Among other things, Hartford took the position that the Applied Materials lawsuit did not contain allegations of "advertising injury" as that term is defined in the Hartford policies. Tosoh ultimately settled the Applied Materials lawsuit after hiring its own lawyers and paying all litigation-related expenses.
After resolving the Applied Materials lawsuit, Tosoh filed suit against Hartford and another one of its insurers on November 13, 2003. On February 11, 2004, Tosoh filed a first amended verified complaint asserting claims for breach of contract, bad faith, and fraud. Tosohs other insurer, Great American Insurance Company, settled with Tosoh and is not a party to this appeal.
Tosoh filed a motion for summary adjudication regarding Hartfords duty to defend Tosoh against the Applied Materials lawsuit. Hartford filed a cross-motion for summary judgment or, in the alternative, summary adjudication on the causes of action for breach of contract, fraud, bad faith, and on Tosohs purported entitlement to punitive damages. While the cross-motions were pending, Tosoh dismissed with prejudice its claims against Hartford for bad faith and fraud, leaving only the breach of contract cause of action.
The trial court held there was no potential for coverage under the Hartford policies and that Hartford therefore owed no duty to defend Tosoh in the Applied Materials lawsuit. The court concluded that the Applied Materials complaint contained no allegation of an "advertisement" as that term is defined in the Hartford policies. The court further concluded that the Applied Materials complaint contained no allegation that Tosoh had disparaged or libeled Applied Materials goods, products, or services in any such advertisement. The court also rejected two alternative grounds for coverage, concluding that the Applied Materials complaint included no allegations suggesting either that Tosoh copied an "advertising idea" from Applied Materials or that Tosoh had infringed Applied Materials copyrighted materials in an advertisement.
The trial court granted Hartfords summary judgment motion and denied Tosohs cross-motion for summary adjudication on the duty to defend. After the court entered judgment in favor of Hartford, Tosoh timely appealed.
DISCUSSION
Tosoh asserts three separate grounds for its claim that Hartford owed Tosoh a duty to defend against the Applied Materials lawsuit. First, Tosoh claims the Applied Materials complaint contains an allegation that Tosoh disparaged Applied Materials products in an advertisement. Second, Tosoh contends the Applied Materials complaint alleges that Tosoh infringed Applied Materials copyrighted blueprints in an advertisement and in the promotion of its replacement component parts. Third, Tosoh argues that the Applied Materials complaint contains an allegation that Tosoh copied Applied Materials confidential forecasting and sales information and used that information to market and promote Tosohs replacement component parts. Because we conclude that Hartfords duty to defend was triggered by an allegation that Tosoh disparaged Applied Materials products in an advertisement, we need not address Tosohs alternative arguments supporting a duty to defend.
1. Standard of Review and Scope of Duty to Defend
The parties agree the relevant facts are undisputed. The issue before us is one of law in that it concerns the interpretation of an insurance policy. (County of San Diego v. Ace Property & Casualty Ins. Co. (2005) 37 Cal.4th 406, 414.) " ` "We apply a de novo standard of review to an order granting summary judgment when, on undisputed facts, the order is based on the interpretation or application of the terms of an insurance policy." [Citations.] " (Ibid.)
We are guided by familiar principles in determining whether a duty to defend exists under an insurance policy. "It has long been a fundamental rule of law that an insurer has a duty to defend an insured if it becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement. [Citations.] This duty, which applies even to claims that are `groundless, false, or fraudulent, is separate from and broader than the insurers duty to indemnify. [Citation.] However, ` "where there is no possibility of coverage, there is no duty to defend . . . ." [Citation.]" (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19.)
The "determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy. [Citations.] [¶] Conversely, where the extrinsic facts eliminate the potential for coverage, the insurer may decline to defend even when the bare allegations in the complaint suggest potential liability. [Citations.] This is because the duty to defend, although broad, is not unlimited; it is measured by the nature and kinds of risks covered by the policy. [Citations.]" (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 19.)
"To prevail, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot. Facts merely tending to show that the claim is not covered, or may not be covered, but are insufficient to eliminate the possibility that resultant damages (or the nature of the action) will fall within the scope of coverage, therefore add no weight to the scales." (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300.) "Any doubt as to whether the facts establish the existence of the defense duty must be resolved in the insureds favor. [Citations.]" (Id. at pp. 299-300.)
It is settled that the existence of a potential for coverage of one claim triggers a duty to defend the entire action, even though the action may include claims that are not potentially covered. (Buss v. Superior Court (1997) 16 Cal.4th 35, 48; Downey Venture v. LMI Ins. Co. (1998) 66 Cal.App.4th 478, 488, fn. 6.) The claims that are potentially covered need not predominate to trigger the insurers duty to defend. (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1084.)
An insurance policy is a contract and rules of contract interpretation apply. "The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the `mutual intention of the parties. `Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. [Citation.] Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage" [citation], controls judicial interpretation. [Citation.] [Citations.] A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract. [Citation.] Courts will not strain to create an ambiguity where none exists. [Citation.]" (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at pp. 18-19.)
With these principles in mind, we proceed to consider whether the allegations of the Applied Materials complaint gave rise to a duty to defend.
2. Coverage for an Advertisement Disparaging Anothers Products or Services
"Advertising injury" is defined in relevant part in the Hartford policies to include the "offense" of "[o]ral or written publication of material in your `advertisement that . . . disparages a persons or organizations goods, products, or services . . . ." Tosoh contends the following allegation in paragraph 93 of the Applied Materials complaint triggered a duty to defend because it describes an advertising injury offense: "[Tosoh] falsely advertises in the following ways: (1) that [Tosoh] is the `only company to develop all the detailed specifications and tolerances needed to perform true, comprehensive parts and inspections; . . . . " Hartford asserts that the cited allegation does not create a potential for coverage because (1) there is no contention the purportedly disparaging comment appeared in an "advertisement," as that term is defined in the Hartford policies, and (2) the statement merely "puffed" Tosohs own services and products and did not disparage or even mention Applied Materials or any other competitor. We address these issues in turn.
Advertisement Allegation
"Advertisement" as defined in the Hartford policies generally refers to promotional activities conducted through a medium with widespread public distribution, such as radio, television, or magazines. A promotional sales pitch made during a one-on-one solicitation would therefore not qualify as an "advertisement" within the meaning of the Hartford policies. The definition of "advertisement" also specifically excludes from its scope designs or information contained on a products labeling or packaging. Hartford argues that nowhere in the Applied Materials complaint is there an allegation that any statements, including those cited in paragraph 93, were made in an "advertisement," in that there is no reference to advertising media with widespread distribution. Hartford also implies it is unlikely any statements received widespread distribution, pointing out that even Tosoh refers to the market for semiconductor manufacturing tools as "small."
"Advertising" is defined in the Hartford policies as "a dissemination of information or images that has the purpose of inducing the sale of your goods, products or services through: [¶] (1) (a) Radio; [¶] (b) Television; [¶] (c) Billboard; [¶] (d) Magazine; [¶] (e) Newspaper; or [¶] (2) Any other publication that is given widespread public distribution. [¶] However, `advertisement does not include the design, printed material, information or images contained in, on or upon the packaging or labeling of any goods or products."
Although the Applied Materials complaint does not specify the media in which the advertisements appeared, the advertisement allegation nonetheless raises a potential for coverage. The complaint includes the allegation that Tosoh "falsely advertise[d]" by making certain claims, without specifying the advertising media in which the claims appeared. Our Supreme Court has acknowledged that the "commonly understood meaning" of advertising is "widespread promotional activities usually directed at the public at large." (Hameid v. National Fire Ins. of Hartford (2003) 31 Cal.4th 16, 24.) Therefore, a generic allegation that a competitor "advertised" certain disparaging claims creates the potential for coverage because the term "advertising" encompasses the types of activity covered under the Hartford policies. Moreover, Hartford can point to nothing in the Applied Materials complaint establishing that the purportedly disparaging statements were made in an advertising medium lacking widespread public distribution. Given the nature of the market for component replacement parts, it seems unlikely any such advertisements appeared on television or radio, but it is at least conceivable the allegedly disparaging comments appeared in a trade magazine or other publication with widespread distribution.
Tosoh acknowledges the Applied Materials complaint does not rule out the possibility the alleged advertisements took the form of one-on-one solicitations or other non-covered activities. A factual dispute about the nature of the advertising medium does not negate the potential for coverage, however. When there is a factual dispute on which coverage depends, that fact itself creates a potential for coverage and hence a duty to defend. (See Horace Mann Ins. Co. v. Barbara B., supra, 4 Cal.4th at pp. 1083-1084.) Tosoh need only show that the underlying claim may fall within the policy coverage; Hartford must prove that it cannot. (See Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 300.) Tosoh has met its burden by pointing to allegations that at least potentially come within the Hartford policies definition of advertising. By contrast, Hartford has not established that the advertising alleged in the Applied Materials complaint fell outside the scope of that definition.
Disparagement
Hartford contends there is no potential for coverage because the Applied Materials complaint contains no allegation that Tosoh disparaged a competitors products or services. Hartford argues that an underlying complaint must specifically refer to a competitors goods or services in order to trigger advertising injury coverage for disparagement. As we explain, even when a statement falsely comparing an insureds products or services to competing products or services does not specifically name a competitor, the statement may nonetheless constitute disparagement of the competitor if the claim is a factual assertion capable of being proved or disproved. Such a statement is more than mere "puffery" and may constitute actionable trade libel triggering coverage under the Hartford policies.
The Hartford policies provide coverage for "[o]ral or written publication of material in your `advertisement that . . . disparages a persons or organizations goods, products or services . . . ." Under California law, coverage for disparagement refers to claims setting forth a cause of action for trade libel, sometimes referred to as product disparagement. (See Nichols v. Great American Ins. Companies (1985) 169 Cal.App.3d 766, 772-773 (Nichols); Microtec Research, Inc. v. Nationwide Mut. Ins. Co. (9th Cir. 1994) 40 F.3d 968, 972 (Microtec).) Trade libel is generally defined as " `an intentional disparagement of the quality of property, which results in pecuniary damage . . . . [Citation.]" (Aetna Cas. & Sur. Co. v. Centennial Ins. Co. (9th Cir. 1988) 838 F.2d 346, 351 (Aetna).) "A cause of action for trade libel . . . requires (at a minimum): (1) a publication; (2) which induces others not to deal with plaintiff; and (3) special damages." (Nichols, supra, 169 Cal.App.3d at p. 773.)
We note Applied Materials did not formally assert a cause of action for trade libel but instead included the allegations relevant to our analysis in a cause of action for false advertising in violation of the federal Lanham Act. The fact Applied Materials denominated the cause of action as something other than trade libel does not negate coverage for disparagement, however. The duty to defend is based on the potential liability suggested by the facts alleged, rather than the form or title of a cause of action. (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 609.)
In order to constitute trade libel, a statement must be false. (5 Witkin, Summary of California Law (10th ed. 2005) Torts § 645, p. 951.) "Because mere opinions cannot by definition be false statements of fact, opinions alone will not support a cause of action for trade libel. [Citations.]" (Id. at p. 952.) "Puffing" or "puffery" is defined in relevant part as "[t]he expression of an exaggerated opinion—as opposed to a factual representation—with the intent to sell a good or service." (Blacks Law Dict. (7th ed. 1999) p. 1247, col. 1.) Puffery is nonactionable. (Cf. Anunziato v. eMachines, Inc. (C.D. Cal. 2005) 402 F.Supp.2d 1133, 1139 [considering false advertising claims under sections 17200 et seq. and 17500 et seq. of the Business and Professions Code].) Thus, for example, under the federal Lanham Act, an advertisement stating in general terms that one product is superior to another constitutes puffery and is nonactionable. (Cook, Perkiss & Liehe, Inc. v. Northern California Collection Service, Inc. (9th Cir. 1990) 911 F.2d 242, 246.) Similarly, the use of inherently vague words such as "quality," "reliability," "performance," and the "latest technology" have been found to be nonactionable puffery. (Anunziato v. eMachines, Inc., supra, 402 F.Supp.2d at pp. 1139-1140.) However, a claim that a seller used the "most stringent quality control tests" was actionable because the "statement [was] a specific factual assertion which could be established or disproved through discovery, and hence [was] not mere puffery." (Id. at pp. 1140-1441.) Accordingly, in determining whether a statement is actionable, the focus is on whether the claim is factual and susceptible to being proved or disproved.
The general definitions of trade libel do not answer the question whether a publication must specifically identify the allegedly disparaged product, service, entity, or individual in order to qualify as trade libel. However, common sense suggests that a product may be disparaged by a publication in which the identity of the product, while not expressly mentioned, is clearly implied. We are guided in this regard by the analysis in Blatty v. New York Times Co. (1986) 42 Cal.3d 1033, a case in which our Supreme Court considered constitutional limitations on injurious falsehood claims, including those for defamation and the related tort of trade libel. The court held that, in order to be actionable, statements must be "of and concerning" the object of the injurious falsehood. (Id. at pp. 1042, 1044.) The court reasoned that "[t]he `of and concerning or specific reference requirement limits the right of action for injurious falsehood, granting it to those who are the direct object of criticism and denying it to those who merely complain of nonspecific statements that they believe cause them some hurt. To allow a plaintiff who is not identified, either expressly or by clear implication, to institute such an action poses an unjustifiable threat to society." (Id. at p. 1044, italics added.) The court clarified that a "specific reference" does not necessarily mean mentioning the name of the plaintiff: "To be referred to specifically, we emphasize, the plaintiff need not be mentioned by name, but may be identified by clear implication. For example, if a company consists of Smith, Jones, and Doe, and a publication asserts `Smith and Jones are the only honest members of the company, certainly the publication specifically refers to Doe and accuses him of dishonesty by clear implication." (Id. at p. 1044, fn. 1.) These principles apply to all claims arising from the publication of injurious falsehoods, a category that includes trade libel. Therefore, in a cause of action for trade libel, a publication need not expressly identify the disparaged product or service as long as the identity of the product or service is clearly implied.
The torts of defamation and trade libel are closely related, although they are distinct in several respects not relevant to our analysis here. Among other things, an action for defamation is designed to protect a plaintiffs reputation, while an action for trade libel lies only where a plaintiff has suffered pecuniary damage. (Leonardini v. Shell Oil Co. (1989) 216 Cal.App.3d 547, 573.)
In Blatty v. New York Times Co. supra, the court concluded the "of and concerning" constitutional limitation applies equally to "all claims, of whatever label, whose gravamen is the alleged injurious falsehood of a statement . . . ." (42 Cal.3d at pp. 1044-1045.)
The cases relied upon by Hartford do not alter our conclusion. In Nichols, supra, 169 Cal.App.3d 766, the court addressed whether allegations in an underlying complaint made out a claim for disparagement triggering insurance coverage. Nichols involved an HBO licenser, California Satellite Systems (Calsat), that sued Nichols and other parties for selling devices allowing customers to intercept the HBO signal illegally. (Id. at p. 770.) The Nichols court held the insurer had no duty to defend or indemnify because, among other things, no actual disparaging statement was alleged on the face of the complaint. (Id. at pp. 773-774.) Instead, the allegedly disparaging statement was contained in reports by a Calsat investigator that were attached to the complaint and incorporated by reference. The reports detailed incidents in which Nichols and his associates attempted to sell devices capable of intercepting HBO to the investigator, who claimed Nichols said "there was `nothing wrong with having such equipment as long as the programs were not resold." (Id. at p. 774.) The insureds urged that the implication of the statement was that it was permissible to intercept the HBO signal without paying for the service. The court rejected the notion that the purportedly disparaging statement gave rise to a claim for trade libel, noting it was "only inferentially defamatory in character" and did not even appear by a distinct averment in the complaint. (Ibid.) The court found that the "precise statements contained in the reports are either ambiguous or susceptible of an innocent meaning," concluding that the "Calsat complaint contains no suggestion of the defamatory meaning that appellants seek to infer." (Ibid.)
The policyholder in Nichols sought coverage for "personal injury," not "advertising injury." (Nichols, supra, 169 Cal.App.3d at p. 772.) This distinction is not relevant for purposes of our analysis, because both types of coverage require a "disparagement." In general, if a disparaging statement is made in an advertisement, then the advertising injury coverage is implicated, whereas if the disparaging statement is not made in the course of advertising, the personal injury coverage is implicated.
Nothing in Nichols suggests a disparaging statement must expressly name a particular product or company in order to constitute trade libel. Although the Nichols court referred to the lack of any allegation that "directly cast aspersions on either Calsats equipment or license," the court was not distinguishing between a statement that directly disparages and one that disparages by inference. (Nichols, supra, 169 Cal.App.3d at p. 774.) Rather, the statement at issue in Nichols was not even inferentially defamatory. It did not disparage Calsats products or services directly or by implication. Accordingly, Nichols does not support Hartfords contention that California law rejects "disparagement by inference" as a basis for a trade libel action.
Likewise, Atlantic Mutual Ins. Co. v. Lamb (2002) 100 Cal.App.4th 1017, does not aid Hartford, which cites the decision for the proposition that " `disparagement has been held to include statements about a competitors goods that are untrue or misleading . . . ." (Id. at p. 1035, italics added.) A statement may impliedly be "about" a competitors goods without directly mentioning the competitor or its products. Further, the court did not even have occasion to consider whether a statement not directly mentioning a competitor or its products constituted disparagement.
In Microtec, supra, 40 F.3d 968, another case relied upon by Hartford, the underlying claimant, Green Hills, alleged that Microtec, the insured, was passing off Green Hills computer code as its own. (Id. at p. 970.) The allegedly disparaging statement was that Microtec had represented it had independently developed computer code that equaled or surpassed that of Green Hills. (Id. at p. 971.) The court held the statement was not disparaging and did not give rise to a duty to defend, reasoning that the statement did not make any false statement about Green Hills but merely falsely represented that Microtec had developed the computer code independently. (Id. at p. 972.) Microtec does not establish that a disparaging statement must expressly mention a competitor in order to be actionable. Instead, the case supports the proposition that a false statement touting ones own product is not actionable as trade label if it neither directly nor impliedly disparages the quality of a competitors products.
Hartford also relies on Aetna, supra, 838 F.2d 346, in which the Ninth Circuit Court of Appeals concluded that an insureds primary insurers had no duty to defend an action in which the gravamen of the complaint was that the insured had "palmed off" a competitors products as its own. (See id. at p. 351.) Aetna is inapposite, however, because the claimant who sued the insured there did not allege that the insured disparaged its products. Indeed, there was no allegation the insured made any statement—disparaging or otherwise—about or concerning the claimants products. The Aetna court observed that copying anothers goods may constitute unfair competition or trade mark infringement, but without more it does not constitute disparagement. (Id. at p. 352.) Thus, Aetna stands for the relatively narrow proposition that "palming off" or simply copying another companys goods, even if the copies are of an inferior quality, does not comprise disparagement. The Aetna court had no occasion to consider whether a statement indirectly disparaging a competitor might give rise to coverage.
Tosoh directs our attention to Knoll Pharmaceutical Co. v. Automobile Ins. Co. of Hartford (N.D. Ill. 2001) 152 F.Supp.2d 1026 (Knoll), which it claims directly supports its position. Hartford asks this court to disregard Knoll, which was decided under Illinois law, arguing that California law would yield a different result. While we hesitate to rely upon the reasoning of a federal district court interpreting another states law, we would be remiss not to at least consider Knoll, which addressed an issue akin to the one we face here. However, Knoll differs from this case in one very critical respect, as we explain.
In Knoll, consumers and third-party payors brought numerous actions against various defendants involved in the marketing and sale of Synthroid, a synthetic thyroid hormone. (Knoll, supra, 152 F.Supp.2d at p. 1030.) The thrust of the underlying lawsuits was that the defendants had concealed or suppressed information about cheaper bioequivalent drugs and had falsely represented that there were no equivalents for Synthroid. (Ibid.) The court held the allegations disparaged competing products and gave rise to a duty to defend. (Id. at pp. 1038-1039.)
The court in Knoll initially considered an issue not implicated here. Specifically, it addressed whether coverage for disparagement may arise when the disparaging statement is directed at someone other than the underlying plaintiff. (Knoll, supra, 152 F.Supp.2d at p. 1034.) In Knoll, the disparaging statements were not directed at the plaintiff consumers and third-party payors. Rather, the statements purportedly disparaged manufacturers of competing synthetic thyroid drugs, who were not parties to the lawsuits. Finding the policy language ambiguous as to whether a claimant must be directly injured by the offenses described in the policy, the court found a duty to defend despite the fact the allegedly disparaging statements were not directed at the plaintiffs. (Id. at pp. 1034, 1039.)
At oral argument, Hartfords counsel pointed out that this aspect of Knoll was rejected by the First Circuit Court of Appeals in Great American Ins. Co. v. Riso, Inc. (1st Cir. 2007) 479 F.3d 158, 162. In Great American, the court noted that under California law defamatory or disparaging statements must be "of and concerning" the plaintiff, citing Blatty v. New York Times Co., supra, 42 Cal.3d 1033. (Great American Ins. Co. v. Riso, Inc., supra, 479 F.3d at p. 161.) Therefore, unless the underlying complaint contains an allegation that the defendant disparaged the products or services of the plaintiff, as opposed to some third party, there is no potential coverage for disparagement. (Id. at p. 163.) The Great American courts criticism of Knoll appears to be well taken, but the particular issue addressed by that court is irrelevant to our analysis. The allegedly disparaging statement here was directed at the underlying plaintiff, Applied Materials, and not at some nonparty.
Knoll is nevertheless relevant to our analysis to the extent the court considered whether a statement must directly name a competitor or its products in order to constitute disparagement. The Knoll court concluded the statements alleged in the underlying lawsuits were disparaging because they criticized the quality of other companies products as being inferior to Synthroid. (Knoll, supra, 152 F.Supp.2d at p. 1038.) On this point, we disagree with Hartfords contention that California law would produce a different result. The allegations in the underlying complaints in Knoll disparaged competing synthetic thyroid drugs by clear implication. The false statements, and in particular the claim that competing drugs were not bioequivalent to Synthroid, were factual in nature and capable of being proved or disproved. (Id. at pp. 1038-1039.) The failure to expressly mention the competitors or the names of their products did not make the allegedly false statements any less disparaging. Therefore, although we agree with Great American that Knoll is inconsistent with California law in certain respects not relevant here, the analysis in Knoll is nevertheless helpful and consistent with California law to the extent it considers whether a statement may disparage a competitor by implication.
Hartford could have drafted its policy to limit coverage to situations in which an insured expressly identifies the person or product being disparaged. It did not. The Hartford policies provide coverage for damages arising out of the oral or written publication of material that "disparages a persons or organizations goods, product or services." Interpreting identical policy language, the Eleventh Circuit Court of Appeals held the language was "ambiguous as to whether the insured must mention a plaintiffs name in an advertisement in order to give rise to a duty to defend a false advertising claim . . . ." (Vector Products, Inc. v. Hartford Fire Ins. Co. (11th Cir. 2005) 397 F.3d 1316, 1319.) Applying Florida law, the court resolved the ambiguity in favor of the insured and found that claims in an underlying complaint that falsely compared the insureds product to the "leading brand" gave rise to a duty to defend, subject to certain exclusions in the policy that are not implicated here. (Ibid.) Like Florida law, California law provides that ambiguities in policy language are construed in favor of the insured. (La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27, 38.) Accordingly, we must resolve the ambiguity in favor of Tosoh and conclude that nothing in the Hartford policies requires an insured to specifically name the goods, products, or services it is alleged to have disparaged.
We now apply these principles to the statement that allegedly disparaged Applied Materials: "[Tosoh] is the `only company to develop all the detailed specifications and tolerances needed to perform true, comprehensive parts and inspections . . . ." We first observe it is unclear what it means to "perform" parts. Nevertheless, the statement plainly implies that Tosoh can perform inspections its competitors are unable to do because they lack the "needed" specifications and tolerances that only Tosoh has developed. The clear implication of the statement is that the original producer of the semiconductor manufacturing equipment, Applied Materials, has not developed adequate specifications and tolerances in connection with its replacement component parts. This allegation is not mere puffery but instead is a statement of fact that may be proved or disproved. "Specifications and tolerances" are not vague concepts but are instead measurable items. Moreover, they are critical aspects of the products and services Tosoh and Applied Materials offer. Indeed, Applied Materials stresses in its complaint that "precise dimensions and tolerances" for equipment and component parts are "crucial" to producing parts that satisfy performance and reliability standards. Thus, the statement at issue disparaged Applied Materials and its products and services by clear implication. Because the Applied Materials complaint also includes an allegation that Applied Materials suffered damages as a direct and proximate cause of Tosohs false advertising, the Applied Materials complaint makes out a claim of trade libel under California law.
Accordingly, we conclude the allegations of the Applied Materials complaint gave rise to a duty to defend Tosoh under the advertising injury coverage of the Hartford policies. The trial court erred in concluding otherwise.
DISPOSITION
The judgment is reversed. Upon remand, the trial court shall enter an order denying Hartfords summary judgment motion and granting Tosohs motion for summary adjudication on Hartfords duty to defend against the Applied Materials lawsuit. Tosoh shall recover its costs on appeal.
We concur:
Parrilli, J.
Siggins, J.