Skylink Technologies Inc. vs. Assurance Company of America

(7th U.S. Circuit Court of Appeals, applying Illinois law, March 11, 2005)

–Ruling: Advertising injury coverage is inapplicable to claims that product failed to conform with statements of performance on packaging.

The insured was a seller of universal transmitters and keypads that operate several brands of garage door openers, including those made by Chamberlain. As a security feature, Chamberlain’s openers used a rolling code technology that changed the transmitted code every time the door was opened, a technology it developed and copyrighted. The codes did not change when doors were opened with the insured’s product. As a result, Chamberlain sued the insured, claiming that the insured’s advertisements were false or misleading because the insured’s transmitters were not actually “compatible” with Chamberlain’s technology, as claimed on packaging.

Chamberlain also claimed the insured infringed on Chamberlain’s copyright by selling a product designed to get around the rolling code technology. The insured sought advertising injury coverage under its CGL and umbrella policies for these claims. The court held that the claims were not covered because Chamberlain did not object to the insured’s marketing of its products except to the extent that they claim to use the rolling code technology.

There was no coverage for “disparagement,” since statements of product compatibility were not a false comparison. The court observed that Chamberlain was complaining that the insured’s products failed to conform to the statement of performance on its package–an injury excluded by the policy.

Similarly, the complaint did not assert “misappropriation” by use of Chamberlain’s name. Chamberlain’s complaint was not the result of the insured’s use of its name on packaging, but that the products bypass the rolling code technology. The problem was not one of misappropriation but of a failure to live up to an advertised promise. Finally, the court rejected the insured’s argument that the copyright claim constituted an advertising injury. As with the disparagement and misappropriation provisions, the real harm alleged resulted from the fact that the insured transmitter and keypad circumvent the rolling code technology, not from the way the products are packaged.

Topics Tech