555 F.3d 772 (9th Cir. 2009), 07-55833, United Nat. Ins. Co. v. Spectrum Worldwide, Inc.

Docket Nº:07-55833.
Citation:555 F.3d 772, 89 U.S.P.Q.2d 1618
Party Name:UNITED NATIONAL INSURANCE COMPANY, a Pennsylvania corporation, Plaintiff-Appellee, v. SPECTRUM WORLDWIDE, INC., a California corporation; Celebrity Products Direct, Inc., a California corporation; Lisa Tremain, a California citizen; Howard Schwartz, a California citizen, Defendants-Appellants, and Monticello Insurance Company, a Delaware corporatio
Case Date:February 02, 2009
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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555 F.3d 772 (9th Cir. 2009)

89 U.S.P.Q.2d 1618

UNITED NATIONAL INSURANCE COMPANY, a Pennsylvania corporation, Plaintiff-Appellee,

v.

SPECTRUM WORLDWIDE, INC., a California corporation; Celebrity Products Direct, Inc., a California corporation; Lisa Tremain, a California citizen; Howard Schwartz, a California citizen, Defendants-Appellants,

and

Monticello Insurance Company, a Delaware corporation, Defendant.

No. 07-55833.

United States Court of Appeals, Ninth Circuit.

February 2, 2009

Argued and Submitted Oct. 21, 2008.

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[Copyrighted Material Omitted]

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James C. Nielsen, Jennifer S. Cohn, and August L. Lohuaru, Nielsen, Haley & Abbott LLP, Los Angeles, CA, for the plaintiffs-appellees.

Peter W. Ross, Gene Williams, and Keith J. Wesley, Brown Woods & George LLP, Los Angeles, CA, for the defendants-appellants.

Appeal from the United States District Court for the Central District of California; Stephen G. Larson, District Judge, Presiding. D.C. No. CV-05-04610-SGL.

Before: HARRY PREGERSON and N. RANDY SMITH, Circuit Judges, and RANER C. COLLINS,[*] District Judge.

N.R. SMITH, Circuit Judge:

Spectrum Worldwide, Inc. (" Spectrum Worldwide" ), Celebrity Products Direct, Inc. and Celebrity Products, Inc. (collectively " Celebrity" ), Spectrum Worldwide's president Murray Moss (" Moss" ), CEO Lisa Tremain (" Tremain" ), and CFO Howard Schwartz (" Schwartz" ) (all of the defendants hereinafter referred to as " Spectrum" ) asks this court to determine whether the " first publication" exclusion found in the United National Insurance Company's (" United" ) excess insurance policy applies to infringement claims. We hold that it does. Additionally, because Spectrum presents us with a legal position that is clearly inconsistent with the position it took and benefitted from in previous litigation, judicial estoppel prevents us from allowing Spectrum to argue that it first published infringing material after purchasing its excess insurance coverage. Further, the district court did not abuse its discretion when it held Schwartz and Tremain jointly and severally liable for repayment of United's contribution.

I

In December 1997, Sunset Health Products, Inc. (" Sunset" ) hired Spectrum to advertise and distribute the " Hollywood 48-Hour Miracle Diet" drink (" Miracle Diet" ). Soon thereafter, Tremain and Schwartz formed Celebrity to market and sell a similar product, " The Original Hollywood Celebrity Diet" drink (" Celebrity Diet" ). Spectrum then terminated its contract

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with Sunset and began marketing Celebrity Diet.

In December 1998, and again in March 1999, Sunset demanded that Spectrum cease infringing on its Miracle Diet trademark. In October 2001, Sunset filed a trade dress infringement claim against Spectrum, alleging that Spectrum " deliberately" made Celebrity Diet's packaging and labeling so similar to Miracle Diet that it confused consumers and damaged Sunset's reputation (the " Sunset Action" ). Sunset applied for a temporary restraining order (" TRO" ), wherein it asked District Judge Nora Manella 1 to compare Sunset's 1998 label to Spectrum's 1998 and 2001 labels to determine that Spectrum's 2001 label constituted an immediate harm to Sunset. In 1998, Sunset's Miracle Diet label prominently featured the word " Hollywood," contained the phrase " Lose Up To 10 lbs. in 48 Hours!," and included palm trees, gold stars, and Hollywood-style searchlights-all set on a blue/purple background (" Sunset's 1998 label" ). Spectrum initially sold Celebrity Diet under a label featuring very similar phrasing, but set against a black background with a large gold star (" Spectrum's 1998 label" ). In 1999, Spectrum changed Celebrity Diet's label, sporting the same large gold star and phrasing, but switching to a purple/blue background featuring Hollywood-style searchlights (" Spectrum's 1999 label" ). In May 2001, Spectrum again altered Celebrity Diet's label, changing the font and style of the word " Hollywood" to look more like the Hollywood Hills sign, and modified the star and searchlights (" Spectrum's 2001 label" ).

Judge Manella granted the TRO based on the dramatic change between Spectrum's 1998 and 2001 labels. In the subsequent preliminary injunction hearing, however, Spectrum argued that it changed its 1998 label in 1999, and that its 1999 label was so similar to its 2001 label that Sunset was not in danger of experiencing immediate harm. Judge Manella accepted Spectrum's position, and denied Sunset's preliminary injunction action on this basis. Spectrum therefore continued profiting from the sale of Celebrity Diet, while deepening potential insurers' liability.

In 2001, United also issued Spectrum a one million dollar excess third party liability policy (the " United Policy" ) related to an underlying policy issued by Monticello Insurance Company (the " Monticello Policy" ). United's policy became effective on April 26, 2001, and is " subject to definitions, terms, conditions, exclusions and limitations contained in the [Monticello Policy]," which indemnifies Spectrum for damages resulting from " advertising injury" liability, meaning injury arising from:

a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services;

b. Oral or written publication of material that violates a person's right of privacy;

c. Misappropriation of advertising ideas or style of doing business;

d. Infringement of copyright, title or slogan.

The United Policy does not, however, apply to an " advertising injury ... arising out of oral or written publication of material whose first publication took place before the beginning of the policy period."

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After subsequent hearings on cross-motions for summary judgment in the Sunset Action, the parties were left with Sunset's core trade-dress infringement claim. Spectrum and Sunset then settled the Sunset Action for a total of $3,220,000 paid to Sunset, funded by Spectrum's...

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