Tuesday, March 10, 2015
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C.A.: Insurer Had No Duty to Defend ‘Buckyballs’ Infringement Suit
By KENNETH OFGANG, Staff Writer
The liability insurer for the now-defunct company that sold millions of packs of “Buckyballs” and “Buckycubes” magnetic desk toys has no duty to defend or indemnify against a lawsuit by the estate of scientist/inventor R. Buckminster Fuller, the First District Court of Appeal ruled yesterday.
Div. Two affirmed judgment on the pleadings in favor of Alterra Excess and Surplus Insurance Company, saying an exclusion for injury “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights” in the policy sold to Maxfield & Oberton Holdings LLC by a predecessor insurer eliminate any possibility of coverage.
Maxfield began selling the toys, sets of 216 rare earth magnets arranged in a cube that could be rearranged into other shapes, in 2009. It reportedly sold 2.5 million sets for $20 or more each, online and through major retailers, making them the world’s most popular adult desk toy, the company claimed.
The company ran into legal trouble, however, first with the Consumer Product Safety Commission, and later with the Fuller estate.
The CPSC complained that the pieces were so small that, although the product was marketed to adults, they wound up being swallowed by small children, at least a dozen of whom reportedly required surgery.
Federal Suit
The Fuller estate alleged in a complaint in the U.S. District Court for the Northern District of California that the products had misappropriated the Fuller name and trademarks without permission. The complaint pled claims for unfair competition in violation of the Lanham Act and California Unfair Competition Law, and for common-law and statutory misappropriation of the inventor’s name.
While the company claimed resemblance to Fuller’s most famous invention, the geodesic dome—the estate noted that Maxfield’s own promotional materials said the Bucky toys were “inspired by” Fuller.
Maxfield tendered its defense of that suit to Alterra, which agreed to defend under a reservation of rights, although it insisted that it had no obligation to indemnify, in part because of the “intellectual property” exclusion in the policy.
The judge hearing that action, District Judge Lucy Koh, ruled that the estate stated causes of action on all of its claims except for common-law misappropriation. While California gives the heirs of deceased celebrities’ rights to their names and likenesses after their deaths, the common law right dies with the subject, she explained.
Koh also rejected the company’s claims that it had a First Amendment right to use the Bucky name.
As for the CPSC’s efforts, although the company fought the commission in court, a number of its retail outlets stopped selling the toys in response to the commission’s action. Maxfield eventually agreed to stop selling the toys, and to pay up to $375,000 in refunds to consumers who returned them.
It then filed for dissolution and created a liquidating trust, which reached a settlement with the Fuller estate. Under that agreement, the estate acquired the company’s claims against its insurer, and the trust agreed to pay the estate an undisclosed sum of money, from which any recovery the estate obtained from the insurer would be deducted dollar-for-dollar.
The settlement provided that if the estate were to be awarded more from the insurer than the trust agreed to pay, the estate would keep the full sum.
Trial Court Ruling
San Francisco Superior Court Judge Leslie C. Nichols, however, ruled that the insurer had no obligations under the policy, citing Aroa Marketing, Inc. v. Hartford Ins. Co. of the Midwest (2011) 198 Cal.App.4th 781. That case held that a similarly worded exclusion excused the insurer from defending its insured, a marketing company, against a model’s action for misappropriation of her name and likeness.
Aroa rejected the contention that right-of-publicity claim were not excluded because the exclusion did not specifically state that they were.
The court reasoned:
“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 Fuller estate argued the cases were distinguishable, and that Aroa was contrary to the weight of authority, but Justice James Richman, writing yesterday for the Court of Appeal, disagreed.
He cited a number of authorities that have discussed the standard-language intellectual property exclusion, including the late Court of Appeal Justice Walter Croskey’s treatise on insurance law.
Richman also rejected the contention that Aroa should not apply because it was decided after the policy was issued to Maxfield. The estate offered no persuasive reason why the usual rule in favor of retroactive application of appellate rulings in civil cases should not be applied, the justice said.
The case is Alterra Excess and Surplus Insurance Company v. Estate of Fuller, A140453.
Copyright 2015, Metropolitan News Company