The National Law Forum

The Blog of the The National Law Review

Employment Related Lawsuits Are on the Rise. Are You Covered?

Gilbert LLP Law FirmOn September 25, 2014, the Equal Employment Opportunity Commission (“EEOC”) filed the first two suits in its history challenging transgender discrimination under the 1964 Civil Rights Act.  As discrimination litigation evolves, it is important to know whether your insurance coverage is evolving with it.

Coverage for employee-related lawsuits has always been important, but the increase in suits brought by the EEOC over the last several years (and the last several decades) has made employment practices liability (“EPL”) insurance of particular importance to protecting your company.  Last year, the EEOC recovered a record-setting $372.1 million.

Now, the scope of EEOC suits is increasing as a result of the EEOC’s ongoing efforts to implement its Strategic Enforcement Plan (“SEP”), adopted in December of 2012.  As part of its SEP, the EEOC makes “coverage of lesbian, gay, bisexual and transgender individuals under Title VII’s sex discrimination provisions, as they may apply” a “top commission enforcement priority.”

Comprehensive general liability (“CGL”) policies, are a type of commercial third-party liability insurance.  Most businesses in the United States purchase CGL policies in order to protect against the risk of suits by third parties.  If a patron sues you for a slip and fall in your mom-and-pop shop, your CGL policy probably covers the suit.  Likewise, if you distribute across the entire country a product that allegedly causes bodily harm to thousands of people, your CGL policy probably covers the suits.

As broad as CGL coverage is, however, it is only one piece to a balanced insurance portfolio.  CGL policies typically exclude coverage for suits brought by employees of the company.  EPL polices step in to fill one part of the gap in coverage.  Other parts of the gap are filled by workman’s compensation policies and directors and officers liability policies.

A typical EPL policy may list a number of categories of protected classes covered by insurance, and then add coverage for “other protected classes.”  A policy may also protect against claims for “Discrimination,” and define that discrimination broadly to mean “any actual or alleged violation of any employment discrimination law.”  However, some polices offer more limited coverage.  For example, some carriers may restrict coverage to only sexual harassment.

Just as you protect your company from fire by installing sprinklers in your warehouses and doing regular safety inspections, it is imperative that you keep your employment practices up to date.  Educate your employees on proper workplace behavior, and try to think about ways to get ahead of the curve to minimize your liability for alleged workplace discriminations.

Just as discrimination litigation is evolving, other areas of litigation continue to evolve and create new risks for your company.  In addition, coverage law continues to evolve across the United States, on a state-by-state basis.  As coverage law evolves, it has a direct effect on the value of your insurance portfolio.

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Trademark Assignments: Keeping it Valid

Lewis Roca Rothgerber

After a trademark achieves federal registration, ownership of the mark may change hands for a variety of reasons. When a trademark owner transfers their ownership in a particular mark to someone else, it is called an assignment. Generally, for an assignment of a trademark to be valid, the assignment must also include the ‘goodwill’ associated with the mark (goodwill is an intangible asset that refers to the reputation and recognition of the mark among consumers). If the assignment of a trademark includes the mark’s goodwill and is otherwise legal, the assignee gains whatever rights the assignor had in the mark. Importantly, this includes the mark’s priority date, which has implications for protecting the mark from potential infringers going forward.

In contrast, if an assignment of a trademark is made without the mark’s accompanying goodwill, then it is considered an assignment “in gross” — and the assignment is invalid under U.S. law. Courts have analyzed whether an assignment was made in gross in a few different ways, but, as is the case with much of trademark law, protecting customers from deception and confusion is the primary motivation behind any analysis for determining the validity of an assignment.

One way courts determine if an assignment was made in gross is through the substantial similarity test. This test essentially examines whether the assignee is making a product or providing a service that is “substantially similar” to that of the assignor, such that consumers would not be deceived by the assignee’s use of the mark. This analysis includes an assessment of the quality and nature of the goods and services provided under the mark post-assignment.  Thus, even if an assignee is using the mark on the same type of goods, but the goods are of lower quality than the goods previously offered by the assignor under the mark, the assignment could be invalid. However, slight or inconsequential changes to goods and services after an assignment are not likely to invalidate the assignment, as such changes are to be expected and would not thwart consumer expectations.

Decisions on the question of substantial similarity are only marginally instructive, as the  test calls for a fact specific inquiry into what the consuming public has come to expect from the goods or services offered under a given mark. For example, courts have noted that despite similarities in services and goods, “even minor differences can be enough to threaten customer deception.”[1] Instances of products or services that were deemed not substantially similar (and thus resulted in invalid assignments) include: an assignee offering phosphate baking powder instead of alum baking powder;[2] an assignee using the mark on a pepper type beverage instead of a cola type beverage;[3] an assignee producing men’s boots as opposed to women’s boots;[4]an assignee using the mark on beer instead of whiskey;[5] and an assignee selling hi-fidelity consoles instead of audio reproduction equipment.[6]

Conversely, case law has also shown that substantial similarity can be found even when products or services do differ in some aspects, if consumers aren’t likely to be confused. For example, the following product changes did not result in a finding of an invalid assignment: an assignee offering dry cleaning detergent made with a different formula;[7]an assignee using thinner cigarette paper;[8] and an assignee selling a different breed of baby chicks.[9]

Whether goods or services are substantially similar may seem like an easy test to apply, but, as case law demonstrates, this fact-intensive analysis can yield results that look strange in the abstract. Disputes involving the validity of a trademark assignment are decided on a case-by-case basis, using the specific facts at hand to determine if consumer expectations are being met under the new use. Thus, while trademarks acquired through assignment can have significant value (and grant the assignee important rights formerly held by the assignor), assignees should be wary of changes to goods or services under an acquired mark that could be seen as deceiving the public.

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[1] Clark & Freeman Corp. v. Heartland Co. Ltd., 811 F. Supp. 137 (S.D.N.Y. 1993).

[2] Independent Baking Powder Co. v. Boorman, 175 F. 448 (C.C.D.N.J.1910).

[3] Pepsico, Inc. v. Grapette Company, 416 F.2d 285 (8th Cir. 1969).

[4] Clark & Freeman Corp. v. Heartland Co. Ltd., 811 F. Supp. 137 (S.D.N.Y. 1993).

[5] Atlas Beverage Co. v. Minneapolis Brewing Co., 113 F.2d 672 (8 Cir. 1940).

[6] H. H. Scott, Inc. v. Annapolis Electroacoustic Corp., 195 F.Supp. 208 (D.Md.1961).

[7] Glamorene Products Corp. v. Procter & Gamble Co., 538 F.2d 894 (C.C.P.A. 1976).

[8] Bambu Sales, Inc. v. Sultana Crackers, Inc., 683 F. Supp. 899 (1988).

[9] Hy-Cross Hatchery, Inc v. Osborne 303 F.2d 947, 950 (C.C.P.A. 1962)

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