Court Opinion

ID: 2997575
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:37:32.350515+00
Date Added: 2024-06-11T11:45:34.391600
License: Public Domain

In the
    United States Court of Appeals
                For the Seventh Circuit
                           ____________

No. 04-2005
SKYLINK TECHNOLOGIES, INC.,
                                              Plaintiff-Appellant,
                                 v.

ASSURANCE COMPANY OF AMERICA,
                                             Defendant-Appellee.
                           ____________
           Appeal from the United States District Court for
          the Northern District of Illinois, Eastern Division.
        No. 03 C 1735—Michael T. Mason, Magistrate Judge.
                           ____________
    ARGUED NOVEMBER 29, 2004—DECIDED MARCH 11, 2005
                     ____________

    Before KANNE, EVANS, and SYKES, Circuit Judges.
  EVANS, Circuit Judge. Skylink Technologies, Inc. sued its
insurer, Assurance Company of America, claiming that
Assurance was contractually obligated to defend Skylink in
a pair of suits filed by Skylink’s competitor, The Chamber-
lain Group, Inc. The district court (Magistrate Judge
Michael T. Mason sitting by consent), applying Illinois law,1

1
   Although Assurance makes an argument in favor of California
law, it also admits that there might not be a conflict between
Illinois and California law. Thus, we agree with the district court’s
                                                      (continued...)
2                                                   No. 04-2005

denied Skylink’s motion for summary judgment and granted
Assurance’s. Skylink appealed. We review de novo, see
Allstate Ins. Co. v. Keca, 368 F.3d 793, 797 (7th Cir. 2004),
and we must construe the underlying complaint liberally,
resolving all doubts in Skylink’s favor. United States Fire
Ins. Co. v. Aetna Life & Cas., 684 N.E.2d 956, 961 (Ill.
App. Ct. 1997).
  Skylink sells universal transmitters and keypads that
operate several brands of garage door openers, including
those made by Chamberlain. Most garage door openers send
a single code from the transmitter to the receiver. But
Chamberlain’s openers use a “rolling code” technology that
changes the transmitted code every time the door is opened
in an attempt to thwart would-be burglars and other mis-
creants who can steal a single code in order to gain unau-
thorized access to the garage. Chamberlain secured a copy-
right for the computer software it developed in creating that
protection.
  Skylink sells a transmitter and keypad that can be used
to open garage doors outfitted with Chamberlain’s rolling
code technology, but the code does not change when the
door is opened with Skylink’s products, thus negating
Chamberlain’s security feature. As a result, Chamberlain
sued Skylink in both American and Canadian courts, claim-
ing that Skylink’s advertisements are false or misleading
because Skylink’s transmitters are not actually “compati-
ble” with Chamberlain’s rolling code technology, as claimed
on the packaging of the Skylink products. Chamberlain also
claimed Skylink infringed on Chamberlain’s copyright by
selling a product designed to get around the rolling code
technology.

1
  (...continued)
application of Illinois law. See Massachusetts Bay Ins. Co. v. Vic
Koenig Leasing, Inc., 136 F.3d 1116, 1120 (7th Cir. 1998).
No. 04-2005                                                     3

  Skylink contends those suits triggered Assurance’s obli-
gation to defend Skylink set out in policies it bought from
1999 to 2002. Those policies included commercial general
liability and commercial umbrella coverage that obligated
Assurance to defend Skylink against any suit seeking dam-
ages for “advertising injury,” defined as an injury arising
out of one or more of the following offenses:
    A) Oral or written publication of material that slan-
       ders 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; or
    D) Infringement of copyright, title or slogan.
  The definition included in the commercial umbrella cov-
erage also covers use of “another’s advertising idea in your
‘advertisement.’ ” Significantly, however, both the commer-
cial umbrella and general liability provisions explicitly ex-
clude coverage for “ ‘[a]dvertising injury’ . . . [a]rising out of
the failure of goods, products, or services to conform with
any statement of quality or performance made in your
‘advertisement.’ ”
  Skylink first claims that Chamberlain’s suit alleges dis-
paragement through Skylink’s promotion of its products as
“compatible” with Chamberlain’s rolling code technology.
Although a Skylink transmitter could be used to open a door
that has the rolling code technology, Chamberlain argued
that Skylink’s transmitters were not actually compatible
with the rolling code technology because the Skylink trans-
mitter disables the rolling code feature, instead using the
same code every time to open the garage door. Thus, as
framed by Skylink, Chamberlain claims that customers who
4                                                No. 04-2005

thought the Skylink transmitter to be fully “compatible”
would unknowingly disable the rolling code technology and
would blame Chamberlain for any product failure that oc-
curred, thus diminishing Chamberlain’s reputation. What
Skylink is really saying, however, is that Chamberlain is
complaining that Skylink’s products do not live up to the
promise of compatibility or, put differently, that Skylink’s
products fail to conform with the statement of performance
on its package—an injury explicity excluded under the
Skylink-Assurance contract.
  Noting that Webster’s defines “disparage” as both “to lower
in esteem or reputation” and “to discredit or bring reproach
upon by comparing with something inferior,” Skylink also
contends that Chamberlain complained that Skylink’s packag-
ing amounted to a “false comparison” between Chamberlain
and Skylink.
  Skylink notes that some courts have found disparagement
resulting from false comparisons, see, e.g., McNeilab, Inc. v.
Am. Home Prods. Corp., 848 F.2d 34, 38 (2nd Cir. 1988).
But Skylink’s statement on its packages that its products
were compatible with Chamberlain’s rolling code technology
was not really a comparison. In a clear case of disparage-
ment resulting from a false comparison—imagine Skylink
ran a series of print ads that said “Burglars prefer Cham-
berlain transmitters”—the damage is done by the ad itself.
That is, Chamberlain’s reputation has been hurt as soon as
a potential customer sees the ad. By contrast, Chamber-
lain’s reputation would not be affected by a potential
customer seeing the packaging for Skylink’s Model 39
universal transmitter or Model 89 keypad, which said only
that the product was compatible with Chamberlain’s rolling
code technology. Chamberlain’s suit alleges damage to its
reputation not because of Skylink’s packaging but because
the Skylink products did not utilize the rolling code technol-
ogy. Thus, Chamberlain’s suit does not allege disparage-
ment.
No. 04-2005                                                  5

   Skylink next argues that Chamberlain’s suits fall under
the misappropriation clause of the insurance policy because
the Skylink packaging mentions Chamberlain’s “rolling code”
technology and “SECURITY+.” Skylink cites American
Simmental Ass’n v. Coregis Ins. Co., which defined “adver-
tising idea” as “an idea for calling public attention to a
product or business, especially by proclaiming desirable qual-
ities so as to increase sales or patronage.” 282 F.3d 582, 587
(8th Cir. 2002) (quoting Advance Watch Co. v. Kemper Nat’l
Ins. Co., 99 F.3d 795, 801 (6th Cir. 1996)). In that case, the
Eighth Circuit, applying Montana law, found that the use
of the word “fullblood” to describe bulls that actually had the
blood of two breeds of cattle was an “unauthorized taking of
advertising ideas.” Id. at 587-88. Thus, Skylink argues, if we
accept the Eighth Circuit’s analysis, Assurance would be
responsible for the defense of Skylink’s use of the phrases
“Rolling Code technology” and “SECURITY+.” Again,
however, Chamberlain’s complaint is not the result of
Skylink’s use of its name or those phrases on Skylink’s
packaging, it’s the fact that Skylink’s products bypass the
rolling code technology. The problem is not one of misappro-
priation but of a failure to live up to an advertised promise.
  Lastly, Skylink contends that Chamberlain’s copyright
infringement claim constitutes an advertising injury. Skylink
notes that Chamberlain alleged that Skylink violated 17
U.S.C. § 1201(a)(2), complaining that:
    Skylink has made, imported, offered to the public, pro-
    vided and otherwise trafficked in a Model 39 universal
    transmitter and a Model 89 keypad that (a) are de-
    signed or produced for the purpose of circumventing the
    technological measure; (b) have no commercially
    significant purpose or use other than to circumvent the
    technological measure; and (c) are marketed by Skylink
    for use in circumventing the technological measure, in
    violation of 17 U.S.C. § 1201(a).
6                                               No. 04-2005

  As with the disparagement and misappropriation pro-
visions, the real harm Chamberlain alleges results from the
fact that the Skylink transmitter and keypad circumvent
the rolling code technology, not from the way the products
are packaged. Again, Chamberlain does not object to
Skylink’s marketing of its products except to the extent that
they claim to use the rolling code technology. It is that
failure to use the technology, not the advertisement, that
caused the alleged injury. Assurance thus has no duty to
defend Skylink in the underlying actions, and the judgment
of the district court is AFFIRMED.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                   USCA-02-C-0072—3-11-05