(CN) - An insurer has no duty to reimburse Spectrum Worldwide for the costs of its settlement with Sunset Health Products, after Sunset accused Spectrum of copying the "Hollywood 48-Hour Miracle Diet" drink label on "The Original Hollywood Celebrity Diet," the 9th Circuit ruled.
Sunset hired Spectrum in 1997 to advertise and distribute the "Miracle Diet" drink. Before long, Spectrum's CEO, Lisa Tremain, and CFO, Howard Schwartz, formed Celebrity Products Inc. to make and sell a competing product called the "Celebrity Diet."
Sunset sent Spectrum cease-and-desist letters, claiming the Celebrity Diet drink deliberately copied the Miracle Diet's packaging and labeling. When Spectrum continued to sell the Celebrity Diet, Sunset applied for a temporary restraining order.
U.S. District Judge Nora Manella granted the temporary restraining order, but stopped short of imposing a preliminary injunction after Spectrum successfully argued that it had incrementally changed its label since 1999.
Spectrum settled the trade-dress lawsuit for $3.22 million, and then asked its insurers to foot the bill.
United National Insurance Co. paid $420,000, but sought reimbursement, claiming coverage does not apply to claims arising from information first published before the policy's effective date.
The district court eventually granted United's motion for summary judgment and ordered Spectrum, Schwartz and Tremain to pay back the $420,000.
The 9th Circuit affirmed, noting that Spectrum had ducked the injunction by arguing that Sunset's claims arose from its 1999 label rather than its 2001 label. Spectrum then tried to claim that the 2001 label was the basis for Sunset's infringement claim.
"If we now allow Spectrum to argue that the claim did not arise until 2001, Spectrum's 'gaming' of the courts will allow it the possibility of prevailing on the very position it successfully discredited while attempting to avoid preliminary injunction," Judge Smith wrote.
The 9th Circuit held that Spectrum first published infringing material in 1999, before the insurance policy took effect.
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