Dietary Supplement and Nutraceutical Insurance Issues for Personal & Advertising Injury and Intellectual Property

Dietary supplement businesses need to make sure that health claims made have sufficient supporting evidence that they are not false or misleading.  The Federal Trade Commission’s role is to ensure consumers receive accurate information about dietary supplements so informed decisions can be made about the products.

This is of particular concern for the for the dietary supplement and nutraceutical industry, because there is little coverage for so-called personal and advertising injury under the general liability policy. Key exclusions for these policies may include:

• Knowingly violating rights of another person or entity;
• Material published with knowledge of falsity;
• Failure to conform to statements of quality or performance of goods (no false advertising or label claims);
• Wrong description of prices;
• Infringement of copyright, patent, trademark, or trade secret, and unauthorized use of another’s name or product.

All of these policies contain some kind of additional intellectual property exclusion, which further restricts the definition of personal and advertising injury.  Finally, the aforementioned exclusion of infringement of copyright, patent, trademark or trade secret exclusion is replaced with this more restrictive exclusion.  It enumerates in detail all the various ways the policy will not apply including, but not limited to, any infringement, disparagement, dilution or diminution of, or damage to, copyright, slogan, title, trademark, service mark, trade secret, trade dress, patent, advertising ideas and campaigns, etc. and other proprietary property or intellectual property rights.  It further clarifies there is no coverage for deceptive, false, fraudulent, misleading, or unlawful or untrue business act or practice, or for false designation of origin of a product, good or service.

Insurance advisors who are not well-versed in coverage limitations for the dietary supplement and nutraceutical industry may not be aware these exclusions exist!

As we all know, the dietary supplement industry is highly competitive. Established industry players may try to push out new competing companies in their product space by litigating over intellectual property infringement. These situations occur often enough that general liability insurers for dietary supplement companies all similarly restrict this coverage.

A Cautionary Tale of Accidental Trademark Infringement in the Dietary Supplement Industry

One of our clients was a start-up supplement company with a great product that was growing quickly through a successful media campaign. Unfortunately, they became embroiled in a lawsuit from a larger competitor because they inadvertently infringed on a phrase in their advertising that was protected by trademark. There was no coverage available for them under their general liability policy because of the personal and advertising exclusionary language.  Moreover, even if the policy could have afforded coverage, the suit was filed just prior to the retroactive date of the policy.  The company spent an enormous sum to fight the suit, but the competitor would not back down.  Sadly, the new company soon went out of business despite their early growth success.

Intellectual property rights can be a supplement company’s most valuable assets, and infringing on another’s can be its greatest liability.  Because insurance is essentially not available to protect a dietary supplement company in this regard, there are other ways to help protect a company’s assets and limit liability for infringement of intellectual property rights.  Intellectual property rights and trade secrets can be protected through a written contract and can include provisions governing nondisclosure obligations, for example.  Before launching a new product, consider conducting a trademark search on a word, name or symbol that indicates the product’s source, and, if confident it is not used in commerce, file a trademark application for the mark.  For legal advice in the advertising, labeling, marketing, contractual risk, and intellectual property arena, we recommend you discuss these issues with an attorney that has requisite experience in the supplement, food, and beverage industry. Our firm can assist you in locating an experienced attorney.