April 19, 2018

Tenth Circuit: Failure to Brief on Alternative Bases for Summary Judgment Amounts to Concession of the Proof

The Tenth Circuit Court of Appeals issued its opinion in Digital Ally, Inc. v. Utility Associates, Inc. on February 16, 2018.

Utility Associates, Inc. (Utility), owns U.S. Patent No. 6,381,556 (the ’556 patent). Utility purchased the patent and other assets in January 2013 from a supplier of in-car mobile surveillance systems. Utility believed that the ’556 patent was potentially valuable and covered existing systems already in commerce. After the purchase was complete, Utility sent letters to potential customers (who were at that time customers of competitors), including Digital Ally, Inc. (Digital Ally), regarding the consequences of purchasing unlicensed and infringing systems; urging instead that customers purchase systems from Utility because it was now the rightful owner of the ’556 patent.

Upon receipt of the letter from Utility, Digital Ally filed a petition for inter partes review with the Patent Trial and Appeal Board (PTAB) in May 2103 to determine the validity of all claims on the ’556 patent. The PTAB determined that claims 1-7, 9, 10, and 12-25 were unpatentable, and that Claim 11 was not shown to be unpatentable; Claim 8 was not reviewed. In October 2013, Digital Ally sought a declaratory judgment of non-infringement in Kansas federal district court, but the suit was dismissed for lack of personal jurisdiction over Utility. The following year, Digital Ally filed this suit containing nine counts against Utility, including monopolization, false advertising, tortious interference, bad faith, assertion of patent infringement, defamation and product disparagement, and trade secret misappropriation. The district court granted Utility’s motion for summary judgment on all nine counts and denied Digital Ally’s motion of partial summary judgment.

Digital Ally appeals only from the grant of summary judgment on counts I-IV, focusing on bad faith, while Utility contends that Digital Ally’s brief fails to address the alternative bases for summary judgment as to Counts 1-IV. The failure to do so amounts to a concession of the proof.

Regarding Count I, the elements of a monopoly claim under 15 U.S.C. § 2 include “(1) monopoly power in the relevant market; (2) willful acquisition or maintenance of this power through exclusionary conduct; and (3) harm to competition.” Because Digital Ally did not address in its opening brief the district court’s decision that it did not prove a relevant market and market power, it has conceded the lack of proof on these elements and the district court’s decision must be affirmed.

With regards to Count II, bad faith assertion of patent infringement under Ga. Code Ann. § 10-1-771, Digital Ally did not adequately address the district court’s decision that Utility’s letters were not demand letters and that Digital Ally was not injured by the letters. The district court stated that the letters “merely suggest that recipients consider investigating whether products they are purchasing fall under the claims of the patent, and that if so, recipients investigate whether their supplier is licensed or needs to be,” and Digital Ally’s brief fails to adequately address this argument. The district court also concluded that the “plaintiff provided insufficient evidence that plaintiff was injured by those statements” and ruled Mr. Heckman’s testimony inadmissible to prove injury. On appeal, Digital Ally argues the testimony was admissible, but the Tenth Circuit could not determine whether the admissibility arguments concern the injury or demand letter requirement. Under Rule 28(a)(8)(A), which requires appellants to clearly state what part of the district court’s decision they are appealing, Digital Ally’s inadequate briefing has waived any argument on the injury element of its claim, in addition to whether the letters constitute demand letters. Thus, Digital Ally’s cannot prove its claim.

Finally, to state a false advertising claim under § 43(a) of the Lanham Act on Counts III and IV, Digital Ally was required to establish: (1) the defendant made material false or misleading representations of fact in connection with commercial advertising or promotion of its product; (2) in commerce; (3) that are either likely to cause confusion or mistake as to (a) the origin, association or approval of the product with or by another, or (b) the characteristics of the goods or services; and (4) injure the plaintiff. Digital Ally did not adequately address the district court’s holding that the claim failed because the statements in Utility’s were not false, but rather were made as a promotional strategy that included some puffery. Thus, Digital Ally has also waived this argument and conceded summary judgment on Counts II and IV.

The Tenth Circuit AFFIRMED the district court’s opinion.

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