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.

Tenth Circuit: Summary Judgment for Junior Mark User Affirmed in Lanham Act Trademark Infringement Case

The Tenth Circuit Court of Appeals published its opinion in Hornady Manufacturing Co., Inc. v. DoubleTap, Inc. on Wednesday, March 19, 2014.

Hornady manufactures and sells firearm ammunition and related products. Hornady has sold various products under the name “TAP,” short for “Tactical Application Police.” In 1999, Hornady acquired trademark registration for the nonstylized word mark, “TAP.” DoubleTap was founded in 2002 by Michael McNett. DoubleTap has been described as a “niche” ammunition manufacturer.

In January 2010, Hornady sent DoubleTap a cease-and-desist letter, demanding that DoubleTap discontinue using the word “Tap” on its products, remove “Tap” from its website, and destroy any materials it created bearing “Tap.” Hornady eventually filed suit, alleging trademark infringement under Sections 32 and 43(a) of the Lanham Act, common law trademark infringement, deceptive trade practices under Utah law, and unjust enrichment. Both parties moved for summary judgment, arguing that they were entitled to judgment as a matter of law on whether DoubleTap infringed on Hornady’s TAP mark. The district court denied Hornady’s motion and granted DoubleTap’s.

In deciding whether summary judgment was properly granted, the Tenth Circuit had to determine if DoubleTap’s mark was likely to cause confusion with Hornady’s mark. The court applied “six nonexhaustive factors to evaluate whether there is a likelihood of confusion: (1) the degree of similarity between the competing marks; (2) the intent of the alleged infringer in adopting the contested mark; (3) evidence of actual confusion; (4) the similarity of the parties’ products and the manner in which the parties market them; (5) the degree of care that consumers are likely to exercise in purchasing the parties’ products; and (6) the strength of the contesting mark.”

After applying the six factors in a detailed opinion, the court held that consumers were unlikely to be confused by the marks and affirmed the award of summary judgment to DoubleTap.

Tenth Circuit: In Trademark Infringement Case, Brand Name Not Likely to Cause Confusion with Senior User’s Trademark

The Tenth Circuit Court of Appeals published its opinion in Water Pik v. Med-Systems on Monday, August 12, 2013.

The parties to this trademark dispute make consumer products for rinsing sinus cavities. Med-Systems, Inc., the earlier entrant in this market, sells its products under the federally registered trademark SinuCleanse. Water Pik, Inc., registered the trademark SINUSENSE with the intention of selling sinus-irrigation devices under the brand name “SinuSense.” It brought an action against Med-Systems seeking a declaratory judgment that its use of the SinuSense brand name did not infringe on any of Med-Systems’ marks. Med-Systems counterclaimed for trademark infringement and unfair competition under the Lanham Act. Ruling that the SinuSense brand was not likely to cause consumer confusion, the district court awarded summary judgment to Water Pik on the counterclaims. Med-Systems appealed.

Section 32 of the Act allows the owner of a registered mark to bring an infringement action against any person who:

use[s] in commerce any reproduction, counterfeit, copy, or colorable
imitation of a registered mark in connection with the sale, offering
for sale, distribution, or advertising of any goods or services on or in
connection with which such use is likely to cause confusion, or to cause
mistake, or to deceive . . . .

15 U.S.C. § 1114(1)(a). And § 43(a) of the Act provides:

Any person who, on or in connection with any goods or services, or
any container for goods, uses in commerce any word, term, name,
symbol, or device, or any combination thereof, or any false designation
of origin, false or misleading description of fact, or false or misleading
representation of fact, which . . . is likely to cause confusion, or to cause
mistake, or to deceive as to the affiliation, connection, or association of
such person with another person, or as to the origin, sponsorship, or
approval of his or her goods, services, or commercial activities by another
person . . . shall be liable in a civil action by any person who believes that
he or she is or is likely to be damaged by such act.

Id. § 1125(a).

The central inquiry is whether the junior user’s mark (Water Pik) is likely to cause confusion with the senior user’s mark (Med-System). In evaluating whether there is a likelihood of confusion, the Tenth Circuit examined six non-exhaustive factors: (1) evidence of actual confusion; (2) the strength of the contesting mark; (3) the degree of similarity between the competing marks; (4) the intent of the alleged infringer in adopting the contested mark; (5) the degree of care that consumers are likely to exercise in purchasing the parties’ products; and (6) the similarity of the parties’ products and the manner in which they market them. See Vail Assocs., Inc. v. Vend–Tel–Co., Ltd., 516 F.3d 853, 863 (10th Cir. 2008).

First, Med-System’s survey strongly suggested an insignificant likelihood of actual confusion, and the other instances cited by Med-Systems were isolated episodes with minimal probative value on whether reasonable consumers as a whole were actually confused by Water Pik’s trademark. Second, the court held the SinuCleanse mark was a weak one, so the differences between it and Water Pik’s mark made confusion highly unlikely. Third, considering the marks as a whole as they are encountered by consumers in the marketplace, the court did not find enough distinction between the marks to cause confusion, although the court granted that “SinuCleanse” and “SinuSense” had several visual similarities. Fourth, the evidence supported the district court’s conclusion that the SinuSense name arose not from an intent to confuse consumers by copying SinuCleanse, but from a thorough process to create a trademark. Fifth, Med-Systems did not dispute Water Pik’s contention that consumers are likely to be more discriminating than usual when they purchase healthcare products. Finally, evidence in the district court established that Water Pik’s sinus irrigation products were very similar to Med-Systems’ and were marketed through nearly identical channels. This last factor favored Med-Systems.

Since the court’s analysis showed that only the last factor favored Med-Systems, the Tenth Circuit AFFIRMED the district court’s grant of summary judgment in favor of Water Pik.

Tenth Circuit: Ruling That Advertiser Violated Lanham Act Reversed in Part and Affirmed in Part After Its Use of Internet Keywords That Resembled a Competitor’s Service Mark

The Tenth Circuit Court of Appeals published its opinion in 1-800 CONTACTS v. Lens.com on Tuesday, July 16, 2013.

The Lanham Act prohibits the infringement of trademarks (used to identify products) and service marks (used to identify services). It was enacted in 1946, but it can be applied to technologies unimagined at the time of enactment. The Internet has created a number of challenging issues. This case concerned Internet search engines, which present advertisers with new means of targeting prospective customers and therefore new possibilities for claims under the Lanham Act. This dispute arose out of advertising through AdWords, a program offered by the search engine Google. An advertiser using AdWords pays Google to feature one of its ads onscreen whenever a designated term, known as a keyword, is used in a Google search. The Tenth Circuit had to resolve whether the Lanham Act was violated by an advertiser’s use of keywords that resembled a competitor’s service mark.

Plaintiff 1-800 Contacts, Inc. (1-800) dominates the retail market for replacement contact lenses. It owns the federally registered service mark 1800CONTACTS. Defendant Lens.com, Inc. is one of 1-800’s  competitors. To police the use of its mark, 1-800 enters different variations of the mark into Google searches and monitors what search results are displayed. When 1-800 found that several searches generated paid ads for Lens.com’s websites, it concluded that Lens.com had reserved the mark as a keyword. After attempting to resolve the situation informally, 1-800 sued Lens.com for service-mark infringement. Its primary claim was that Lens.com itself had infringed the 1800CONTACTS mark by purchasing keywords resembling the mark. As the case progressed, 1-800 supplemented its claim by alleging that third-party marketers hired by Lens.com, known as affiliates, had also purchased keywords resembling the mark and that at least one affiliate was using the mark in the text of its online ads. 1-800 sought to hold Lens.com secondarily liable for its affiliates’ conduct. The theories of secondary liability were common-law agency and contributory infringement. The district court awarded summary judgment to Lens.com on all claims. 1-800 appealed.

To the extent that the district court based summary judgment on the ground that no likelihood of confusion existed, the Tenth Circuit affirmed. Rational analysis and actual marketplace data revealed that the keyword use by Lens.com and its affiliates was highly unlikely to divert consumers. As for the remaining secondary-liability claims, the Court affirmed the denial of liability under agency law because the affiliates, even if agents of Lens.com, lacked authority to include 1-800’s mark in ads for Lens.com. But the Tenth Circuit reversed the denial of liability for contributory infringement because the evidence could support a reasonable finding that Lens.com did not take reasonable steps to halt the display of 1-800’s marks in affiliate ads once it learned of such display.

Tenth Circuit: District Court’s Entry of Default Judgment as Sanctions for Plaintiff’s Discovery Abuses Affirmed

The Tenth Circuit published its opinion in Klein-Becker v. Englert on Wednesday, March 27, 2013.

Klein-Becker owned the trademark StriVectin. The StriVectin line of skin care products could only be sold through authorized sellers that Klein-Becker approved and trained. Mr. Englert was never an authorized seller of StriVectin. Nonetheless, Mr. Englert sold StriVectin online without authorization.

Klein-Becker sued Patrick Englert for trademark infringement, copyright infringement, false advertising, and unfair competition under the Lanham Act; false advertising under the Utah Truth in Advertising Act; unfair competition under the Utah Unfair Practices Act; fraud; civil conspiracy; and intentional interference with existing and prospective business relations. Mr. Englert was sanctioned several times for failing to comply with court orders and discovery schedules. The third and final sanction resulted in the entry of default judgment for Klein-Becker on all remaining claims. A bench trial determined damages.

The district court entered judgment in favor of Klein-Becker for Lanham Act damages, fraud damages, stolen property, and copyright damages. The district court later issued a permanent injunction.

Mr. Englert appeals the district court’s (1) entry of default judgment against him on all existing claims as sanctions for his discovery abuses, (2) award of damages to Klein-Becker, (3) determination that Klein-Becker is entitled to a permanent injunction, (4) denial of his demand for a jury trial, and (5) denial of his request to call an unlisted witness.

(1) Entry of Default Judgment on All Claims as Sanctions for Englert’s Discovery Abuses

FRCP 37(b)(2)(A)(vi) allows a district court to issue sanctions, including default judgment against the disobedient party” when a party disobeys a discovery order. To determine if a sanction such as dismissal or default judgment is appropriate, courts should consider “(1) the degree of actual prejudice to the defendant; (2) the amount of interference with the judicial process; . . . (3) the culpability of the litigant.” Ehrenhaus v. Reynolds, 965 F.2d 916, 920 (10th Cir. 1992). Due to Mr. Englert’s continued noncompliance with discovery orders, the district court did not abuse its discretion when it entered default judgment on Klein-Becker’s claims for Englert’s discovery abuses.

Although the Tenth Circuit had not addressed the issue, other circuits have held that a district court may establish personal liability through entry of default judgment. The Tenth Circuit agreed that personal liability may be established through entry of default judgment.

(2) Damages Award

Under the Lanham Act, plaintiffs must show either actual damages or willful action on the part of the defendant as a prerequisite to recover disgorgement of profits. Because the parties agreed that Englert’s sales of StriVectin undermined the reputation and goodwill of the brand and hurt Klein-Becker’s relationships with authorized resellers, as well as their competitiveness in the cosmetics industry, the district court found that Klein-Becker established actual damages. Further, the district court found that Mr. Englert’s use of Klein-Becker’s registered mark was sufficient to support the inference that Mr. Englert acted willfully and in bad faith, entitling Klein-Becker to disgorgement of profits. Finally, equitable considerations favored judgment in favor of Klein-Becker. The district court did not err in its damages award calculation.

(3) Permanent Injunction

The Tenth Circuit agreed with the district court’s analysis of the factors for issuing an injunction: (1) actual success on the merits; (2) irreparable harm unless the injunction is issued; (3) the threatened injury outweighs the harm that the injunction may cause the opposing party; and (4) the injunction, if issued, will not adversely affect the public interest. Absent a permanent injunction barring Mr. Englert from using Klein-Becker’s trademarks or selling its products, Klein-Becker’s interests could continue to be harmed. The Tenth Circuit held that Klein-Becker’s injury outweighed any interest Mr. Englert had in continuing to violate Klein-Becker’s trademarks and found that a permanent injunction was appropriate and necessary to prevent future violations of the law.

(4) Denial of Englert’s Demand for a Jury Trial

Because he never formally objected to the magistrate judge’s ruling on his jury demand, Mr. Englert waived this argument on appeal. See United States v. One Parcel of Real Prop., 73 F.3d 1057, 1060 (10th Cir. 1996).

(5) Denial of Englert’s Request to Call an Unlisted Witness

Because Mr. Englert had not listed the witness on any of the witness lists he had submitted to the court, the Tenth Circuit concluded the district court did not abuse its discretion in denying Mr. Englert’s request to call the witness.

AFFIRMED.