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Date: 02-16-2018

Case Style:

Digital Ally, Inc. v. Utility Associates, Inc.

District of Kansas Courthouse - Kansas City, Kansas

Case Number: 17-3092

Judge: Kelly

Court: United States Court of Appeals for the Tenth Circuit on appeal from the District of Kansas (Wyandotte County)

Plaintiff's Attorney: Jim Daniels

Defendant's Attorney: Stephen M. Schaetzel, Dvid S. Moreland, Dan C. Sanders

Description: Plaintiff-Appellant Digital Ally, Inc. appeals from the district court’s grant of
summary judgment in favor of Defendant-Appellee Utility Associates, Inc. Digital
Ally, Inc. v. Utility Assocs., Inc., No. 2:14-cv-02262-CM, 2017 WL 1197561 (D.
Kan. Mar. 30, 2017). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.1
Background
This case concerns two companies who sell in-car video and surveillance
systems. Defendant-Appellee, Utility Associates, Inc. (Utility), owns U.S. Patent No.
6,381,556 (the ’556 patent2). Utility purchased the patent and other assets in January
2013 from a supplier of in-car mobile surveillance systems. Utility and its CEO,
Robert McKeeman, believed that the ’556 patent was potentially valuable and
covered existing systems already in commerce. Thereafter, Utility sent letters to
potential customers (who were at that time customers of competitors), including
Plaintiff-Appellant Digital Ally, Inc. (Digital Ally), regarding the consequences of
purchasing unlicensed and infringing systems. It urged customers to instead
purchase systems from Utility because it now owned the ’556 patent.
In October 2013, Digital Ally sought a declaratory judgment of noninfringement
in Kansas federal district court, but the suit was dismissed for lack of
1 Because Digital Ally has waived essential arguments for all its claims on
appeal, we need not address whether the Federal Circuit has exclusive jurisdiction
over any of them under 28 U.S.C. § 1295 because waiver is a threshold non-merits
issue that may otherwise dispose of Digital’s claims. See United States v. Fisher,
805 F.3d 982, 990 n.2 (10th Cir. 2015) (disposing appeal on waiver ground rather
than addressing jurisdiction).
2 “[T]he ’556 patent is directed to a system for capturing, transmitting, and
storing potential evidentiary video and related information in mobile environments
which is transferred to a home base repository for archival, retrieval, and evidentiary
use.” Digital Ally, 2017 WL 1197561, at *1 (quoting ECF No. 215 at 3).
3
personal jurisdiction over Utility. In May 2013, Digital Ally filed a petition for inter
partes review with the Patent Trial and Appeal Board (PTAB) to determine the
validity of all claims on the ’556 patent. The PTAB instituted a review of Claims 1–
7 and 9–25 and determined that Claims 1–7, 9, 10, and 12–25 were unpatentable, and
that Claim 11 was not shown to be unpatentable. I Aplee. Supp. App. 208–09.
Claim 8 was not reviewed. The Federal Circuit affirmed this decision.3 Utility
Assocs., Inc. v. Digital Ally, Inc., 672 F. App’x 1000 (Fed. Cir. 2017).
On June 4, 2014, 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 for partial summary
judgment. Our review is de novo. Jencks v. Modern Woodmen of Am., 479 F.3d
1261, 1263 (10th Cir. 2007).
Discussion
Digital Ally appeals only from the grant of summary judgment on Counts I–
IV. Digital Ally states in its brief that it will focus “exclusively upon . . . ‘bad
faith.’” Aplt. Br. at 6. Federal Rule of Appellate Procedure 28(a)(8)(A) requires that
Digital Ally sufficiently argue the issues it seeks to appeal. See SCO Grp., Inc. v.
3 While this was ongoing, Utility filed a patent infringement lawsuit against
Digital Ally in the Northern District of Georgia, but it was administratively closed on
August 19, 2014, pending the inter partes review by the PTAB.
4
Novell, Inc., 578 F.3d 1201, 1226 (10th Cir. 2009) (“An issue or argument
insufficiently raised in a party’s opening brief is deemed waived.”). Because bad
faith is not at issue in Counts V–IX, Digital Ally has not appealed as to those counts.4
Utility also contends that Digital Ally’s brief fails to address the alternative
bases for summary judgment as to Counts I–IV. We agree. Even if Digital Ally
could persuade us that the district court’s summary judgment decision was incorrect
on the issue of “bad faith” — which counts I–IV require — Digital Ally would still
have to address in its opening brief the other grounds on which the district court
decision rests. The failure to do so amounts to a concession as to the proof. GFF
Corp. v. Assoc’d Wholesale Grocers, Inc., 130 F.3d 1381, 1387–88 (10th Cir. 1997);
see also SCO Grp., Inc., 578 F.3d at 1226 (recognizing that a party must challenge
any “alternative, independently sufficient basis” supporting the district court’s
judgment). This is because “a complete failure of proof concerning an essential
element of the nonmoving party’s case necessarily renders all other facts immaterial”
and entitles the movant to judgment as a matter of law. Celotex Corp. v. Catrett, 477
U.S. 317, 322–23 (1986).
As to 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.” Lenox
MacLaren Surgical Corp., v. Medtronic, Inc., 762 F.3d 1114, 1119 (10th Cir. 2014).
4 Digital Ally also acknowledged during oral argument that it was not
appealing as to Counts V–IX.
5
Digital Ally has not addressed in its opening brief the district court’s decision that it
did not prove a relevant market and market power. Digital Ally, 2017 WL 1197561,
at *3–4. Accordingly, it has conceded the lack of proof on these elements and the
district court’s decision must be affirmed.
With regard 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. Id. at *26. According to the district court, 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.” Id. at *7. Digital Ally’s brief fails to adequately
address this argument. The only portion of the brief that remotely discusses whether
the letters constituted demand letters is the section on hearsay.5 This portion,
however, mentions neither the term “demand letters” nor the Georgia statute. The
district court also concluded that “plaintiff provided insufficient evidence [on Count
II] . . . that plaintiff was injured by those statements.” Id. at *26. It ruled Mr.
5 We also find that the district court did not err in excluding evidence
concerning Digital’s communication with customers, which we review for abuse of
discretion. Johnson v. Weld County, 594 F.3d 1202, 1207 (10th Cir. 2010). Digital
fails to provide the specific customer communications it claims that the district court
erroneously excluded, merely referring generally to the order, which is not enough
under the federal rules. See Fed. R. App. P. 28(a)(8)(A). Still, we agree with the
district court that the customer communication is hearsay, and that it does not fall
under the business records hearsay exception as it was not made in the regular course
of business. See Fed. R. Evid. 803(6).
6
Heckman’s testimony was inadmissible to prove injury. Id. at *11. On appeal,
Digital argues the testimony was admissible, but it is unclear whether its
admissibility arguments concern the injury or demand letter requirement under the
Georgia statute. Compare Aplt. Br. at 29 (stating the issue as whether
“evidence . . . that Digital customers as well as Utility’s officers regarded [the letters]
as threats of suit for patent infringement”), and id. at 9 (summarizing its argument as
whether the letters constituted “threats”), with id. at 37 (mentioning injury). Under
Rule 28(a)(8)(A), which requires appellants to clearly state what part of the district
court’s decision they are appealing, Digital’s inadequate briefing has waived any
argument on the injury element of its claim, in addition to whether the letters
constituted demand letters. See SCO Grp., 578 F.3d at 1226. Accordingly, Digital
Ally 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) that defendant made material false or misleading representations of
fact in connection with the 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.
World Wide Ass’n of Specialty Programs v. Pure, Inc., 450 F.3d 1132, 1140 (10th
Cir. 2006) (quoting Sally Beauty Co. v. Beautyco, Inc., 304 F.3d 964, 980 (10th Cir.
2002)). Here, Digital Ally did not adequately address the district court’s holding that
the claim failed because the statements in Utility’s letters were not false, but rather
7
were made as a promotional strategy that included some puffery. Digital Ally, 2017
WL 1197561, at *14. As a result, Digital Ally has also waived this argument and
conceded summary judgment on Counts III and IV.
In light of these concessions, it is unnecessary to consider Digital Ally’s bad
faith argument or its additional evidentiary arguments. See United States v. Pam,
867 F.3d 1191, 1201 n.9 (10th Cir. 2017).

Outcome: AFFIRMED.

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Defendant's Experts:

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