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Sensormatic Electronics Corp. v. First National Bank of Pennsylvania

March 28, 2006


Electronically Filed




1. In 1978, Sensormatic Electronics Corporation ("Sensormatic") and Winner & Bagnara, Inc. ("W&B") entered into a Restated Franchise Agreement ("RFA") specifying the parties' rights and obligations with respect to W&B's Sensormatic franchise for the states of Pennsylvania and Delaware. The agreement provided to W&B certain sales and servicing rights regarding Sensormatic's automatic theft detection products.

2. At the same time, the parties entered into a lease agreement authorizing Sensormatic to operate the franchise for a period of twenty (20) years.

3. After holding that W&B owned the franchise at the conclusion of the lease term, this Court entered an Interim Order on June 7, 2004, requiring Sensormatic to (a) "[provide] all assistance and cooperation to [W&B] which is reasonably necessary for it to act in accordance with the RFA as the franchisee for Sensormatic products covered by the RFA, in Pennsylvania and Delaware;" and (b) refrain "from leasing, selling, distributing, servicing, repairing and maintaining such Sensormatic products, or competing with [W&B] in doing so, unless permitted to do so under the RFA." The Interim Order provided W&B a period of four (4) months from the date of a final decision to staff and supply the Franchise before assuming responsibility for the franchise operations. It required both parties to "reasonably cooperate" during this transition period. The Court subsequently entered a Judgment on June 29, 2004.

4. The four-month transition period started on October 11, 2005, upon the United States Court of Appeals for the Third Circuit's issuance of a certified copy of its judgment affirming this Court's decision. As a result of a two-month extension granted to the parties by this Court on January 18, 2006, the transition period is scheduled to expire on April 11, 2006.

5. Sensormatic is complying with the judgment. In October 2005, it paid W&B more than $41 million in damages. This payment was in full satisfaction for all past damages. For each month during the transition period, Sensormatic has paid an additional monthly amount of nearly $500,000.

6. In addition, Sensormatic has assisted W&B during the transition period. Sensormatic representatives met with James E. Winner, Jr., the President of W&B, in Pittsburgh, Pennsylvania on November 2, 2005, to discuss the parties' rights and responsibilities under the RFA and to exchange information necessary for a successful transition. During this meeting, Sensormatic gave Winner access to customer lists, a list describing the items in Sensormatic's standard service/install kit, the tool and van requirements necessary for field service, and many other details. In addition, Sensormatic explained the process by which Sensormatic derived W&B's quota, the formulas used to calculate particular commissions to which W&B will be entitled, the order process, the process by which a new customer becomes approved, and Sensormatic's standard service metrics.

7. Sensormatic's cooperation has continued since the meeting. As a result of W&B's decision in 1978 to lease its franchise to Sensormatic, more than two decades have passed since W&B last sold or serviced Sensormatic products. To assist W&B in building a sales and service organization, Sensormatic has offered to train W&B's salespeople, offered to supply at cost equipment for the service vans, shared its written profile of the qualities it looks for in a service technician, and sent its employees' names and addresses to W&B. Without interference from Sensormatic, W&B has offered employment to a long-time Sensormatic employee to develop W&B's service and installation team. After receiving notice that the employee had accepted the offer, Sensormatic met with him and offered Sensormatic's assistance in interviewing prospective W&B employees, training new employees, preparing a list of tool sets, and recommending a service van with accessories.

8. Notwithstanding their mutual efforts during the transition period, the parties have been unable to resolve five (5) issues. As a result, Sensormatic filed a motion to clarify (doc. no. 334) concerning those issues. The first three issues concern service of national accounts, including installation, maintenance, and repair ("national accounts service"), the fourth issue concerns W&B's use of Sensormatic's trademark, and the fifth issue concerns Sensormatic's obligation to produce its employees' confidential salary and bonus information.


9. As this Court has previously ruled, the RFA in Section 2 grants W&B an "exclusive" Franchise:

2. Grant Of Franchise.

The Franchisor hereby grants to the Franchisee, and the Franchisee hereby accepts, for the term of this Agreement, and subject to the other terms and conditions herein contained, an exclusive franchise to lease, sell and/or otherwise distribute, and service, repair and maintain, in the Franchisee's Territory, Detection Devices, Tags, Accessories and Supplies for Automatic Theft Detection Uses and to use the Trademarks in connection therewith. (emphasis added.)

10. Section 4 of the RFA speaks to Sensormatic's and W&B's primary areas of responsibility as follows:

4. Summary Of Primary Areas Of Responsibility.

A. The Franchisor's primary area of responsibility under this Agreement shall be the development, design, manufacture, procurement, assembly and/or supply of Equipment for Automatic Theft Detection Uses, the furnishing of technical information and know-how relating to such Equipment for such Uses, the establishment of marketing policies, and the billing and collection of accounts.

B. The Franchisee's primary area of responsibility under this Agreement shall be the marketing of Equipment to retail stores and other customers for Automatic Theft Detection Uses and the maintenance, repair and servicing of such Equipment, within the Franchisee's Territory. (emphasis added.)

11. In Section 9(c), Sensormatic has covenanted not to compete with W&B in the Franchise Territory:

(c) Exclusive Rights of the Franchisee

Except as otherwise provided in this Agreement or as otherwise agreed to in writing between the parties hereto, the Franchisor shall not during the term of this Agreement compete with the Franchisee in selling or leasing Equipment in the Franchisee's Territory, and the Franchisor shall not grant to any third party a franchise or other right to sell, lease or service Equipment in the Franchisee's Territory. (emphasis added.)

12. Section 5(g) addresses W&B's certain obligations and rights relating to service and installation within the Franchise Territory:

(g) Service And Maintenance

The Franchisee shall establish and maintain a service organization adequate and qualified to install, service, repair and maintain the Equipment at the same level of competence and performance as is generally maintained by the Franchisor's service and maintenance personnel and facilities. The Franchisee shall furnish all customers within the Franchisee's Territory with all installation, service, repair, maintenance, and removal services with respect to Equipment, including all labor and materials (except for Equipment, including replacement parts), without further cost to the Franchisor than the commission specified ...

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