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Night Vision Systems, LLC v. Night Vision Depot

September 2, 2011

NIGHT VISION SYSTEMS, LLC
PLAINTIFF,
v.
NIGHT VISION DEPOT, INC., ET AL. DEFENDANTS.



The opinion of the court was delivered by: L.FELIPE Restrepo United States Magistrate Judge

MEMORANDUM AND ORDER

On June 29, 2007, Night Vision Systems, LLC ("NVS") filed suit in the Eastern District of Virginia against Night Vision Depot, Inc. ("NVD"), alleging federal copyright infringement violations; the case was transferred to the Eastern District of Pennsylvania on October 26, 2007. On September 17, 2008, NVS filed an Amended Complaint joining Cejay Engineering ("Cejay"). Cejay filed an Answer, with seven counterclaims against NVS, on November 5, 2008. Only three claims remain in this lawsuit: Counts I, II, and III of Cejay's counterclaims alleging false advertising under the federal Lanham Act, as well as tortious interference with contracts and unfair competition under Pennsylvania law. (Summ. J. Hr'g Tr. 2-3, July 28, 2011.) Before the Court is Counterclaim Defendant NVS's Motion for Summary Judgment and Statement of Facts*fn1 (Doc. 215) (herein cited as "Defs.' Mot." and "Defs.' Facts," respectively), Counterclaim Plaintiff Cejay Engineering's Response thereto (Doc. 218) and Statement of Facts (Doc. 219) (hereinafter cited as "Pl.'s Resp." and "Pl.'s Facts"), and NVS's Reply (Doc. 221). The Court also considered several supplements submitted by the parties (Docs. 223, 224, 227, 231) and oral argument held on July 28, 2011. For the reasons that follow, NVS's motion is denied.*fn2

I. FACTUAL BACKGROUND

For more than twenty years, Cejay Engineering has designed and manufactured equipment with night vision applications for use by the military and law enforcement agencies. (Pl.'s Resp. 6; Defs.' Mot. 2.) Among Cejay's most popular night vision products are the Phoenix and Phoenix Junior infrared beacons, which are the primary products at issue in this case. These beacons emit a signal that is only visible by individuals using night vision goggles and can be used to minimize incidents of friendly fire in the field. (Pl.'s Resp. 6-7.)

In 1994, one of Cejay's current owners began selling the Phoenix beacon to Night Vision Equipment Company ("NVEC"), a distributor owned by William Grube, Jr. (Defs.' Mot. 2.) During the 1990s, NVEC hired several retired United States military personnel to work with Cejay's ownership to develop and sell Cejay's products through the NVEC catalog and website. (Defs.' Mot. 3.) NVEC sold its assets to DRS in December 2004, forming what eventually became known as Night Vision Systems. (Pl.'s Resp. 7; Defs.' Mot. 4.) Cejay then sold its beacon products to NVS under the same terms as it previously sold beacons to NVEC. (Pl.'s Resp. 7.)

NVS emerged as the largest distributor of Cejay's combat identification ("CID") products; in 2004 and 2005, Cejay sold over ninety-five percent of its CID products to NVEC/NVS. (Defs.' Mot. 10; Pl.'s Resp. 2.) Cejay's sales to NVS totaled approximately $1.5 million in 2005, $2.6 million in 2006, and $4 million in 2007. (Defs.' Mot. 10; Defs.' Facts ¶¶ 69-73; Pl.'s Facts ¶¶ 69-73.) During this time, according to NVS, Cejay sold CID products to NVS under a "favored" or "Tier 1" pricing scheme, whereby NVS received a fifteen to twenty percent discount off of the price of the same products sold to other purchasers; this discount allowed NVS to win a number of military supply contracts. (Defs.' Mot. 10.) At no time did Cejay enter in to an exclusive distribution agreement with either NVS or its predecessor NVEC. (Pl.'s Resp. 7-10.)

The United States military purchased Cejay's products through several channels: (1) the Government Services Administration ("GSA") website called "GSA Advantage!"; (2) the Defense Logistics Agency ("DLA") via various government websites that solicited bids for products; and (3) "prime vendor" contracts between the government and select suppliers/distributors. (Defs.' Mot. 5-7; Defs.' Facts ¶¶ 27, 34, 40; Pl.'s Facts ¶¶ 27, 34, 40.) NVS utilized all three of these methods to sell Cejay's CID products, including selling to at least one other distributor that held a "prime vendor" contract. (Defs.' Mot. 5-7.)

By 2007, the business relationship between Cejay and NVS began to deteriorate. In October 2007, NVS attempted to assert ownership over Cejay's Phoenix and Phoenix Junior trademarks. (Pl.'s Resp. 10; Defs.' Mot. 11.) In June 2008, NVS offered to recognize Cejay as the owner of the Phoenix trademarks in exchange for an "exclusive global distribution agreement" with Cejay. (Pl.'s Resp. 4.) Cejay did not enter in to such an agreement. (Pl.'s Resp. 7-10). NVS thereafter withdrew its trademark applications. (Pl.'s Resp. 5.) By 2009, Cejay had begun working with other distributors for its CID products, and ADS Tactical ("ADS") became the largest distributor of such products. (Defs.' Mot. 12; Defs.' Facts ¶ 87; Pl.'s Facts ¶ 87.)

Cejay contends that throughout the course of its relationship with NVS, NVS made numerous misrepresentations about Cejay products and the relationship between NVS and Cejay. First, Cejay alleges that NVS represented to trade show attendees that it was the exclusive distributor of Cejay products. (Pl.'s Resp. 11-12.) According to Cejay, NVS made such representations in order to ensure that it remained the middleman "in all of Cejay's deals," because "[i]f buyers learned they could go directly to Cejay that would hurt NVS's sales." (Pl.'s Resp. 12.) Cejay also alleges that NVS falsely represented on government websites and in federal bids that it manufactured Cejay's beacons. (Pl.'s Resp. 12-14.)

II.SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). An issue will be considered "genuine" if a reasonable jury could consider that issue and return a verdict for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A factual dispute will be considered "material" if it could impact the outcome of the matter under governing law. Id.

At the summary judgment stage, the moving party bears the initial burden to identify those portions of the record that demonstrate to the court that there is an absence of genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the moving party meets this burden, summary judgment is appropriate where the non-moving party fails to make a factual showing "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. When deciding a motion for summary judgment, the Court must draw all reasonable inferences in the light most favorable to the non-moving party. Hugh v. Butler County Family YMCA, 418 F.3d 265, 267 (3d Cir. 2005).

III.LANHAM ACT

In Count I of its Answer and Counterclaims, Cejay brings a claim for false advertising pursuant the Lanham Act ("Act"), 15 U.S.C. § 1125(a)(1)(B). The Act states, in relevant part:

(1) 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-

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, 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.

A. Standing

NVS first challenges whether Cejay has prudential standing in order to bring a claim under the Lanham Act. Prudential standing refers to "a set of judge-made rules forming an integral part of 'judicial self government.'" Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221, 225 (3d Cir. 1998) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). Unlike a constitutional standing inquiry,*fn3 which asks whether a "case" or "controversy" exists, the prudential standing inquiry is used to determine whether a particular plaintiff is "a proper party to invoke judicial resolution of the dispute and the exercise of the court's remedial powers." Id. (quoting Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 546 n.8 (1986)). "These requirements are designed to 'limit access to the federal courts to those litigants best suited to assert a particular claim.'" Gen. Instrument Corp. of Del. v. Nu-Tek Elec. & Mfg., Inc., 197 F.3d 83, 87 (3d Cir. 1999) (quoting Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 804 (1985)).

In Conte Brothers, the Third Circuit outlined a five-factor test to be used when determining whether a party has standing under the Lanham Act:

(1) The nature of the plaintiff's alleged injury: Is the injury of a type that Congress sought to address in providing a private remedy ...


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