Digital Ally, Inc. v. Dragoneye Tech., LLC

• Decision Date: 17 October 2013
• Docket Number: Case No. 13-2290-CM
• Parties: DIGITAL ALLY, INC., a Nevada Corporation, Plaintiff, v. DRAGONEYE TECHNOLOGY, LLC, a Georgia Limited Liability Company, Defendant.
• Court: U.S. District Court — District of Kansas

DIGITAL ALLY, INC., a Nevada Corporation, Plaintiff, v. DRAGONEYE TECHNOLOGY, LLC, a Georgia Limited Liability Company, Defendant.

Case No. 13-2290-CM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

Dated: October 17, 2013

MEMORANDUM AND ORDER

Plaintiff Digital Ally, Inc. ("Digital") filed this suit against Defendant DragonEye Technology, LLC ("DragonEye") in the District Court of Johnson County, Kansas. In its Petition, Digital alleges (1) breach of contract; (2) declaratory judgment to terminate the contract; (3) tortious interference with contract and business expectancies; (4) trademark infringement under § 32 and § 43(a) of the Lanham Act; (5) violation of the Kansas Uniform Trade Secrets Act ("UTSA"); and (6) conversion. The case arises out of written agreements between the parties. Under the agreements, DragonEye agreed to manufacture and sell to Digital handheld law enforcement laser speed measurement devices. Digital then sold the devices under the brand name "Laser Ally." DragonEye removed the state court action to this court and filed counterclaims for non-payment of amounts due.

The case is before the court on the Verified Motion of Plaintiff Digital Ally, Inc. for Restraining Order and for Temporary Injunction (Doc. 7-2). Digital asks the court for the following relief:

• "[E]njoin DragonEye from using, displaying and selling goods depicting Digital's registered trademarks and/or Digital's 'unregistered' but nonetheless protectable trade dress" (Doc. 7-3 at 2.);

• Prohibit DragonEye from using any alleged "Confidential Information" or any information that constitutes protectable "trade secrets" within the meaning of the UTSA (Id.); and

• Order DragonEye to return to Digital all of its files, records, and the like that either (1) bear the trade name and marks of "Digital Ally" and "Laser Ally"; and/or (2) contain any alleged "Confidential Information," "Intellectual Property," or Trade Secret" belonging to Digital (See Doc. 7-2 at 16.).

The court conducted an evidentiary hearing. Having considering the evidence presented at the hearing, the arguments in the parties' briefs, and the law governing the case, the court is now prepared to issues its Findings of Fact and Conclusions of Law. For the following reasons, the court denies Digital's motion.

FINDINGS OF FACTS

The court makes the following findings of facts:

A. The Parties and Their Officers

1. DragonEye is a limited liability company located in Norcross, Georgia.

2. DragonEye manufactures and sells Lidar handheld law enforcement laser speed measurement devices. These devices measure vehicular speed for law enforcement purposes.

3. Digital manufactures and sells law enforcement products.

4. Thomas J. Heckman is Digital's Chief Financial Officer.

5. At all relevant times, Ken McCoy was Digital's Vice President of Marketing.

6. Scott Patterson is DragonEye's president.

B. May 1, 2010 Supply Agreement

7. On or about May 1, 2010, Digital and DragonEye executed a Supply Agreement. Under the agreement, the parties agreed that:

a. DragonEye would manufacture and Digital would distribute and sell DragonEye's handheld law enforcement laser speed measurement device, as that product is specified and described in Schedule A to the Supply Agreement ("Lidar Units"), under the brand name "Laser Ally";

b. Digital would be the exclusive worldwide distributor of the Lidar Units to law enforcement end users;

c. At a minimum, Digital would purchase 1,000 Lidar Units from DragonEye during the first eighteen months of the Supply Agreement, and 1,000 Units per year after that;

d. Digital would pay DragonEye for all Lidar Units, net thirty days from the date of receipt of the product, based on the parties' agreed pricing schedule (i.e., $1763.00 per unit);

e. The term of the agreement would be for 3.5 years;

f. DragonEye would retain all trade dress, intellectual property, and proprietary rights to the design and specifications for the Lidar Units.

C. January 31, 2012 Amendment to the Supply Agreement

8. In December 2011, Digital advised DragonEye that Digital was unable to sell the minimum number of Lidar Units per year. Digital asked for a reduction in purchase commitment to forty units per month instead of eighty-four.

9. At the time, DragonEye had seven employees, and Digital represented ninety percent of its business. Reducing Digital's mandatory purchase requirements by half would essentially cut DragonEye's business and revenues in half.

10. In order to fill that void, DragonEye insisted that Digital's exclusive right to sell the Lidar Units be eliminated so DragonEye could sell the product directly to dealers, distributors, and end-users/third parties. Mr. McCoy (on behalf of Digital) agreed.

11. On or about January 31, 2012, DragonEye and Digital executed the Amendment to the Supply Agreement ("Amendment"), in which DragonEye and Digital agreed:

a. Digital's rights to act as the exclusive worldwide distributor of DragonEye's Lidar Unit marketed by Digital under the name "Laser Ally" would be eliminated;

b. Digital would have the "nonexclusive" right to sell and distribute the Laser Ally, LIDARcam, Printer Combo, DragonCam, and DragonEye's Compact Lidar to law enforcement end users, but not including "the right to sell the Product or modifications thereof to users outside of law enforcement" (Doc. 10-4 at 20.);

c. DragonEye could "from time to time, at its sole discretion, . . . sell the Product to other distributors or dealers or otherwise directly or indirectly sell the Product to third parties" (Id.); and

d. Digital only had to purchase forty Laser Ally units per month instead of eighty-four.

12. The parties intended that DragonEye could freely compete with Digital in the marketplace and sell all Lidar handheld law enforcement speed measurement devices to other dealers, distributors, and third parties—regardless whether the names of those entities may appear on Exhibit 22, Digital's Warranty List, or any future warranty list.

13. Following execution of the Amendment, DragonEye began to manufacture and market its version of the Laser Ally, naming it the "DragonEye Speed Lidar."

14. Digital is over thirty days past due on invoices from DragonEye, totaling $190,000 or more.

15. Digital has not paid the balance because of DragonEye's alleged trademark infringement.

D. Digital's Trademark Infringement Claim

16. Digital is the owner and holder of the trademark "Laser Ally."

17. Each Laser Ally speed gun unit manufactured by DragonEye and sold to Digital bears the name "DragonEye Technology, LLC" at the bottom of the unit's handle.

18. DragonEye maintains an internet website at www.dragoneyetech.com.

19. Digital maintains a separate internet website at www.digitalallyinc.com.

20. Beginning in or about 2011, DragonEye posted a link on its internet website that allowed a user to click the Digital Ally/Laser Ally icon to be taken directly to Digital's internet website.

21. At all relevant times, Digital was aware of DragonEye's website.

22. DragonEye placed the direct link on its website to assist Digital in the marketing and promotion of its Laser Ally-branded Lidar Units. In a September 13, 2011 email to Mr. McCoy, Mr. Patterson wrote, "[w]e have updated our website to show these products and also redirect inquiries on the Laser Ally to your website (let me know if you want anything added or changed). www.dragoneyetech.com." Mr. McCoy responded, "Thanks and no problem on keeping the name the same." (Ex. 109.) This exchange, while less than clear, suggests that Digital knew about the link and use of its trademark as early as September 2011.

23. DragonEye, with Mr. McCoy's knowledge, also formerly posted a video promoting Digital's Laser Ally product on its DragonEye YouTube Channel.

24. DragonEye's website promotion of the Laser Ally stated that the Laser Ally is "distributed exclusively by Digital Ally, Inc." DragonEye's website has never indicated that DragonEye would or could sell the Laser Ally product directly.

25. Before filing this action on June 5, 2013, Digital never complained, protested, or otherwise gave notice to DragonEye that it objected to the direct link to Digital's website. Digital also did not request that the link be removed or modified.

26. Once served with summons in June 2013, DragonEye promptly removed the link to the Digital Ally website and has since removed all former references to Digital and/or Laser Ally.

27. The consumer base for the Lidar speed gun product is limited, consisting primarily of law enforcement agencies and dealers and distributors of law enforcement products.

28. Moreover, the Digital Laser Ally and DragonEye Speed Lidar are two names for products, both manufactured by DragonEye, with identical features and performance. The International Association of Chiefs of Police ("IACP") has publicly stated this fact since July 2010. The DragonEye Speed Lidar and Laser Ally were, and continue to be, identified publically as identical in shape, size, and all performance features. Only the trade name and labeling differ.

29. DragonEye has never sold any Lidar Units bearing the brand name Laser Ally to any person, firm, or public agency (other than Digital).

30. DragonEye's records document only two inquiries (one phone call and one email inquiry—but no website inquiry) from prospective customers related to the Laser Ally-branded product. DragonEye promptly passed both inquiries on to Brian Hill at Digital.

E. Digital's "Confidential Information and/or Intellectual Property"

31. Digital alleges that DragonEye misappropriated Digital's "Confidential Information and/or Intellectual Property," to sell Lidar products to the following entities:

a. Davtech Analytical Services (Canada) Inc. ("Davtech");

b. G. Hawgood & Associates ("Hawgood");

c. Tactical Solutions ("Tactical");d. Integrated Technology Systems ("ITS");

e. Gwinnett County, Georgia ("Gwinnett County"); and

f. Montgomery County, Maryland ("Montgomery County").

32. Section 1.3 of the Supply Agreement states, among other

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