Sensormatic Security Corporation v. Sensormatic Electronics Corporation

Decision Date07 September 2006
Docket NumberCivil Action No. DKC 2002-1565.
PartiesSENSORMATIC SECURITY CORPORATION v. SENSORMATIC ELECTRONICS CORPORATION, et al.
CourtU.S. District Court — District of Maryland

David J. Butler, Robert Victor Zener, Jason R. Scherr, Swidler Berlin Shereff Friedman LLP, Washington, DC, for Sensormatic Security Corporation.

Terence J. Lynam, Akin Gump Strauss Hauer and Feld LLP, Washington, DC.

Daniel Harris Rosenthal, Edward Coleman Barnidge, David C. Kiernan, Beth A. Levene, Williams and Connolly LLP, Michael Lee Converse, Tobias Eli Zimmerman, Akin Gump Strauss Hauer and Feld LLP, Washington, DC, for Sensormatic Electronics Corporation, Wallace Computer Services, Inc., and ADT Security Services, Inc.

Bruce Roger Genderson, Williams and Connolly LLP, Washington, DC, for ADT Security Services, Inc., and Sensormatic Electronics Corporation.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Presently pending in this breach of contract action are (1) a motion for partial summary judgment filed by Plaintiff Sensormatic Security Corporation against Defendants Sensormatic Electronic Corporation ADT Security Services, Inc., and Wallace Computer Services, Inc. (paper 202); (2) two motions to seal filed by Sensormatic Security Corporation (papers 203, 213); (3) a cross-motion for partial summary judgment filed by Defendant Sensormatic Electronic Corp. (paper 210); (4) a cross-motion for summary judgment filed by Defendants ADT Security Services, Inc., and Wallace Computer Services, Inc., with respect to claims asserted against them by SSC (paper 211); and (5) two motions to seal filed by all Defendants (papers 212, 217).1 The issues are briefed fully, and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the court will grant in part and deny in part the motion of Sensormatic Security Corporation for partial summary judgment; deny in part and grant in part the cross-motion of Sensormatic Electronic Corporation for summary judgment on SSC's complaint and deny its motion for summary judgment on its counterclaim; deny the cross motion of ADT Security Services and Wallace Computer Services for summary judgment; and deny all motions to seal.

I. Background
A. Factual Background

The following facts are undisputed unless noted. Sensormatic Electronic Corp. ("Sensormatic") manufactures a broad range of anti-theft and security products. Sensormatic was an independent, publicly traded company until Tyco International Ltd. ("Tyco") acquired Sensormatic on November 13, 2001. Sensormatic is now a wholly-owned subsidiary of Tyco, and is part of the Tyco Safety Products group within Tyco's Fire and Security Services business unit. Sensormatic Security Corporation ("SSC"), a franchisee of Sensormatic since 1967, claims an exclusive right to sell, lease, distribute, service, repair, and maintain Sensormatic products in Maryland, the District of Columbia, and Virginia ("franchise territory"). ADT Security Services, Inc. ("ADT"), is also a wholly-owned subsidiary of Tyco, within the Fire and Security Services business unit. Wallace Computer Services, Inc. ("Wallace"), a company that manufactures pressure sensitive adhesive labels, is a third party and has no corporate affiliation with Tyco.

Two writings govern the SSC-Sensormatic franchise. First, the Restated Franchise Agreement ("Franchise Agreement"), dated December 1, 1976, provides the following. Section 9(c) prohibits Sensormatic from competing with SSC in selling or leasing equipment in SSC's territory and from granting "to any third party a franchise or any other right to sell, lease or service Equipment in [SSC's] territory." Section 10 states that Sensormatic has the right "to lease, sell or otherwise distribute Equipment to national accounts for use either within or without the Franchisee's Territory, and to contract for service, repair and maintenance in connection therewith . ." When sales are made pursuant to § 10, Sensormatic must pay commissions to SSC based on the commissions system described in § 7.A.2

The Franchise Agreement provides the following definitions:

Equipment: "all Detection Devices, Tags, Accessories and Supplies." § 1(d). Detection Devices: "the detection systems and devices presently being marketed by the Franchisor for Automatic Theft Detection Uses . . . which include a transmitter and coordinated receiver and alarm console, and which may be installed and used as a system or device to activate and detect Tags, sounding an alarm or otherwise activating a control device, and all successors thereto." § 1(a).

Tags: "include[s] tags, labels, sensors, transponders and sensoremitters and the like, marketed by the Franchisor for Automatic Theft Detection Uses." § 1(b).

Automatic Theft Detection Uses: "uses for the prevention and detection of shoplifting and other theft." § 1(e). The definition includes a list of examples.

National account: "any customer, or potential customer, or any person or entity who or which controls, or is controlled by, or is under common control with, such customer, of the Franchisor or Franchisee who or which has leased or purchased or may lease or purchase products for use in more than one state or territory. § 10."

(Paper 202, ex. A).

The second writing is a settlement agreement ("Settlement Agreement"), signed December 7, 1984, that was reached as the result of litigation commenced in 1983. The Settlement Agreement expressly amended certain provisions in the Restated Franchise Agreement. Paragraph two reads, in part:

The Company agrees that the Company's SensorVision (CCTV) System, and the Company's present and future CCTV product lines of which the SensorVision System is a part, shall be included within the franchise under the Franchise Agreement, for Automatic Theft Detection Uses (as defined in the Franchise Agreement), as well as for surveillance in other common areas of customers for the Company's Equipment for Automatic Theft Detection Uses, and in that connection shall be included within the meaning of Detection Devices, Accessories, Supplies and Equipment (as defined in the Franchise Agreement), as the case may be.

The parties further agreed there was "no meeting of the minds between them as to whether future products of the Company (other than future products on the microwave, electro-magnetic and CCTV product lines) are or are not included or to be included under the Franchise Agreement." (Paper 202, ex. C, § 5). The Settlement Agreement provided a commission rate with respect to sales of CCTV products. (Paper 202, ex. C, § 2).

The parties' dispute in this lawsuit involves two categories of Sensormatic products and whether sales of these products to certain customers are within the scope of the Franchise Agreement. The first category is electronic article surveillance systems ("EAS"), which are used to detect and prevent item-level theft primarily at retail stores.3 The EAS products appear to be the products Sensormatic manufactured when the parties signed the Franchise Agreement in 1976. The second category is closed circuit television ("CCTV") which can be used for theft detection in a retail setting as well as in non-retail settings for surveillance purposes. After the Settlement Agreement was signed, Sensormatic made available to SSC all of its CCTV products to market, lease and sell, and Sensormatic paid commissions to SSC for CCTV, products sold within SSC's franchise territory.

In addition to disputes over these products, the parties disagree as to whether Sensormatic's. authorization of sales by ADT, Wallace, and other third parties violated the terms of the Franchise and Settlement Agreements.

On February 11, 1997, Wallace and Sensormatic entered into a licensing agreement ("Wallace License Agreement") by which Wallace obtained the right to manufacture and sell a particular type of label known as Ultra"Max labels. The Wallace License Agreement authorized Wallace to sell the labels throughout the United States, and placed no limits on Wallace's ability to sell labels in SSC's franchise territory. The Wallace License Agreement recognized the existence of a Franchise Agreement between Sensormatic and SSC, and stated:

Sensormatic is a party to a Restated Franchise Agreement . . . . [which] grants SSC certain exclusive rights within the territory of Maryland, Virginia and Washington, D.C. regarding the sale, lease or distribution of certain Sensormatic products.

It remains to be determined whether such franchise rights would be applicable to sales by Wallace or whether, as result of any such franchise rights, special provisions would have to be made between Sensormatic and Wallace . . .

(Paper 202, ex. M, schedule 3). Wallace also obtained an agreement from Sensormatic in which Sensormatic agreed to "indemnify, defend and hold harmless Wallace from and against any Damages arising out of or resulting from any claims asserted by SSC against Wallace arising under or relating to the Franchise Agreement. . . ." (Paper 202, ex. N).

In addition to Wallace, in mid-2000, Sensormatic authorized Intelligent Marketing to set up a network of dealers and distributors in SSC's franchise territory. Sensormatic has identified 102 dealers and distributors authorized to sell, install, and service Sensormatic CCTV products in SSC's franchise territory. ADT was among the authorized dealer/distributors. SSC objected when it learned of the existence of dealer/distributor competition in its franchise territory.

Furthermore, Sensormatic authorized eight companies to distribute EAS labels throughout the United States. The contracts with these companies do not impose any geographical restrictions on their ability to sell in SSC's franchise territory.

Finally, after Tyco acquired Sensormatic,...

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