United Tactical Sys., LLC v. Real Action Paintball, Inc.
| Decision Date | 02 December 2014 |
| Docket Number | Case No. 14-cv-04050-MEJ |
| Court | U.S. District Court — Northern District of California |
| Parties | UNITED TACTICAL SYSTEMS, LLC, Plaintiff, v. REAL ACTION PAINTBALL, INC., et al., Defendants. |
On September 5, 2014, Plaintiff United Tactical Systems, LLC ("UTS") brought the instant against Defendants Real Action Paintball, Inc. ("RAP4") and K.T. Tran (collectively, "Defendants"), related to the trademark, PepperBall. UTS now seeks a preliminary injunction enjoining Defendants from using the PepperBall name and mark during the pendency of this action. Dkt. No. 27 ("Mot."). Defendants oppose UTS's motion. Dkt. No. 45. Having considered the parties' positions, relevant legal authority, and the record in this case, the Court GRANTS IN PART and DENIES IN PART UTS's motion.
Since at least the late 1990s, non-party PepperBall Technologies, Inc. sold irritant projectiles called PepperBalls. Irritant projectiles are generally small plastic spheres that contain an irritant powder that functions similar to pepper spray, and are primarily sold to law enforcement and military. Unlike pepper spray, an irritant projectile can be shot from a distance. When an irritant projectile is shot at a person, it disintegrates upon impact creating an irritating but typically non-lethal plume of powder intended to disable the person. PepperBall Technologies sold its"live" PepperBall rounds in a red colored shell, indicating that the projectile contained the irritant powder, as well as other projectiles in different colors, such as green marking rounds, clear training rounds, etc. Defs.' Ex. 14.1
PepperBall Technologies was a dominant player in the irritant projectile market, and there is no dispute that its PepperBall mark became incontestable. PepperBall Technologies developed an irritant powder for its PepperBalls, which an outside manufacturer then assembled into plastic shells. One manufacturer was Perfect Circle, Inc., and according to its managing member, Gary Gibson, Perfect Circle made the majority of PepperBall Technologies' projectiles for nearly 14 years. More recently, PepperBall Technologies worked with a company called APON, located in Mexico, to assemble some of its PepperBall projectiles. The extent of APON and PepperBall Technologies' relationship is uncertain; it appears that PepperBall Technologies hired APON to assemble some PepperBall projectiles, but whether PepperBall Technologies ever sold those APON-manufactured projectiles is unclear.
Around 2010, PepperBall Technologies experienced monetary troubles, defaulting on loans. Perfect Circle and another company, Tiberius Arms, joined together to purchase PepperBall Technologies' loans, in the process forming a new company named Advanced Tactical Ordnance Systems, LLC ("ATO"). ATO did business as Phoenix International, Inc. On January 9, 2012, Phoenix International purchased "all the tangible and nontangible assets" of PepperBall Technologies at a Uniform Commercial Code sale in San Diego, California (the "UCC Sale" or "foreclosure sale"). Through this foreclosure, ATO allegedly acquired all of PepperBall Technologies' tangible and intangible property—including the incontestable PepperBall trademarks, goodwill, business name, and trade secrets.
In the two month period before the sale, UTS alleges that ATO's owners ensured a seamless transition with PepperBall Technologies, including retaining most employees, trainers, and suppliers. ATO operated PepperBall Technologies under the same trade name and was reachable by phone, e-mail, and via its website as PepperBall Technologies. Thus ATO, asPepperBall Technologies, became the supplier of PepperBall irritant projectiles, with parent company Perfect Circle continuing to manufacture PepperBall projectiles. ATO sold standard live rounds, which were all red, and maximum strength rounds, which were half-red and half-black.
Defendant RAP4 is a competitor in the irritant projectile market. RAP4 alleges that it has sold irritant projectiles since 2005, simultaneous with PepperBall Technologies. RAP4 sells its irritant projectiles under the trademark LESS LETHAL LIVE AGENT ROUNDS and MAX PAYLOAD LESS LETHAL ROUNDS. RAP4 has obtained its irritant projectiles from various suppliers over the years, including companies in China, South Africa, and the United States. RAP4 generally used orange shells to indicate live rounds. UTS Tab 94.2 For a period of time, RAP4 purchased irritant projectiles from a United States company named SWAT. Defendants allege that SWAT merged with PepperBall Technologies in the late 2000s, and RAP4 then sold the projectiles from SWAT/PepperBall Technologies as PepperBall branded products. Aside from that time, RAP4 asserts that it has never sold PepperBall-branded irritant projectiles.
Following the foreclosure sale, Defendants began communicating with PepperBall Technologies' former Chief Operations Officer, Conrad Sun. Sun brokered an "Exclusive Dealing Agreement" for RAP4 to acquire irritant filled projectiles from APON. The agreement was made effective on April 5, 2012.
Most of the events giving rise to this action occurred in August 2012. Around August 9, 2012, RAP4 posted on its website and sent an email broadcast stating the following:
UTS Tab 26 ("original broadcast announcement"). The posting, titled "RAP4 Resumes PepperBall Technologies Inc. Production[,]" contains pictures of RAP4's new projectiles, which use red and red-black to indicate standard and maximum strength live rounds. Id.
On August 10, RAP4 issued "clarifications" on its Facebook page and elsewhere, stating among other things, that "[i]t has come to our Attention that there has been some misinformation and confusion in relation to our acquisition of PepperBall Technology." UTS Tabs 27, 28, 144 (titled "Clarification About RAP4's Acquisition of PepperBall Technology"). These clarifications state that "The Original Recipe and machinery to produce pepperballs was acquisitioned by RAP4 and RAP4 is now able to manufacture the original pepperball under the name of RAP4 Less Lethal." The clarification also acknowledges that "Pepperball Technology is Forclosed [sic]" and "[a]ll rights to the name Pepperball belong to the new owners, which is Phoenix International, LLC LIMITED LIABILITY COMPANY INDIANA 2713 Ferguson Road Fort Wayne INDIANA 46809." A screen shot from August 14, 2012 shows RAP4's website continued to display the original broadcast announcement even after posting these clarifications.
On August 14, 2012, ATO through its counsel sent a cease and desist letter to Tran. At some point not long after, RAP4 evidently sent a second email broadcast3 and issued another statement on its website:
UTS Tab 36. Following RAP4's announcements, ATO's and RAP4's management and owners had a meeting, where RAP4 informed ATO of its agreement with APON. Evidently the parties discussed potential solutions, but they ultimately did not resolve their dispute.
In the meantime, both ATO and RAP4 received communications from customers and others indicating that they believed that (1) RAP4 had purchased PepperBall Technologies, and (2) RAP4 made and sold PepperBalls. UTS alleges that RAP4 told customers over the phone that it was PepperBall Technologies and that it sold official PepperBalls. UTS also alleges that RAP4 did not correct customers' misunderstandings when they contacted RAP4.
In September 2012, ATO filed suit in the District Court for the Northern District of Indiana and sought a temporary restraining order ("TRO") against Defendants. ATO's suit was primarily based on RAP4's August announcements above. ATO also sued Conrad Sun and APON,...
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