Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-02051/USCOURTS-azd-2_08-cv-02051-4/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

American Traffic Solutions, Inc., 

Plaintiff, 

vs.

Redflex Traffic Systems, Inc., et al., 

Defendants. 

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No. CV-08-02051-PHX-FJM

ORDER

The court has before it defendant Redflex Traffic Systems, Inc.’s motion for summary

judgment (doc. 108), plaintiff American Traffic Solutions, Inc.’s response (doc. 205), and

defendant’s reply (doc. 201). We also have before us defendant’s motion for leave to file

demonstrative aids and supplemental exhibits (doc. 202), plaintiff’s response (doc. 242), and

defendant’s reply (doc. 243).

As an initial matter, defendant moves for leave to file two charts that compare the

parties’ statements of fact and reference nineteen supplemental exhibits. Plaintiff contends

that consideration of these documents would be prejudicial. Perhaps realizing that the

parties’ aggressive use of deposition testimony and insubstantial evidentiary objections did

not result in manageable statements of fact, defendant suggests that its “demonstrative aids”

would assist the court. Because additional statements of fact would not be helpful, we deny

defendant’s motion for leave.

Case 2:08-cv-02051-FJM Document 253 Filed 04/22/10 Page 1 of 12
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1

 The thirty-six entities are the state of Arizona, through the Arizona Department of

Public Safety; Eloy, AZ; Paradise Valley, AZ; Pinal County, AZ; Prescott Valley, AZ; Star

Valley, AZ; Tempe, AZ; Fort Collins, CO; Baker, LA; Gretna, LA; Lafayette, LA;

Livingston Parish, LA; Sulphur, LA; Westwego, LA; Zachary, LA; Albuquerque, NM; Las

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I. Background

Plaintiff competes with defendant for contracts with state and local governmental

entities to provide photographic traffic enforcement services. Some entities award these

contracts after soliciting proposals, while others directly negotiate agreements without

competitive bidding.

Both parties offer speed enforcement services using radar units. In order to prevent

interference with radio frequencies, the Federal Communications Commission (“FCC”)

regulates the use of devices that emit radiation. 47 U.S.C. § 302a. Certain radar units must

be certified by the FCC before they may be operated. 47 C.F.R. § 15.1. From 1999 through

August 2008, defendant operated radar units that required, but lacked, FCC certification.

Plaintiff asserts that defendant knowingly failed to comply with FCC regulations. It

submits meeting minutes, email, shipping records, and testimony which suggest that

defendant may have been aware that its radar units required FCC certification by late 2006

or early 2007, and that defendant actively sought FCC certification by early 2008. Defendant

maintains that it did not understand the need for FCC certification until plaintiff raised the

issue during a bid protest in July 2008.

The parties dispute the ease with which defendant could have obtained FCC

certification for its radar units. It eventually spent somewhere between several weeks and

six months arranging for certification. It also had to return its radar units to a British

manufacturer for appropriate labels and documentation, and possibly for costly hardware

upgrades.

According to plaintiff, defendant falsely advertised its services in the course of

obtaining contracts with thirty-six governmental entities in Arizona, Colorado, Louisiana,

New Mexico, Ohio, Oregon, Tennessee, and Washington.1

 Whether or not defendant did so

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Cruces, NM; Chillicothe, OH; Hamilton, OH; Northwood, OH; Parma, OH; Toledo, OH;

Trotwood, OH; West Carrollton, OH; Beaverton, OR; Medford, OR; Clarksville, TN;

Jonesborough, TN; Oak Ridge, TN; Selmer, TN; Auburn, WA; Bremerton, WA; Burien,

WA; Lakewood, WA; SeaTac, WA; and Tacoma, WA.

2

 The proposals were submitted to the state of Arizona; Pinal County, AZ; Prescott

Valley, AZ; Tempe, AZ; Fort Collins, CO; Lafayette, LA; Sulphur, LA; Albuquerque, NM;

Hamilton, OH; Parma, OH; Beaverton, OR; Clarksville, TN; Jonesborough, TN; Oak Ridge,

TN; Bremerton, WA; Lakewood, WA; SeaTac, WA; and Tacoma, WA.

3

 Plaintiff did not bid for contracts with Paradise Valley, AZ; Pinal County, AZ;

Prescott Valley, AZ; Fort Collins, CO; Albuquerque, NM; Beaverton, OR; Medford, OR;

Jonesborough, TN; Parma, OH; Toledo, OH; and West Carrollton, OH.

4

 These twelve entities are Eloy, AZ; Star Valley, AZ; Baker, LA; Gretna, LA;

Livingston Parish, LA; Westwego, LA; Zachary, LA; Las Cruces, NM; Chillicothe, OH;

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intentionally, plaintiff claims that defendant misrepresented its services’ compliance with

applicable laws and approval by the International Association of Chiefs of Police (“IACP”).

In support, plaintiff offers the contracts, which include standard promises by defendant to

comply with applicable laws. It also offers defendant’s proposals to eighteen of the entities.2

The proposals generally promote defendant’s ability to use its systems legally, its compliance

with applicable laws, and the lack of past negative legal judgments or future legal risk to the

entities resulting from its services. Some of the proposals also promote the IACP’s

certification of defendant’s radar-based systems. The parties submit conflicting evidence

concerning the extent to which IACP certification implies FCC certification. Additionally,

plaintiff offers testimonial evidence that defendant promoted its vans equipped with radar

units lacking FCC certification at six trade shows, and that it issued internet press releases

about recently awarded contracts without mentioning its lack of compliance with FCC

regulations.

According to defendant, plaintiff did not pursue contracts with twenty-three of the

thirty-six entities in question. Plaintiff apparently decided not to submit proposals to eleven

of the entities that solicited them,3

 while twelve other entities negotiated directly with

defendant.4

 Plaintiff does not substantially dispute this evidence. Of the thirteen entities to

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28 Northwood, OH; Trotwood, OH; and Selmer, TN.

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which plaintiff submitted proposals, it offers defendant’s corresponding proposals to eleven:

the state of Arizona, through the Arizona Department of Public Safety (“DPS”); Tempe, AZ;

Lafayette, LA; Sulphur, LA; Hamilton, OH; Clarksville, TN; Oak Ridge, TN; Bremerton,

WA; Lakewood, WA; SeaTac, WA; and Tacoma, WA.

Defendant also submits a series of declarations suggesting that a number of the thirtysix entities did not seek radar-based services. These declarations, however, do not

adequately distinguish between what the entities sought, what defendant promoted, and what

services were included in the contracts. Similarly, defendant offers evidence that some of

plaintiff’s proposals would have faired poorly in any event, but it either does not raise the

evidence in its motion or the evidence does not adequately control for defendant’s conduct.

In particular, defendant submits a declaration from a DPS official suggesting that DPS was

not misled by defendant’s representations, but the official also concedes that it would not

have permitted the use of noncompliant equipment. DSOF, Ex. 9 at 9.

Plaintiff alleges that defendant falsely advertised its services in violation of the

Lanham Act, 15 U.S.C. § 1125(a)(1)(B), tortiously interfered with a business expectancy,

and was unjustly enriched. Defendant moves for summary judgment on all claims.

II. Lanham Act

The Lanham Act prohibits any person from misrepresenting the nature of his services

in commercial advertising or promotion. 15 U.S.C. § 1125(a)(1)(B). In order to establish

prudential standing for a false advertising claim under the Lanham Act, a plaintiff must show

a commercial injury that is discernibly competitive. Barrus v. Sylvania, 55 F.3d 468, 470

(9th Cir. 1995). To state a prima facie case on the merits, he must show that (1) the

defendant made a false or misleading statement of fact in commercial advertising or

promotion; (2) the statement actually deceived or had the tendency to deceive a substantial

segment of its audience; (3) the deception was material, in that it likely influenced the

purchasing decision; (4) the statement was used in commerce; and (5) he has been or is likely

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to be injured as a result of the statement. Southland Sod Farms v. Stover Seed Co., 108 F.3d

1134, 1139 (9th Cir. 1997).

A. Standing

Defendant contends that plaintiff lacks prudential standing to bring a Lanham Act

claim in connection with the twelve directly-negotiated contracts and the eleven plaintiff

failed to pursue through competitive bidding. Because defendant brings its standing

challenge at the summary judgment stage, plaintiff must come forward with evidence that

defendant’s alleged conduct was harmful to its ability to compete in the same market. See

Barrus, 55 F.3d at 470. Plaintiff presents testimony from both parties’ executives suggesting

that the companies are the two principal providers of photographic traffic enforcement

services to governmental entities in a national market. Its executives also claim that it had

an established marketing presence and the resources to provide services to all thirty-six

entities. Thus, plaintiff presents a triable issue concerning the effect of defendant’s alleged

conduct on plaintiff’s ability to compete for business with the twelve entities that negotiated

directly with defendant. See supra note 4 (listing the twelve entities).

Plaintiff concedes, however, that it decided not to pursue contracts with eleven of the

entities. It argues that its decision was caused by defendant’s conduct, but it relies on

testimony from its executives merely asserting that they would have bid for these contracts

had they known that defendant lacked radar units certified by the FCC. Plaintiff’s theory

does not support a causal connection between defendant’s conduct and plaintiff’s ability to

compete for these contracts. A Lanham Act plaintiff who independently decides not to

participate in a competitive government procurement process cannot show a discernibly

competitive injury when he fails to obtain the contract. Therefore, we grant defendant’s

motion for summary judgment on plaintiff’s Lanham Act claim with respect to the contracts

that it decided not to pursue through competitive bidding. See supra note 3 (listing the eleven

entities).

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B. Administrative Exhaustion

Defendant maintains that plaintiff cannot proceed with its Lanham Act claim because

it has not exhausted available administrative remedies, such as the rescission of some of

defendant’s contracts through bid protests. In response, plaintiff points out that defendant

did not raise administrative exhaustion as an affirmative defense in its answer. It also asserts

that exhaustion is not required because it is not challenging the entities’ procurement

decisions. We agree. Because plaintiff is not contesting the validity of defendant’s

contracts, we deny defendant’s motion for summary judgment on administrative exhaustion

grounds.

C. Commercial Advertising or Promotion

Defendant raises a series of challenges to plaintiff’s prima facie case. It begins by

contending that any false or misleading statements it allegedly made were not disseminated

widely enough to constitute “commercial advertising or promotion.” 15 U.S.C.

§ 1125(a)(1)(B). In order to be actionable, statements need not take the form of a classic

advertising campaign, but they must be “disseminated sufficiently to the relevant purchasing

public to constitute ‘advertising’ or ‘promotion’ within that industry.” Coastal Abstract

Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999). Plaintiff offers

evidence that defendant made statements promoting its compliance with applicable laws in

proposals to eleven entities in competition with plaintiff. Defendant suggests that the

relevant market includes thousands of potential customers, but it does not support its claims.

A reasonable trier of fact could find that disseminating contract proposals to eleven

governmental entities constitutes promotion in defendant’s industry.

To be actionable, a statement must also be made “for the purpose of influencing

consumers to buy the defendant’s goods or services.” Id. Defendant correctly points out that

the terms of the executed contracts were not statements made to influence the entities’

purchasing decisions. Thus, they do not constitute advertising or promotion.

In its reply, defendant contests plaintiff’s proposed reliance on defendant’s

promotional efforts through trade shows and internet press releases as an attempt to change

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legal theories after the close of discovery. We cannot evaluate this contention without more

information. In any event, as discussed below, plaintiff cannot show that defendant’s alleged

statements through trade show displays and press releases were material. We grant

defendant’s motion for summary judgment only insofar as plaintiff’s Lanham Act claim

depends on defendant’s contracts for actionable statements.

D. False or Misleading Statements of Fact

Next, defendant challenges plaintiff’s ability to show that its proposals contain false

or misleading statements of fact. Falsity is determined based on the full context of a

statement, Southland, 108 F.3d at 1140, and even a true statement may be actionably

misleading by implication. Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv., Inc., 911

F.2d 242, 245 (9th Cir. 1990). Defendant argues that it did not make a specific claim

concerning FCC certification or an affirmative statement that its services complied with

applicable laws at the time of its proposals. Neither party discusses the actual language used

in most of defendant’s proposals at any length. This language includes repeated references

to legality, compliance, and the absence of negative legal judgments and legal risk resulting

from defendant’s services. PSOF ¶ 514 (citing pages from proposals). Taken in context, a

reasonable trier of fact could find that defendant made false statements that its services

complied with applicable laws in its proposals.

Defendant argues that a statement assuring compliance with applicable laws is a

layperson’s statement of legal opinion, and thus not a statement of fact. Yet, it relies on a

case holding that lay interpretations of a statute or regulation are non-actionable statements

of opinion in the absence of “a clear and unambiguous ruling of a court or agency of

competent jurisdiction.” Coastal, 173 F.3d at 731. And defendant fails to assert that the

relevant FCC regulations are ambiguous.

Similarly, defendant argues that a statement in a March 2008 proposal to DPS that it

would comply with all applicable laws and regulations is non-actionable as a statement of

future intent. Statements of future intent may be actionable in the absence of a “good faith

belief in the truth of the statement.” PhotoMedex, Inc. v. Irwin, No. 07-56672, 2010 WL

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1462377, at *10 (9th Cir. Apr. 14, 2010). Plaintiff contends that defendant did not intend to

comply with all applicable laws when it submitted the proposal to DPS. Plaintiff offers

meeting minutes suggesting that defendant was seeking FCC certification at the time, but

defendant disputes that it was aware of the need for certification when it submitted the

proposal. Under these circumstances, we cannot resolve the falsity of defendant’s statement

of future intent on a motion for summary judgment.

Defendant also challenges plaintiff’s claim that a photograph in the DPS proposal and

statements promoting IACP certification in a number of defendant’s proposals were

misleading by implication. Plaintiff asserts that a radar unit pictured in the DPS proposal

implied that defendant used FCC-certified radar units because it was FCC-certified at one

time. It also offers an expert witness’s opinion that IACP certification implies compliance

with FCC regulations. Because triable issues remain concerning the falsity of defendant’s

proposal statements in context, we will not consider whether these alleged statements would

be actionably misleading in isolation.

Finally, defendant does not respond to plaintiff’s contention that defendant’s trade

show displays and internet press releases were misleading by implication. Therefore, we

deny defendant’s motion for summary judgment on the element of falsity with respect to all

of defendant’s alleged statements.

E. Deception

Defendant also challenges plaintiff’s ability to show that defendant’s statements

deceived the governmental entities in question. Deliberately false or misleading statements

are presumed to be deceptive. William H. Morris Co. v. Group W, Inc., 66 F.3d 255, 258

(9th Cir. 1995). Contrary to defendant’s contentions, a presumption of deception does not

require comparative advertising, Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197,

209 (9th Cir. 1989), or a false statement. William, 66 F.3d at 258. Plaintiff claims that the

presumption of deception applies because defendant intended to deceive the governmental

entities through its statements. Plaintiff’s evidence that defendant sought FCC certification

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at the same time defendant claims it was unaware of the relevant regulations is sufficient to

raise a triable issue on the potential application of the presumption.

In an effort to rebut the presumption, defendant offers a declaration from a DPS

official concerning contract requirements and procurement procedure. But the official

concedes that DPS would not have allowed defendant to use noncompliant equipment, which

suggests that DPS believed that defendant intended to comply with applicable laws. We

deny defendant’s motion for summary judgment on the element of deception.

F. Materiality

Plaintiff must show that defendant’s statements were material, in that they were

“likely to influence the purchasing decisions.” Southland, 108 F.3d at 1139. The parties

dispute whether deliberately deceptive statements are presumptively material. Plaintiff cites

Southland for the proposition that such statements give rise to a presumption of reliance. Id.

at 1146. However, the Ninth Circuit cases that explicitly apply a presumption of reliance do

so in the context of directly comparative advertising, in which case the presumption also

extends to causation and injury. Id.; U-Haul Int’l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1040

(9th Cir. 1986). Where, as here, a defendant does not directly compare his goods or services

to the plaintiff’s, deliberately deceptive statements do not presumptively injure the plaintiff.

Harper, 889 F.2d at 209. In the absence of clear direction for non-comparative cases, we will

apply the First Circuit’s approach, which does not presume that purchasers are influenced by

immaterial statements whether or not they are made with the intent to deceive. Cashmere &

Camel Hair Mfrs. Inst. v. Saks Fifth Ave., 284 F.3d 302, 312 n.12 (1st Cir. 2002).

Defendant maintains that any false or misleading statements it made were immaterial.

Plaintiff offers evidence that purchasers of photographic traffic enforcement services are

particularly concerned about legal compliance. It also offers evidence that defendant spent

months seeking FCC certification and had to send its radar units to Britain. Under these

circumstances, a reasonable trier of fact could find that the statements in defendant’s

proposals would impact an entity’s purchasing decision. However, plaintiff lacks evidence

that defendant’s alleged statements made through trade show displays and press releases

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would be influential. Plaintiff’s own executives testify that laws governing photographic

traffic enforcement services vary widely from jurisdiction to jurisdiction. Thus, a

governmental entity evaluating a proposal or negotiating with a provider would not rely on

the mere presence of radar units at a trade show or the announcement of a recently awarded

contract as evidence that the offered services would comply with applicable laws. Because

plaintiff does not present a triable issue with respect to the materiality of these alleged

statements, we grant defendant’s motion for summary judgment to the extent that plaintiff’s

Lanham Act claim depends on them.

As a result, only defendant’s proposal statements survive summary judgment. In

combination with plaintiff’s lack of standing, its Lanham Act claim is limited to the

proposals defendant submitted to DPS; Tempe, AZ; Lafayette, LA; Sulphur, LA; Hamilton,

OH; Clarksville, TN; Oak Ridge, TN; Bremerton, WA; Lakewood, WA; SeaTac, WA; and

Tacoma, WA.

F. In Commerce

Defendant, which is based in Arizona, argues that its proposals to the entities in

Arizona do not satisfy the Lanham Act’s jurisdictional element because they did not cross

state lines. In relevant part, the Lanham Act reaches statements that a person “uses in

commerce.” 15 U.S.C. § 1125(a)(1). The Act defines “commerce” as “all commerce which

may lawfully be regulated by Congress.” 15 U.S.C. § 1127. Congress may regulate

intrastate commerce that “substantially affects” interstate commerce. United States v. Lopez,

514 U.S. 549, 559, 115 S. Ct. 1624, 1630 (1995). Thus, the Lanham Act’s jurisdictional

element encompasses statements used in such intrastate commerce. Summit Tech., Inc. v.

High-Line Med. Instruments, Co., 933 F. Supp. 918, 934 n.10 (C.D. Cal. 1996).

Defendant used its Arizona proposals in commercial bidding between national

companies vying for the ability to provide traffic enforcement services. Because there is

little doubt that this economic activity sufficiently affects interstate commerce to fall within

the purview of the Lanham Act, we deny defendant’s motion for summary judgment on

jurisdictional grounds.

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G. Causation and Injury

Plaintiff must show both causation and injury because it seeks compensatory damages,

but not an injunction. Harper, 889 F.2d at 209-10. Although defendant challenges plaintiff’s

broader theory of causation, plaintiff’s claim is now focused on defendant’s proposals

submitted in direct competition with plaintiff’s. Triable issues remain concerning

defendant’s use of false or misleading statements in these proposals, and plaintiff offers

expert testimony on damages. Therefore, we deny defendant’s motion for summary

judgment on the elements of causation and injury in connection with the remaining portion

of plaintiff’s Lanham Act claim.

III. State Law Claims

Neither party gives more than cursory treatment to plaintiff’s tortious interference and

unjust enrichment claims. Among other elements, the former requires improper conduct and

a valid business expectancy, Hill v. Peterson, 201 Ariz. 363, 366, 35 P.3d 417, 420 (Ct. App.

2001), and the latter requires an impoverishment connected with an enrichment in the

absence of justification. Trustmark Ins. Co. v. Bank One, Ariz., 202 Ariz. 535, 541, 48 P.3d

485. 492 (Ct. App. 2002). Plaintiff only presents triable issues on improper and unjustified

conduct involving defendant’s proposals, and it cannot show an expectancy or an

impoverishment where it decided not to participate in competitive bidding. Thus, plaintiff’s

state law claims are limited to the same eleven entities as its Lanham Act claim.

IT IS THEREFORE ORDERED DENYING defendant’s motion for leave to file

demonstrative aids and supplemental exhibits (doc. 202). The clerk shall not file the lodged

exhibits (docs. 218, 238, & 241).

IT IS FURTHER ORDERED DENYING IN PART and GRANTING IN PART

defendant’s motion for summary judgment (doc. 108). It is denied on plaintiff’s Lanham Act

claim in connection with defendant’s proposals to the state of Arizona through the Arizona

Department of Public Safety; Tempe, AZ; Lafayette, LA; Sulphur, LA; Hamilton, OH;

Clarksville, TN; Oak Ridge, TN; Bremerton, WA; Lakewood, WA; SeaTac, WA; and

Tacoma, WA. It is denied on plaintiff’s tortious interference and unjust enrichment claims

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in connection with the same eleven governmental entities. It is granted in connection with

the other alleged statements and entities.

DATED this 22nd day of April, 2010.

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