digEcor alleges that e.Digital violated the duty of good faith and fair dealing implicit in

the PO by marketing the eVu while digEcor’s order for digEplayer 5500s was delayed.

According to digEcor, e.Digital’s marketing efforts interfered with digEcor’s justified

expectations to profit from selling the digEplayer 5500s it had ordered from e.Digital. e.Digital

responds that accepting digEcor’s argument would write a covenant not to compete into the PO,

a result not permitted under Utah law.

“Under the covenant of good faith and fair dealing, both parties to a contract impliedly

promise not to intentionally do anything to injure the other party’s right to receive the benefits of

the contract.” Eggett v. Wasatch Energy Corp., 94 P.3d 193, 197 (Utah 2004) (citation omitted).

“The purpose, intentions, and expectations of the parties should be determined by considering the

contract language

limitation of damages clause applies to digEcor’s claim for breach of that agreement. Because

this issue has not been fully briefed, the court has allowed a short period for supplemental

briefing on this subject. The court will work to resolve this motion expediently and will assess

whether a hearing is needed when the briefs have been submitted.

2

a right granted by a contract to one of the parties or to require a party vested with a

contract right to exercise that right in a manner contrary to that party’s legitimate

self-interest.

Brehany v. Nordstrom, Inc., 812 P.2d 49, 55 (Utah 1991) (citation omitted).

digEcor points to no general rule that it is a violation of Utah’s contractual duty of good

faith and fair dealing for suppliers to compete with their buyers while delivery of goods is

pending. Indeed, Utah law favors competition and instructs that even where the parties have

agreed upon a covenant not to compete, those covenants are to be narrowly construed. See, e.g.,

Robbins v. Finlay, 645 P.2d 623, 627 (Utah 1982) (“Covenants not to compete which are

primarily designed to limit competition or restrain the right to engage in a common calling are

not enforceable.”). Moreover, there is no language in the PO itself that could reasonably be read

to imply that e.Digital agreed to refrain from marketing its own competing product while it had

not yet delivered the digEplayer 5500s. digEcor appears to argue, however, that the court should

look to the facts surrounding the parties’ relationship and course of dealing to find an implicit

requirement that e.Digital not compete with digEcor while delaying shipment of the digEplayer

5500s.

The facts would support an inference that e.Digital knew or should have reasonably

expected that digEcor hoped to profit from selling digEplayer 5500s to airlines. e.Digital’s

interests were also aligned with digEcor in having digEcor be successful in marketing the

digEplayer 5500 as long as e.Digital reasonably expected that digEcor would continue to use

e.Digital as the OEM supplier for that product and as long as digEcor was marketing that

product. But these generic goals do not adequately establish a common contractual purpose to

impose what would in effect be a covenant by e.Digital not to compete by marketing its own

3

products. If such generic common objectives could be found to imply such a covenant, every

contract between a supplier and a purchaser would give rise to a duty not to compete pending

delivery, or at all for that matter. Moreover, the express objective of the PO was for e.Digital to

deliver the digEplayer 5500s to digEcor at the price and consistent with the other express terms

of the PO. digEcor had a reasonable expectation that the PO would be performed and it would

accept delivery of the digEplayer 5500s. That was the performance it could reasonably anticipate

and it had no basis to infer an obligation by e.Digital to more than fulfil its contractual obligation.

The covenant of good faith might apply had e.Digital acted to prevent digEcor from fulfilling its

requirements under the PO, such as providing the color or other specifications necessary to fill

the order. But digEcor makes no such allegations or showing.

Nor does the course of dealing between these parties support a finding that there was an

implied covenant not to compete here. Over the course of their relationship, the obligations

undertaken by e.Digital to digEcor were, generally speaking, to design and deliver digEplayer

5500s. digEcor points to no facts that e.Digital ever took any action from which it could be

inferred that e.Digital agreed to help digEcor make a profit from those products. In fact, digEcor

itself points out that the parties understood digEcor to be the marketer and e.Digital to be the

behind-the-scenes technology company. Once e.Digital delivered the product, it was digEcor’s

responsibility to sell them under whatever terms it deemed advisable, or not sell them at all. The

parties were not partners in either a legal or practical sense and it is undisputed that, although

they initially contemplated a revenue sharing agreement, they never attempted to negotiate the

4

terms of such an agreement. Rather, e.Digital received a flat fee for the digEplayer 5500s it

delivered.

In light of the PO and the facts surrounding the parties’ relationship and course of

dealing, the court rules that as a matter of law e.Digital had no implied duty to refrain from

competing with digEcor while the digEplayer 5500 were not yet delivered. To impose such a

duty would “establish new, independent rights or duties not agreed upon by the parties.”

Brehany, 812 P.2d at 55. While e.Digital “may not have followed the golden rule” by marketing

the eVu to airlines before it delivered the digEplayer 5500s to digEcor, e.Digital did not breach

the implied covenant of good faith and fair dealing in doing so. Oakwood Village LLC v.

Albertsons, Inc., 104 P.3d 1226, 1240 (Utah 2004). Accordingly, digEcor’s motion for summary

judgment on its claim of breach of the duty of good faith and fair dealing is DENIED. Because

digEcor’s claim cannot prevail as a matter of law, the court will entertain a motion by e.Digital

for summary judgement in its favor on the claim for breach of the duty of good faith and fair

dealing under the Third Claim of digEcor’s operative complaint.

e.Digital has moved for summary judgment in its favor on each of digEcor’s unfair

competition claims in the Tenth, Eleventh, and Twelfth Claims of the complaint. As explained

It is also worth noting that by the time the parties entered the PO, it was clear that

e.Digital was not going to be the OEM for digEcor’s next generation viewer. It seems likely,

therefore, that the PO was to be the parties’ last purchase transaction. If that was the case, it

made no difference as a practical matter to e.Digital whether digEcor sold the digEplayer 5500s

or not.

5

below, only one claim, digEcor’s Utah statutory claim, is appropriate for judgment at this time.

The motion is denied on the remaining claims.

For digEcor to succeed on its claim under the Lanham Act, it must demonstrate the

following elements by a preponderance of the evidence:

(1) that the defendant made material false or misleading representations of fact in

connection with the commercial advertising or promotion of its product; (2) in commerce;

(3) that are either likely to cause confusion or mistake as to (a) the origin, association or

approval of the product with or by another, or (b) the characteristics of the goods or

services; and (4) injure the plaintiff.

Sally Beauty Co., Inc. v. Beautyco, Inc., 304 F.3d 964, 980 (10th Cir. 2002) (citation omitted).

digEcor has proffered sufficient evidence from which a reasonable fact finder could

conclude that e.Digital’s marketing efforts were false or misleading. That conclusion, however,

is not legally compelled by the facts as the record stands. As the cases cited by the parties show,

the context of statements at issue may be highly relevant in assessing whether they are

misleading. Terms such as “new and improved” may be mere puffing in some circumstances,

but misleading in others. The highly factual nature of this inquiry makes summary judgment

improper here. As for whether the statements at issue that e.Digital made in its marketing efforts

were literally false, there are disputes of fact that also prevent the court from deciding this

question. For example, there is a question as to exactly what “OEM” means in the IFE context.

As the record stands, the court is not prepared to decide either of the issues of whether the

statements were false or misleading as a matter of law. It may well be that at the conclusion of

digEcor’s presentation of its case in chief, there may not be sufficient evidence on this claim to

survive a motion for a directed verdict. But on the record presented in support and opposition to

6

the motion for summary judgment, the court cannot conclude as a matter of law that this claim

fails: a reasonable fact finder could conclude that e.Digital’s statements were either misleading

or literally false, or could find them to be true and not misleading.

Turning to the question of confusion, there is also sufficient evidence in the record to

create an issue of fact. That is, a reasonable fact finder could find that there was actual confusion

by airline customers between digEcor and its digEplayer products on one hand and e.Digital and

its eVu on the other. The evidence supports, for example, that some airlines mistook e.Digital

for digEcor and the eVu for the digEplayer 5500. But there is no evidence establishing beyond

dispute that any such confusion was caused by e.Digital’s marketing efforts as opposed to other

factors. e.Digital argues that at most the evidence would allow an inference that that the airlines

were initially confused, but given the sophistication of the parties and the dollar amounts

involved in the transactions, there would be no confusion as to whom the airlines were dealing

with when the sale was concluded. But even if there were only initial interest confusion, that

appears to be enough support a claim, at least at this stage of the proceeding. See Australian

Gold, Inc. v. Hatfield, 436 F.3d 1228, 1238-40 (10th Cir. 2006) (discussing initial interest

confusion in the trademark violation context).

Accordingly, even assuming that airlines would probably ascertain the difference between

digEcor and e.Digital before making their final purchases, digEcor may be able to prove

materiality of statements by showing initial interest confusion. But as mentioned, digEcor has

not shown that any initial interest confusion, or any lasting confusion for that matter, necessarily

resulted from anything e.Digital did, which will be required for it to succeed on this claim.

7

Finally, the question of whether digEcor was injured cannot be resolved on this motion.

As recognized by e.Digital, digEcor need not show actual damages if e.Digital’s statements were

literally false. As mentioned, however, the question of literal falsity is not ready for judgment at

this time. Meanwhile, if the statements were not literally false but nonetheless misleading,

digEcor would have to show actual damages. digEcor has not made an undisputed showing that

it was damaged by any potentially false statements., but there is sufficient evidence on the record

to create an issue of fact on that question.

In sum, because disputes of material fact exist on all aspects of digEcor’s Lanham Act

claim, the court must DENY e.Digital’s motion for summary judgment on this issue.

“Pursuant to Utah common law, unfair competition includes-but is not limited to-passing

off, palming off, imitating, and causing or likely causing confusion or deception.”

Overstock.com, Inc. v. SmartBargains, Inc., 192 P.3d 858, 863 (Utah 2008) (citations omitted).

For the same reasons that the court believes digEcor’s Lanham Act claim is inappropriate for

summary judgment, the court holds that digEcor’s common law claim for unfair competition is

equally unsuited. Accordingly, e.Digital’s motion for summary judgment is DENIED on this

claim.

To prove a cause of action under Utah Code Ann. § 13-5a-103, digEcor must show,

among other things, that e.Digital’s actions were unfair and violated a software license. digEcor

argues that it has shown a violation of a software license, arguing that e.Digital violated the

8

DRM Agreement. The court does not view such a violation, even if proven, as providing a basis

for this claim.

Specifically, the court does not read § 13-5a-103 as allowing a plaintiff to shoehorn any

violation of any software agreement to support an unfair competition cause of action. In the

definition section of the Utah statute, “unfair competition” is defined in relevant part as “an

intentional business act or practice that. . . is unlawful, unfair, or fraudulent; and . . . is . . . a

software license violation.” Utah Code Ann. § 13-5a-102(4)(a) (emphasis added). The

conjunctive “and” in that definition is most logically read to require that the conduct underlying

the unlawful, unfair, or fraudulent conduct be the same conduct that violates the software license.

Here, digEcor alleges that e.Digital granted digEcor an exclusive license in DRM

software. According to digEcor, e.Digital violated that license by using the DRM software in the

eVu. Even assuming for purpose of this motion that digEcor were to prevail on this claim, the

alleged conduct of wrongly using certain software is at best tangentially related to the allegedly

unlawful marketing activities giving rise to the unfair competition claims. Such conduct may be

a breach of the DRM Agreement, but it does not meet the requirement of being otherwise

unlawful, unfair or fraudulent. Consequently, digEcor’s cause of action under § 13-5a-103 fails

as a matter of law, and e.Digital’s motion for summary judgment on this claim is GRANTED.

digEcor has moved for summary judgment dismissing e.Digital’s claim for defamation in

the Seventh Claim of e.Digital’s operative counterclaim. e.Digital responds that several

digEcor did not claim a violation of California statutory law in its latest complaint, so the

court has disregarded digEcor’s argument on this point.

9

statements made by Brent Wood of digEcor support a claim for defamation

digEcor moves for judgment dismissing e.Digital’s claim for tortious interference. To

prove such a claim, e.Digital must show (1) that digEcor intentionally interfered with its existing

11

or potential economic relations, (2) for an improper purpose or by improper means, (3) causing

injury to e.Digital. See Leigh Furniture and Carpet Co. v. Isom, 657 P.2d 293, 304 (Utah 1982).

Here, e.Digital has offered sufficient evidence to support each element. For example, Mr.

Wood’s emails of February 25 and March 29, 2007, which were directed at a known e.Digital

customer and could constitute defamation

Finally, the court will rule on two outstanding motions made by digEcor to strike factual

submissions made by e.Digital.

digEcor’s motion to strike Mr. Blakeley’s declaration in support of e.Digital’s motion for

partial summary judgment (Dkt. No. 236) is moot. The key facts that e.Digital sought to

establish through Mr. Blakeley’s declaration are that airline customers are sophisticated, use a

vetting process for vendors, and would be able to tell the difference between digEcor and

e.Digital by the time they made their IFE player purchases. But as mentioned above, initial

interest confusion would support an unfair competition act claim. And the court does not believe

that it can be said as a matter of law that even the most sophisticated airline could not be

susceptible to such confusion. This conclusion alone makes Mr. Blakeley’s opinions irrelevant at

this stage in the proceedings.

12

Moreover, while it has not done so beyond dispute, digEcor may be able to show actual

confusion on the airlines’ part resulting from e.Digital’s efforts. Such a showing would make

Mr. Blakeley’s opinions about airline customers’ level of sophistication irrelevant in any event.

In sum, the court does not view as material any of the portions of Mr. Blakeley’s

declaration that digEcor seeks to strike. Accordingly, digEcor’s motion to strike is DENIED

moot.

digEcor also moves to strike various submissions made by e.Digital (Dkt. No. 257). As is

clear from the discussion of each part of this motion below, this motion is DENIED as moot.

As mentioned, the court does not view as material for purposes of this order Mr.

Blakeley’s opinions about airline customers’ sophistication or purchasing practices. Nor does the

court find that, for the purposes of this motion, it is necessary to consider the technical

capabilities of the digEplayer 5500. This evidence seems primarily directed to issues that are

now moot because the claims to which it it would be directed have been dismissed. Nor were

any of the purportedly hearsay statements and related exhibits attached to Mr. Blakeley’s

declaration dispositive on any issue. Accordingly, this part of the motion is moot.

The court did not rely on any facts from Mr. Bostenero’s declaration in this opinion,

mooting this part of the motion.

13

Any technical defect that may have existed with Mr. Bell’s declaration when digEcor

filed its motion has been corrected at this point, mooting this part of the motion.

digEcor argues, in blanket fashion, that 30 exhibits attached to e.Digital’s opposition

memorandum are hearsay. If the facts in exhibits were, by themselves or in conjunction with

facts in other objected-to exhibits, dispositive of any issue in this case, this motion might be

relevant at this point. But the court has concluded that it would have reached the same decisions

on all of the issues in this order and previous orders without regard to any of these exhibits.

Consequently, this part of the motion is moot.

Moreover, if this part of the motion were ripe for decision, the court would strike the

objections because digEcor failed to explain, exhibit by exhibit, what particular statement was

hearsay and why. The court will not make digEcor’s arguments for it.

Because the court ruled that digEcor had no duty to negotiate in good faith, this part of

the motion is moot.

For the reasons stated above, the court ORDERS as follows:

e.Digital’s motion for summary judgment (Dkt. No. 214) is GRANTED in part and

DENIED in part, as specified above and in the court’s previous order;

digEcor’s motion for summary judgment (Dkt. No. 217) is GRANTED in part and

DENIED in part, as specified above and in the court previous order and

digEcor’s motions to strike (Dkt. Nos. 236 & 257) are DENIED as moot.

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SO ORDERED this 2nd day of April, 2009.

BY THE COURT:

_____________________________

Clark Waddoups

United States District Judge