PUBLIC VERSION
`
`UNITED STATES INTERNATIONAL TRADE COMMISSION
`
`Washington, D.C.
`
`In the Matter of
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`CERTAIN INDUSTRIAL AUTOMATION
`SYSTEMS AND COMPONENTS THEREOF
`INCLUDING CONTROL SYSTEMS,
`CONTROLLERS, VISUALIZATION
`HARDWARE, MOTION CONTROL
`SYSTEMS, NETWORKING EQUIPMENT,
`SAFETY DEVICES, AND POWER
`SUPPLIES
`
`Inv. N0. 337-TA-1074
`
`ORDER NO. 30:
`
`DENYING RESPONDENT RADWELL INTERNATIONAL, INC.’S
`MOTION FOR SUMMARY DETERMINATION OF NO
`TORTIOUS INTERFERENCE
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`I. BACKGROUND
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`(June 21, 2018)
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`On October l6, 2017, the Commission instituted this investigation based on a complaint
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`by Rockwell Automation, Inc. (‘.‘Roekwell”)for alleged violations of section 337 “based upon
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`the importation into the United States, the sale for importation, and the sale within the United
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`States after importation of certain industrial automation systems and components thereof
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`including control systems, controllers, visualization hardware, motion and motor control
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`systems, networking equipment, safety devices, and power supplies” under subsection (a)(1)(B)
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`and (C) of section 337 by reason of infringement of various copyrights and trademarks, and
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`under subsection (a)(1)(A) of section 337 “by reason of unfair methods of competition[] and
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`unfair acts, the threat or effect of which is to destroy or substantially injure an industry in the
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`United States.” 83 F.R. 48113-48114 (Oct. 16, 2017). Among other respondents, the complaint
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`names Radwell International, Inc. (“Radwell”).
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`PUBLIC VERSION
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`‘ With respect to subsection (a)(l)(A), Rockwell alleges that Radwell engages in unfair
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`competition by tortiously interfering with “the known contracts between Rockwell and its
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`authorized foreign distributors,” and by “the use of fraud and misrepresentation in the acquisition
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`of the Rockwell products that they resell.” Compl. at 3. Rockwell alleges that Radwell’s
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`alleged unfair trade practices “have caused substantial injury and threaten further injury to
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`Rockwell’s domestic industry, causing price erosion, loss of revenue and a host of other harms.”
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`Id.
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`Rockwell also alleges that some or all of the respondents have violated section
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`337(a)(l)(A) by “inducing hundredsfperhaps
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`thousands——ofbreaches of the end user license
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`agreement (‘EULA’) that all end users of Rockwell Copyright Products must enter into prior to
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`downloading the necessary Rockwell copyrighted firmware.” Id. Rockwell alleges that the
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`EULA “only allows the download of the necessary firmware if the Rockwell product in question
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`was purchased from an authorized distributor,” and that the purchase price of the product
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`includes permission to download and install the firmware. Id. Rockwell alleges that end users
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`obtaining Rockwell products from respondents, “believing they have purchased the goods from
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`an authorized distributor, agree to the EULA,” thereby “obtaining the fimrware for nothing . . . in
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`breach of the EULA.” Id. at 3-4. Rockwell alleges that “[t]his tmfair trade practice has caused
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`substantial injury and threatens further injury to Rockwell’s domestic industry, causing price
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`erosion, loss of revenue and a host of other hanns.” Id. at 4.
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`On May 23, 2018, Radwell filed a motion seeking summary determination of no tortious
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`interference because Rockwell “has failed to make a showing sufficient to establish, with respect
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`to imported articles, that Rockwell suffered pecuniary loss as a result of Radwell’s alleged
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`interference.” Motion Docket No. l074-020 (the “motion”). On June 4, 2018, Rockwell filed an
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`2
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`PUBLIC VERSION
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`opposition. Also on that date, Commission Staff filed a response in opposition. On June 7,
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`2018, Radwell filed a brief in reply.
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`Radwell argues that in addition to failing to “establish” that Rockwell suffered pecuniary
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`loss, Rockwell cannot satisfy the damages element of tortious interference “as a matter of law,
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`because it profited from the sale of the products at issue.” Motion at l. Radwell maintains that
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`Rockwell “has failed to establish that any Radwell customer accepted and subsequently breached
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`the terms of Rockwell’s EULA by downloading Rockwell firmware in connection with an
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`imported Allen Bradley product purchased from Radwell.” Id. at l-2.1
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`In its opposition, Rockwell states that “Radwell’s business model relies on purchasing
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`gray market Rockwell products from tmauthorized sources abroad through fraudulent and
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`deceptive means for resale in the United States,” Opp. at 4 (citing Mot. Ex. A “Garvey Expert
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`Report”), and maintains that Rockwell has identified, with sufficient specificity to withstand
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`RadWell’smotion for summary determination, damage flowing from Radwell’s alleged tortious
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`interference. Rockwell argues that the profit it made on “gray market” sales does not bar its
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`tortious interference claim, as a matter of law. Rockwell states further that there is evidence in
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`the record of a contractual relationship between Rockwell and the end users of its products, as
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`well as damage from the alleged breach of that relationship.
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`Staff says the record contains specific examples of Rockwell’s alleged pecuniary loss tied
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`to unauthorized sales of imported products. In particular, Staff points to certain Rockwell
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`responses to contention interrogatories. Staff says Radwell has been placed on notice that
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`Rockwell contends it lost money due to “Radwell’s acquisition of a product overseas, the sale of
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`1“Allen Bradley” is a brand name for Rockwell products. Mot. Ex. 9 at 5l.
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`3
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`PUBLIC VERSION
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`that product to its customer in the United States, and a comparison of those prices to those
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`offered by Rockwell to its [authorized distributors] both overseas and in the United States.”
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`Staff Response at 6. Staff says it should not be a “surprise” to Radwell “if Rockwell were to
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`provide evidence of specific transactions in its pre-trial brief or the evidentiary hearing.” Id.
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`In its reply brief, Radwell says specific evidence of pecuniary loss cannot “be presented
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`for the first time at hearing.” Reply at l. Radwell says that Rockwell to date has presented only
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`legal argument to support its damage theories and that “there is no evidence—none—that
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`Rockwell’s net profit margins on Allen Bradley products are actually lower in the United States
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`than on those sold abroad.” Id at 3. Radwell says there is no evidence of record “substantiating
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`the three specific examples in Rockwell’s contentions,” and that Rockwell should not be
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`permitted to “ambush” Radwell at trial by presenting new evidence for the first time. Id. at 3-4.
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`As to the EULA, Radwell says there is no evidence “to show that any customer lo which
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`Radwell sold the product ever actually downloaded and installed the firmware.” Id, at 4.
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`II. DISCUSSION
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`A. Summary Determination
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`~
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`Commission Rule 2lO.l8(b) states that the stunmary “determination sought by the
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`moving party shall be rendered if pleadings and any depositions, answers to interrogatories, and
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`admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
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`any material fact and that the moving party is entitled to a summary determination as a matter of
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`law.” 19 C.F.R. § 2lO.l8(b). The rule is pattemed on Fed. R. Civ. P. 56. See Certain Carbon
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`and Alloy Steel Products (“Carbon and Alloy Steel”), Inv. No. 337-TA-1002, Initial
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`4
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`PUBLIC VERSION
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`Determination, 2017 WL 5167413 at *11, not reviewed by Commission Notice, 2017 WL
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`6434923 (Nov. 1, 2017)?
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`j
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`Under Rule 56, summary judgment is required where a party fails to make a showing
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`“sufficient to establish the existence of an element essential to that party's case, and on which
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`that party will bear the burden of proof at trial.” Celotex Corp. v. Catrelt, 477 U.S. 317, 322
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`(1986). The burden of the moving party may be discharged by pointing out to the court the lack
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`of evidence supporting the non-moving party's case. Id at 325. Where the non¢moving party
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`bears the burden of proof at trial, that party must produce more than a “scintilla of evidence . . . ;
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`there must be evidence on which the jury could reasonably find for the plaintiff.” Anderson v.
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`.
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`Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
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`If an element ofa cause of action deemed essential as a matter of law cannot be proved,
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`summary judgment is appropriate regardless of disputes over other issues. “[A] complete failure
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`of proof concerning an essential element of the nonmoving party’s case necessarily renders all
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`other facts immaterial.” Celotex, 477 U.S. at 322-23. Deciding which facts are material requires
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`“‘analyzing the logic of the case.”’ Carbon and Alloy Steel, 2017 WL 5167413 at *12 (quoting
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`William W. Schwarzer, ez‘al., Federal Judicial Center, “The Analysis and Decision of Summary
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`Judgment Motions,” 139 F.R.D. 441, 477 (1992)). “By this process, courts can ascertain which
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`issues may be dispositive of the case, rendering other factual disputes immaterial.” Id.
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`2Radwell’s suggestion that Rockwell must separately plead harm as a distinct element of
`damage for tortious interference, rather than relying on its evidence of substantial injury under
`section 337(a)(l)(A), is inconsistent with summary judgment practice. Under Rule 56, the court
`must decide whether there is a triable issue of fact based on the record as a whole. See generally,
`e.g., Faust v. Pemco Aeroplex, 1nc., 226 F. App‘x 887, 889 (1 lth Cir. 2007) (“In the context of
`summary judgment, we must look at the record as a whole, reviewing all of the evidence in the
`record”) (quoting Reeves v. Sanderson Plumbing Pr0ds., Inc., 530 U.S. 133, 151 (2000)).
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`5
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`PUBLIC VERSION
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`Once the legal or statutory requirements have been determined and the court has
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`identified the facts that must be demonstrated in order to prevail, it remains for the court to
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`decide whether there are genuine factual disputes under the appropriate legal standards. “[T]he
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`test of a dispute is whether a reasonable jury could find for the nonmovant.” Id In making this
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`determination, the court “must draw all reasonable inferences and resolve all genuine factual
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`disputes in favor of the nomnovant.” Id. at 480. However, “the substantive law can limit the
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`range of inferences that a jury may draw.” Id. at 489-490 (citing Monsanto Co. v. Spray-Rite,
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`Service Corp, 465 U.S. 752 (1984)).
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`B. Tortious Interference With Contract
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`Tortious interference with contract is a common law cause of action. The substance of
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`the tort is determined by federal common law. Tianrui Group C0. Ltd. v. Int’! Trade Comm ’n,
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`661 F.3d 1322, 1327 (Fed. Cir. 2011). The Restatement (Second) of Torts (“Restatement”) §
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`766 (1979) describes the tort as follows: “One who intentionally and improperly interferes with
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`the performance of a contract (except a contract to marry) between another and a third person by
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`inducing or otherwise causing the third person not to perform the contract, is subject to liability
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`to the other for the pecuniary loss resulting to the other from the failure of the third person‘to
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`perform the contract.” Clearly, “[t]he cause of action is for pecuniary loss resulting from the
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`interference.” Restatement, § 766 cmt. t.
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`l
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`“Courts have said repeatedly that some harm is required to sustain the action for
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`interference with contract or economic opportunity.” 3 Dan B. Dobbs, Paul T. Hayden and Ellen
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`M. Bublick, The Law of Torts (“Dobbs”) (2d ed.) 573 (2d ed. 2011). There are numerous ways
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`of measuring da1nag_esin tortious interference cases. “Such damages might include ‘the
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`pecuniary loss resulting to the [plaintiff] from the failure of the third person to perform the
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`PUBLIC VERSION
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`contract,’ ‘consequential losses for which the interference is a legal cause,’ and ‘emotional
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`distress or actual harm to reputation, if they are reasonably to be expected to result from the
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`interference.” Australian Gold Inc. v. Hatfield, 436 F.3d l228,__l237(10th Cir. 2006) (quoting
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`Restatement §§ 766, 774A (1979)).
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`“[Q]uite often, plaintiffs assert the claim as one for consequential damages. Under that
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`heading, the plaintiff can recover the loss of profit or other income that was not directly
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`promised by the contract but that would have been probable if the contract had been performed,
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`or conversely, the losses incurred on collateral matters because the contract was breached.”
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`Dobbs at 574. With respect to consequential damages, “the plaintiff must prove the loss (and a
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`good approximation of its amount) with a reasonable certainty.” Id. “If a plaintiff succeeds in
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`establishing causation, he must also show with reasonable certainty the amount of harm caused:
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`‘There can be no recovery for damages that are speculative or conjectural.”’ Hill v. Anderson,
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`420 Fed. Appx. 427, 432 (5th Cir. 2011) (quoting U.S. Bank Nat. Ass ’n v. Stanley, 297 S.W.3d
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`815, 822 (Tex. App. 2009)).
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`.
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`T
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`The courts recognize, however, that in cases of tortious interference it can be particularly
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`difficult to assess accurately the amount and extent of harm. Thus, “[a]lthough the fact-finder
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`may not render a verdict based on sheer conjecture or guesswork, it may use a measure of
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`speculation in estimating damages. The fact-finder may make a just and reasonable estimate of
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`the damage based on relevant data, and.in such circumstances may act on probable, inferential,
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`as well as direct and positive proof.” Judge Tech. Servs, Inc. v. Clancy, 813 A.2d 879, 885486
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`(2002) (citing Penn Elec. Supply C0., Inc. v. Billows Elec. Supply C0., Ina, 528 A.2d 643, 644
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`(1987)). See Dz'amond’_Trz'umphAuto Glass, Inc. v. Safelite Glass C0rp., 441 F. Supp. 2d 695,
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`724—25(M.D. Pa. 2006) (citing Judge, 813 A.2d at 885).
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`7
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`PUBLIC VERSION
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`Inacaseofthismagnitude,Where_to1tious
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`transactionsare
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`alleged by Rockwell, exactness and precision in the calculation of damages cannot be required.
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`“[W]hile the damages may not be determined by mere speculation or guess, it will be enough if
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`the evidence shows the extent of the damages as a matter of just and reasonable inference,
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`although the result be only approximate. Judge, 813 A.2d at 885-86 (citing Com. Trust C0. of
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`Pittsburgh v. Hachmeister Lind C0., 181 A. 787, 790 (1935)). In a case such as this one, “[t]he
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`precise amount cannot be ascertained by a fixed rule, but must be matter of opinion and probable
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`estimate. And the adoption of any arbitrary rule in such a case, which will relieve the wrongdoer
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`from any part of the damages, and throw the loss upon the injured party, would be little less than
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`legalized robbery.” Id. at 886 (citing Com. Trust).
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`In addition to carrying its burden on the existence and amount of pecuniary harm, the
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`plaintiff also must demonstrate that the alleged wrongful interference caused the damage. “[T]he
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`plaintiff must still prove that the loss was a result of the interference and not something else.
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`Claims for lost profits in a business are viewed with a degree of skepticism . . . but if an
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`established profit was probable but for the defendant’s interference, the loss of profit is
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`recoverable.” Restatement at 575. “For a plaintiff to establish the third element, loss and
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`causation, there must be ‘proof that if there had been no interference there was a reasonable
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`probability that the victim of the interference would have received the anticipated economic
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`benefits.”’ Avaya Inc, RP v. Telecom Labs, lnc., 838 F.3d 354, 383 (3d Cir. 2016) (quoting
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`Printing Mart-Morristown v. Sharp Electronics C0rp., 5,63A.2d 31, 41 (l989)).3
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`ln
`3Avaya involves a claim for tortious interference with business advantage. 838 F.3d at 382.
`such a claim, “‘[W]hatis actionable is ‘[t]he luring away, by devious, improper and unrighteous
`means, of the customer of another?” Id. (quoting Printing Mart, 563 A.2d at 36). Although the
`cause of action is not the same as a claim for tortious interference with breach of contract, the
`law regarding damages, as set forth in the Restatement, is applicable in general to claims for
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`PUBLIC VERSION
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`The plaintiff also must satisfy the requirement to show that the alleged interference was a
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`proximate cause of the loss. In Hill, for example, the court stated: “Texas law requires the
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`plaintiff in an intentional interference case to establish that the defendant’s . . . ‘interference was
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`the proximate cause of damage.”’ 420 Fed. Appx. at 431-32 (quoting Weaklyv. East, 900
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`S.W.2d 755, 759 (Tex. App. 1995)); see also Australian Gold 436 F.3d at 1237 (stating that a
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`plaintiff must show that the damage “was proximately sustained as a result of the complained-of
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`interference.” ) (quoting Mac Aafiustment,Inc. v. Property Loss Research Bureau, 595 P.2d 427,
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`428 (Okla. 1979))‘
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`In general, “[t]he determination of damages is a factual question to be
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`decided by the fact-finder. The fact-finder must assess the testimony, by weighing the evidence
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`and determining its credibility, and by accepting or rejecting the estimates of the damages given
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`tortious interference. The difference is the nature of the tortious conduct that must be shown. In
`Hill, 420 Fed. Appx. at 435 n. 1, the court compares interference with a contract and interference
`with a business relationship, stating, “[t]he related tort of interference with a contract lacks the
`requirement of independently tortious conduct.” (quoting Coca-Cola C0. v. Harmar Bottling C0.,
`218 S.W.3d 671, 690 (Tex. 2006)) (internal quotation marks omitted). To prevail on the claim of
`tortious interference with prospective economic advantage (as on the claim of tortious
`interference with contract), the plaintiff in Avaya “‘was required to show [1] that it had a
`reasonable expectation of economic advantage, [2] which was lost as a direct result of [the
`defendant’s] malicious interference, and [3] that it suffered losses thereby.” Avaya, 838 F.3d at
`382 (quoting Ideal Dairy Farms, Inc. v. Farmland Dairy Farms, 1nc., 659 A.2d 904, 932 (NJ.
`Super. Ct. App. Div. 1995).
`'
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`4 “Federal courts, rmlike state courts, are not general common-law courts and do not possess a
`general power to develop and apply their own rules of decision.” City of Milwaukee v. Illinois &
`Michigan, 451 U.S. 304, 312~13 (1981) (citing Erie R. Co. v. Tompkins, 304 U.S. 64 (1938);
`US. v. Hudson, ll U.S. 32 (1812)). In Tianrui, the Federal Circuit said that the law of trade
`secret “varies little from state to state and is generally govemed by widely recognized authorities
`such as the Restatement.” 661 F.3d at 1327-28. The Restatement of Torts is, of course, based
`on the decisions of many state courts, and decisions from the different states do vary. Whether
`any such variation would make a difference in the outcome of this controversy remains to be
`seen.
`.
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`9
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`PUBLIC VERSION
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`by the witnesses." Judge, 813 A.2d at 885-86 (quoting Penn Elec. Supply C0., Inc. v. Billows
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`Elec. Supply Co., Inc., 528 A.2d 643, 644 (1987)).
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`In Avaya, the Third Circuit reversed a district court’s grant of judgment as a matter of law
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`pursuant to Rule 50, Fed. R. Civ. P. 5 According to the Third Circuit, “‘[it] is sufficient that
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`plaintiff prove facts which, in themselves or by the inferences which may be legitimately drawn
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`therefrom, would support a finding that, except for the tortious interference by the defendant
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`with the plaintiffs business relationship with [another party], plaintiff would have consummated
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`the sale and made a profit.”’ 838 F.3d at 383. (quoting McCue v. Depperr, 91 A.2d 503, 505-06
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`(N.J. Super. Cit. App. Div. 1951).). The litmus test is Whether a jury could reasonably conclude
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`that, based on the facts in evidence, the plaintiff experienced loss due to the defendant’s tortious
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`misconduct. In applying this test, a judge must take care not to make inferences “in favor of the
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`5Under Rule 50, a motion for judgment as a matter of law should be granted “only if, viewing
`the evidence in the light most favorable to the nomnovant and giving it the advantage of every
`fair and reasonable inference, there is insufficient evidence from which a jury reasonably could
`find liability.” Avaya, 838 F.3d at 373 (quoting Lightning Lube, Inc. v. Witco C0rp., 4 F.3d
`1153, 1166 (3d Cir. 1993)). “Credibility determinations, the weighing of the evidence, and the
`drawing of legitimate inferences from the facts are jury ftmctions, not those of a judge.”’ Id
`(quoting Reeves v. Sanderson Plumbing Pr0ds., Inc, 530 U.S. 133, 150-51 (2000).
`For the purpose of deciding whether there are sufficient facts from which a jury might find for
`the non-moving party under Rule 56, the standard is the same as under Rule 50. Anderson v.
`Liberty Lobby, lnc., 477 U.S. 242, 251—52(1986). The Supreme Court in Anderson stated:
`“The Court has said that summary judgment should be granted where the evidence is such that it
`‘would require a directed verdict for the moving party’[]. . . And we have noted that the
`‘genuine issue’ summary judgment standard is ‘very close’ to the ‘reasonable jury’ directed
`verdict standard: ‘The primary difference between the two motions is procedural; summary
`judgment motions are usually made before trial and decided on documentary evidence,»while
`directed verdict motions are made at trial and decided on the evidence that has been admitted.”
`Id. at 251 (citations omitted). “In essence, though,” the Court opined in Anderson, “the inquiry
`under each is the same: Whetherthe evidence presents a sufficient disagreement to require
`submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.”
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`PUBLIC VERSION
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`moving party,” Id. at 386, but instead should allow the jury to make reasonable inferences in
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`favor of the defendant, if the evidence supports such inferences.
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`In Avaya, the Third Circuit reviewed the question of harm using the same analysis for all
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`the common law claims at issue, which arose from alleged misappropriation of maintenance
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`access to Avaya systems, i.e., “stealing away customers who had service contracts with Avaya.”
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`Id. at 384. In reversing the district court, the Third Circuit cited facts in the record that could
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`support a verdict of liability. Id. at 377. As concerns harm, the appellate court found that the
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`unfair competition from the defendant was “especially costly to Avaya because maintenance was
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`a major driver of the profits from” Avaya’s systems. Id “Moreover,” the court found, “if the
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`jury credited Avaya’s case, it would have been able to apportion damages to different conduct,
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`because it had evidence of [the defendant’s] total maintenance earnings and the proportion of
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`maintenance attributable to each fonn of allegedly unlawful access.” Id. at 378. Avaya’s
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`1
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`accounting expert testified in detail concerning the amount of business the defendant gained
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`unlawfillly from the alleged tortious conduct. Id. The Third Circuit concluded on the basis of
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`these facts that “Avaya presented substantial evidence that, but for [the defenda.nt’s] competition,
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`made possible only by its alleged theft of proprietary information, Avaya would have received a
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`significant portion of the money TLI’s clients spent on maintenance.” Id. In its decision
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`reversing the district court, the appellate court laid emphasis on the fact that there was at least
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`sufficient evidence to permit the case to go to the jury.
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`The question before me thus is whether Rockwell has presented sufficient facts to permit
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`a fact finder reasonably to infer that Radwell’s allegedly tortious conduct resulted in a
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`significant, quantifiable loss to Rockwell.
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`C. Evidence Sugporting R0ck;well’sTortious Interference Claim
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`Rockwell points to interrogatory responses, the report of its expert “and the Lmderlying
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`evidence” in contending that Radwell‘s alleged actions “caused damage.” Opp. at 6.6 Rockwell
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`cites interrogatory responses in which it estimated “the amount of lost sales to gray market
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`productsintheUnitedStatesat around-
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`annually.”Id. at 7. Thisis basedon
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`calculations included in the discovery responses that showed the
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`_.
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`Id. at 7 (citingMot. Ex. 3 at 78). Rockwellidentifiesthe differencein the profits
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`obtained as “pecuniary loss.” 1d.7
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`As explained by Rockwell’s expert, Dr. Stephen D. Prowse, Rockwell’s distributors “I
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`p
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`—.”
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`Mot.Ex. 9 at 53. Hestatesthatunauthorizedresellers,“likeRadwell,through
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`6Rockwell cites several additional different types of allegedly tortious conduct by Radwell:
`inducing violation of special pricing agreements between Rockwell and certain “counterparties,”
`allowing users to obtain firmware that they did not pay for, “reducing the return on investment”
`Rockwell makes in its firmware and peripherals; and intentionally procuring breach of
`Rockwell’s EULAs.
`Id. at 6-7.
`‘
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`.
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`7Radwell’sexpertstatesthat in 2017,Radwellimportedinto the U.S., a roximately_
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`ofUnauthorizedRockwellProductsthatitacquiredforover&
`I
`whichisover
`of Rockwell’s estimated annual gray market problem.” Mot. Ex. 9 at 55. He sa s that
`Radwell’simportationofunauthorizedRockwellproductsin 2017“includest
`of
`Unauthorized Rockwell Tortious Interference Distributor Products that they acquired for over
`—
`ofUnauthorizedTortiousInterferenceCopyrightProductsthatthey
`acquiredforapproximately_.”
`Id. (citingEx. l 1.1).
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`12
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`testimony by R0ckwell’s witnesses. Id. at 47-62. For example, Dr. Prowse identifies an alleged‘’
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`PUBLIC VERSION
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`various means, obtain Rockwell products overseas from Rockwell distributors and then resell the
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`products to the U.S. market, outside of the authorized distribution channel, and at a substantially
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`lower price than a Genuine Rockwell Product.” Id.
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`_
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`Dr. Prowse provides a significant amotmt of information explaining and detailing
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`pecrmiary harm allegedly suffered by Rockwell as a result of tortious interference. He notes that
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`Rockwell makes two distinct allegations of tortious interference: “Rockwell’s tortious
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`interference claim allegations With respect to the . . . Imports of Unauthorized Rockwell
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`Products” and alleged induced breach of Rockwell’s EULAS. Mot. Ex. 9 at 45-46, Exs. ll-12.
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`Dr. Prowse alleges several forms of damages, stating “that Radwell has (1) penetrated the market
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`through numerous gray market . . . sales and as a result, Rockwell has experienced at least: (2)
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`lost profits; and (3) financial burdens from combatting unauthorized distribution channel sales to
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`Radwell; and (4) harm to its goodwill and reputation.” Id. at 47. Dr. Prowse describes
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`Radwell‘s alleged activities that lead to harm, providing some specific instances based on
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`Id.at48.Dr.Prowsesays_
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`Id at48-49­
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`Dr.Prowsestates“thatRadwellhasimportedapproximately_
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`of
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`Unauthorized Rockwell Tortious Interference Distributor Products that Radwell acquired for
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`approximately—
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`intotheU.S.and-
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`ofUnauthorizedTortiousInterference
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`CopyrightProductsthattheyacquiredforapproximately_
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`intotheU.S.” Id. at 49.
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`Dr. Prowse asserts that “Radwell causes Rockwell to suffer substantial injury through lost sales
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`revenue.” Id. at 50. Dr. Prowse states that “absent Radwell being able to sell the Unauthorized
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`Rockwell Injury Products in the U.S., it is reasonable to assume that customers would likely buy
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`Genuine Rockwell Products.” Id at 51. Dr. Prowse bases his opinion, in part, on a report by an
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`industry analyst stating that Rockwell has “‘high-quality brands’ and ‘strong brand names.’” Id.
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`at 5l (quoting industry analyst’s report).
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`Further, Dr. Prowse cites an example of an individual customer who was disappointed in
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`a purchase made from an unauthorized reseller and who has subsequently purchased genuine
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`Rockwell product from an authorized distributor. Id. at 51-52. In addition, Dr. Prowse bases his
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`opinions on deposition testimony by Rockwell employee Rodney Michael, who states that
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`customers who have purchased Rockwell products in the past are likely to purchase replacement
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`parts from Rockwell “‘because the parts are integrated into a system. And if you want to change
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`one component with a competitor’s part, they’re not interoperable so you [have] to change the
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`system?” -Id. at 52 (quoting Michael Depo.).
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`i
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`I
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`Dr. Prowse states that Rockwell incurs additional loss by furnishing post-sale services for
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`products sold in Asia but imported into the United States “to maintain goodwill and customer
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`relationships”. because
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`_-
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`Idat52-53­
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`Dr. Prowse points to another distinct element of Rockwell’s alleged loss, stemming from
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`its effort to combat unauthorized sales, including alleged sales by Radwell. Id. at 53. He refers
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`specifically to the efforts of two Rockwell employees, Rodney Michael and Kathy Bentley. Id.
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`at 53-60. Dr. Prowse says Rockwell “utilizes significant resources to discourage infringement of
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`its Copyright and breach of the EULA.” Id. at 56-57. Dr. Prowse also cites “harm to goodwill”
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`as an element of Rockwell’s alleged damages. This harm allegedly arises “when the customer
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`finds out they purchased from Radwell instead of from an authorized distributor, ‘when they find
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`out that the product is without warranty or that they mayilose local support from the
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`distributor.”
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`Id. at 62 (quoting Michael Depo.).
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`Dr. Prowse’s report is sufficient to refute Radwell’s argument that Rockwel1’s allegations
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`are unrelated to importation and unquantified. Staff notes that Rockwell sets forth the same type
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`of evidence on damage in its responses to contention interrogatories that Dr. Prowse discusses in
`hisexpertreport.Staffpointsto“threespecificexamples”ofthe‘
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`V /
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`‘—.”
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`StaffResponseat4,8,StaffExh.Aat79(noting“_
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`With respect to the claim of tortious interference with Rockwell’s EULA, Staff points to
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`interrogatory responses in which Rockwell asserted the end user is not permitted to download
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`Rockwell’s firmware without agreeing that the firmware has been purchased from Rockwell or
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`an authorized distributor. Staff Response at 9, Staff s Exh. A at 24-25, 27. Rockwell’s
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`interrogatory responses assert that Radwell “has induced hundreds—if not thousands—of end
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`users to breach the EULA,” resulting in harm to Rockwell from “allowing users to obtain
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`finnware it [sic] simply did not pay for, reducing” Rockwell’s retum on investment. Id. Staff
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`argues that it may be inferred that end users of Rockwell products agree to the EULA in order to
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`operate the products.
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`Id. at l0.
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`L
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`_
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`Based on the evidence of record, I find that Rockwell has at least created a genuine issue
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`of material fact with respect to damages caused by Radwell’s alleged tortious conduct. The
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`alleged damage is described with sufficient specificity; it need not be stated with precision,
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`particularly under these circumstances. Whether Rockwell will prevail on its damages theories is
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`a question of fact, not a matter of law.
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`Radwell argues that Rockwell cannot recover damages because it “profited” from the
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`sales at issue, citing H.L. Hayden C0. of New York, Inc. v. Siemens Med. Sys, Inc, 672 F. Supp.
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`724 (S.D.N.Y. 1987), a_/‘f’d,879 F.2d 1005 (Zd Cir. 1989) and Matrix Essentials, Inc. v. Cosmetic
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`Gallery, Inc., 870 F. Supp. 1237 (D. N.J. 1994), afi”d, 85 F.3d 6121 (3d Cir. 1996). In Hayden,
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`there was no evidence that the tortious interference result in diminished profits, only that the
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`interference resulted in sales that should not have been made under the plaintiffs terms with its
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`authorized agents. Here, in contrast, Rockwell alleges it lost money due to unauthorized sales by
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`Radwell because Rockwell products sold by authorized dealers in the U.S. would have resulted
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`in a much higher profit margin.
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`In Matrix, the plaintiff argued that “it need not establish actual damages as an element of
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`a tortious interference claim,” 870 F. Supp. at 1249 and the court rejected its “passionate but
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`unproven assertion of potential lost . . . sales.” Ia’.at 1250. The court rejected “a per se rule that
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`damage always occurs when one interferes with a [plaintiffs] distribution scheme,” id., but
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`certainly did not establish a per se rule that damage never occurs as a result.of tortious
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`interference with a distribution scheme. In Matrix, the court found “not a shred of proof to
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`support the proposition that the increased sales which result from the activities of diverters would
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`be offset by the loss of salon sales.” Id.‘at 1250. Here, Rockwell has not argued that a showing
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`,
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`of actual, pecuniary damage is unnecessary but has, on the contrary, presented evidence that
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`resultinginlostprofits
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`due to Radwell’s alleged interference with Rockwel1’s EULA agreements.
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`Radwell maintains that Rockwell did not show evidence that even one specific customer
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`“actually accepted the tenns of the EULA.” Motion at l5. Rockwell‘responds that all Radwell
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`customers who purchased Rockwell products requiring the download of firmware to