Wednesday, September 28, 2011

Abstract claim of lost goodwill isn't irreparable injury

AFL Telecommunications LLC v., Inc., Tech Sales, LLC2011 WL 4102214 (D. Ariz.)

Same court, same gray market issue, different defendant, somewhat different result.

To recap, AFL is the exclusive authorized seller of Fujikura fusion splicers in North America. Defendants sell grey market Fujikura splicers.

Unfair competition: The key is whether there is likely confusion, which may occur if the products are materially different. In grey market cases, “the threshold of materiality must be kept low enough to take account of potentially confusing differences—differences that are not blatant enough to make it obvious to the average consumer that the origin of the product differs from his or her expectations.” Societe Des Produits Nestle, S.A., v. Casa Helvetia, Inc., 982 F.2d 633, 641 (1st Cir. 1992). AFL sufficiently alleged that defendants modified the splicers by changing their serial numbers and replacing memory chips in a way that damaged the products. These are material changes, according to AFL, and therefore AFL alleged facts sufficient to create a presumption of confusion (though the court dismissed its common-law unfair competition claim for failure to explain which theory of unfair competition it was using).

False advertising: The statements alleged to be false here were disseminated through defendants’ websites and blog. Defendants argued that their blog was informational, not commercial speech, but AFL alleged that the statements were published on sales sites as well, so whether or not this was true AFL had still stated a claim for false advertising.

Unlike the previous court, this court also found that AFL stated a claim for copyright infringement by pleading that it was the exclusive licensee of the software in the splicers and that defendants were distributing the splicers. Under Omega v. Costco, the first sale defense is limited to domestically made copies, and thus unavailable to defendants. Nor was it barred by a misuse defense (at least on the pleadings).

None of this guaranteed AFL a preliminary injunction. Irreparable harm is no longer presumed upon a showing of likely success on the merits. AFL argued that injury to reputation and goodwill, along with threatened loss of customers, was irreparable harm. But speculative injury isn’t irreparable injury. (This is a looming question: courts that say that they’re applying eBay, but then say that lost goodwill is irreparable injury without explaining what goodwill is, are in my opinion not making sense.) Here, AFL had no factual evidence of injury, and therefore no preliminary injunction was appropriate.

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