Monday, January 07, 2013

Amazon "unavailable" and "unapproved" statements might be false advertising

M-Edge Accessories LLC v. Inc., 2013 WL 50251 (D. Md.)

M-Edge makes accessories for mobile devices. In 2008, it started making a protective jacket for the Kindle, sold through Amazon.  It was such a success that M-Edge became a “special partner” with Amazon, receiving prelaunch information about new Kindle versions. It also created an integrated book light for the protective cover of an e-book reader and patented certain features of the device.  During negotiations with Amazon-related entities, Amazon executives allegedly threatened M-Edge to get larger percentages of its sales, including threatening to delist M-Edge products and deny pre-launch access to new Kindle versions.

In mid-2010, Amazon launched a new Kindle with only one day of notice to M-Edge, and immediately started selling “knockoffs” of M-Edge accessories, including the Amazon Kindle Lighted Leather Cover, which allegedly infringed M-Edge’s patent.  M-Edge could only join Amazon’s Preferred Vendor Program if it agreed to pay Amazon a portion of its proceeds, and then, when M-Edge resisted, circulated to its reseller-customers and potential reseller-customers a list of “Amazon Approved Accessory Vendors” that didn’t include M-Edge. Amazon also discouraged customers from dealing with M-Edge, and in some cases, threatened these customers with repercussions if they persisted. As a result, M-Edge alleged, several customers caved and at least fourteen potential customers decided not to contract with M–Edge.  Amazon continued to display M-Edge products on its site, stating that they were “currently unavailable,” and coupled those displays with competing items, including “knockoffs.”

M-Edge sued for patent infringement, unfair competition, intentional interference with contracts/economic relations, and false advertising under the Lanham Act.  Amazon moved to dismiss the non-patent claims, and the court denied the motion.

First, the court found that the choice of law provision in Amazon’s 2009 contract with M-Edge didn’t govern.  It said “[t]his Agreement will be governed by the Laws of the State of Delaware, without reference to its choice of Laws rules.”  However, the agreement provided only for the application of Delaware law to the contract itself, not to related tort claims, as opposed to the choice of forum clause, which covered any legal proceedings “arising out of or related to this Agreement.”  Amazon secondarily argued that Washington state law should apply, but, applying Maryland’s choice of law rules and looking to where the actual damage occurred, Maryland law governed.

Maryland’s unfair competition law is flexible: As the Maryland Court of Appeals said, “Each case is a law unto itself, subject, only, to the general principle that all dealings must be done on the basis of common honesty and fairness, without taint of fraud or deception.”  The essential element is actual or probable deception.  M-Edge alleged facts sufficient to present a plausible claim that Amazon used deception to compete unfairly.  On the pleadings, a reasonable consumer could be misled by Amazon's stating that an M-Edge product was not ‘currently available’ together with an offer of a competing product to mean that the M-Edge product was not available from any source whatsoever.” Also, the court accepted that a reseller customer could be misled into believing that it could not sell M–Edge Kindle accessories without Amazon approval.

The tortious interference claims also survived.  Tortious interference requires intentional and willful acts, calculated to cause damage to the plaintiff in its lawful business, done with the unlawful purpose to cause such damage and loss, without right or justifiable cause on the part of the defendant, and actual damage.  M-Edge’s allegations that Amazon threatened to contact its customers, and that Amazon deliberately sought to create the impression that M-Edge wasn’t “approved,” were sufficient, along with allegations of specific harm—including harm to its potential relationship with Sam’s Club.

Amazon then argued that M-Edge failed to plead a Lanham Act claim because the allegations themselves established truthfulness.  There were two kinds of falsity at issue: (1) Statements to consumers in response to a search on for M-Edge products that the M-Edge products are “currently unavailable” and (2) statements to reseller-customers that communicate that sale of a Kindle accessory requires approval from Amazon that hadn’t been given for M-Edge products. Both types of statements might be found misleading or false, though Amazon also might well ultimately defeat M-Edge’s claim.

Amazon then argued that these statements weren’t made in commercial advertising or promotion.  Applying Gordon & Breach, the court disagreed.  The relevant statements were pled to be commercial speech, plausibly made to influence consumers and reseller-customers to buy Amazon’s goods and services. And the allegations plausibly stated a claim that the representations were disseminated sufficiently to constitute advertising or promotion in the relevant contexts.

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