Tuesday, February 10, 2015

Another keyword defendant victory, among other tort claims

M-Edge Accessories LLC v. Amazon.com Inc., 2015 WL 403164,  No. MJG–11–3332 (D. Md. Jan. 29, 2015)
M-Edge started selling Kindle accessories soon after the Kindle was released. The parties’ relationship began well, but began to sour by 2011. M-Edge sued, alleging patent infringement and tort claims.  The court granted summary judgment on patent claims against one Kindle cover and denied it on claims against another.  I will only discuss the various false advertising/unfair competition torts.
Under Maryland unfair competition principles, “all dealings must be done on the basis of common honesty and fairness, without taint of fraud or deception.” But the tort isn’t boundless; it doesn’t protect against mere competition. 
M-Edge was a member of the “Kindle Compatible Vendor” program, which allowed it to label its products as “Kindle Compatible” and sell them online through Amazon.com. By the end of 2009, “M–Edge was Amazon’s largest third-party Kindle accessories seller.” Amazon underestimated the market for Kindle accessories, and wanted to increase its margin.  Thus, Amazon initiated the “Made for Kindle” (MfK) program.  Amazon’s partners would get special benefits, including being sold in the Kindle Store area of Amazon.com, permission to use the “Made for Kindle” trademark, pre-launch access to new Kindle products, and inclusion on Amazon’s list of “Made for Kindle” vendors. MfK members paid a royalty on their sales of Kindle-related products.
M-Edge rejected the MfK program at least in part due to the high royalty rates.  The court found that the MfK program was not actionable unfair competition. M-Edge made an informed business decision not to participate, and any harm to it was caused by its decision that the costs outweighed the benefits.  Plus, there were valid business reasons for the MfK program—Amazon was justified in seeking to promote quality merchandise for the Kindle, and there was nothing wrong with charging a royalty to manufacturers who benefited from Amazon’s endorsement.  Nor was there anything wrong with boosting a smaller M-Edge competitor as part of the MfK program, encouraging it to adopt features of other successful products, including M-Edge accessories. There was no evidence that any copied features were legally protected.
The court rejected M-Edge’s claim that Amazon misused confidential information about M-Edge sales to design its own accessories. Amazon copied M-Edge’s best-selling colors, but this wasn’t confidential: it was from Amazon’s own sales records.  Likewise, while a former Best Buy executive gave Amazon M-Edge’s offline margin (information about what offline retailers paid), there was no evidence that this damaged M-Edge.
Amazon also offered discounts and sold related products as bundles, amounting to below-cost pricing. But there was no evidence of a motive to harm a competitor or destroy competition.  The specific promotions at issue were undertaken to get rid of excess inventory, some of which were related to an obsolete product. Maryland law permitted below-cost sales where “the merchandise ... [m]ust be sold promptly in order to prevent loss.”
M-Edge also challenged Amazon search strategies, like running an ad for “M Edge TM–Official Site ... Kindle.Amazon.com Buy Kindle or Kindle DX at Amazon....” as a search result for “M-Edge” on the WSJ’s site.  But there was no evidence this damaged or jeopardized M-Edge’s business.  Though Amazon discussed using the keyword M-Edge to promote competitors, M–Edge engaged in the same practice with its competitors’ keywords, and the practice was permissible under 1–800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229 (10th Cir. 2013) and Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137 (9th Cir. 2011). “Therefore, this conduct cannot serve as a basis for a claim of unfair competition.”
Nor did Amazon make actionable “threats” in the course of contract negotiations. While Amazon demanded increased rates, M-Edge successfully resisted its demand for retroactive fees. An Amazon employee allegedly told M–Edge’s Vice President of Sales when M-Edge expressed discomfort with MfK: “That’s a path you really don’t want to go down, because we are going to be putting pressure on retail to use the preferred partners. It will cause damage to you if you’re not part of the program.”  But Amazon had a valid reason to discourage M-Edge from rejecting MfK, since M-Edge was a successful and popular merchant—at least one Amazon executive’s “favorite brand.”
M-Edge also didn't prove that Amazon deceived it by not fulfilling a promise to provide M-Edge with pre-launch access to the third generation Kindle. M-Edge didn’t identify any contract obligation on Amazon’s part, and it only renewed its merchant contract with Amazon eight days before the launch—even if it had a contractual right to prelaunch specifications, there was no evidence that a one-week delay harmed it. Also, in a 2011 meeting, Amazon allegedly “pumped” M-Edge for product information after already deciding to shut it out.  “But asking a competitor who has agreed to meet with you about their products is not deceit.”
Tortious interference claims also failed. M-Edge alleged that Amazon made misrepresentations about M–Edge’s status as an Amazon-approved vendor and performed “unlawful acts of coercion against retailers.”  Amazon allegedly spread false messages that only MfK vendors had ‘High quality products: Amazon approved and tested,’ and that only MfK vendors were ‘highly capable, honest, and trusted.’”  But Amazon had a right to promote MfK vendors; it didn’t say “only” Amazon vendors were high-quality or disparage M-Edge.  There was no evidence of deliberate disparagement.  For example, one Amazon employee in an email described responding to an accessory buyer’s question about M–Edge as follows: “I stuck to the script and focused on our partners abilities, leaving risk on M–Edge.”
False advertising: No luck here either.  M-Edge challenged (1) ads on third-party search engines that resulted in Amazon advertising Amazon.com as the “official site” of M–Edge; (2) statements on Amazon.com that M–Edge’s products are “no longer available”; and (3) Amazon’s use of the approved vendor list in connection with the MfK program.
Third-party ads directing users who used M-Edge keywords to the Amazon accessories page is fine, see, e.g. Judge Berzon’s concurrence in Playboy. Amazon’s use of such ads wasn’t literally false and there was no extrinsic evidence of confusion.  As for “no longer available,” that was literally true because M-Edge products weren’t available on Amazon.  “Moreover, in the modern world, with ready availability of eBay and numerous sources for products discontinued by a manufacturer, a consumer would not reasonably conclude that a message of unavailability on Amazon.com would constitute a statement that a product was not available from any other source.” M-Edge didn’t show materiality.
Finally, as for the approved vendor list, Amazon allegedly engaged in false advertising by “approach[ing] M–Edge’s existing and prospected offline retail customers with a list of ‘approved’ vendors and messages about the MfK program.”  Amazon’s message that M–Edge was not an “approved” vendor was allegedly “literally false” because “[w]hen Amazon contrived the [MfK] program, M–Edge was already an Amazon-approved vendor of Kindle covers.” That is, M-Edge was part of the Kindle-Compatible Vendor program, allowed to label its products as Kindle Compatible and sell them through Amazon.  Still, Amazon’s statements weren’t literally false, since the MfK approved list and the earlier KCV list were separate programs. 
One side note: Amazon proffered the testimony of Dr. Allyn Strickland as a damages expert. M-Edge sought to exclude “character” testimony that “Amazon ... seeks to be Earth’s most customer-centric company,” that Amazon announced that it would be opening a fulfillment center in a previously inactive area in Baltimore that would create over 1000 jobs; that Amazon’s founder/CEO was named Time Magazine’s Person of the Year in 1999 and  “America’s Best Leader” by USNWR; and that the Kindle won consumer awards.  “The Court finds a considerable degree of potential undue prejudice—and an effort to pander to a local jury—in Dr. Strickland’s purported character or ‘background’ evidence. At least two days prior to offering any “background” testimony (and preferably prior to trial), Amazon would need to proffer the testimony for an advance ruling on admissibility.  Also, because the tort claims were gone, Dr. Strickland’s opinions regarding Amazon and M-Edge’s respective responsibility for M-Edge’s losses due to the MfK issues described above were irrelevant and inadmissible.

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