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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