Monday, October 28, 2019

it's hard to frame the right cause of action for Amazon seller-on-seller misbehavior

Factory Direct Wholesale, LLC v. iTouchless Housewares & Products, Inc., 2019 WL 5423450, No. 19-CV-01228-LHK (N.D. Cal. Oct. 23, 2019)

The parties compete to sell stuff on Amazon. They agreed to the Amazon Seller Agreement, which requires the seller to represent and warrant that “any information at all times accurate and complete.” The Amazon Code of Conduct requires that sellers “not engage in any ‘unfair behavior’ or activities that (a) intentionally damage another seller, including its listings or ratings, or (b) manipulate or game the selling or buying process, including Amazon’s search results or sales rankings.” “Sellers are further prohibited from contributing false, misleading or inauthentic content.”

Amazon identifies each new product  “through a unique combination of 10 letters and numbers, referred to as an Amazon Standard Identification Number or ‘ASIN’ designation.” Factory Direct allegedly discovered “false, deceptive, and unauthorized changes” to its product advertisements and listings, including changing product descriptions, providing improper ASIN numbers, and changing the product’s listing category (thereby moving the product from Amazon’s Home & Kitchen category). A third party (allegedly iTouchless) was requesting Amazon to make these changes, merging Factory Direct’s products’ ASINs into other products.  Factory Direct sued in the Northern District of Georgia, and then discovered that iTouchless was using Factory Direct’s BESTOFFICE trademark (registered on the Supplemental Register) to advertise a trash can.

During the pendency of the Georgia action, the listing changes allegedly ceased, but were renewed afterwards. For example, Amazon allegedly ended up advertising a Factory Direct trash can as an iTouchless trash can, changing the product image, title, and description.  Factory Direct also alleged that iTouchless falsely submitted an unfavorable review and deceptively removed Factory Direct from Amazon’s vendor control.  [If I were interested in increasing regulation of Amazon, I might invite a representative of Factory Direct to testify about why a lawsuit was necessary here/what they did and didn’t get from Amazon in the way of help.]

In the Georgia action, the court granted iTouchless’s motion to dismiss because the Lanham Act claim didn’t allege any falsity of the advertisements, or that the changes made by Amazon at the defendant’s request deceived or had the capacity to deceive consumers.

The complaint here alleged additional details about Amazon’s rules and policies. It alleged: (1) violations of the Lanham Act; (2) intentional interference with contract; (3) intentional interference with prospective economic advantage; (4) negligent interference with prospective economic advantage; (5) violations of California’s UCL; and (6) trademark infringement.

The court found no claim preclusion of the Lanham Act claim, but claim preclusion of UCL and tortious interference claims.  Claim preclusion doesn’t apply when the relevant conduct hadn’t occurred yet when the first suit was brought, and that was the case with the Lanham Act false advertising claims based on post-Georgia suit conduct. Likewise with trademark infringement.

However, the UCL claim was based on a more than that. While California courts have allowed continuous accrual in cases of periodic, recurring obligations like misstated rent, a  “continuing obligation to avoid anticompetitive behavior is not a periodic, recurring obligation such as a monthly payment or monthly bill.” Thus, the UCL claim accrued during iTouchless’s previous course of alleged misconduct. So too with tortious interference.

What about issue preclusion?  Factory Direct previously alleged “false or misleading statements of fact” without describing them, but provided more specific allegations here about how changes to its listing “falsely advertised” or misrepresented its products as products “manufactured and branded by Defendant,” and misrepresented characteristics “including the product title, image, brand, manufacturer, and description of the 13-gallon trash can.” These new factual allegations weren’t actually litigated or decided in the prior proceedings.

As for the false advertising claim under 12(b)(6), the claim was adequately pled with respect to a specific listing for a trash can. With literal falsity/intentional deception, actual deception is presumed; that was appropriate here.

Allegations that iTouchless attempted to merge two more listings, however, failed, because Factory Direct didn’t allege that the attempts succeeded. Even if statements to Amazon were false, they weren’t made in a commercial advertisement, and they didn’t result in a false advertisement to the public because they failed.

There also wasn’t enough detail about allegedly false changes to other listings/the unfavorable review/removing Factory Direct from Amazon’s vendor control. Factory Direct didn’t explain why any of the “changes” or “unfavorable review[s]” were “false and deceptive,” as required by Rule 9(b). The court did grant leave to amend.

No comments: