reseller's unsuccessful challenge to takedown notices leads to more successful infringement counterclaim

CDC Newburgh Inc. v. STM Bags, LLC, --- F.Supp.3d ----, 2023 WL 6066136, 22-cv-1597 (NSR) (S.D.N.Y. Sept. 18, 2023)

CDC sued STM, alleging violations of New York state and federal law arising from STM’s involvement in the removal of ten of its product listings from Amazon.com. The court dismissed CDC’s defamation, tortious interference, and common law unfair competition claims, while allowing most of STM’s counterclaims to survive (except for dilution and common law unfair competition).

CDC is a “non-authorized reseller” of consumer products that it purchases from resellers and distributors, among other sources, in order to resell these products at a discount. Although it didn’t usually purchase its inventory directly from the relevant manufacturers, it alleged that its products are authentic.

CDC alleged that STM knew that, when a trademark owner submits a report that a seller is listing a counterfeit product on Amazon, Amazon automatically removes the listing without warning to the seller, and Amazon’s algorithm considers this history of removal when determining how frequently the accused seller’s other products appear in consumer’s searches, reducing the accused seller’s sales of all products that it lists on Amazon.

STM sells cases, bags, sleeves, and other accessories for electronic devices under the “STM” and “DUX” trademarks. Codefendant Lienau allegedly assists clients with removing fraudulent products from Amazon’s website, and reported CDC to Amazon for selling counterfeits.

CDC allegedly knew that the items it sold through these ten listings were authentic because it obtained them from a reputable, publicly traded company that purchases these items from STM. It alleged that Lienau filed the reports for anticompetitive reasons after defendants suspected or confirmed the products were genuine.

STM’s counterclaims alleged that online marketplaces threaten a manufacturer’s ability to maintain its brand integrity because customers cannot easily distinguish between the authorized and unauthorized sellers of a manufacturer’s products. Thus, it alleged, it conducts all sales directly or through authorized dealers who are prohibited from selling on third-party websites. Its warranty is allegedly a “material component” of “genuine” STM products because consumers factor the existence of this warranty into their decision to purchase an STM product, and CDC isn’t an authorized dealer. CDC allegedly sold products as “new” when they were previously sold, and potentially opened or repackaged. CDC allegedly didn’t comply with STM’s customer service requirements because it cannot provide the type of instruction and support (for iPhone cases?) that STM requires authorized dealers to offer to consumers. Thus, the products sold by CDC allegedly don’t include the STM warranty (is this actually legal in NY?). This allegedly infringes STM’s marks and diminishes their value because consumers associate negative experiences that may result from purchasing them with STM’s brands. (As usual, a compelling and intuitive theory of harm.)

Defamation: The “counterfeit” statements to Amazon were opinion. A statement of opinion is one which is either “accompanied by a recitation of the facts upon which it is based” or “does not imply that it is based upon undisclosed facts.” Here, the challenged reports said things like

“Please note only CaseMotions and Sportique are authorized by STM to sell on Amazon. These sellers are not authorized nor are they buying direct from STM therefore we conclude this product is counterfeit”; and (2) “Please know STM has authorized only Sportique and CaseMotions to sell on Amazon.com outside of STM selling direct. STM has double checked their records and have no data to support this seller acquired STM product through a legitimate channel therefore we can safely assume they are selling counterfeit products.” Thus, the allegedly defamatory statements were opinion, not based on undisclosed facts.

STM, however, could not use NY’s anti-SLAPP law in federal court.

Tortious interference: Removal of listings on an e-commerce platform does not constitute harm to the underlying business relationship with the platform, so it wasn’t sufficiently alleged that STM interfered with CDC’s business relations with Amazon.

Nor did the alleged acts constitute unfair competition under NY state common law: there was no palming off or misappropriation.

The court also found it was inappropriate to exercise jurisdiction over a request for declaratory judgment of noninfringement.

Trademark infringement/unfair competition under §1125(a)(1)(A) was sufficiently pled and first sale couldn’t be decided on a motion to dismiss. But the state common law claim for trademark infringement was dismissed for failure to allege more than conclusorily that CDC acted in bad faith.

False advertising under § 1125(a)(1)(B) was also sufficiently pled because STM alleged that CDC made a literally false statement that the products came with their warranties, which was presumed to be material.

Dilution: “spare, conclusory allegations” that the STM trademarks “are widely recognized by the general consuming public of the United States” and “STM has expended substantial time, effort, money, and resources advertising and promoted STM Products with the STM trademark” were insufficient.