Voicestream Wireless v. All U.S. Communications
| Decision Date | 22 May 2001 |
| Docket Number | No. 01 CIV. 1856(SHS).,01 CIV. 1856(SHS). |
| Citation | 149 F.Supp.2d 29 |
| Parties | VOICESTREAM WIRELESS CORP., Plaintiff, v. ALL U.S. COMMUNICATIONS Defendant. |
| Court | U.S. District Court — Southern District of New York |
William M. Barron, Julian C. Swearengin, Alston & Bird, L.L.P., New York City, for Plaintiff.
Alfred R. Fabricant, Max Moskowitz, Lawrence C. Drucker, Ostrolenk, Faber, Gerb & Soffen, L.L.P., New York City, for Defendant.
Plaintiff VoiceStream Wireless Corporation has moved for an injunction pursuant to Fed.R.Civ.P. 65, seeking to prevent defendant All U.S. Communications, Inc. from (a) inducing VoiceStream's dealers to breach their VoiceStream Dealer Agreements by selling VoiceStream telephones to All U.S. and (b) repackaging, pre-activating, or otherwise altering and reselling VoiceStream products. VoiceStream alleges that All U.S. is tortiously interfering with VoiceStream's contracts with its dealers and is also violating Sections 32(1) and 43 of the Lanham Act, 15 U.S.C. § 1051 et seq.
In order to justify a preliminary injunction, the moving party must demonstrate (a) that it will suffer irreparable harm in the absence of the requested relief, and (b) either that (i) it "is likely to succeed on the merits," or (ii) "there are `sufficiently serious questions going to the merits' and the `balance of hardships tips decidedly' its way." Hsu v. Roslyn Union Free Sch. Dist. No. 3, 85 F.3d 839, 853 (2d Cir.1996) (quoting Resolution Trust Corp. v. Elman, 949 F.2d 624, 626 (2d Cir.1991)); see also Warner-Lambert Co. v. Northside Dev. Corp., 86 F.3d 3, 6 (2d Cir.1996).
Based upon the pleadings, the parties' submissions, and the arguments made at the hearing held on April 4, 2001, the requested preliminary injunction is hereby denied because VoiceStream has not shown that it is likely to succeed on the merits of either the tortious interference or Lanham Act claims. Moreover, VoiceStream has not demonstrated that it will be irreparably harmed in the absence of an injunction. Last, the balance of hardships favors All U.S., not VoiceStream.
VoiceStream, a provider of digital wireless communications, sells wireless telephones and air time to individual subscribers through a network of authorized dealers. In order to access VoiceStream's Global System for Mobile ("GSM") network, a customer must use a GSM telephone. A customer can purchase a GSM telephone from an authorized VoiceStream dealer along with a pre-paid, fixed amount of VoiceStream air time. The telephone must be activated by the customer prior to use. Upon activation, the customer has sixty days to use the prepaid air time or the air time expires. If the customer fails to purchase additional air time within sixty days, VoiceStream discontinues the telephone's service. VoiceStream's dealer agreement prohibits its dealers from selling VoiceStream telephones to anyone other than individual subscribers or authorized subdealers, or activating telephones before they are sold to subscribers.
VoiceStream does not manufacture telephones itself, but rather obtains them from manufacturers. The telephones are co-branded, displaying the logos of both the telephone manufacturer and VoiceStream. VoiceStream sells the telephones in a box bearing the VoiceStream logo and information about the telephone. Inside the box, VoiceStream places additional material, including the VoiceStream "Customer Care" telephone number, VoiceStream warranty information, and a VoiceStream "Welcome Guide," that contains information about the telephone's operation, voice mail, and other features.
All U.S. is a New York corporation that commenced business in November, 2000. All U.S. has openly professed its plan to sell customers pre-activated GSM telephones along with pre-paid air time. Between November, 2000 and February, 2001, All U.S. approached VoiceStream several times seeking to purchase GSM telephones with prepaid VoiceStream service directly from VoiceStream. VoiceStream rejected All U.S.'s proposals. All U.S. then approached VoiceStream dealers and successfully convinced them to activate and sell telephones to it. All U.S. repackages the telephones for resale by removing the outer box and VoiceStream documentation and placing an All U.S. label directly on the clear plastic inner case. All U.S. has expressed its willingness to modify its packaging in any way to reduce the possibility of confusion as to the source of the telephones. To that end, All U.S. has proposed a revised label stating that the telephone has been repackaged by All U.S., service is provided exclusively by VoiceStream, and All U.S. is unrelated to either the telephone manufacturer or VoiceStream. All U.S. has also agreed to obliterate the VoiceStream logo from the telephone itself if VoiceStream wishes. Additionally, while All U.S. has concededly placed erroneous expiration dates upon some of its packaging labels, All U.S. has represented that any errors have been unintentional and it will ensure that the correct expiration dates will be set forth on the label.
To establish a claim of tortious interference with contract, New York law "requires proof of (1) the existence of a valid contract between plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional procuring of the breach, and (4) damages." Foster v. Churchill, 87 N.Y.2d 744, 749-50, 665 N.E.2d 153, 156, 642 N.Y.S.2d 583, 586 (1996). VoiceStream has not established that it is likely to succeed on the merits of this claim because there are serious issues going to whether the provision violated by VoiceStream's dealers is enforceable.
VoiceStream has shown that it is likely to succeed on the first two elements of its tortious interference claim: the existence of a valid contract and All U.S.'s knowledge of that contract. On its face, VoiceStream's dealer agreement bars VoiceStream's dealers from selling VoiceStream equipment to All U.S., as it states that a "[d]ealer shall only sell the Equipment provided by Company to its Sub-Dealers or Subscribers, and shall not sell ... the Equipment ... to any other person or entity." (Compl. Exh. 2 at ¶ 1.4.2.) It is also clear that All U.S. knew the contents of VoiceStream's Dealer Agreement. Not only did VoiceStream representatives explain to All U.S. in a meeting on February 1, 2001 that, in VoiceStream's view, All U.S.'s conduct caused a breach of the Dealer Agreements, but VoiceStream's counsel also provided All U.S. with notice of the agreement in a subsequent letter dated February 22, 2001. (Compl. ¶ 30 & Exh. 3, 5.)
However, there are serious questions going to the merits of whether All U.S. intentionally procured a breach of contract. All U.S. has openly set forth its intentions to induce VoiceStream dealers to activate telephones prior to end-consumer purchase. (Compl. ¶ 30 & Exhs. 4, 5.) Nonetheless, serious issues exist regarding whether VoiceStream's dealer resale restriction is enforceable pursuant to the Communications Act and FCC regulations. If the contractual restriction in the present case is not enforceable, a VoiceStream dealer's failure to observe the restriction does not constitute a breach. See Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 191-94, 406 N.E.2d 445, 449-51, 428 N.Y.S.2d 628, 633-34 (1980); see also Savannah Bank, N.A. v. Savings Bank of the Fingerlakes, 261 A.D.2d 917, 918, 691 N.Y.S.2d 227, 229 (4th Dep't 1999).
There are serious questions regarding whether the resale restriction in VoiceStream's dealer agreement constitutes an unreasonable restriction upon resale in derogation of the Communications Act of 1934. Section 202(a) of the Federal Communications Act provides as follows:
It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means ... or to make or give any undue or unreasonable preference or advantage to any particular person [or] class of persons ... or to subject any particular person [or] class of persons ... to any undue or unreasonable prejudice or disadvantage.
See 47 U.S.C. § 202(a). A related regulation, 47 C.F.R. § 20.12(b), provides that a carrier "shall not restrict the resale of its services, unless the carrier demonstrates that the restriction is reasonable." Thus, the issue is whether the provision of the VoiceStream dealer agreement which prohibits third parties from obtaining and reselling VoiceStream's equipment and services is reasonable.
As an initial matter, VoiceStream contends that its dealer agreement does not constitute a restriction upon "resale," which is defined by the Federal Communications Commission ("FCC") as "an activity in which one entity (the reseller) subscribes to the communications services or facilities of a facilities-based provider and then reoffers communications services to the public (with or without `adding value') for profit." In the Matter of Interconnection and Resale Obligations Pertaining to Commercial Mobile Radio Svces., 11 FCC Red 18455, 18457, 1996 WL 391284 (F.C.C. July 12, 1996). VoiceStream urges the Court to find that because VoiceStream's authorized dealers do not seek to subscribe to the services and then reoffer them to the public, VoiceStream's dealer contract does not prevent VoiceStream's dealers from "reselling" and thus does not constitute a restriction upon resale.
However, the FCC has set forth that while the resale rule "does not require providers to structure their operations or offerings in any...
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