YCF Trading Inc. v. Skullcandy, Inc.

• Court: U.S. District Court — Eastern District of New York
• Writing for the Court: MARGO K. BRODIE, United States District Judge
• Citation: YCF Trading Inc. v. Skullcandy, Inc., 781 F.Supp.3d 56 (E.D. N.Y. 2025)
• Docket Number: 24-CV-02540 (MKB)
• Decision Date: 27 March 2025
• Parties: YCF TRADING INC., Plaintiff, v. SKULLCANDY, INC. and John Doe, Defendants.
• topic: Commercial Litigation,Contracts,Intellectual Property

781 F.Supp.3d 56

YCF TRADING INC., Plaintiff, v. SKULLCANDY, INC. and John Doe, Defendants.

24-CV-02540 (MKB)

United States District Court, E.D. New York

Signed March 27, 2025

Michael Benzaki, Eliezer Lekht, Tarter Krinsky & Drogin LLP, New York, NY, for Plaintiff.

Joseph Andrew Matteo, Nicholas E. Rybarczyk, Barnes & Thornburg LLP, New York, NY, for Defendant Skullcandy, Inc.

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge:

Plaintiff YCF Trading Inc. commenced the above-captioned action against Defendants Skullcandy Inc. ("Skullcandy") and John Doe on April 4, 2024, asserting trade libel, defamation, tortious interference with contract, and tortious interference with business relations claims under New York law and seeking a declaration of trademark noninfringement under the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202.¹ (Compl., Docket Entry No. 1.) On August 19, 2024, Defendants moved to dismiss the Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), and Plaintiff opposed the motion.²

For the reasons explained below, the Court denies Defendants' motion to dismiss as to Plaintiff's defamation per se claim and grants Defendants' motion as to Plaintiff's trade libel, tortious interference with contract, tortious interference with business relations, and declaratory judgment claims.³

I. Background

At all relevant times, Plaintiff was a corporation existing under the laws of the State of New York.⁴ (Compl. ¶ 1.) Skullcandy is a corporation existing under the laws of the State of Utah. (Id. ¶ 2.) John Doe is Skullcandy's agent. (Id. ¶ 14.)

a. Factual allegations

i. Plaintiff's resale business on Amazon's online marketplace

Skullcandy is a manufacturer and distributor of earphones and headphones ("Skullcandy Products"), (id. ¶¶ 11, 13, 71), and owns United States Trademark Registration No. 4622094 for Skullcandy Products bearing the "true [Skullcandy] mark" ("Skullcandy Registration"), (id. ¶¶ 12, 72). Plaintiff lawfully acquires and resells various products for a profit, including Skullcandy Products. (Id. ¶¶ 15, 35-36.) Plaintiff stocks, displays, and resells new Skullcandy Products in their original packaging. (Id. ¶¶ 72, 73.)

Amazon is the world's largest online retailer and allows third parties to sell products on its online e-commerce platform, providing third party sellers with exposure to the world marketplace on a scale that no other online retailer can currently provide. (Id. ¶¶ 20-23.) Third-party sellers create online storefronts on Amazon. (Id. ¶ 25.) When a customer buys a product on Amazon, the customer sees the online store just as the customer would a brick-and-mortar store. (Id.)

Plaintiff has a contractual and business relationship with Amazon, under which it is permitted to sell products on Amazon's e-commerce platform as a third-party seller. (Id. ¶¶ 24, 105.) Plaintiff entered into the Amazon Services Business Solutions Agreement ("BSA") with Amazon. (Id. ¶ 106.) The BSA, "including Paragraph S-1.2: (1) allows Plaintiff to list products for sale on the Amazon marketplace and promote the products; and (2) requires that Amazon process orders and remit payment to Plaintiff for sales." (Id. ¶ 107.) Plaintiff acquires products from reputable sources and resells the same products at a profit, including Skullcandy Products, through its online Amazon storefront called Bapons. (Id. ¶¶ 17, 27.) In general, in a process known as "Fulfillment by Amazon," Amazon completes customer transactions on Amazon's storefront by shipping Plaintiff's products from an Amazon warehouse. (Id. ¶ 28.) Plaintiff has invested significant efforts into building a successful and reputable Amazon storefront and has served hundreds of thousands of customers. (Id. ¶¶ 18, 29.) A significant portion of Plaintiff's business is derived from the sale of products through its Amazon storefront. (Id. ¶ 26.)

ii. Defendants' complaints to Amazon about Plaintiff's alleged sale of counterfeit Skullcandy Products

On March 21, 2024, Skullcandy filed a "series of false complaints" with Amazon indicating that two of Plaintiff's Skullcandy Product listings were counterfeit ("Amazon Reports").⁵ (Kepke Ex. 1; Kepke Ex. 2; Compl. ¶ 55.) Doe submitted the Amazon Reports and signed them under penalty of perjury. (See id. ¶¶ 44, 55.) Each Amazon Report described the product,⁶ indicated that Defendants were reporting trademark infringement based on a counterfeit product and noted, "This Seller is listing a product bearing Skullcandy trademarks. It is not a product that exists in our brand's catalog. Please have this listing removed from the US marketplace." (Kepke Ex. 1; Kepke Ex. 2.) When submitting an infringement report to Amazon, an intellectual property rights owner must read and accept the following statements:

I have a good faith belief that the content(s) described above violate(s) my rights described above or those held by the rights owner, and that the use of such content(s) is contrary to law.

I declare, under penalty of perjury, that the information contained in this notification is correct and accurate and that I am the owner or agent of the owner of the rights described above.

(Compl. ¶¶ 44, 46 (quoting Report Infringement, Amazon, https://www.amazon.com/report/infringement (last visited October 31, 2019)).)

"In order to meet a minimum liability standard," for third party sales, Amazon "act[s] upon properly submitted and completed notice claims of infringement" by "notify[ing] specified marketplace sellers which party reported them, on what listing, and how to reach that would-be rights owner via email." (Id. ¶ 38 (quoting Chris McCabe, False Infringement Claims are Rife on Amazon, WebRetailer (Apr. 11, 2018), https://www.webretailer.com/lean-commerce/false-infringement-claims-amazon/).) Amazon "[i]nvestigators merely check the [notice claim of infringement] for completed content in all the right spaces, kill the listings and send off the notifications." (Id.) Unless the seller "and possibly [its] legal team" can prove that the "[n]otice claim is false, Amazon considers it valid and actionable." (Id.)

iii. Amazon suspends Plaintiff's Skullcandy Products listings

On March 24, 2024, Amazon notified Plaintiff about one of its Skullcandy Products referenced by its Amazon Standard Identification Numbers ("ASIN"), stating:

Hello,

We are contacting you because we received a report of trademark infringement on the product detail page associated with one or more of your listings. Sellers on Amazon.com are not allowed to use trademarked terms in a way that might lead their product to be confused with a different trademarked product.

Please modify your product and product detail page to ensure they do not infringe on the trademark of the rights owner listed below.

Examples of unacceptable terms:

--"AmazonBasics speaker charging cable." AmazonBasics is trademarked by Amazon.

-- "Wireless Amazon speaker for laptop." Amazon is trademarked by Amazon.

-- "Cable similar to Pinzon." Pinzon is trademarked by Amazon, and we prohibit the use of "similar to."

Examples of acceptable terms:

-- "Cable for charging AmazonBasics speaker." The cable is not created or sold by Amazon.

-- "Wireless speaker for laptop, compatible with AmazonBasics."

The speaker is not created by Amazon.

-- "Basic cable works with Pinzon." The cable is not sold or created by Pinzon.

How do I submit this information?

Go to Received Intellectual Property Complaints under the Product Policy Compliance section in account health (https://sellercentral.amazon.com/performance/dashboard?ref=ah_em_mpa) and locate the deactivation record for this product listing. Click on the Appeal button next to the listing deactivation record to submit information necessary to reactivate your listing.

To learn more about this policy, search for "Intellectual Property Violations" in Seller Central Help.

These are the rights owner's contact details:

-- Skullcandy

-- amazon.support@skullcandy.com

ASIN: B0CVBJXFW9

Trademark number: 4622094

Complaint ID: 14981680891

(Id. ¶ 48.) In response to the Amazon Reports, Amazon suspended "at least two" of Plaintiff's listings and selling privileges for Skullcandy Products. (Id. ¶¶ 55, 58, 82, 91.)

After Amazon suspended Plaintiff's listings and selling privileges, Plaintiff suffered an immediate loss in revenue and "lost dealings." (Id. ¶¶ 58, 84, 100-01, 117). Plaintiff's reputation with customers is damaged, and customers are avoiding purchasing products from Plaintiff. (Id. ¶¶ 83, 91.) The Amazon Reports "caused disruption of Plaintiff's relationship and contract with Amazon, including a breach of Paragraph S-1.2 of the BSA. (Id. ¶ 111.) Amazon is avoiding purchasing products from Plaintiff, and Plaintiff's relationship and reputation with Amazon is damaged. (Id. ¶¶ 83-84, 91.) It is well-known that as much as ninety percent of all Amazon sales occur from Amazon's "buy box," a section of an Amazon product detail page where customers can add a product to their cart. (Id. ¶ 67.) Amazon determines which seller gets the "buy box" based on a number of factors, including the seller's performance metrics. (Id. ¶ 68.) Defendants' Reports have irreparably damaged Plaintiff's performance metrics, (id. ¶ 66), leading Plaintiff to lose the "buy box" on many product listings, (id. ¶ 69).

iv. Skullcandy refuses to retract the Amazon Reports

On or about March 28, 2024, Plaintiff asked Skullcandy in writing to retract the Amazon Reports because the identified Skullcandy Products were genuine, unaltered, and not counterfeit. (Id. ¶¶ 36, 56, 72.) On April 1, 2024, Skullcandy's General Counsel acknowledged by email that "Defendants did not conduct a test purchase," (id. ¶¶ 43, 45), and that Defendants "have no conclusive evidence that the alleged product is in fact counterfeit, and that the products may be authentic products that were merely 'improperly diverted,' " (id. ¶ 43).

Plaintiff alleges that the Amazon Reports filed by Defendants "were knowingly...