Antitrust Law Daily Wrap Up, ADVERTISING—W.D. Wash.: T-Mobile denied default judgment, granted permanent injunction against cell phone reseller, (Apr 7, 2014)

By Jody Coultas, J.D.

T-Mobile USA, Inc. was denied a default judgment in a Lanham Act and Washington consumer protection law action filed against an unauthorized seller of T-Mobile products (T-Mobile USA, Inc. v. Chong, April 4, 2014, Jones, R.). However, the federal district court in Seattle permanently enjoined the seller from reselling T-Mobile products in violation of the T-Mobile Contract.

T-Mobile brought suit against an unauthorized seller of T-Mobile branded cellular phones and “SIM cards” to stop him from selling the merchandize and to recover damages. The seller bought prepaid T-Mobile phones and sold them to customers both overseas and domestically after disabling or modifying software or hardware designed to ensure that the phones are used only on T-Mobile’s cellular network. The seller also allegedly falsely advertises the T-Mobile SIM cards as permitting “unlimited” minutes or otherwise overstates the amount of airtime.

After the seller failed to appear to defend the suit, T-Mobile sought judgment on its claim that the seller violated the prohibition on false designation of the origin of goods of the Lanham Act, and its Washington Consumer Protection Act and Washington common law unfair competition claims.

The court declined to exercise its discretion to enter judgment on the Lanham Act and Washington state law claims. T-Mobile did not allege that the seller falsely designates the origin of T-Mobile products, as the phones at issue were sold under the T-Mobile name. The first sale doctrine generally permits a person who has acquired a trademarked good to resell that good, unless it has been significantly altered. T-Mobile failed to show that the phones or SIM cards were significantly altered. The allegations merely suggested that the seller removed the products from their original packaging, stripped of manuals, warranty information, and the like. These actions may have voided T-Mobile’s warranty, but that did not constitute a Lanham Act violation. The court also declined to award attorney’s fees under the Lanham Act.

Because T-Mobile established that it suffered monetary damages as a result of the seller’s breach of contract, the court awarded nominal damages of one dollar.

The seller was permanently enjoined from selling or activating any cellular telephone or SIM card that T-Mobile has offered for sale, regardless of the source. He was further enjoined from inducing others or assisting others in selling or activating any cellular telephone or SIM card that T-Mobile has offered for sale, regardless of the source. T-Mobile demonstrated the likelihood that it would be irreparably harmed absent an injunction, as the seller was likely to continue reselling T-Mobile phones and SIM cards in breach of the T-Mobile Contract. Each sale caused T-Mobile monetary harm, which was irreparable in this case because T-Mobile had no way to assess the ongoing financial harm his continuing sales would cause. Although the injunction might impose a financial burden on the seller, he had no right to earn money by breaching T-Mobile’s contracts. Public interest favored the enforcement of the T-Mobile Contract.

The case is No. C13-29RAJ.

Attorneys: Gail Podolsky (Carlton Fields Jorden Bert, PA) for T-Mobile USA, Inc.

Companies: T-Mobile USA, Inc.

Cases: Advertising StateUnfairTradePractices WashingtonNews