IP Law Daily, TRADEMARK—S.D.N.Y.: Counterclaims survive motion to dismiss in Amazon reseller dispute, (Sep 19, 2023)

By Patricia K. Ruiz, J.D.

The court found the counterclaims of trademark infringement and dilution were sufficiently pled.

The U.S. District Court for the Southern District of New York denied a motion to dismiss trademark infringement and dilution counterclaims in a lawsuit alleging the seller of cases for electronic devices unlawfully caused the removal of a reseller’s product listings from Amazon.com. The court also granted a motion to dismiss the plaintiff’s complaint as to one of the defendants (CDC Newburgh Inc. v. STM Bags, LLC, September 18, 2023, Román, N.).

Parties. CDC Newburgh Inc. filed suit against STM Bags, LLC, and Lienau Sales and Marketing, LLC, alleging the defendants violated New York state and federal law through its involvement in the removal of ten of CDC’s product listings from Amazon.com. CDC is a non-authorized reseller of consumer products that it purchases from resellers and distributors. While it does not usually purchase its inventory directly from the relevant manufacturers, it claims its products are authentic. CDC sells its products through online marketplaces, such as Amazon.com. STM sells cases, bags, sleeves, and other accessories for electronic devices under the STM and DUX trademarks. Lienau offers sales, marketing, analytics, and logistics services to companies operating in the consumer products sector, including assisting clients with removing fraudulent products from Amazon’s website.

Allegations. On February 15, 2022, CDC received a notice from Amazon that Lienau had reported CDC to Amazon for selling counterfeit versions of STM’s DUX shell sleek case for the Apple iPad Pro and that, as a result, its listing for the item was removed. In response, CDC contacted Lienau to explain the item was authentic, object to the filing of the report without conducting a test purchase, and demand that Lienau retract the report. In the following days, Lienau filed additional reports with Amazon that resulted in the removal of nine more of CDC’s listings on Amazon for STM cases. CDC alleged Lienau knew the items it sold through the ten listings were authentic because it obtained them from a reputable, publicly traded company that purchases the items from STM. It also alleged Lienau filed the reports for anticompetitive reasons after Lienau, STM, or both suspected or confirmed the products were genuine.

CDC brought claims of defamation, tortious interference with prospective business relations, declaratory judgment of non-infringement, and common law unfair competition. STM asserted counterclaims against CDC of trademark infringement under state and federal law, false advertising, unfair competition, and trademark dilution. CDC moved to dismiss STM’s counterclaims.

CDC’s claims. The court granted the motion to dismiss CDC’s claims as to Lienau but denied Lienau’s request to file an anti-SLAPP counterclaim against CDC.

Trademark claims. STM claimed it has established several trademarks, through either the use of trademarks in commerce or by registering them with the U.S. Patent and Trademark Office (USPTO). STM also alleged it actively uses, advertises, and markets its trademarks throughout the U.S. and that the general consuming public thereby associates its trademarks with high-quality mobile device cases and accessories. Because online marketplaces threaten a manufacturer’s ability to maintain brand integrity because consumers cannot easily distinguish between the authorized and unauthorized sellers of a manufacturer’s products, STM alleged it implemented quality controls, including only selling through authorized dealers, to ensure purchasers of STM products receive the expected products and associated “special characteristics,” such as STM’s warranty. It further claimed that its ability to exercise these quality controls is essential to the quality of its products and the value of its trademarks. STM alleged CDC does not abide by STM’s quality controls and customer service requirements.

STM argued its trademarks are registered with the USPTO and that the products are counterfeit because they do not come with STM’s warranty and are not subject to the same quality controls or customer service requirements as “real” STM products. CDC argues that the allegations regarding quality controls and customer service are vague and conclusory and that the absence of the STM warranty is immaterial, as it does not render the products materially different from those that do possess the warranty. Finally, CDC argued that the first sale doctrine, which provides that a seller holds the right to resell a branded product without liability, immunizes it from claims of trademark infringement and unfair competition.

The court found STM plausibly alleged at this stage of the proceedings that: (1) CDC made “use in commerce” of STM’s trademarks; (2) STM’s trademarks are “entitled to protection”; and (3) CDC’s use of the trademarks is likely to confuse consumers as to the origin of its products. Thus, the court denied CDC’s motion to dismiss STM’s claims for trademark infringement and unfair competition under federal law. However, the court granted the motion to dismiss STM’s New York state common law claim for trademark infringement, finding that STM failed to show that CDC acted in bad faith, as STM’s allegations of bad faith were wholly conclusory. The court granted CDC’s motion to dismiss STM’s counterclaim for trademark dilution, finding that STM’s trademarks are not sufficiently famous to support a claim under the Trade Dilution Revision Act.

False advertising, unfair competition counterclaims. The court denied CDC’s motion to dismiss STM’s counterclaims for false advertising and unfair competition, finding STM plausibly alleged its false advertising claim under the Lanham Act.

The Case is No. 7:22-cv-01597-NSR.

Attorneys: Jason B. Lattimore (Law Office of Jason B. Lattimore) for CDC Newburgh Inc. James G. Sawtelle (Sherman & Howard L.L.C.) for STM Bags, LLC. Robert M. Isackson (Leason Ellis LLP) for Lienau Sales and Marketing, LLC d/b/a Lienau.

Companies: CDC Newburgh Inc.; STM Bags, LLC; Lienau Sales and Marketing, LLC d/b/a Lienau

Cases: Trademark NewYorkNews