Sprint Solutions, Inc. et al v. iCell Guru Inc. et al
MEMORANDUM & ORDER: Plaintiff's motion 64 for summary judgment is granted in part and denied in part, see attached Memorandum and Order for details. A pre trial conference is schedule for June 23, 2016 @ 3:30PM to discuss the scheduling o f a trial date. Trial counsel shall appear at this conference so a firm trial date can be set. There will be no formal notice mailed to counsel. Upon receipt of this email counsel shall confirm with each other the date and time of this conference. Ordered by Judge Frederic Block on 6/7/2016. (Innelli, Michael)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
SPRINT SOLUTIONS, INC., and
MEMORANDUM AND ORDER
No. 14-CV-3539 (FB) (RER)
-againstiCELL GURU, INC., and DANIEL
For the Plaintiffs:
GAIL PODOLSKY, ESQ.
Carlton Fields Jordan Burt, P.A.
1201 West Peachtree Street, Suite 3000
Atlanta, Georgia 30309
For the Defendants:
KEVIN K. TUNG, ESQ.
136-20 38th Avenue, No. 3D
Flushing, New York 11354
BLOCK, Senior District Judge:
Plaintiffs, Sprint Solutions, Inc., and Sprint Communications Company L.P.
(collectively, “Sprint”), allege that defendants, iCell Guru, Inc. and Daniel Yusupov,
are unlawfully selling Sprint-branded iPhones. Although Sprint originally asserted
seventeen claims, it has agreed to limit itself to five theories of liability.
Two—registered trademark infringement and common-law trademark infringement—
are based on the federal Lanham Act, 15 U.S.C. §§ 1051-1141n, and three—unfair
competition, deceptive business practices, and unjust enrichment—on New York law.
See Minute Entry for Pretrial Conference (Apr. 15, 2016).
Sprint now seeks summary judgment on those claims. As set forth below, the
Court concludes that Sprint is entitled to summary judgment on one aspect of its
claims for trademark infringement. In all other respects, the motion is denied.
The relevant facts are drawn from the parties’ Rule 56.1 statements and
supporting documentation. They are undisputed except where indicated, in which
case they are presented in the light most favorable to the defendants.
Sprint is the fourth-largest provider of wireless telephone service in the United
States. It sells Apple iPhones and other wireless phones for use on its network. It
holds several registered trademarks that it uses in connection with its phone sales.
Sprint sells phones at a substantial discount, intending to recoup the lost
revenue though the sale of its wireless service. Sprint estimates—and the defendants
do not dispute—that each iPhone it sells generates an average of $1,919 in revenue
To protect its business model, Sprint previously paid Apple and other
manufacturers to install “locking” software that prevents phones sold by Sprint from
being used on any other network.1 In addition, each phone is assigned a unique
In 2014, Sprint and other carriers voluntarily agreed to allow customers to
unlock their phones at the end of their contracts. That practice was subsequently
electronic serial number (“ESN”) during the manufacturing process. The ESN allows
Sprint and other carriers to track usage of the phone.
iCell Guru buys and sells new and used Apple iPhones. It is not, however, an
authorized Sprint retailer. Yusupov is iCell Guru’s owner and president; he is
responsible for most of iCell Guru’s business operations, including buying, selling,
advertising, packaging and shipping.
Some of the phones bought by the defendants have a “bad” ESN, meaning that,
due to loss, theft and a variety of other reasons, Sprint will not activate the phone on
its network. Others have been unlocked, making them available for use on any
network. Defendants admit that they purchase phones with bad ESNs. Although they
further admit that they purchase unlocked phones, they deny that any are Sprint
The defendants sell most of the phones they purchase to wholesalers for
eventual resale as insurance replacement phones. They also sell phones to individuals
online through web sites such as amazon.com and eBay.com. The defendants often
repackage the phones and offer them for sale without the original accessories and/or
The defendants do not offer wireless service, and are not authorized to do so on
codified in the Unlocking Consumer Choice and Wireless Competition Act, Pub.
L. 113-144 (Aug. 1, 2014).
behalf of Sprint. However, they use Sprint’s name in advertising and invoicing to
indicate that certain phones are intended to be used on Sprint’s network.
II. Federal Claims
A. Liability for Trademark Infringement
15 U.S.C § 1114 prohibits the unauthorized use of a registered trademark. 15
U.S.C. § 1125(a) affords the same protection to “common-law” trademarks (marks
that serve a source-identifying function, but are not registered). The purpose of both
provisions is “to prevent consumer confusion regarding a product’s source or
sponsorship.” Chambers v. Time Warner, Inc., 282 F.3d 147, 155 (2d Cir. 2002).
Thus, to prevail on a claim of infringement, whether for a registered trademark or an
unregistered one, “a claimant must show that ‘it has a valid mark entitled to protection
and that the defendant’s use of it is likely to cause confusion.’” Morningside Grp. v.
Morningside Capital Grp., 182 F.3d 133, 138 (2d Cir. 1999) (quoting Cadbury
Beverages, Inc. v. Cott Corp., 73 F.3d 474, 477 (2d Cir. 1996)).
The defendants do not contest the ownership or validity of Sprint’s trademarks.
They argue, however, that there is no likelihood of confusion under the “first sale
doctrine.” The Ninth Circuit summed up the doctrine in Sebastian International, Inc.
v. Longs Drug Stores Corp., 53 F.3d 1073 (9th Cir. 1995): “Beginning with
Prestonettes, Inc. v. Coty, [264 U.S. 359 (1924)], courts have consistently held that,
with certain well-defined exceptions, the right of a producer to control distribution of
its trademarked product does not extend beyond the first sale of the product.” Id. at
1074. Thus, “the unauthorized sale of a trademarked article does not, without more,
constitute a Lanham Act violation.” H.L. Hayden Co. v. Siemens Med. Sys., 879 F.2d
1005, 1023 (2d Cir. 1989).
“This doctrine does not hold true, however, when an alleged infringer sells
trademarked goods that are materially different than those sold by the trademark
owner.” Davidoff & Cie. S.A. v. PLD Int’l Corp., 263 F.3d 1297, 1301 (11th Cir.
2001). Because “[a] materially different product is not genuine and may generate
consumer confusion about the source and the quality of the trademarked product . . . ,
the unauthorized resale of a materially different trademarked product can constitute
trademark infringement.” Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC,
562 F.3d 1067, 1072 (10th Cir. 2009). “A material difference is one that consumers
consider relevant to a decision about whether to purchase a product.” Davidoff, 263
F.3d at 1302. Although the Second Circuit has not spoken with the same clarity or
frequency as some other circuit courts, it has applied the “material difference
exception” in cases involving trademarked goods not intended for sale in the United
States. See Original Appalachian Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68,
73 (2d Cir. 1987) (“Jesmar’s dolls were not intended to be sold in the United States
and, most importantly, were materially different from the Coleco Cabbage Patch Kids
dolls sold in the United States.”).
It is important to stress exactly what constitutes a genuine “Sprint” phone.
Sprint does not manufacture iPhones, of course, and, as best the Court can glean, does
not affix its marks to either the phones or their packaging. Rather, Sprint’s marks are
used in offering the phones for use on Sprint’s wireless network. In other words, what
makes a phone a “Sprint” phone is that it can be used on Sprint’s network.
With that in mind, it is clear that phones with bad ESNs are materially different
from genuine Sprint phones because they cannot, by definition, be used on Sprint’s
network. To that extent, the defendants’ admitted use of “Sprint” in connection with
such phones causes confusion and, therefore, constitutes infringement. This is true
even though the incompatibility appears to stem from Sprint’s practices, rather than
some technological limitation. See Original Appalachian Artworks, Inc., 816 F.2d
at 73 (concluding Cabbage Patch Dolls sold abroad were materially different from
United States dolls due to “the United States fulfillment houses’ inability or
unwillingness to process Jesmar’s adoption papers or mail adoption certificates”
It is not clear, however, whether unlocked phones can be used on Sprint’s
network. The issue is further complicated by the 2014 change in the law and industry
practice. See supra note 1. Given those changes, Sprint may not be able to refuse
service for an unlocked phone even if it wanted to. The Court need not resolve the
uncertainty at this juncture, however, because defendants deny that they sold any
unlocked Sprint phones. Thus, Sprint has not adduced sufficient undisputed facts to
entitle it to judgment as a matter of law on that aspect of its infringement claims.
B. Remedies for Trademark Infringement
Sprint argues that it is entitled, as a matter of law, to both a permanent
injunction and monetary relief—in the form of compensatory damages, punitive
damages, prejudgment interest, attorney’s fees and costs—on its infringement claims.
Prejudgment interest, attorney’s fees and costs must await the entry of a final
judgment. And since the Court is denying summary judgment with respect to liability
for selling unlocked Sprint phones, it obviously cannot yet award any damages or
injunctive relief on that aspect of the claims.
The Court further concludes that it would be premature to award any relief with
respect to the sale of phones with bad ECNs. Damages flowing from that conduct
necessarily depend on the number of such phones sold, and Sprint has not established
that number with any precision. Irreparable harm has traditionally been presumed to
flow from a finding of infringement, but the Supreme Court’s decision in eBay Inc.
v. MercExchange, LLC, 547 U.S. 388 (2006), has cast doubts on that presumption.
See Salinger v. Colting, 607 F.3d 68, 74-75 (2010) (holding the eBay abrogated
presumption of irreparable harm for copyright infringement); U.S. Polo Ass’n, Inc. v.
PRL USA Holdings, Inc., 511 F. App’x 81, 85 (2d Cir. Feb. 11, 2013) (declining to
address effect of eBay in trademark cases). Although Sprint has presented evidence
of harm to its goodwill—in the form of customer complaints when phones purchased
from the defendants could not be activated on Sprint’s network—it is not sufficient
to conclusively establish the extent or irreparability of the harm.
III. State-Law Claims
A. Unfair Competition
Unfair competition under New York law “encompasses a broad range of unfair
practices,” but the essence of the claim “is that the defendant has misappropriated the
labors and expenditures of another and has done so in bad faith.” Carson Optical, Inc.
v. Prym Consumer USA, Inc., 11 F. Supp. 3d 317, 328-29 (E.D.N.Y. 2014) (internal
quotation marks and citation omitted). Thus, a claim of unfair competition can be
predicated on trademark infringement, coupled with a showing of bad faith. See, e.g.,
Rockland Exposition, Inc. v. Alliance of Auto. Serv. Providers, 894 F. Supp.2d 288,
326 (S.D.N.Y. 2012) (“This extra element of bad faith differentiates a common law
claim for unfair competition from a trademark infringement claim under the Lanham
Act.”). Bad faith in this context refers to use of a trademark “to exploit the good will
and reputation of a senior user by adopting the mark with the intent to sow confusion
between the two companies’ products.” Star Indus. v. Bacardi & Co., 412 F.3d 373,
388 (2d Cir. 2005). It is usually an inappropriate issue for resolution on summary
judgment. See American Int’l Group v. London Am. Int’l Corp., 664 F.2d 348, 353
(2d Cir. 1981).
For the reasons stated above, Sprint has established trademark infringement as
a matter of law, at least with respect to the defendant’s sale of phones with bad ESNs.
However, the Court cannot say, as a matter of law, that the defendants acted in bad
faith. The exploitive element present in a typical case of counterfeiting is not
necessarily present here. It bears repeating that the defendants’ use of Sprint’s name
was in connection with a phone’s fitness for use on Sprint’s network. It would
actually run counter to the defendant’s interests to advertise “Sprint” phones that
could not be activated on that network. Thus, an intent to “sow confusion” cannot be
inferred—at least not conclusively—merely from the use of Sprint’s trademarks.
B. Deceptive Business Practices and Unjust Enrichment
Sprint is not entitled to summary judgment on either its claim for deceptive
business practices or its claim for unjust enrichment. The former is based on § 349
of the New York General Business Law, and “[i]t is well settled . . . that trademark or
trade dress infringement claims are not cognizable under these statutes unless there
is a specific and substantial injury to the public interest over and above ordinary
trademark infringement or dilution.” National Distillers Prods. Co. v. Refreshment
Brands, Inc., 198 F. Supp. 2d 474, 486-87 (S.D.N.Y. 2002). The latter is available
“only in unusual situations when, though the defendant has not breached a contract
nor committed a recognized tort, circumstances create an equitable obligation running
from the defendant to the plaintiff.” Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777,
790 (2012) “Typical cases are those in which the defendant, though guilty of no
wrongdoing, has received money to which he or she is not entitled.” Id. Since the
defendants are, at a minimum, liable for trademark infringement, the claim for unjust
enrichment is duplicative.
Indeed, it appears that these two remaining claims fail as a matter of law.
However, the defendants have not moved for summary judgment, and the Court may
grant summary judgement sua sponte only “[a]fter giving notice and a reasonable time
to respond.” Fed. R. Civ. P. 56(f). It is also possible that Sprint will wish to withdraw
the claims in light of the Court’s other rulings.
Sprint’s motion for summary judgment is granted with respect to its claims that
the defendants’ sale of Sprint phones with bad ESNs constitutes trademark
infringement. The motion is denied with respect to Sprint’s claims for trademark
infringement with respect to the defendants’ alleged sale of unlocked Sprint phones,
and with respect to its claim for unfair competition. Those claims will proceed to trial,
at which Sprint will have to prove, with respect to trademark infringement, that
defendants sold unlocked phones using Sprint’s name and, with respect to unfair
competition, that they acted in bad faith. Sprint will also have to establish its
entitlement to monetary and injunctive relief at trial.
With respect to the claims for deceptive business practices and unjust
enrichment, Sprint shall, within 10 days of this memorandum and order, either
withdraw the claims or show cause why the Court should not grant summary judgment
to the defendants and dismiss them.
/S/ Frederic Block_______
Senior United States District Judge
Brooklyn, New York
June 7, 2016
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