Tuesday, August 28, 2012, 12:10 PM

Trademark Infringement Counts Included in 16-Count Lawsuit Filed by Sprint to Stop Unauthorized Trafficking of its Phones

Recounting observations by a private investigator, including surveillance photos and a visit to a Michigan office protected by bulletproof glass, Sprint invokes the authority of U.S. District Court for the Northern District of Georgia to help combat what Sprint calls “the global conspiracy to traffic in Sprint Phones.”

On August 21, 2012, Sprint Nextel Corporation and Sprint Communications Company, L.P. (collectively “Sprint”) filed a 16-count, 54-page complaint in the Atlanta Division against nine defendants regarding their activities in the unauthorized purchasing and reselling of phones designed for use in Sprint’s network (“Sprint Phones”). Paragraph 1 of Sprint’s complaint describes its legal action as one for damages and injunctive relief “arising out of Defendants’ participation in a conspiracy to willfully infringe Sprint’s rights” related to Sprint Phones, including but not limited to the iPhone 4® and the iPhone 4S.®

A November 2011 Wall Street Journal article (included in Exhibit F to the complaint) reported that Sprint had agreed to buy over 30 million iPhones from Apple at a cost of $20 billion.  Sprint regards this as “a significant amount of its business” and thus characterizes its request for relief as “an urgent business issue.”

Describing its own business model, Sprint states that it “subsidizes its customers’ acquisition of the Sprint Phones by selling [them] for substantially less than the Phones cost Sprint,” and that Sprint recoups this subsidy through profits earned from monthly service fees charged to its customers.  The manufacturers of Sprint Phones, according to Sprint, install proprietary software that prevents those phones from being used outside the Sprint network.  Sprint sells each Sprint Phone under Terms and Conditions that, among other things, require payment of monthly service charges and other related fees, and expressly prohibit the resale of Sprint Phones.

Sprint’s complaint alleges that the defendants and their co-conspirators orchestrated bulk purchases of Sprint Phones from Sprint or its authorized dealers, hacked the phones to disable the Sprint network software and them, and then sold those phones overseas, still using the Sprint trademarks, with no intent for those phones to ever connect with Sprint’s network.  These actions, according to Sprint’s complaint, have caused several problems, including:
  • “Once a Sprint Phone is shipped overseas and becomes operable on other wireless networks, Sprint no longer has a revenue source to recoup the invested subsidy on that phone.”
  • The Sprint Phones are resold without original packaging, accessories, or manuals.  Furthermore, the hacking and reselling of a Sprint Phone “voids the manufacturer’s warranty on the device.”  Sprint alleges these actions deprive it of a means to control the quality of its product and cause harm to its reputation and goodwill. 
  • Product shortages caused by the defendants’ bulk purchases of Sprint Phones from authorized dealers.  Such purchases were unauthorized in Sprint’s view because Sprint earlier sought to prevent bulk purchases by “limiting the number of Sprint Phones an individual may purchase on a daily basis.”  The defendants, according to Sprint, sought to circumvent that policy by employing “Runners” to make multiple phone purchases on their behalf.  The unauthorized bulk purchases have caused shortages of iPhone 4S® phones for the Sprint network, thereby, Sprint alleges, “substantially harming Sprint and its relationship with dealers and consumers because Sprint is not able to supply dealers with sufficient handsets to satisfy demand from legitimate consumers.”
Sprint’s complaint details information allegedly acquired through the efforts of its private investigator.  Such efforts included a visit to a retail location of defendant Ace Wholesale, Inc. in Taylor, Michigan.  The complaint describes that location as “a small office area with a larger office area behind bulletproof glass, and a secure rotating drawer to pass items through to the employees.”  The complaint alleges that the investigator was there told that Ace would pay $430 for Sprint iPhone 4S models, and that a day later such a purchase was made, though at a price of $425.  Around a week later, according to the complaint, the investigator conducted surveillance outside that location, during which time he observed 67 vehicles visiting the store, with most of those patrons having carried “multiple phone boxes, plastic bags, or cardboard boxes containing cellular telephones.”  Sprint describes Exhibit D to its complaint (excerpted above) as including photographs taken during that surveillance activity.  Additionally, the complaint describes interactions with Ace Wholesale personnel in Troy, Michigan, and Chicago, Illinois as well as in Atlanta.  One of the named defendants is a “Runner” purportedly interviewed by the private investigator outside the Atlanta location.

The table below recites the counts that Sprint’s complaint asserts against the named defendants. 

Count
Cause of Action
I
Breach of Contract
II
Unfair Competition (O.C.G.A. § 23-2-55)
III
Tortious Interference with Business Relationships and Prospective Advantage
IV
Civil Conspiracy
V
Unjust Enrichment
VI
Conspiracy to Induce Breach of Contract
VII
Common Law Fraud
VIII
Fraudulent Misrepresentation
IX
Trafficking in Computer Passwords (in violation of Computer Fraud and Abuse Act[1], 18 U.S.C. § 1030(a)(6))
X
Unauthorized Access (in violation of Computer Fraud and Abuse Act, 18 U.S.C. § 1030(a)(5)(C))
XI
Unauthorized Access with Intent to Defraud (in violation of Computer Fraud and Abuse Act, 18 U.S.C. § 1030(a)(4))
XII
Federal Trademark Infringement (15 U.S.C. § 1114)
XIII
Federal Common Law Trademark Infringement and False Advertising (15 U.S.C. § 1125(a)(1)(A) and (B))
XIV
Contributory Trademark Infringement
XV
Deceptive Trade Practices (O.C.G.A. § 10-1-372 et seq.)
XVI
Violation of Georgia Computer Systems Protection Act (O.C.G.A. § 16-9-93(a), (b), and (e))

The case is Sprint Nextel Corporation and Sprint Communications Company, L.P. v. Ace Wholesale, Inc., Jason Floarea, Eric Mandreger, Dominick Lanore, Tony Archie, Jose Genel, Barney Gunn, CopaTrade, Inc., and Moshe Alezra, No. 1:12-cv-2902-JEC, U.S. District Court for the Northern District of Georgia, Atlanta Division, assigned to Chief Judge Julie E. Carnes.


[1] For a general explanation of the Computer Fraud and Abuse Act, see Vicki M. Luoma and Milton H. Luoma, Jr., “The Computer Fraud and Abuse Act: An Effective Tool for Prosecuting Criminal and Civil Actions in Cyberspace,” The Forum on Public Policy (2008), available in http://www.mobiledia.com/news/110603.html.

Labels: , , , , ,

0 Comments:

Post a Comment

<< Home

back to top