Real Selling Group LLC v. ESN Group Inc.

Background

Real Selling Group LLC, a New York limited liability company, resold ESN Group, Inc.’s Ceramedx and Earth Science products on Amazon under the name XXVIIP. The opinion states that Real Selling was an unauthorized reseller and had no contract with ESN to sell its brands.

Real Selling alleged that ESN repeatedly complained to Amazon that Real Selling was selling counterfeit products. Amazon temporarily removed listings until Real Selling supplied proof of authenticity. Real Selling also alleged that ESN bought ESN products from its Amazon platform while posing as an ordinary customer, returned them, and reported to Amazon that the goods were counterfeit or damaged. Real Selling claimed that ESN was trying to charge higher prices, restrict resale of its products, and control the marketplace. ESN said it was concerned that unauthorized resellers might make false or misleading claims about its products or sell products after their “best if used by” dates.

Real Selling’s original claims involved the Lanham Act, New York General Business Law § 349, tortious interference, defamation, and trade libel. In an amended complaint, Real Selling added claims under § 2 of the Sherman Act for monopolization and attempted monopolization. ESN moved to dismiss for lack of personal jurisdiction, and Real Selling moved to amend its complaint.

Antitrust Claims and Proposed Amendment

The court evaluated the proposed amendment for futility. In this context, futility means that the proposed claims would fail even if the amendment were allowed. The court applied an analysis similar to a motion to dismiss for failure to state a claim, accepting well-pleaded factual allegations as true but not accepting conclusory statements as true.

For monopolization, Real Selling needed to allege monopoly power in a relevant market and the willful acquisition or maintenance of that power through improper conduct. For attempted monopolization, it needed to allege anticompetitive conduct, a specific intent to monopolize, and a dangerous probability of achieving monopoly power.

The court held that Real Selling’s proposed market—the resale market for products made by ESN—was not a legally cognizable relevant market. A relevant market generally includes products that consumers can reasonably substitute for one another. The court stated that Real Selling did not allege that its proposed market included reasonably interchangeable skin-care and personal-care products, and that courts generally reject markets limited to a single brand.

The court also held that ESN had no anticompetitive incentive to reduce the number of entities reselling its own products. ESN’s ability to control the manufacturing and distribution of its own products, including through exclusive arrangements with preferred retailers, could accomplish the alleged pricing and availability effects without an additional monopoly at the resale level. The court therefore held that Real Selling failed to identify both a valid relevant market and antitrust harm. It denied Real Selling’s motion to amend to add the Sherman Act claims. The court also declined to allow another amendment because it concluded that additional facts would not correct the basic defect in Real Selling’s antitrust theory.

Personal Jurisdiction

Personal jurisdiction is a court’s authority over a defendant. The court explained that Real Selling had the burden to make an initial showing that jurisdiction existed. Real Selling relied on two provisions of New York’s long-arm statute: § 302(a)(1), concerning business transactions connected to the claims, and § 302(a)(3), concerning certain tortious acts outside New York that cause injury in New York.

Under § 302(a)(1), Real Selling relied on ESN’s sales through its own websites to New York customers and ESN’s purchases and returns through Real Selling’s Amazon platform. The court held that ESN’s website sales to New York customers were insufficient because Real Selling’s claims arose from ESN’s complaints to Amazon about Real Selling’s sales, not from ESN’s New York sales. The court noted that ESN’s complaints were made from California to Amazon, which the opinion identifies as being located in Washington.

The court also held that ESN’s purchases through Amazon did not establish that ESN purposefully availed itself of New York. Although those purchases could be substantially related to Real Selling’s claims, Real Selling did not provide or allege evidence that ESN knew it was purchasing from a New York company. The court stated that customers could buy from Real Selling on Amazon without visiting its storefront page, which displayed Real Selling’s company name and New York address. The court relied in part on an ESN executive’s declaration stating that ESN had no record or knowledge of Real Selling until learning about the lawsuit.

Under § 302(a)(3), the court held that Real Selling could not establish jurisdiction because its remaining claims sounded in defamation. The statute excludes defamation claims from that jurisdictional provision, and the court held that Real Selling could not avoid the exclusion by labeling its claims as trademark, deceptive-practices, or tortious-interference claims when each claim arose from ESN’s allegedly false complaints to Amazon.

Disposition

Judge Naomi Reice Buchwald granted ESN’s motion to dismiss for lack of personal jurisdiction and denied Real Selling’s cross-motion to amend. The court dismissed Real Selling’s amended complaint without prejudice to refiling in an appropriate forum and directed the Clerk of Court to close the case.