Soter Technologies, LLC v. IP Video CorporationN

Background

Soter Technologies, LLC alleged that it owns the FLYSENSE trademark for a vape-detection sensor device and uses the domain name www.flysense.net. It sued IP Video Corporation, A+ Technology & Security Solutions, Inc., and Advance Convergence Group, Inc. under federal trademark law, the federal cybersquatting statute, and New York law.

Soter alleged that, from approximately September 9, 2019, through July 1, 2020, the defendants used www.flysense.com to redirect people to IP Video Corporation’s website, which advertised the competing HALO Smart Sensor. Soter claimed this diverted customers and created a false impression of affiliation or sponsorship. The defendants also allegedly made statements that the HALO Device was compatible with the Flysense platform and made disparaging statements about the Flysense Device.

The defendants moved under Rule 12(b)(6), which allows dismissal when a complaint does not plausibly state a legal claim. They sought dismissal of all claims against A+ Technology and Advance and all claims against IP Video Corporation except the cybersquatting claim.

Domain-name trademark and unfair-competition claims

The court denied dismissal of Soter’s federal and New York trademark and unfair-competition claims based on www.flysense.com. It held that using the Flysense name in a domain name to redirect customers to a competing website could constitute “use in commerce” of the trademark, even though the redirected website displayed the HALO name rather than the Flysense name.

The court distinguished a prior Second Circuit decision involving software that used a website address only as a behind-the-scenes trigger for pop-up advertisements. Here, according to the allegations, IP Video Corporation used the domain name because it resembled Soter’s trademark and redirected users away from the website they sought. The court treated the domain name as functioning like a sign identifying a virtual store.

The court also found that Soter plausibly alleged a likelihood of confusion. It noted that the Flysense mark was distinctive, the domain name was identical to the mark apart from the “.com” ending, the products competed in the same market, and Soter alleged actual confusion and intentional deception. The court explained that “initial interest confusion”—confusion that attracts a customer to a competing site even if the customer later recognizes the difference—could support the claims at the pleading stage. Whether customers were actually confused presented factual issues that could not be resolved on a motion to dismiss.

Compatibility representation

The court dismissed with prejudice the claims based on the alleged representation that the HALO Device was compatible with the Flysense platform. The allegation relied on a bid submitted by ACP Creativ IT, which was not a party to the case. The amended complaint did not allege that ACP acted as an agent for any defendant.

The court also held that the statement, read in the context of the Mission Consolidated Independent School District’s request for quotes, was not likely to confuse consumers about the source of the product. The request stated that products meeting the specifications could be comparable products approved by the district, and the bid identified the offered product as the IP Video Corp. HALO Smart Sensor. The court concluded that amending the complaint to add an agency allegation would not cure the lack of likely confusion, so these claims were dismissed with prejudice.

Product disparagement

The court dismissed Count Six, the product-disparagement claim, without prejudice. Soter alleged that an unidentified representative told a potential school customer that the Flysense Device did not work, generated too many false positives, and was involved in litigation.

Under New York law, a product-disparagement claim requires, among other things, special damages. The court found that Soter did not identify the allegedly lost customer, did not adequately explain the causal connection between the statements and the lost sale, and pleaded only that it suffered losses of “at least $1,990.” The court therefore dismissed the claim without reaching the other elements.

Claims against A+ Technology and Advance

The court dismissed without prejudice the remaining claims against A+ Technology and Advance. The complaint alleged that the companies shared offices, resources, and executives with IP Video Corporation, advertised the HALO Device, and knew about Soter’s trademark. But it did not plausibly allege that either company participated in registering or using www.flysense.com.

The court rejected the argument that the shared offices and executives established alter-ego liability. The complaint did not allege facts showing disregard of corporate formalities, inadequate capitalization, commingling of funds, or domination by one company over another. The court also found that the allegations did not sufficiently distinguish the conduct of the three defendants.

Disposition

Judge Lewis J. Liman stated that the defendants’ motion to dismiss was granted in part and denied in part. The compatibility-related claims were dismissed with prejudice. Count Six for product disparagement was dismissed without prejudice. The remaining claims against A+ Technology and Advance were dismissed without prejudice, and those parties were terminated from the case. The domain-name claims against IP Video Corporation that survived the motion remained pending. Soter was granted leave to file a second amended complaint within 30 days.