Calltrol Corporation v. LoxySoft AB

Background

Calltrol Corporation sued LoxySoft AB and LoxySoft Inc. under the Lanham Act and state common law. The claims included breach of contract, tortious interference with prospective economic benefit, and alleged false designations of origin. Calltrol also asserted claims for unfair competition and deceptive business practices under New York General Business Law § 349, but it stated in its opposition that it was dropping those claims; the opinion says those claims were dismissed without prejudice.

Calltrol alleged that it entered into a 2002 Reseller Agreement with LoxySoft AB. The agreement allowed LoxySoft AB to market and resell certain contact-center products and required it to purchase products, software developer kits, and support services from Calltrol. According to the complaint, the agreement also required LoxySoft AB to use its best efforts to promote Calltrol’s products, protect confidential and proprietary rights, and refrain during the agreement’s term from directly or knowingly indirectly participating in the development or commercialization of competing software products.

Calltrol alleged that the defendants later marketed and sold competing contact-center products and services, did not provide written notice of termination, and sold Calltrol’s intellectual property while claiming that the defendants had originated the products.

Legal standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint states a legally sufficient claim. At this stage, the court treated well-supported factual allegations as true and viewed reasonable inferences in Calltrol’s favor, but it did not accept unsupported legal conclusions or conclusory statements.

Breach of contract

Calltrol alleged that LoxySoft AB breached three parts of the Reseller Agreement: the confidentiality and proprietary-rights provision, the best-efforts provision, and the provision barring participation in developing or commercializing competing products. Although Calltrol argued in its opposition that the relevant provisions were instead in a Software Developer’s Kit License Agreement, the court limited its review to the contract claims actually pleaded in the complaint, which concerned the Reseller Agreement.

The defendants argued that the contract claim was untimely. They asserted that the agreement ended on July 10, 2012, when LoxySoft AB made its last payment and Calltrol disabled access to the products. The court explained that New York gives six years to bring a breach-of-contract claim, beginning when the breach occurs. But the defendants had the burden of showing that the complaint clearly demonstrated untimeliness.

The court held that the defendants had not met that burden. The complaint did not state when payments ended or when access to the products was cut off, and the court could not determine from the Reseller Agreement alone that the agreement ended on the date asserted by the defendants. The motion to dismiss the breach-of-contract claim was therefore denied.

Tortious interference

Calltrol alleged that the defendants interfered with prospective economic benefits by selling competing products. A claim of this type requires a specific business relationship with a third party, the defendant’s knowledge and intentional interference, improper means or solely malicious conduct, and injury to the relationship.

The defendants argued that Calltrol had not identified a third party with whom they interfered. Calltrol responded that the defendants resold its products to “various end users” who were its customers. The court found that this did not identify a specific business relationship. It therefore held that Calltrol could not establish the claim as pleaded and dismissed the tortious-interference claim without prejudice.

Lanham Act claim

Calltrol alleged under Section 43(a) of the Lanham Act that the defendants used false designations of origin and false descriptions by selling Calltrol’s products as their own. The court explained that a reverse-passing-off claim requires, among other things, identification of work originating with the plaintiff, false designation by the defendant, a likelihood of consumer confusion, and harm.

The defendants argued that Calltrol’s allegations were vague and conclusory. The court agreed that Calltrol had not identified one specific product that originated with Calltrol and was falsely designated by the defendants. The court therefore dismissed the Lanham Act claim without prejudice.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss. Calltrol’s breach-of-contract claim against LoxySoft AB survived. The tortious-interference and Lanham Act claims, as well as the abandoned unfair-competition and New York General Business Law § 349 claims, were dismissed without prejudice according to the opinion. The court granted Calltrol leave to file an amended complaint concerning claims dismissed without prejudice by January 18, 2022. The opinion states that claims dismissed without prejudice would be deemed dismissed with prejudice if Calltrol failed to file an amended complaint on time without showing good cause.