Unlimited Cellular, Inc. v. Red Points Inc.

Background

Unlimited Cellular, Inc. alleged that Red Points Solutions SL and Red Points Inc. operated software that reported suspected intellectual-property violations to eBay. According to the complaint, Red Points reported two of Unlimited Cellular’s listings as counterfeit, causing eBay to remove them. Unlimited Cellular alleged that the products were authentic, that Red Points did not verify their status before reporting them, and that Red Points failed to retract one report after receiving proof of authenticity.

Unlimited Cellular asserted claims for defamation, tortious interference with prospective business relations, false advertising under § 43(a)(1)(B) of the Lanham Act, violation of New York General Business Law § 349, and aiding and abetting common-law unfair competition. Red Points moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint contains enough factual allegations to state a legally plausible claim.

Defamation

The court denied dismissal of the defamation claim. It held that Unlimited Cellular adequately alleged that Red Points made false factual statements about Unlimited Cellular by reporting its listings as counterfeit. The reports were allegedly sent to eBay, which was sufficient publication to a third party. The court also concluded that Unlimited Cellular adequately alleged negligence because Red Points allegedly failed to verify the products before reporting them and failed to retract at least one report after receiving proof of authenticity.

The court further held that the allegations supported defamation per se, meaning that the law can presume harm without requiring a separate allegation of specific financial loss. A report accusing a business of selling counterfeit goods could injure the business in its trade or profession. The court declined to dismiss the claim based on New York’s common-interest privilege at this stage and determined that the reports could be actionable statements of mixed opinion because they implied that supporting facts existed but were not disclosed to eBay.

Tortious Interference with Prospective Business Relations

The court granted dismissal of this claim. Unlimited Cellular alleged that eBay removed the reported listings, but the court held that removing listings did not, by itself, show injury to the underlying business relationship with eBay. The complaint did not indicate that the nature of Unlimited Cellular’s relationship with eBay had changed.

Lanham Act False Advertising

The court denied dismissal of the false-advertising claim under § 43(a)(1)(B) of the Lanham Act. The court construed the complaint as asserting a claim concerning false or misleading commercial advertising, rather than a trade-dress claim under § 43(a)(1)(A).

The court held that Unlimited Cellular plausibly alleged standing because it claimed injury to its commercial reputation and sales. It also found plausible allegations that Red Points advertised software that reliably identified and removed counterfeit products while allegedly reporting authentic products as counterfeit. The court concluded that the advertisements were commercial speech directed at potential customers, concerned a material quality of Red Points’ services, occurred in interstate commerce, and allegedly caused damage through the removal of Unlimited Cellular’s listings.

New York General Business Law § 349

The court granted dismissal of the § 349 claim. That statute prohibits materially misleading, consumer-oriented conduct that causes injury. The court held that Unlimited Cellular’s alleged injury was derivative: the company’s harm depended on Red Points’ consumers first being deceived and then using Red Points’ services to seek removal of Unlimited Cellular’s listings. Because derivative harm does not establish standing under § 349, the claim was dismissed.

Aiding and Abetting Common-Law Unfair Competition

The court granted dismissal of this claim. An aiding-and-abetting claim requires an underlying wrongful act, awareness of the role in that act, and knowing and substantial assistance. The court held that Unlimited Cellular did not provide factual allegations showing that Red Points’ clients committed common-law unfair competition or acted in bad faith when using Red Points’ services. Conclusory allegations that the clients engaged in fraudulent or unethical conduct were insufficient.

Attorney’s Fees and Disposition

The court denied Red Points’ request for attorney’s fees under New York Civil Rights Law § 70-a because that state procedural rule did not apply in federal court. The court also declined to consider Red Points’ new request under § 76-a because it was raised for the first time in a reply brief.

The court granted in part and denied in part Red Points’ motion to dismiss. It denied the motion as to defamation and Lanham Act false advertising. It granted the motion as to tortious interference with prospective business relations, violation of New York General Business Law § 349, and aiding and abetting common-law unfair competition, and dismissed those claims without prejudice. The court granted Unlimited Cellular leave to file a Fourth Amended Complaint by July 6, 2023. If it did not timely file that complaint, the dismissed claims would be deemed dismissed with prejudice. Defendants’ response was due July 20, 2023, subject to the conditions described in the order.