The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.
Plaintiff VoiceStream Wireless Corporation has moved for an injunction
pursuant to Fed. R. Civ. P. 65, seeking to prevent defendant All U.S.
Communications, Inc. from (a) inducing VoiceStream's dealers to breach
their VoiceStream Dealer Agreements by selling VoiceStream telephones to
All U.S. and (b) repackaging, pre-activating, or otherwise altering and
reselling VoiceStream products. VoiceStream alleges that All U.S. is
tortiously interfering with VoiceStream's contracts with its dealers and
is also violating Sections 32(1) and 43 of the Lanham Act,
15 U.S.C. § 1051 et seq.
In order to justify a preliminary injunction, the moving party must
demonstrate (a) that it will suffer irreparable harm in the absence of
the requested relief, and (b) either that (i) it "is likely to succeed on
the merits," or (ii) "there are `sufficiently serious questions going to
the merits' and the `balance of hardships tips decidedly' its way." Hsu
v. Roslyn Union Free Sch. Dist. No. 3, 85 F.3d 839, 853 (2d Cir. 1996)
(quoting Resolution Trust Corp. v. Elman, 949 F.2d 624, 626 (2d Cir.
1991)); see also Warner-Lambert Co. v. Northside Dev. Corp., 86 F.3d 3, 6
(2d Cir. 1996).
VoiceStream, a provider of digital wireless communications, sells
wireless telephones and air time to individual subscribers through a
network of authorized dealers. In order to access VoiceStream's Global
System for Mobile ("GSM") network, a customer must use a GSM telephone. A
customer can purchase a GSM telephone from an authorized VoiceStream
dealer along with a pre-paid, fixed amount of VoiceStream air time. The
telephone must be activated by the customer prior to use. Upon
activation, the customer has sixty days to use the pre-paid air time or
the air time expires. If the customer fails to purchase additional air
time within sixty days, VoiceStream discontinues the telephone's
service. VoiceStream's dealer agreement prohibits its dealers from
selling VoiceStream telephones to anyone other than individual
subscribers or authorized subdealers, or activating telephones before
they are sold to subscribers.
VoiceStream does not manufacture telephones itself, but rather obtains
them from manufacturers. The telephones are co-branded, displaying the
logos of both the telephone manufacturer and VoiceStream. VoiceStream
sells the telephones in a box bearing the VoiceStream logo and
information about the telephone. Inside the box, VoiceStream places
additional material, including the VoiceStream "Customer Care" telephone
number, VoiceStream warranty information, and a VoiceStream "Welcome
Guide," that contains information about the telephone's operation, voice
mail, and other features.
All U.S. is a New York corporation that commenced business in
November, 2000. All U.S. has openly professed its plan to sell customers
pre-activated GSM telephones along with pre-paid air time. Between
November, 2000 and February, 2001, All U.S. approached VoiceStream
several times seeking to purchase GSM telephones with prepaid VoiceStream
service directly from VoiceStream. VoiceStream rejected All U.S.'s
proposals. All U.S. then approached VoiceStream dealers and successfully
convinced them to activate and sell telephones to it. All U.S. repackages
the telephones for resale by removing the outer box and VoiceStream
documentation and placing an All U.S. label directly on the clear plastic
inner case. All U.S. has expressed its willingness to modify its
packaging in any way to reduce the possibility of confusion as to the
source of the telephones. To that end, All U.S. has proposed a revised
label stating that the telephone has been repackaged by All U.S., service
is provided exclusively by VoiceStream, and All U.S. is unrelated to
either the telephone manufacturer or VoiceStream. All U.S. has also
agreed to obliterate the VoiceStream logo from the telephone itself if
VoiceStream wishes. Additionally, while All U.S. has concededly placed
erroneous expiration dates upon some of its packaging labels, All U.S.
has represented that any errors have been unintentional and it will
ensure that the correct expiration dates will be set forth on the label.
I. VoiceStream Has Not Demonstrated a Likelihood of Success on the Merits.
A. VoiceStream Has Not Demonstrated a Likelihood of Success on the
Merits of Its Tortious Interference with Contract Claim, but There
Are Serious Questions Going to the Merits.
VoiceStream has shown that it is likely to succeed on the first two
elements of its tortious interference claim: the existence of a valid
contract and All U.S.'s knowledge of that contract. On its face,
VoiceStream's dealer agreement bars VoiceStream's dealers from selling
VoiceStream equipment to All U.S., as it states that a "[d]ealer shall
only sell the Equipment provided by Company to its Sub-Dealers or
Subscribers, and shall not sell . . . the Equipment . . . to any other
person or entity." (Compl. Exh. 2 at ¶ 1.4.2.) It is also clear that
All U.S. knew the contents of VoiceStream's Dealer Agreement. Not only
did VoiceStream representatives explain to All U.S. in a meeting on
February 1, 2001 that, in VoiceStream's view, All U.S.'s conduct caused a
breach of the Dealer Agreements, but VoiceStream's counsel also provided
All U.S. with notice of the agreement in a subsequent letter dated
February 22, 2001. (Compl. ¶ 30 & Exh. 3, 5.)
However, there are serious questions going to the merits of whether All
U.S. intentionally procured a breach of contract. All U.S. has openly set
forth its intentions to induce VoiceStream dealers to activate telephones
prior to end-consumer purchase. (Compl. ¶ 30 & Exhs. 4, 5.)
Nonetheless, serious issues exist regarding whether VoiceStream's dealer
resale restriction is enforceable pursuant to the Communications Act and
FCC regulations. If the contractual restriction in the present case is
not enforceable, a VoiceStream dealer's failure to observe the
restriction does not constitute a breach. See Guard-Life Corp. v. S.
Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 191-94, 406 ...