Case 2:11-cv-01086-DGC Document 32 Filed 09/14/11 Page 1 of 7
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`WO
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF ARIZONA
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`No. CV 11-01086-PHX-FJM
`ORDER
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`)))))))))))))
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`AFL Telecommunications LLC,
`Plaintiff,
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`vs.
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`SurplusEQ.com, Inc., Tech Sales, LLC,
`and Daniel Parsons and Jane Doe Parsons,
`Defendants.
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`The court has before it defendants' motion to dismiss (doc. 25), plaintiff's response
`(doc. 29), and defendants' reply (doc. 30). Also before us are plaintiff's motion for
`preliminary injunction (doc. 6), defendants' response (doc. 23), plaintiff's reply (doc. 27), and
`defendants' motion to stay pending transfer (doc. 31). For the reasons that follow, we grant
`in part and deny in part defendants' motion to dismiss. We deny plaintiff's motion for
`preliminary injunction and deny defendants' motion to stay as moot.
`I
`Plaintiff AFL Telecommunications LLC ("AFL") is a wholly-owned subsidiary of
`Fujikura Ltd. ("Fujikura"), a Japanese manufacturer of fiber optic equipment. One of
`Fujikura's products is a fusion splicer, a device which it sells under the FUJIKURA
`trademark. AFL is the exclusive North American licensee for FUJIKURA fusion splicers.
`Defendants (an Arizona corporation, an Arizona limited liability company, the sole member
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`Case 2:11-cv-01086-DGC Document 32 Filed 09/14/11 Page 2 of 7
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`of the limited liability company, and his wife) sell fusion splicers and related equipment
`online. Defendants import FUJIKURA fusion splicers designed for sale outside the United
`States and sell them over the Internet to customers within the United States. These fusion
`splicers are grey market goods, defined as goods which are "produced and legitimately sold
`abroad under a particular trademark and are imported into the United States and sold in
`competition with goods of the owner of U.S. trademark rights in the identical mark." Vivitar
`Corp. v. United States, 761 F.2d 1552, 1555 (Fed. Cir. 1985).
`Plaintiff filed a complaint on May 31, 2011, alleging claims for unfair competition
`under 15 U.S.C. § 1125(a), false advertising under 15 U.S.C. § 1125(a), common law unfair
`competition, and copyright infringement. Plaintiff filed a motion for preliminary injunction
`on June 1, 2011. Defendants filed a motion to dismiss on July 26, 2011. Defendants' motion
`to stay pending transfer (doc. 31), filed August 22, 2011, is also pending.
`II
`When considering a motion to dismiss pursuant to Rule 12(b)(6), Fed. R. Civ. P., "a
`court must construe the complaint in the light most favorable to the plaintiff and must accept
`all well-pleaded factual allegations as true." Shwarz v. United States, 234 F.3d 428, 435 (9th
`Cir. 2000). On the other hand, a court is "not bound to accept as true a legal conclusion
`couched as a factual allegation." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct.
`1955, 1965 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 2944
`(1986)). To survive a motion to dismiss, the complaint must contain "enough facts to state
`a claim to relief that is plausible on its face." Id. at 570, 127 S. Ct. at 1974. "A claim has
`facial plausibility when the plaintiff pleads factual content that allows the court to draw the
`reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v.
`Iqbal, 556 U.S. ___, 129 S. Ct. 1937, 1949 (2009). Dismissal under Rule 12(b)(6) may be
`"based on the lack of a cognizable legal theory or the absence of sufficient facts alleged
`under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th
`Cir. 1990).
`
`III
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`Case 2:11-cv-01086-DGC Document 32 Filed 09/14/11 Page 3 of 7
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`Plaintiff's first claim is for unfair competition under the Lanham Act. This statute
`creates civil liability for anyone who makes a false or misleading representation which "is
`likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection,
`or association of such person with another person, or as to the origin, sponsorship, or
`approval of his or her goods, services, or commercial activities by another person." 15
`U.S.C. § 1125(a)(1)(A). The ultimate issue under this statute is "whether there is a likelihood
`of confusion as to source." Am. Circuit Breaker Corp. v. Oregon Breakers Inc., 406 F.3d
`577, 584-85 (9th Cir. 2005). There is no likelihood of confusion if two products are
`materially different. When dealing with grey market goods, "the threshold of materiality
`must be kept low enough to take account of potentially confusing differences–differences
`that are not blatant enough to make it obvious to the average consumer that the origin of the
`product differs from his or her expectations." Societe Des Produits Nestle, S.A., v. Casa
`Helvetia, Inc., 982 F.2d 633, 641 (1st Cir. 1992).
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`While there is no dispute as to whether the fusion splicers sold by defendants were
`actually manufactured by Fujikura, there is a dispute as to whether defendants modified these
`products. Plaintiff alleges that defendants changed the products' serial numbers and replaced
`memory chips in a way that damaged the products. These alleged changes are material,
`according to plaintiff, and therefore create a presumption of consumer confusion. Accepting
`these factual allegations as true, as we must at this stage, plaintiff has alleged the elements
`necessary to state a cause of action for unfair competition under the Lanham Act.
`IV
`Plaintiff also claims a violation of common law unfair competition. Unfair
`competition at common law consists of several tort theories. Fairway Constructors, Inc. v.
`Ahern, 193 Ariz. 122, 124, 970 P.2d 954, 956 (Ct. App. 1998). Plaintiff has failed to the
`provide the court with any indication of which theory of unfair competition it is alleging.
`Accordingly, plaintiff's claim of common law unfair competition is dismissed.
`V
`A prima facie case of false advertising under 15 U.S.C. § 1125(a)(1)(B) requires a
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`Case 2:11-cv-01086-DGC Document 32 Filed 09/14/11 Page 4 of 7
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`showing of a false statement made by the defendant in a commercial advertisement or
`promotion which actually deceived or had the tendency to deceive its audience. The
`deception must have been material, the defendant must have caused its statement to enter
`interstate commerce, and the plaintiff must have been injured as a result. Jarrow Formulas,
`Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835 n.4 (9th Cir. 2002).
`The disputed element here is whether the statement was made in a commercial
`advertisement or promotion. For representations to constitute commercial advertising or
`promotion under this statute, they must be "(1) commercial speech; (2) by a defendant who
`is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to
`buy defendant's goods or services." Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co.,
`173 F.3d 725, 735 (9th Cir. 1999). The representations must also "be disseminated
`sufficiently to the relevant purchasing public to constitute 'advertising' or 'promotion' within
`that industry." Id. The plaintiff alleges that defendants' advertisement and promotion of the
`splicers constituted false descriptions or representations of fact, which were disseminated
`through defendants' websites and a blog. Compl. ¶¶ 63, 65. Defendants dispute that their
`blog could be the basis for a false advertising claim, as they contend that it is informational
`and therefore not commercial speech. Even if true, though, this argument does not dispose
`of plaintiff's claim. Plaintiff alleges false statements were published on various sales
`websites owned by the defendants in addition to the blog. These allegations are sufficient
`to put defendants' statements within the realm of commercial speech. The other parts of the
`"commercial advertising or promotion" definition are satisfied, as well as the remaining
`elements of a prima facie case. Plaintiff has pled sufficient facts to show the facial
`plausibility of a claim for false advertising.
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`VI
`According to plaintiff, the software in FUJIKURA splicers is copyrighted by Fujikura
`and exclusively licensed to AFL. Defendants allegedly infringed this copyright by
`distributing fusion splicers with this software in violation of 17 U.S.C. § 106(3), which gives
`a copyright owner exclusive rights to distribute copies of the copyrighted work by sale or
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`Case 2:11-cv-01086-DGC Document 32 Filed 09/14/11 Page 5 of 7
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`other transfer of ownership. To establish infringement, plaintiff must show "ownership of
`the allegedly infringed material and . . . demonstrate that the alleged infringers violate at least
`one exclusive right granted to copyright holders under 17 U.S.C. § 106." A&M Records, Inc.
`v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001). As an exclusive licensee, plaintiff
`owns an exclusive right under 17 U.S.C. § 106 and so may sue for copyright infringement.
`17 U.S.C. §§ 501(b), 106; Silvers v. Sony Pictures Entm't, Inc., 402 F.3d 881, 884-85 (9th
`Cir. 2005). Accepting plaintiff's factual allegations and reasonable inferences as true,
`plaintiff has stated a claim for copyright infringement.
`Defendants argue that they have an affirmative defense to copyright infringement
`under the first-sale doctrine. However, in Omega S.A. v. Costco Wholesale Corp., the
`United States Court of Appeals for the Ninth Circuit limited the first-sale doctrine to
`domestically made copies of copyrighted works. 541 F.3d 982, 985 (9th Cir. 2008), aff'd per
`curiam, 131 S. Ct. 565 (2010). Plaintiff's complaint does not directly state that the software
`at issue was manufactured outside the United States, but this can reasonably be inferred. As
`a result, under Omega, the first-sale doctrine is unavailable to the defendants because the
`subject goods were not made domestically.
`Defendants also contend that plaintiff's claim is barred by copyright misuse. While
`they say that the defense of copyright misuse is clear from the face of the complaint, they do
`not provide any explanation for this statement. "The misuse defense prevents copyright
`holders from leveraging their limited monopoly to allow them control of areas outside the
`monopoly." A&M Records, 239 F.3d at 1026. There is no indication of an unduly restrictive
`licensing scheme, unilateral refusal to license a copyright, or other behavior suggesting
`plaintiff has attempted to impermissibly expand its monopoly. Id. at 1027 & n.8. Plaintiff's
`claim of copyright infringement is valid and not barred by the defense of misuse.
`VII
`"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed
`on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief,
`that the balance of equities tips in his favor, and that an injunction is in the public interest."
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`Case 2:11-cv-01086-DGC Document 32 Filed 09/14/11 Page 6 of 7
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`Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S. Ct. 365, 374 (2008).
`Plaintiff's motion for preliminary injunction is denied because plaintiff does not show it will
`suffer irreparable harm in the absence of an injunction. Irreparable harm is no longer
`presumed in a trademark or copyright case upon a showing of a likelihood of success on the
`merits. Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., No. 10-35987, 2011 WL 3659315,
`at *5 (9th Cir. Aug. 22, 2011) ("proclaim[ing] that the 'King' is dead, referring to Elvis
`Presley the case–to the extent it supported the use of a presumption of irreparable harm in
`issuing injunctive relief.").
`Plaintiff argues that, even without this presumption, it will suffer irreparable harm in
`the form of injury to reputation, injury to goodwill, and the threatened loss of prospective
`customers. Such intangible injuries can qualify as irreparable harm. Rent-A-Center, Inc. v.
`Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991). But
`"[s]peculative injury does not constitute irreparable injury." Goldie's Bookstore, Inc. v.
`Superior Court, 739 F.2d 466, 472 (9th Cir. 1984). Plaintiff has not introduced any factual
`evidence of its purported injuries here. A plaintiff seeking an injunction under the Lanham
`Act must "offer something more than a mere subjective belief that he is likely to be injured
`as a result of the false advertising, he must submit proof which provides a reasonable basis
`for that belief." PBM Prods., LLC v. Mead Johnson & Co., 639 F.3d 111, 127 (4th Cir.
`2011) (quoting Coca-Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 316 (2d Cir. 1982)).
`Since no proof of irreparable injury has been submitted, plaintiff has not met the standard for
`a preliminary injunction.
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`VIII
`IT IS HEREBY ORDERED GRANTING defendants' motion to dismiss plaintiff's
`claim of common law unfair competition (doc. 25).
`IT IS ORDERED DENYING defendants' motion to dismiss plaintiff's federal unfair
`competition, federal false advertising, and copyright infringement claims (doc. 25).
`IT IS FURTHER ORDERED DENYING defendants' motion to stay pending
`transfer as moot (doc. 31).
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`Case 2:11-cv-01086-DGC Document 32 Filed 09/14/11 Page 7 of 7
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`IT IS FURTHER ORDERED DENYING plaintiff's motion for preliminary
`injunction (doc. 6).
`DATED this 13th day of September, 2011.
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