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Sale of Unlocked T-Mobile Cell Phones Results in Damage Award of Nearly $350K

Friday, May 4, 2012

T-Mobile USA Inc. v. Terry,
W.D. Wash., No. 3:11-cv-05655-RBL, 4/23/12

By Tamlin H. Bason



  • Case Summary:T-Mobile gets summary judgment against a defendant who sold modified T-Mobile phones and SIM cards that allowed consumers to piggy back on the company's wireless network without paying service fees.

  • Key Takeaway:Defendant violated both the Lanham Act and the Computer Fraud Abuse Act by selling modified cell phones and related products.


 

The fraudulent acquisition and resale of T-Mobile phones, modified SIM cards, and proprietary codes violated the Lanham Act and the Computer Fraud Abuse Act, the U.S. District Court for the Western District of Washington ruled April 23 (T-Mobile USA Inc. v. Terry, W.D. Wash., No. 3:11-cv-05655-RBL, 4/23/12).

After finding that the defendant was engaged in an illegal conspiracy to defraud T-Mobile, the court issued a permanent injunction barring the defendant from purchasing and reselling T-Mobile equipment. The court also found willful trademark infringement, and thus trebled the damages to nearly $350,000, with an additional $182,221.34 awarded in attorneys' fees.

Defendant Sold Unlocked Cell Phones
T-Mobile USA Inc. is a subsidiary of the German telecommunications firm Deutsche Telekom AG. T-Mobile has rights in various T-Mobile marks, which it uses to identify mobile phones and other equipment in connection with its telecommunications services.

In April 2010, T-Mobile filed a lawsuit alleging that Sherman Terry and others were willfully infringing T-Mobile's marks.

According to the complaint, the defendants were fraudulently purchasing and reselling T-Mobile Subscriber Identify Module (SIM) cards. T-Mobile also claimed that the defendants were later activating the SIM cards, which fraudulently allowed the unlocked phones containing those SIM cards to operate on T-Mobile's FlexPay service. In this way, the defendants were able to sell mobile devices that operated on T-Mobile's services without paying T-Mobile any service fees.

The defendants falsely claimed that they were authorized T-Mobile dealers, the complaint alleged, and thus the consumers who purchased the products believed that they were entering into a relationship with T-Mobile. The consumers would not learn of the fraud until T-Mobile suspended service to the cell phones in question, usually a month after the phones were activated.

T-Mobile's complaint contained 13 counts, including claims for federal trademark infringement and false advertising, violations of the Computer Fraud and Abuse Act, theft of computer data, and civil conspiracy. T-Mobile moved for summary judgment and for a permanent injunction against one of the defendants, George Collett.

'Trinity Factors' Support Finding of Confusion
Looking to the AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 204 USPQ 808 (9th Cir. 1979), likelihood of confusion factors, the court ruled that the defendant engaged in unlawful trademark infringement in violation of the Lanham Act, 15 U.S.C. §1114(a).

Specifically, Judge Ronald B. Leighton said that the “trinity factors favor confusion.” Those factors, the first three identified in Sleekcraft, require a court to determine the similarity of the marks, the relatedness of the goods and services, and the marketing channels used by both parties.

“The undisputed evidence demonstrates that T-Mobile and Defendant sell identical looking, directly-competing products and services to the same purchasers--individuals looking for affordable, high quality T-Mobile wireless telephones and service--through the same channels of trade, utilizing the same advertising vehicles,” the court said. Accordingly, it said that summary judgment was appropriate on T-Mobile's trademark infringement claim.

The court also granted summary judgment on T-Mobile's Lanham Act false advertising claim.

In order to succeed on that claim, which was brought under Section 43(a)(1)(B) of the Lanham Act, 15 U.S.C. §1125(a)(1)(B), T-Mobile needed to demonstrate either than an advertisement was literally false, or that it was likely to deceive.

The court said T-Mobile met that burden by demonstrating that the defendant falsely advertised that he was an authorized T-Mobile dealer.

The court said that these deceptive practices “continue[] to cause irreparable harm to T-Mobile including, but not limited to, direct diversion of sales from T-Mobile to Defendant and by lessening the goodwill associated with T-Mobile's products and services.”

The court said that because T-Mobile established its Lanham Act claims, it was also due summary judgment on its Georgia state law deceptive trade practices and unfair competition claims.

Moreover, the court granted T-Mobile summary judgment on its CFAA claim under 18 U.S.C. §1030(a)(4). T-Mobile met its burden on that claim by demonstrating that the defendant improperly obtained confidential activation codes for T-Mobile's SIM cards. After activating the cards, the defendant was able to gain unauthorized access to T-Mobile's network, the court said, and therefore the defendant “stole[] mobile airtime and services from T-Mobile.”

Infringement Was Willful
Turning to damages, the court found that T-Mobile demonstrated that it suffered $116,493.88 in actual damages. The court said that the infringement was willful, and therefore it trebled the damages pursuant to 15 U.S.C. §1117(a). In total, the court levied a damage award of $349,481.64.

The court also issued a permanent injunction prohibiting the defendant from, among other things, “purchasing, selling, unlocking, reflashing, altering, advertising, soliciting, using, and/or shipping, directly or indirectly, any T-Mobile products or services.”

T-Mobile was represented by Gail Podolsky of Carlton Fields, Atlanta. George Collett, proceeded pro se.

By Tamlin H. Bason


Opinion at /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/1105655April2312(1).pdf

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