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Skullcandy, Inc. v. Filter USA, Inc.

United States District Court, D. Utah, Central Division

June 21, 2019

SKULLCANDY, INC., a Delaware corporation, Plaintiff,
FILTER USA, INC., a New York corporation, BENJAMIN FRIEDLANDER, an individual, both doing business as “Filter Pro” on, and JOHN DOES 1-10, Defendants.



         This matter is before the court on Defendants Filter USA, Inc and Benjamin Friedlander's Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court held a hearing on the Motion on June 6, 2019. At the hearing, Defendants were represented by Richard S. Schurin and Robert T. Spjute, and Plaintiff was represented by Daren S. Garcia, William D. Kloss, Jr., and Matthew M. Durham. The court took the matter under advisement. The court considered carefully the memoranda and other materials submitted by the parties, as well as the law and facts relating to the Motion. Now being fully advised, the court issues the following Memorandum Decision and Order denying Defendants' Motion to Dismiss.


         I. Skullcandy Products

         Plaintiff Skullcandy is a Delaware corporation with its principal place of business in Park City, Utah. Founded in 2003, Skullcandy develops, manufactures, markets, and sells headphones and speakers throughout the United States. Skullcandy sells its products online through its website as well as through authorized distributors and resellers (collectively, “Authorized Dealers”). With respect to its brand and products, Skullcandy has registered various trademarks with the United States Patent and Trademark Office (“PTO”), which include, but are not limited to: SKULLCANDY® (U.S. Trademark Registration Nos. 3, 381, 050, 3, 726, 304, 3, 788, 707, 3, 168, 695, 4, 396, 791, 4, 622, 094, 4, 724, 445, 5, 166, 615, and 5, 215, 305); CRUSHER® (U.S. Trademark Registration No. 4, 573, 153); HESH® (U.S. Trademark Registration No. 4, 573, 154); METHOD® (U.S. Trademark Registration No. 4, 800, 154); and SMOKIN' BUDS® (U.S. Trademark Registration No. 4, 695, 063) (collectively, the “Skullcandy Trademarks”). Skullcandy filed the SKULLCANDY® trademark in January 2006, and the PTO registered the mark in November 2006. Skullcandy has actively used the SKULLCANDY® mark since that time.

         Skullcandy maintains strict quality controls that apply to both brick and mortar retail settings and online sellers with the three-fold goal of protecting consumers, protecting the value of Skullcandy's brand, and preventing consumers from receiving low-quality products. Not only does Skullcandy abide by these quality controls itself, but it also imposes them on Authorized Dealers. The quality controls require Authorized Dealers to: (1) inspect all products and remove any defective products from their inventory; (2) report any such defects to Skullcandy; (3) store Skullcandy products in accordance with Skullcandy guidelines[1]; (4) disclose their sources of Skullcandy products; (5) assist with product recalls and other consumer safety information efforts; (6) provide ongoing customer support to consumers to ensure the quality and performance of Skullcandy products; (7) refrain from relabeling, repackaging, or altering products and their contents; and (8) comply with Skullcandy's rules governing online sales. If Skullcandy learns that an Authorized Dealer is failing to adhere to these quality controls when selling Skullcandy products, Skullcandy will conduct an investigation, which can result in that seller losing its Authorized Dealer status.

         To further maintain the quality of their products, Skullcandy permits Authorized Dealers to sell Skullcandy products only in specific commercial channels. Specifically, Authorized Dealers are only permitted to sell Skullcandy products to Authorized Retailers. Skullcandy defines an “Authorized Retailer” as an individual or business that: (1) Skullcandy has approved as a seller of Skullcandy products; (2) purchases and resells products as part of a commercial enterprise, and is not an End User of Skullcandy products; (3) has agreed to follow Skullcandy's policies; and (4) has not had its Authorized Retailer status revoked by Skullcandy. Authorized Retailers, in turn, are only permitted to sell Skullcandy products to an “End User, ” which Skullcandy defines as a purchaser of Skullcandy products who is the ultimate consumer and does not intend to resell the products to a third party.

         However, when it comes to internet sales, Authorized Retailers are only permitted to sell Skullcandy products to End Users through Permissible Websites. According to Skullcandy's policies and rules, Skullcandy requires that, among other things, “Permissible Websites”: (1) be operated by an Authorized Retailer in the Retailer's legal name or registered fictious name; (2) state the Retailer's legal name, mailing address, telephone number, and email address (i.e., Authorized Retailers cannot sell products anonymously); (3) not use any third-party fulfillment service to store products or fulfill product orders; and (4) use only images of Skullcandy products that were supplied by or authorized by Skullcandy. All Authorized Dealers are prohibited from selling Skullcandy products on any third-party online market place, like (“Amazon”), without Skullcandy's prior written consent.

         In addition, Skullcandy provides a two-year limited manufacturer's warranty (the “Warranty”) for all products sold to End Users by Authorized Retailers. The Warranty provides that if a product contained a manufacturing defect at the time of purchase or had been damaged by improper care before the time of purchase, Skullcandy will repair, replace, or provide a warranty credit for use on Skullcandy's online store. Skullcandy extends the Warranty only to products sold by sellers that were subject to and agreed to follow Skullcandy's quality controls. The Warranty, however, is not available for Skullcandy products sold by unauthorized sellers because such products are not subject to Skullcandy's quality controls, and Skullcandy cannot ensure their quality.

         II. Filter USA's Online Sale of Skullcandy Products

         To ensure that Authorized Dealers abide by Skullcandy's quality control requirements and to limit unauthorized sales, Skullcandy regularly monitors its products on the Internet. In January 2018, Skullcandy discovered that products bearing the Skullcandy Trademarks were being sold on Amazon through a storefront called “Filter Pro.” After making this discovery, Skullcandy began investigating to discover who was operating the storefront, but Skullcandy was unable to locate any contact information for “Filter Pro.” Then, on or about January 24, 2018, counsel for Skullcandy sent a cease and desist letter to the “Filter Pro” storefront via Amazon's messaging system, demanding that the storefront's operators immediately cease selling products bearing the Skullcandy Trademarks. On or about February 16, 2018, counsel for Skullcandy sent another letter to the “Filter Pro” storefront via Amazon's messaging system warning that Skullcandy would take further action if the storefront did not cease selling products bearing the Skullcandy Trademarks.

         In June 2018, counsel for Skullcandy received information through a subpoena that identified the operator of “Filter Pro” as Filter USA, Inc. (“Filter USA”). That information identified an email address and a mailing address, located in Brooklyn, New York (the “Brooklyn Address”) for Filter USA.[2] On or about June 12, 2018, counsel for Skullcandy sent another cease and desist letter to Filter USA by email and by mail to the Brooklyn Address. Through further investigation, Skullcandy determined that the Brooklyn Address was an apartment unit where Benjamin Friedlander (“Friedlander”) has resided and continues to reside.[3]In addition, Skullcandy discovered that Filter USA was recently sued by a plaintiff trademark owner who filed suit to stop Filter USA's unauthorized sale of its goods.[4] After learning this information, Skullcandy sent another cease and desist letter by email and mail-this time addressed to both Filter USA and Friedlander-that included a draft complaint and indicated that a lawsuit would be filed if Filter USA did not cease its sale of Skullcandy products. On or about September 6, 2018, counsel for Skullcandy sent a fifth cease and desist letter by email and mail to Defendants. However, as of the time of filing the Complaint, neither Filter USA nor Friedlander had ever responded to any of Skullcandy's communications.

         III. Skullcandy's Complaint

         Skullcandy filed the instant suit on September 19, 2018. In its Complaint, Skullcandy raises seven causes of action for: (1) federal trademark infringement; (2) federal unfair competition; (3) trademark dilution; (4) common law trademark infringement; (5) deceptive trade practices under Utah law; (6) unfair competition under Utah law; and (7) tortious interference with contract. Skullcandy contends that the Skullcandy products sold by Defendants are not authorized. More specifically, Skullcandy claims that the products sold by Defendants are not subject to and do not abide by Skullcandy's strict quality controls. For example, Skullcandy claims that Defendants do not inspect their products; they do no report defective products to Skullcandy; they do not store their products properly; they sell used or returned products as “new”; they commingle their inventory; they do not provide ongoing customer service; and they do not address negative customer reviews. Consequently, Defendants' products are poor quality and do not come with the Warranty. Without the Warranty, Defendants' products are materially different from authentic Skullcandy products and do not constitute genuine Skullcandy products. Skullcandy further claims that Defendants' unauthorized sale of products bearing the Skullcandy Trademarks (1) interferes with Skullcandy's quality controls and its ability to exercise quality control over products bearing the Skullcandy Trademarks; and (2) is likely to cause confusion because it inaccurately suggests that Defendants' products are both subject to Skullcandy's quality controls and come with the Warranty.

         Additionally, Skullcandy contends that the SKULLCANDY® trademark has been famous since at least 2016 and is now well known for its association with counterculture, self-expression, and high-quality products. But, due to Defendants' sale of unauthorized, low-quality products, consumers have submitted multiple negative online reviews disparaging Skullcandy's products and tarnishing the SKULLCANDY® mark.[5] Such disparagement, Skullcandy asserts, has damaged its business, goodwill, and reputation. Finally, Skullcandy argues that Defendants are aware that Skullcandy has entered into agreements with Authorized Dealers that prohibit such dealers from selling Skullcandy products to ...

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