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The federal requirement that restrictions on the resale of communications services be reasonable has led a judge in the Southern District of New York to deny VoiceStream Wireless Corp.’s request for injunctive relief. Judge Sidney H. Stein ruled last week that the digital wireless provider failed to show that restrictions it imposes on its network of authorized dealers passed the “reasonableness” standard imposed by the Communications Act of 1934 and the regulations of the Federal Communications Commission (FCC). Judge Stein also said that VoiceStream had not shown a likelihood that it would prevail at trial in its bid to stop its own dealers from reselling communications services to a competitor in VoiceStream Wireless Corp. v. All U.S. Communications (01 Civ. 1856). The judge also asked both parties to brief the question of whether those restrictions should be referred to the FCC for an agency determination on their reasonableness. VoiceStream’s Global System for Mobile (GSM) requires customers to use a GSM telephone which is purchased, along with a fixed amount of air time, through a network of authorized dealers. The company’s agreement with members of that network prohibits the dealers from selling VoiceStream telephones to anyone other than individual subscribers or authorized subdealers. It also prevents the dealers from activating the telephones before they are sold to subscribers. Beginning in November, New York-based All U.S. Communications tried, without success, to persuade VoiceStream to sell it GSM telephones with prepaid VoiceStream service. But All U.S. had better luck with some of VoiceStream’s dealers, who agreed to sell the company pre-activated phones. VoiceStream sued for tortious interference with a contract. It also claimed violations of the Lanham Act for the way in which All U.S. repackages and markets the GSM phones obtained from the dealers. VoiceStream sought an injunction that would do two things — block All U.S. from inducing VoiceStream dealers to breach their contracts by selling telephones to All U.S., and prevent the repackaging, pre-activation or any other alteration of VoiceStream products. QUESTIONS FOR FCC Judge Stein said that although VoiceStream had shown the first two elements of a tortious interference claim — a valid contract and All U.S.’s knowledge of that contract — “there are serious questions going to the merits of whether All U.S. intentionally procured a breach of contract.” All U.S. could not have breached the contract, he said, if VoiceStream’s “dealer agreement constitutes an unreasonable restriction upon resale” in derogation of Section 202(a) of the Communications Act of 1934, whereby common carriers are prohibited from making “any unjust or unreasonable discrimination” in charges or practices. Moreover, he said, FCC regulation 47 C.F.R. Section 20.12(b) provides that a carrier “shall not restrict the resale of its services, unless the carrier demonstrates that the restriction is reasonable.” “VoiceStream asserts that its restriction is reasonable because by wholly controlling its distribution network it can best maximize the value of its product to the consumer,” Judge Stein said, adding that he would defer a determination of the reasonableness of the restriction “because this issue may eventually be referred to the FCC for resolution.” On VoiceStream’s claim under Section 43(a) of the Lanham Act, based on repackaging, Judge Stein said that “VoiceStream’s argument that there is no possible packaging change which could remedy any risk of customer confusion is unavailing.” “VoiceStream has not shown that the removal of its logo, along with packaging modifications including specific disclaimers regarding the source of the product, would nonetheless result in a likelihood of confusion,” he said. Judge Stein, however, directed All U.S. to modify the product and packaging of every telephone it purchases from an authorized VoiceStream dealer — something which All U.S. had agreed to do anyway. Julian C. Swearengin of Alston & Bird represented VoiceStream Wireless Corp. Lawrence Drucker, Max Moskowitz and Alfred Fabricant of Ostrolenk, Faber, Gerb & Soffen represented All U.S. Communications.

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