Judge Denies Motions in ‘Reflashed’ Phone Dispute

(CN) - A federal judge in Dallas largely rejected motions to dismiss the allegations swapped between Virgin Mobile and a competitor over its "reflashing" service, which reprograms cell phones to work on the rival network.

Chief U.S. District Judge Sidney A. Fitzwater threw out Virgin Mobile's claim accusing MetroPCS of meddling with Virgin Mobile's contracts, but stopped short of declaring MetroPCS innocent of interfering with the contracts.

Fitzwater also allowed Virgin Mobile to pursue trademark infringement claims against MetroPCS.

The dispute started when Virgin Mobile realized it was losing money each time MetroPCS reprogrammed a Virgin Mobile phone to operate on the MetroPCS network.

Virgin Mobile sells handsets at below-market costs to people with low incomes or poor credit, hoping to recoup its expenses through pay-as-you-go airtime plans.

MetroPCS devised a way to "reflash," or unlock, these phones so that they could only be used on MetroPCS' network.

When Virgin Mobile asked MetroPCS to stop selling its reflashing service, MetroPCS filed suit, seeking a declaration that the MetroFLASH service doesn't violate any trademarks or interfere with Virgin Mobile's customer contracts.

Virgin Mobile counterclaimed with trademark infringement and contract interference allegations.

Both parties moved for summary judgment, but Judge Fitzwater largely denied both requests.

The judge determined that the reflashing service might violate trademark by transforming the phone into a new product that still "uses" Virgin's marks.

As a result, Fitzwater denied MetroPCS' motion for declaratory judgment on Virgin's trademark counterclaims.

MetroPCS prevailed on one claim, however: Fitzwater agreed that Virgin Mobile failed to show that MetroPCS contributed to trademark infringement by enabling its customers to sell infringing phones.

Virgin Mobile also lost its bid for summary judgment on its counterclaim for contract interference. Fitzwater said Virgin Mobile's contract with the original phone buyer didn't carry over to those who bought reflashed phones.

"[T]he mere possession of a Virgin Mobile-branded handset cannot of itself indicate the existence of a contract between Virgin Mobile and the possessor," Fitzwater wrote.

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