Wireless telephone service provider Virgin Mobile could proceed with trademark infringement claims against a competitor (MetroPCS) for reconfiguring Virgin Mobile-branded handsets (cell phones) to operate on MetroPCS's wireless network, the federal district court in Dallas has decided. The reconfiguration process --known as "reflashing" --used a software application to change values in the memory of the handsets so that they received wireless service solely from MetroPCS. Reflashing was performed only at handset owners' request, and only after the owners had established wireless service with MetroPCS and agreed to various terms.

After the Virgin Mobile-branded handsets were reflashed, they still bore Virgin Mobile's trademarks. MetroPCS's reflashing service could constitute "use in commerce" of Virgin Mobile's marks, the court said. There was a factual issue as to whether MetroPCS's reflashing service altered handsets to such an extent that the substance of the transaction was the sale of a new product bearing Virgin Mobile's marks.

MetroPCS's conduct could have caused a likelihood of post-sale confusion, according to the court. MetroPCS conceded that it did not label reflashed handsets, and purchasers of subsequently resold handsets could mistakenly believe that the handsets' service provider (MetroPCS) was affiliated with the trademark holder (Verizon Mobile).

Virgin Mobile and MetroPCS both targeted their wireless services and products to consumers who tended to be lower-income and to lack strong credit, and both companies advertised and marketed their services and products through similar media. These factors, in the court's view, made confusion more likely.

The reflashing service also could cause dilution by tarnishment, the court determined. There was evidence that downstream consumers who encountered reflashed handsets were likely to believe that any changes or degradation of functionality and service were attributable to Virgin Mobile.

Virgin Mobile could not proceed with claims that MetroPCS engaged in contributory infringement by performing reflashing services for customers that later resold the reflashed handsets bearing Virgin Mobile's mark. Even if these resales constituted direct trademark infringement, there was no evidence that MetroPCS intentionally induced its customers to infringe Virgin Mobile's marks or continued to reflash handsets for customers when it knew or had reason to know that they were engaging in trademark infringement. MetroPCS's ability to "reasonably anticipate" possible infringement was insufficient to meet the culpability standard for contributory infringement, the court said.

MetroPCS Wireless, Inc., ND Tex., ¶61,497.