Yang v Western Sales Trading Co, Inc [2003] FMSC 83; 11 FSM Intrm. 607 (Pon. 2003) (11 June 2003)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Yang v. Western Sales Trading Co.[2003] FMSC 83; , 11 FSM Intrm. 607 (Pon. 2003)

[2003] FMSC 83; [11 FSM Intrm. 607]

SENYORINA YANG d/b/a SENNY’S ENTERPRISES, INC.,
Plaintiff,

vs.

WESTERN SALES TRADING CO., INC. and CHRIS TORRES,
Defendants.

CIVIL ACTION NO. 2002-012

MEMORANDUM OF DECISION; ORDER

Andon L. Amaraich
Chief Justice

Hearing: May 7, 2002
Decided: October 10, 2002

Memorandum Entered: June 11, 2003

APPEARANCES:

For the Plaintiff:
Andrea S. Hillyer, Esq.
P.O. Drawer D
Kolonia, Pohnpei FM 96941

Michael J. Sipos, Esq.
P.O. Box 2069
Kolonia, Pohnpei FM 96941

For the Defendants:
Steven Finnen, Esq.
Law Offices of Saimon & Associates
P.O. Box 1450
Kolonia, Pohnpei FM 96941

* * * *

[FSM Intrm. 608]

HEADNOTES

Civil Procedure - Injunctions
In reviewing a motion for preliminary injunction, the court weighs four factors: 1) the possibility of irreparable injury to the plaintiff; 2) the balance of possible injuries between the parties; 3) the movant’s likelihood of success on the merits; and 4) the impact of any requested action upon the public interest. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 613 (Pon. 2003).

Constitutional Law - Interpretation
When analyzing provisions of the FSM Constitution, a court must look first to the Constitution’s actual words. When the words are clear and permit only one possible result, the court should go no further. After reviewing the Constitution’s words, if the court finds that the words are not clear or do not permit only one possible result, the court should next consult is the Journal of the Constitutional Convention to ascertain the framers’ intent in drafting that language. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 613 (Pon. 2003).

Constitutional Law - Judicial Guidance Clause
The FSM Constitution requires that court decisions be consistent with the Constitution, Micronesian customs and traditions, and the social and geographical configuration of Micronesia. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 613 (Pon. 2003).

Constitutional Law - Freedom of Expression
Flyers and newspaper advertisements may be interpreted as "press" for purposes of constitutional freedom of expression. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 614 (Pon. 2003).

Constitutional Law - Freedom of Expression
Commercial speech is expression related solely to the economic interests of the speaker and its audience, or speech which does no more than propose a commercial transaction. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 614 (Pon. 2003).

Constitutional Law - Freedom of Expression
No guidance is found in the Journal of the Constitutional Convention as to the specific protection the FSM Constitution’s framers sought to give commercial speech, but it did recognize that some forms of speech deserve less protection than others. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 614-15 (Pon. 2003).

Constitutional Law - Freedom of Expression
Commercial expression serves two different functions - it serves the economic interests of the speaker, and also assists consumers and furthers the societal interest in dissemination of information. It may be constitutionally protected from unwarranted governmental restriction; however, there are common sense distinctions between commercial speech, which proposes a commercial transaction, and other varieties of speech. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 615 (Pon. 2003).

Constitutional Law - Freedom of Expression
Commercial speech deserves less constitutional protection than other varieties of speech. Commercial speech’s societal benefits are directly related to the informational function; thus, there can be no constitutional objection to the suppression of commercial messages that do not accurately inform the public about a lawful activity. The government should be permitted to restrict commercial forms of communication more likely to deceive the public than to inform it. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 615 (Pon. 2003).

[FSM Intrm. 609]

Constitutional Law - Freedom of Expression
A court approaches arguments as to the unconstitutionality of any prior restraint on the right to free speech as follows: first, the distinction is drawn between those portions of the publications that legitimately provide consumers with information and those portions which are solely related to proposing a commercial transaction. The court accords the first category constitutional protection as it approximates pure speech. As for the commercial speech contained within the publications, it would not be afforded constitutional protection unless the court found that the speech concerned a lawful activity and was not misleading. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 615 (Pon. 2003).

Civil Procedure - Injunctions; Constitutional Law - Freedom of Expression
A court may issue a preliminary injunction when certain portions of commercial speech are misleading to consumers and merchants. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 615 (Pon. 2003).

Civil Procedure - Injunctions
Irreparable injury may include the loss of goodwill, loss of customers and potential customers, lost sales, and similar harms because they are not readily compensable by money damages, and thus are precisely the type of harm a preliminary injunction is intended to prevent since economic damages based on such harms are extremely difficult to calculate. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 616 (Pon. 2003).

Commerce
The term "counterfeit" has a specific legal meaning: to forge; to copy or imitate, without authority or right, and with a view to deceive or defraud, by passing the copy or thing forged for that which is original or genuine. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 616 (Pon. 2003).

Commerce
Goods received through unauthorized distribution networks often are referred to as "gray market" goods, or parallel products. Gray market goods are genuine products possessing a brand name protected by trademark or copyright, which are typically manufactured abroad and then purchased and imported by third parties, bypassing authorized distribution channels. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 617 (Pon. 2003).

Civil Procedure - Injunctions
An entity is not irreparably injured by an injunction which prohibits it from accusing another of unsubstantiated illegal conduct, and threatening unspecified legal action against those who purchase goods from the other. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 617 (Pon. 2003).

Torts - Interference with a Contractual Relationship
Relief may be granted under Pohnpei law for a claim of tortious interference with a contractual relationship when an individual’s economic advantages obtained through dealings with others are knowingly jeopardized out of petty or malicious motives, or by a third party’s improper or unjustified conduct. In order to succeed on the merits of a tortious interference claim, a plaintiff will also have to demonstrate that her business was lawful, and that defendants’ conduct was improper or unjustified. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 617 (Pon. 2003).

Civil Procedure - Injunctions
When the court has before it no evidence that the plaintiff acted unlawfully or that the defendants’ actions were justified, the likelihood-of-success factor weighs in favor of granting a preliminary injunction. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 618 (Pon. 2003).

[FSM Intrm. 610]

Civil Procedure - Injunctions; Constitutional Law - Freedom of Expression
The public interest weighs in favor of issuing a preliminary injunction when the injunction is limited in scope to protect the public from defendants’ statements which are more likely to mislead than to inform the public. Yang v. Western Sales Trading Co., [2003] FMSC 83; 11 FSM Intrm. 607, 618 (Pon. 2003).

* * * *

COURT’S OPINION

ANDON L. AMARAICH, Chief Justice:

The Court granted plaintiff’s motion for a preliminary injunction in this case on October 10, 2002, and a preliminary injunction issued on October 16, 2002, after plaintiff posted the required bond. This memorandum sets out the reasons for the Court’s decision to issue a preliminary injunction in this case.

I. Background

A. Plaintiff’s Complaint and Motion for Preliminary Injunction

The motion for a preliminary injunction was directed to statements that plaintiff claims to be defamatory, and those that she claimed were interfering with her relationships with her customers and potential customers.

On March 29, 2002, plaintiff filed a complaint against defendants, and also filed an ex parte motion for a temporary restraining order and preliminary injunction. The Court denied the motion for an ex parte temporary restraining order and set this case for hearing on the motion for a preliminary injunction. Plaintiff asserts eleven causes of action against defendants Western Sales Trading Co. (WSTCO) and Chris Torres. The first eight causes of action allege antitrust violations - basically, that defendants have attempted to fix prices and contract for distribution of Winston1 cigarettes in restraint of free trade, in violation of 32 F.S.M.C. 301 et seq., and have prevented plaintiff from competing fairly in the market. The ninth cause of action alleges tortious interference with contractual and business relationships. The tenth cause of action alleges defamation. The eleventh cause of action alleges tortious interference with prospective business relationships.

Plaintiff alleges that WSTCO, through its owner and agent Chris Torres, is attempting to monopolize the market for Winston cigarettes in the FSM. It appears that WSTCO has a license with Japan Tobacco International (JTI) which grants it certain distributorship rights with respect to Winston cigarettes in the FSM, the Marshall Islands, and Palau. Pl. Compl., Ex. E. Plaintiff states that she has imported cigarettes or purchased them from wholesalers in Pohnpei since 1997. Plaintiff states that she used to purchase cigarettes from IP Enterprises, who purchased them from WSTCO. Plaintiff states that she then began purchasing cigarettes directly from WSTCO to save money. Plaintiff alleges that Pohnpei wholesalers, including IP Enterprises and Micronesian Trading Company, then went to WSTCO and asked them to stop selling to plaintiff. Plaintiff alleges that WSTCO then stopped selling cigarettes to her, and that she and her husband were threatened by Pohnpei wholesalers.

Plaintiff states that, at some time in 1999, she attempted to import cigarettes from another distributor, either in Dubai or Miami, Florida. Plaintiff says that WSTCO threatened to sue plaintiff, and

[FSM Intrm. 611]

plaintiff ended up reaching an agreement with WSTCO whereby plaintiff would be allowed to sell the other cigarettes (referred to as "parallel product") in the FSM, provided that plaintiff did not sell them at prices that would undercut WSTCO’s prices. At the same time, plaintiff and WSTCO executed an "exclusive sub-distributor" agreement, providing that plaintiff was to be the sole distributor of Winston products for WSTCO in the FSM for a period of one year, from August 18, 2000. Pl. Compl. Exs. A, B. The agreement provides in part that WSTCO would provide plaintiff cigarettes at a discounted rate, and plaintiff would not import Winston cigarettes from anyone besides WSTCO. Plaintiff alleges that WSTCO breached this agreement by selling to other retailers and wholesalers in Pohnpei, including Palm Terrace and AWM Enterprises in Chuuk2. Pl. Compl. 33-34. Plaintiff states that she canceled her agreement with WSTCO in July 2001, and began to purchase cigarettes from T&B Importers and Net Access, Inc. Plaintiff states that these cigarettes are of the same quality as WSTCO cigarettes, but that they are cheaper.

Plaintiff states that, in February, 2002, WSTCO began to post flyers at local businesses, and began to take out large newspaper advertisements. Plaintiff supplies one document dated February 14 entitled "Notice of Unauthorized Imports." It does not name Senny’s, but threatens merchants that JTI will take legal action against them if they are found to be selling cigarettes from any source other than WSTCO. It provides contact numbers for JTI and WSTCO. Pl. Compl. Ex. C. Plaintiff alleges that WSTCO also posted another flyer on February 22, 2002, and an advertisement in the Kaselehlie Press on March 3 and 21, 2002. It states that:

Senny’s Enterprises have been purchasing Winston cigarettes from places unknown and importing them into the FSM without the authority of the manufacturer and in violation of WSTCO’s exclusive right to distribute these products. The result is that Senny’s tobacco products being brought into the FSM are of poor quality, stale dated, and may be counterfeit. . . . Senny’s Enterprises is simply out to buy poor products and make a fast dollar.

Pl. Ex. B. Plaintiff stated in its motion for a TRO that, on information and belief, defendants were planning to run the advertisement again. Plaintiff sought the TRO to prevent the re-publication of this advertisement, as well as an injunction preventing WSTCO and Chris Torres from interfering with plaintiff’s customers and business. Plaintiff alleges that further publication of the advertisement, and continued interference by WSTCO and Chris Torres in her business, causes her irreparable harm.

B. Defendants’ Answer and Opposition to Preliminary Injunction

Defendants filed an answer on April 19, 2002. Defendants state that WSTCO has an agreement with JTI which grants it the right to be the exclusive distributor of Winston products in Guam, CNMI, the FSM, Palau and the Marshall Islands3. Defendants take the position that everything said in the published Notice of Unauthorized Imports and in the advertisements in the Kaselehlie Press is true: that Senny’s imports of Winston KS Crown cigarettes was "unauthorized," or in violation of WSTCO’s rights

[FSM Intrm. 612]

as an exclusive distributor, and that the product was stale-dated and of poor quality4. Defendants acknowledge posting the notices and advertisements. They also acknowledge entering into the parallel products agreement and exclusive sub-distribution agreements with Mr. Yang, but deny that these agreements were intended to limit competition in the market in any way.

Defendants filed their opposition to plaintiff’s motion on April 29, 2002. In their opposition, defendants argue: (1) that plaintiff is damaging the Winston brand by importing and selling poor quality, outdated cigarettes - that the cigarettes imported by Senny’s in February, 2002, were bad tasting, 2 months outdated, and of poor quality after being shipped from Puerto Rico to Dubai or the United Arab Emirates, to Guam, then on to Pohnpei; (2) that plaintiff is interfering with WSTCO’s contract with JTI, which gives WSTCO the exclusive right to distribute the Winston brand in this region; (3) that plaintiff violated the parallel products and exclusive sub-distributorship agreements entered into with WSTCO; (4) that everything defendants said in letters, notices and advertisements is true) a defense to plaintiff’s defamation claim; (5) that there have been no anti-trust violations, because defendants only seek to prohibit the unauthorized distribution of Winston, not to control the market in all cigarettes in the FSM; (6) that exclusive distributors are not engaged in price fixing or anti-competitive practices as alleged in the complaint, but are attempting to insure that their product is distributed "through a responsible and trustworthy network of distributors who will invest the necessary time effort and money to control and monitor product quality" and who will handle and sell the product in accordance with the manufacturer’s specifications, Def. Opp’n at 9; and, (7) that defendants have a right to free speech which would be violated by any injunction (referred to as a prior restraint on speech).

C. Hearing on Motion for Preliminary Injunction

At the hearing on May 7, 2002, plaintiff submitted that the complaint, motion for preliminary injunction, and accompanying affidavits were sufficient evidence to demonstrate plaintiff’s entitlement to a preliminary injunction. Counsel argued that no law in the FSM prohibits plaintiff from importing cigarettes from any source abroad, and that therefore the statements made by defendants are clearly untrue, and constitute defamation and tortious interference with contractual relationships established between plaintiff and its customers. Plaintiff’s counsel also argued that plaintiff has suffered and continues to suffer irreparable harm as a result of the flyers and advertisements posted by defendants. Plaintiff argued that the damage to plaintiff’s reputation and her relationships with her customers cannot be compensated by money damages, and that loss of potential future customers is difficult to calculate.

Plaintiff also argued that the public interest is served by preventing parties from outside the FSM from attempting to limit the availability of goods within the FSM. Plaintiff argued that the people of the FSM are better served if they are able to import products from any source, without being restricted by agreements entered into by manufacturers and distributors outside of the FSM. Finally, plaintiff argued that the balance of injuries is in favor of plaintiff, because defendants have effectively prevented her from conducting her business, and defendants will not suffer any injury from the issuance of an injunction. Plaintiff asserts that misleading statements made about her by defendants have lowered her esteem in the community and affected her reputation.

[FSM Intrm. 613]

Defendants first argued that this case is all about the contracts between Senny’s and WSTCO, and that this case should not proceed as those contracts currently are the subject of litigation in Guam. Defendants also argued that they were exercising their right to free speech in posting the notices and advertisements, and that they were within their rights to inform the public of Senny’s importation of Winston cigarettes without the authority of the manufacturer. Defendants argued that they would be irreparably harmed by any injunction, as it would prevent them from protecting their rights under their contract with JTI.

Defendants also submitted as exhibits (1) an affidavit from Angel Caban, a JTI employee, and (2) a "Cautionary Notice" published in the Pacific Daily News April 25, 2002. Angel Caban’s affidavit states that JTI evaluated coded data from cigarettes supplied by WSTCO to JTI and found that they were manufactured in December, 2000 in Puerto Rico, and that they became unfit for sale by JTI’s standards as of December, 2001. The "Cautionary Notice" is submitted as an example of how companies publish notices to protect their trademarks. The exhibit demonstrates that Phillip Morris Products has published notice in Guam that it is the owner of certain cigarette trademarks, and that Phillip Morris has stated that it will take legal action against any person or company found to be counterfeiting, imitating, violating or otherwise infringing on its rights.

II. Standard for Issuance of a Preliminary Injunction

In reviewing the motion for preliminary injunction, the court weighed four factors: (1) the possibility of irreparable injury to the plaintiff; (2) the balance of possible injuries between the parties; (3) the movant’s likelihood of success on the merits; and (4) the impact of any requested action upon the public interest. See Ponape Transfer & Storage v. Federated Shipping Co., [1987] FMSC 14; 3 FSM Intrm. 174, 177 (Pon. 1987); Ponape Transfer & Storage v. Pohnpei State Public Lands Auth., [1986] FMSC 21; 2 FSM Intrm. 272, 276-77 (Pon. 1986); see also Ponape Enterprises v. Bergen, [1993] FMSC 52; 6 FSM Intrm. 286 (Pon. 1993). Beyond the standard preliminary injunction test, an additional factor is present in this case. Defendants claim that the injunction requested by plaintiff affects defendants’ right to free speech. The scope of the right to free speech under the FSM Constitution is an issue of first impression in this Court.

A. Defendants’ Claimed Right to Free Speech

When analyzing provisions of the FSM Constitution, a court must look first to the actual words of the Constitution. Tafunsak v. Kosrae, [1995] FMSC 51; 7 FSM Intrm. 344, 347 (App. 1995). Where the words are "clear and permit only one possible result, the court should go no further." FSM v. Tipen, 1 FSM Intrm. 79 (Pon. 1982). After reviewing the words of the Constitution, if the court finds that the words are not clear or do not permit only one possible result, the court should next consult is the Journal of the Constitutional Convention to ascertain the intent of the framers in drafting that language. Tafunsak, 7 FSM Intrm. at 347; Robert v. Mori, [1994] FMSC 7; 6 FSM Intrm. 394, 397 (App. 1994); Tipen, 1 FSM Intrm. at 83. The FSM Constitution also requires that Court decisions be consistent with the Constitution, Micronesian customs and traditions, and the social and geographical configuration of Micronesia. FSM Const. art. XI, § 11.

Article IV, Section 1 of the FSM Constitution states that, "[n]o law may deny or impair freedom of expression, peaceable assembly, association, or petition." FSM Const. art. IV, § 1. The scope of this freedom is not apparent from the text of the Constitution itself, and accordingly the Court consulted the Journal of the First Constitutional Convention. The Constitutional Convention Committee Report addressing Freedom of Speech and the Press, Standing Committee Report ("SCREP") No. 2, prepared by the Committee on Civil Liberties, states that:

The freedom of speech and the press is basic to the principles of a free and

[FSM Intrm. 614]

knowledgeable society. Without such freedom a society cannot grow or change, and must forever stagnate.

. . . [F]reedom of speech and the press, however, must not be unrestrained. Speech which is slanderous or which causes violent, illegal activities surely must be limited. The problem lies in establishing exactly what speech should be left unprotected by the future constitution.

SCREP No. 2, II J. of Micro. Con. Con. at 769 (Aug. 8, 1975) (emphasis added).

Thus, the Committee concluded that the following definitions and limitations should be incorporated into the new constitution:

Press includes newspapers, periodicals, pamphlets and every other publication that provides a means for communication; it includes published matter whether circulated with or without charge; it includes the right to publish, circulate, distribute and make known, not merely the right to speak and write. The concept of press includes all forms of broadcast journalism and reporting by whatever means.

. . . .

This freedom to communicate is the rule, and restraint is the exception . Examples of justifiable exception is speech that incites to violence or crime, or that slanders or libels, or that is coupled with unlawful conduct, or which is obscene.

. . . .

. . . [P]rior restraint is permissible where the utterance or publication presents a clear and present danger to society, or where it is "shown likely to produce a clear and present danger of serious substantive evil that rises far above public inconvenience, annoyance, or unrest." Terminiello v. Chicago, [1949] USSC 77; 337 U.S. 1, 4 (1949).

SCREP No. 2, II J. of Micro. Con. Con. at 769-70 (emphasis added).

The flyers and advertisements at issue in the motion for a preliminary injunction may be interpreted as "press" for purposes of Article IV, Section 1 of the FSM Constitution. The issue is whether these advertisements constitute the type of press that deserves constitutional protection. Under United States case law interpreting the United States Constitution’s guarantee of freedom of speech, a distinction is made between awards of damages following trial (in defamation cases, for example) and prior restraints on speech. It is a question whether, by reference to the United States cases cited in SCREP No. 2, the framers of the FSM Constitution intended to make the same distinction. The Court cannot at this stage of the litigation make a finding that the entire flyer and advertisements published by WSTCO were clearly unlawful. Defendants thus argued that a prior restraint is improper) that any harm caused by any alleged misconduct by defendants should be the subject of an award of damages after trial, rather than being enjoined at this preliminary stage.

However, another consideration for the Court is that at least a portion of the speech with which this case is concerned involves commercial speech. Commercial speech is expression related solely to the economic interests of the speaker and its audience, or speech which does no more than propose a commercial transaction. Here, it is apparent that the primary motivation for WSTCO to distribute its pamphlets and place advertisements in the Kaselehlie Press was that WSTCO was engaged in commercial competition with Senny’s Enterprises, and stood to gain competitively by encouraging merchants and consumers not to buy Senny’s product.

No guidance was found in the Journal of the Constitutional Convention as to the specific

[FSM Intrm. 615]

protection the framers of the FSM Constitution sought to give commercial speech5. However, the Journal of the First Constitutional Convention did recognize that some forms of speech deserve less protection than others) the Journal states that, "[t]he critical question is whether speech is constitutionally protected against any form of punishment." SCREP No. 2, II J. of Micro. Con. Con. at 769-70. The Journal then noted that "speech that incites to violence is not constitutionally protected." Id. The Court must determine whether the fact that WSTCO’s speech is commercial in nature means that it should receive a different measure of constitutional protection.

Commercial expression serves two different functions - it serves the economic interests of the speaker, and also assists consumers and furthers the societal interest in dissemination of information. It may be constitutionally protected from unwarranted governmental restriction; however, there are common sense distinctions between commercial speech, which proposes a commercial transaction, and other varieties of speech. The issue is whether these distinctions warrant imposing lesser constitutional protection to commercial speech than to other forms of speech. The Court finds that commercial speech does deserve less constitutional protection than other varieties of speech. The societal benefits of commercial speech are directly related to the informational function; thus, there can be no constitutional objection to the suppression of commercial messages that do not accurately inform the public about a lawful activity. The government should be permitted to restrict commercial forms of communication more likely to deceive the public than to inform it.

Accordingly, the Court approached WSTCO’s arguments as to the unconstitutionality of any prior restraint on its right to free speech as follows: first, the distinction was drawn between those portions of WSTCO’s publications that legitimately provide consumers with information, and those portions which are solely related to proposing a commercial transaction. The Court accords the first category constitutional protection, as it approximates pure speech. As for the commercial speech contained within WSTCO’s publications, however, the Court determined that it would not afford it constitutional protection unless the Court found that the speech concerned a lawful activity and was not misleading. The Court issued the preliminary injunction because, as discussed below, it found that certain portions of WSTCO’s commercial speech were misleading to consumers and merchants.

B. Movant’s Irreparable Injury

Plaintiff claims that she has been irreparably injured because her reputation has been tarnished, and she has lost customers and potential customers due to WSTCO publishing the flyers and advertisements plaintiff wishes to restrain. At the hearing on the motion for a preliminary injunction, plaintiff’s counsel referred the Court to the affidavit of Senyorina Yang filed with the complaint and motion, which states that Senny’s sold an estimated 150-200 cartons of cigarettes per day in Pohnpei prior to February 14, 2002, and that Senny’s sold only about one carton per day after the notices and advertisements were published. Ms. Yang also stated that, as a result of the letters, notices, advertisements, and oral statements by WSTCO, her customers in Pohnpei, Kosrae, and Chuuk have expressed concern about whether Senny’s was acting lawfully, and have told salespersons they are reluctant to purchase from Senny’s.

[FSM Intrm. 616]

This Court previously has recognized that,

the loss of goodwill, loss of customers and potential customers, lost sales, and similar harms . . . are not readily compensable by money damages, and thus are precisely the type of harm a preliminary injunction is intended to prevent. Economic damages based on such harms are extremely difficult to calculate: it is hard to prove, for example, how many people stopped buying a particular product, or bought less of that product, and for what period of time, that might be related to the conduct alleged.

Foods Pacific Ltd. v. H.J. Heinz Co. Australia, Ltd., [2001] FMSC 70; 10 FSM Intrm. 409, 417 (Pon. 2001).

Defendants argue that plaintiff cannot demonstrate irreparable injury because plaintiff quantifies her damages in her complaint. Plaintiff’s complaint does set forth specific calculations of lost sales. However, plaintiff also asserts other damages, e.g. to reputation and loss of potential customers, that are not readily calculable and are not readily compensable by money damages. Plaintiff also demonstrates that the dramatic drop in her sales of Winston cigarettes corresponded in time with the publication of pamphlets and advertisements by defendants. Accordingly, the Court found that plaintiff made a sufficient showing that she had been irreparably harmed by defendants’ conduct.

C. Balance of Injuries Between the Parties

WSTCO also asserted that it would be irreparably injured if a preliminary injunction issued to restrain it from informing the public about Senny’s products. WSTCO argued that it would be forced out of business if it were not allowed to protect its brand names and goodwill, and enforce its exclusive distributorship agreement with JTI against "unauthorized" importers like Senny’s.

WSTCO did not substantiate its assertion that it would be run out of business in the FSM if a preliminary injunction issued in this case. As set forth in further detail below, the Court fashioned the injunction to protect WSTCO’s right to free speech, as well as the public’s right to receive accurate information about consumer products. WSTCO has a right to disseminate non-misleading information about Senny’s products. WSTCO must walk a fine line in doing this, and it does so at its own risk.

What the Court will not tolerate, however, is WSTCO’s threats to merchants and consumers, stating that "obtaining" JTI products from anyone other than WSTCO constitutes "selling or consuming counterfeit tobacco products or participating in the unauthorized importation of JTI products." Pl. Mot. for TRO, Attach. to Ex. B (Feb. 14, 2002). The subsequent paragraph in that notice states that, "[i]f it is found that any wholesale or retailer of JTI tobacco products is acquiring those products from sources other than WSTCO, JTI and/or WSTCO will take legal action against you, including restricting your right to sell JTI products at the wholesale or retail level." Id. (emphasis added). In the advertisements placed in the Kaselehlie Press, WSTCO qualifies its statement, asserting that Senny’s product "are of poor quality, stale-dated, and may be counterfeit." Pl. Mot. for TRO, Attachs. to Ex. B (Mar. 7, 2002) (Mar. 21, 2002).

The term "counterfeit" has a specific legal meaning: "to forge; to copy or imitate, without authority or right, and with a view to deceive or defraud, by passing the copy or thing forged for that which is original or genuine." Black’s Law Dictionary 315 (5th ed. 1979); see also 20 Am. Jur. 2d Counterfeiting § 1, at 369 (1965) (counterfeit is "that which is made in imitation of something with a view to deceive"). It is clear that the use of the term counterfeit in the context of this notice implies that Senny’s, as well as any consumer or merchant purchasing from Senny’s, is engaging in illegal conduct. This is misleading to consumers and merchants.

[FSM Intrm. 617]

The message this gives to merchants and consumers is that they are engaging in unlawful activity by purchasing cigarettes that were manufactured by JTI, but were received through a different distribution channel than that authorized by JTI. Goods received through unauthorized distribution networks often are referred to as "gray market" goods, or parallel products. Gray market goods are genuine products possessing a brand name protected by trademark or copyright, which are typically manufactured abroad and then purchased and imported by third parties, bypassing authorized distribution channels. See 21A Am. Jur. 2d Customs Duties and Import Regulations § 86, at 812-13 (rev. ed. 1998). Gray market goods are not counterfeit6, even though in some jurisdictions it is illegal to import them without the consent of the trademark owner.

WSTCO has emphasized that JTI and WSTCO are the only entities which have available the information required to determine where cigarettes manufactured by JTI originate, when they are manufactured, and when they become stale-dated. JTI and WSTCO apparently were able to ascertain by the codes on the Winston cigarettes sold by Senny’s where they were manufactured by JTI and that they were two months past their date of sale. Caban Aff., Def. Ex. A. For WSTCO to publish and state that these goods were counterfeit, or that they might be counterfeit, without conducting any limited investigation, was irresponsible and misleading to consumers and merchants. These statements appear calculated to frighten consumers and merchants rather than to provide them with accurate information, and as such they do not constitute speech which should receive any constitutional protection.

Accordingly, the Court finds that WSTCO is not irreparably injured by an injunction which prohibits WSTCO from accusing Senny’s of unsubstantiated illegal conduct, and threatening unspecified legal action against those who purchase from Senny’s.

D. Movant’s Likelihood of Success on the Merits

Plaintiff’s counsel asserts that it has presented uncontroverted evidence of tortious conduct by WSTCO) specifically, that WSTCO has interfered with plaintiff’s agreements with merchants and with her prospective business relationships by directing merchants and consumers not to do business with Senny’s.

WSTCO argues in response that (1) plaintiff has not demonstrated any likelihood of success as to her claims based on WSTCO’s alleged anti-competitive conduct; (2) defamation has not yet been recognized as a tort in Pohnpei or anywhere else in the FSM; (3) WSTCO’s statements are all true and not defamatory; (4) an injunction should not issue even if plaintiff can demonstrate that she will be successful as to her defamation or other tort claims, due to the prohibition on prior restraint of free speech.

Without addressing plaintiff’s other claims in detail at this stage of the proceedings, the Court finds that plaintiff has established a likelihood of success on the merits of her tortious interference claims and that this factor weighs in favor of granting a limited preliminary injunction. This Court previously has held that relief may be granted under the law of Pohnpei for a claim of tortious interference with a contractual relationship when an individual’s economic advantages obtained through dealings with others are knowingly jeopardized out of petty or malicious motives, or by the improper or unjustified conduct of a third party. Federated Shipping Co. v. Ponape Transfer & Storage Co., 4 FSM Intrm. 3, 14 (Pon. 1989).

[FSM Intrm. 618]

Plaintiff has demonstrated loss to her business. Defendants do not dispute posting the flyers and advertisements. In order to succeed on the merits of a tortious interference claim, plaintiff also will have to demonstrate that her business was lawful, and that defendants’ conduct was improper or unjustified. Id. at 15.

The issue of whether Senny’s import and sale of Winston cigarettes was "lawful" is a complicated one. This Court is not prepared at this time to adjudicate the parties’ rights and obligations pursuant to the parallel products agreement and the exclusive sub-distributorship agreement. What is clear is that there has been no judicial determination that Senny’s was acting illegally, nor have defendants asserted that she violated any FSM law by importing cigarettes from someone other than WSTCO.

WSTCO asserts that it has a legitimate interest in protecting its distribution network and enforcing its exclusive distributorship agreement with JTI. Once plaintiff has proven the elements of tortious interference, it is up to defendants to prove justification. At this time, the Court has before it no evidence that Senny’s acted unlawfully or that defendants’ actions were justified. Accordingly, the Court found that this factor weighed in favor of granting the preliminary injunction.

E. Effect on the Public Interest of Issuance of a Preliminary Injunction

The Court also found that the public interest weighed in favor of issuing an injunction, limited in scope to protect the public from statements made by defendants which are more likely to mislead than to inform the public.

The Court finds that the public should not be subjected to misleading information regarding the consequences to them if they purchase such goods, when there has been no judicial determination that Senny’s, or any of its merchants or consumers, is doing anything improper by purchasing and consuming Winstons from someone other than WSTCO.

The Court also finds that statements implying that the cigarettes imported by Senny’s were counterfeit are misleading and should be enjoined. Accordingly, the Court issued an injunction limited in scope to prevent defendants from alleging that Senny’s, and by implication consumers and merchants who have purchased from Senny’s, have engaged in criminal conduct or conduct that will subject them to unspecified legal action.

Conclusion

The foregoing sets forth the reasoning of the Court in granting plaintiff a preliminary injunction in this case. This case is hereby scheduled for a status conference on August 15, 2003, at 9:00 a.m.

* * * *

Footnotes:

1. The Winston brand includes Winston and Doral cigarettes, among others.

2. Although no specific evidence was presented, counsel for both parties repeatedly referred to pending litigation in Guam Superior Court regarding this contract.

3. Again, this Court has not seen evidence of the agreement between JTI and WSTCO which allegedly grants WSTCO exclusive rights to distribute certain brands; however, this fact did not appear to be disputed by plaintiff.

4. The Court notes that Exhibit C to plaintiff’s complaint, the flyer which was allegedly distributed to plaintiff’s customers, states that it is a notice issued on behalf of JTI, but also includes contact numbers for WSTCO. Notably, WSTCO admits in its answer at 40 that it distributed flyers in Pohnpei regarding the February, 2002 shipment of Winston KS Crown "which may have included retail businesses who trade with plaintiff." WSTCO also admits that it distributed Exhibit D to plaintiff’s complaint, which is a flyer that states it is a notice from WSTCO. Def. Answer 45. This is the flyer which appeared in the Kaselehlie Press as a full page advertisement.

5. WSTCO argues that cases in the United States have essentially done away with the distinction between commercial speech and other varieties of speech. However, a review of relevant United States cases leads the Court to the conclusion that these cases have more specifically distinguished commercial speech from "pure speech" which also contains a commercial motive. Thus, the portions of WSTCO’s publications which do provide the public with information about Senny’s product more closely approximate pure speech, while those portions of WSTCO’s publications which unjustifiably threaten merchants and mislead consumers can only be considered commercial speech) it has no value other than as coercive means of an aggressive competitor.

6. Gray market goods have been referred to as not "genuine;" however the Court finds that there is a significant distinction between that term and counterfeit, given the legal significance attached to the use of the term counterfeit to imply illegal conduct.