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Jem Marketing, LLC v. Cellular Telecommunications Industry Association

February 05, 1998


Submitted January 22, 1998 - Decided February 5, 1998

On appeal from Superior Court of New Jersey, Law Division, Camden County.

Before Judges Baime, Wefing and Braithwaite.

The opinion of the court was delivered by: Baime, P.j.a.d.

Plaintiff JEM Marketing, LLC brought this action against defendants Cellular Telecommunications Industry Association, Motorola Corporation, and Professional Securities Bureau Ltd. alleging violations of the New Jersey Antitrust Act (N.J.S.A. 56:9-1 to -19), racketeering under the New Jersey Racketeering statute (RICO Act) (N.J.S.A. 2C:41-1 to -6.2), conspiracy, tortious interference with economic advantage, malicious prosecution, and libel and slander. The principal thrust of plaintiff's claim was that defendants conspired to make false accusations to the United States Secret Service in an effort to drive the company to ruin. According to the complaint, defendants informed the Secret Service that plaintiff was engaged in the illegal business of altering cellular telephones to defraud cellular carriers of their activation and monthly service fees. Plaintiff alleged that these false accusations culminated in the issuance of a search warrant and the confiscation of the company's equipment, supplies and documents, resulting in the destruction of its business. The Law Division dismissed plaintiff's complaint. Plaintiff appeals. We affirm.

We hold that the practice of "cloning" cellular telephones violates federal law. We also conclude that because plaintiff operated an illegal enterprise, it did not have a legitimate business interest subject to protection under New Jersey's tort laws. Plaintiff's claims for antitrust violations, racketeering, tortious interference with economic advantage and conspiracy were properly dismissed on that basis. We are further satisfied that the Law Division correctly dismissed plaintiff's remaining claims.


Plaintiff is a New Jersey Limited Liability Company engaged in the business of providing cellular extension telephone products. According to plaintiff, an "extension telephone" is a cellular unit that carries the same telephone number and electronic serial number as the principal telephone. Plaintiff's business involved copying factory-set serial numbers from a customer's cellular telephone and reprogramming another cellular telephone with the same serial number. Plaintiff utilized what is known as a "moto box" or "copycat box," a device that transfers the telephone number and serial number to the "extension" telephone. The end-result of this process is the creation of two telephones, the original and a "clone," that carry the same telephone number and serial number. All telephone calls made from the extension telephone are billed by the cellular provider as if made from the original factory-set telephone purchased by the consumer. As we understand it, the cellular carrier is deprived of its activation and monthly service fees on the cloned telephone. Apart from its business of reprogramming cellular telephones, plaintiff manufactured and/or sold moto boxes to the public.

Plaintiff actively marketed its services in a number of national publications. Having become aware of plaintiff's business, Motorola, a manufacturer of cellular telephones, Cellular Telecommunications Industry Association, an organization representing manufacturers and producers of cellular products, and Professional Securities Bureau Ltd., a private investigative agency, commenced an investigation. According to plaintiff's complaint, defendants "began disseminating information to the . . . Secret Service." More specifically, defendants allegedly told the Secret Service that (1) moto boxes have no legitimate purpose, (2) such devices can be used to bypass a carrier's tracking and billing processes, and (3) plaintiff was accepting "stolen" telephones in exchange for copycat boxes.

Based upon the information supplied by defendants and his independent investigation, Special Agent Thomas Tamburello of the Secret Service applied for a warrant to search plaintiff's business premises. The affidavit upon which the search warrant ultimately issued was submitted to the Law Division by plaintiff in opposition to defendants' motion to dismiss the complaint, and is thus part of the record. In the affidavit, Special Agent Tamburello recited much of the information that had been supplied by defendants. With one critical deviation, the complaint accurately described the information that defendants had given the Secret Service. That deviation assumes importance later in our analysis of the legal issues, and we thus digress to describe it here in some detail. Contrary to the facts alleged in the complaint, defendants never told the Secret Service that plaintiff was trafficking in "stolen" cellular telephones. According to Special Agent Tamburello's affidavit, Joseph Tazelaar, a Motorola employee, told him that he, Tazelaar, had offered to trade "stolen" cellular telephones in exchange for a copycat box, but plaintiff's principal, Gary Epstein, "had refused to meet with him."

In any event, a search warrant was executed on April 13, 1995. Plaintiff asserted that virtually all of its equipment and vital working documents were confiscated. One year later, the government returned all of the seized items, noting that it did not intend to prosecute. Plaintiff claimed that the disruption in its business caused its demise.

Defendants moved to dismiss the complaint for failure to state a claim upon which relief can be granted. See R. 4:6-2(e). The Law Division Judge dismissed plaintiff's claims for antitrust violations, racketeering, tortious interference with economic advantage and conspiracy, finding that plaintiff was engaged in an illegal business and thus had no legitimate interest subject to protection under New Jersey's tort laws. The court additionally dismissed plaintiff's malicious prosecution action on the grounds that (1) no criminal proceedings were ever instituted against plaintiff, and (2) as a matter of law, defendants' communications with the Secret Service were supported by probable cause. The court dismissed plaintiff's libel and slander claims, finding that the one-year statute of limitations had expired.


Although not dispositive of all of plaintiff's claims, the critical question is whether "cloning" cellular telephones is illegal. We thus commence our analysis with a concise overview of the relevant rules, regulations and orders adopted by the Federal Communications Commission (FCC).

The cellular telephone industry has been regulated by the federal government since 1981. See 47 U.S.C.A. §§ 151, 332; see also In re An Inquiry into the Use of the Bands 825-845 MHz and 870-890 MHz for Cellular Communications Systems; and Amendment of Parts 2 and 22 of the Commission's Rules Relative to Cellular Communications Systems, 86 F.C.C.2d 469 (1981) (First ESN Order). The FCC has complete plenary authority over the industry. 47 U.S.C.A. § 151. The Secret Service is one of the principal enforcement agencies dealing with the regulation of public mobile services and consumer access devices. See 18 U.S.C.A. § 3056. One of the primary goals of radio airway regulation is to prevent "pirating" or "cellular theft." See, e.g., Report and Order, In re Revision of Part 22 of the Commission's Rules Governing the Public Mobile Services, FCC 92-115, 9 F.C.C.R. 6513, 76 ...

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