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Clearly Food & Beverage Co. v. Top Shelf Bevs., Inc.

United States District Court, W.D. Washington

April 28, 2015

THE CLEARLY FOOD & BEVERAGE CO., INC., Plaintiff,
v.
TOP SHELF BEVERAGES, INC., Defendant

For The Clearly Food & Beverage Co., Inc., Plaintiff: John E Whitaker, WHITAKER LAW GROUP, SEATTLE, WA; Philip P Mann, Timothy J Billick, MANN LAW GROUP, SEATTLE, WA.

For Top Shelf Beverages, Inc., Defendant: Nathaniel G Kelly, LEAD ATTORNEY, PRO HAC VICE, LAW OFFICE OF NATE KELLY, SAN FRANCISCO, CA; James A Hertz, Richard H Friedman, FRIEDMAN RUBIN (BREMERTON), BREMERTON, WA; Michael P Hogan, Kevin S Costanza, SEED INTELLECTUAL PROPERTY LAW GROUP PLLC, SEATTLE, WA.

For Top Shelf Beverages, Inc., Counter Claimant: Nathaniel G Kelly, LEAD ATTORNEY, PRO HAC VICE, LAW OFFICE OF NATE KELLY, SAN FRANCISCO, CA; Michael P Hogan, Kevin S Costanza, SEED INTELLECTUAL PROPERTY LAW GROUP PLLC, SEATTLE, WA.

ORDER GRANTING IN PART AND DENYING IN PART SUMMARY JUDGMENT

JAMES L. ROBART, United States District Judge.

I. INTRODUCTION

Before the court is Defendant Top Shelf Beverages, Inc.'s (" Top Shelf" ) motion for summary judgment. ( See Mot. (Dkt. # 47).) This is a trademark case involving two brands of bottled beverages: " Clearly Canadian" sparkling water and " Clearly Kombucha" fermented tea. Having considered the submissions of the parties, the balance of the record, and the relevant law, and deeming oral argument unnecessary, the court GRANTS in part and DENIES in part Top Shelf's motion for summary judgment.

II. BACKGROUND

Unless otherwise noted, the following facts are undisputed. Plaintiff The Clearly Food & Beverage Co. (" Clearly Food" ) owns the trademark " Clearly Canadian," United States Trademark Registration No. 1,697,898, as used on " flavored mineral waters, fruit flavored mineral waters, non-flavored mineral waters, carbonated mineral waters, non-carbonated mineral waters, bottled drinking waters, spring waters, soft drinks and fruit juices." (Resp. (Dkt. # 54)) at 4; Ledden Decl. (Dkt. # 47-3) Ex. 2 (" Assignment" ).) Clearly Food obtained this trademark from the now-defunct Clearly Canadian Beverage Corporation (" CC Beverage" ) in January 2012. ( See Assignment.) CC Beverage sold bottles of flavored sparkling water under the brand name " Clearly Canadian." (Req. for Not. (Dkt. # 49) Ex. E (" Trustee's Rep." ).) After struggling for several years to compete in the beverage market, CC Beverage filed for bankruptcy in March 2010. ( Id. ; Req. for Not. Ex. D (" Bank. Filing" ).) In January, 2012, the Clearly Canadian trademark was sold to Clearly Food on behalf of CC Beverage's secured creditors. (Ledden Decl. Ex. 1 (" Not. of Seizure" ).) Although by that time the product was no longer being manufactured, Clearly Food intended to " reintroduce Clearly Canadian" by " bringing back the original legacy line in its premium glass teardrop bottle (6 flavors)." (Ledden Decl. Ex. 3 (" Khan 8/23/11 Email" ), see also Ex. 14 (" 2012 Bus. Plan" ) (detailing Clearly Food's product development and pricing, marketing, sales, and distribution strategies, with a goal to " enter full-scale commercial production by March 2013 for North America" ).)

Since then, manufacturing of Clearly Canadian beverages in limited quantities has resumed. (Dabish Decl. (Dkt. # 56) ¶ ¶ 2-5.) Bottles of Clearly Canadian sparkling water have been sold online. (Colley Dep. (Dkt. # 57-1) at 91:6-92:4.) Clearly Food is engaged in an online pre-sales campaign directed at consumers, and has also received larger-scale orders from several beverage distributors. (2d Khan Decl. (Dkt. # 93-13) at ¶ ¶ 3-5.) Clearly Food plans to begin selling its products in retail grocery stores in 2015. ( Id. )

Top Shelf was founded by Caleb Cargle and Alison Zarrow in 2009. (Cargle Decl. (Dkt. # 47-1) ¶ 2; see generally Cargle Dep. (Dkt. # 57-3) at 35:17-37:19.) Top Shelf currently sells a flavored kombucha beverage under the trademarked label " Clearly Kombucha." (Cargle Dep. ¶ 1.) Kombucha is a drink brewed from green tea and then fermented with a symbiotic colony of bacteria and yeast. ( Id. ¶ 16.) Mr. Cargle and Ms. Zarrow have developed a unique type of kombucha that is " clear." ( Id. ¶ 7.) That is, due to the filtration process used during brewing, their kombucha is " free from solid 'floaties' typically associated with kombucha [that are] . . . caused by the symbiotic colony of bacteria and yeast." ( Id. ¶ ¶ 6-7.)

The co-founders originally sold their product under the brand " Top Shelf Kombucha." ( Id. ¶ 9.) They marketed Top Shelf Kombuhca as a high-end or " premium" mixer and non-alcoholic substitute, and sold it in a miniature champagne bottle. ( Id. ¶ 8.) Although supplies were limited by their production capabilities, they believed the sales results " showed promise." ( Id. ¶ 10.)

At the end of 2010, the co-founders changed strategies. ( Id. ¶ 12; Zarrow Dep. (Dkt. # 57-5) at 9:11-17.) After consulting with brand advisors, they decided to differentiate their product from its competitors based on its " clear" character. (Cargle Decl. ¶ 12; Zarrow Dep. at 12:16-24.) They also decided that they wanted Top Shelf to be recognized as a socially conscious brewer with transparent manufacturing practices. (Cargle Decl. ¶ 13) To reflect those goals, they decided to change the name of their product to " Clearly Kombucha." ( Id. )

The co-founders applied for a federal trademark registration in November 2010, and the " Clearly Kombucha" mark was published for opposition in April 2011. (Req. for Not. Exs. A, B.) After the mark was published, the Clearly Kombucha brand launched in Ralph's grocery stores throughout California. (Cargle Decl. ¶ 14.) Clearly Kombucha beverages are now sold at various retailers, including, among others, Safeway stores in northern California and the Pacific Northwest, Ralph's stores in southern California, a few Whole Foods grocery stores in Northern California, and PCC natural food stores in Washington and Oregon. (Cargle Dep. at 73:3-74-12; Zarrow Dep. at 27:21-28.) Clearly Kombucha is also available for purchase over the Internet. (Cargle Dep. at 83:21-25.)

In September, 2013, Clearly Food filed this action against Top Shelf, bringing claims for trademark infringement under the Lanham Act § 32, 15 U.S.C. § 1114, unfair competition under the Lanham Act § 43(a), 15 U.S.C. § 1125(a), trademark dilution under Lanham Act § 43(c), 15 U.S.C. § 1125(c), and trademark infringement and unfair competition under Washington State law. ( See generally Compl. (Dkt. # 1).) Top Shelf's motion for summary judgment on all claims is now before the court. ( See Mot.)

III. ANALYSIS

A. Summary Judgment Standard

Federal Rule of Civil Procedure 56 permits a court to grant summary judgment where the moving party demonstrates (1) the absence of a genuine issue of material fact and (2) entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Galen v. Cnty. of L.A., 477 F.3d 652, 658 (9th Cir. 2007). The moving party bears the initial burden of showing the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323.

If the moving party does not bear the ultimate burden of persuasion at trial, it can show the absence of an issue of material fact in two ways: (1) by producing evidence negating an essential element of the nonmoving party's case, or (2) by showing that the nonmoving party lacks evidence of an essential element of its claim or defense. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1106 (9th Cir. 2000). If the moving party will bear the ultimate burden of persuasion at trial, it must establish a prima facie showing in support of its position on that issue. UA Local 343 v. Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir. 1994). That is, the moving party must present evidence that, if uncontroverted at trial, would entitle it to prevail on that issue. Id. at 1473.

If the moving party meets its burden of production, the burden then shifts to the nonmoving party to identify specific facts from which a factfinder could reasonably find in the nonmoving party's favor. Celotex, 477 U.S. at 324; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In determining whether the factfinder could reasonably find in the nonmoving party's favor, " the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000).

B. Judicial Notice

Top Shelf requests that the court take judicial notice of the following documents: (1) Top Shelf's Trademark Application for the Clearly Kombucha mark, (2) the Notice of Publication of the Clearly Kombucha mark, (3) the Trademark Registration Certificate for the Clearly Kombucha mark, (4) the Combined Declaration of Use and/or Exclusable Nonuse /Application for Renewal of Registration of a Mark under Sections 8 & 9 for the Clearly Canadian mark, (5) the Proposal under the Bankruptcy and Insolvency Act filed in March 2010 by CC Beverage, and (6) the Trustee's Report to Creditors filed in In the Matter of the Proposal of Clearly Canadian Beverage Corporation, dated March 17, 2010. ( See Req. for Not. Exs. A-F.) Top Shelf obtained the trademark documents from the U.S. Patent and Trademark Electronic Search System, and obtained the bankruptcy documents from the Supreme Court of British Columbia (Vancouver Registry). ( Id. ¶ ¶ 6-7.)

Rule 201 of the Federal Rules of Evidence permits a federal court to take judicial notice of a fact that is not subject to " reasonable dispute" because it is " capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed.R.Evid. 201(b)(2). The public records of administrative agencies and other courts are appropriate matters for judicial notice. Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (taking notice of court filings); see also Dahon N. Am., Inc. v. Hon, No. 2:11-CV-05835-ODW, 2012 WL 1413681, at *8 (C.D. Cal. Apr. 24, 2012) (taking judicial notice of documents filed on the United States trademark website); CDx Diagnostics Inc. v. Histologics LLC, No. CV 13-7909-DOC RNBX, 2014 WL 3347525, at *3 (C.D. Cal. July 7, 2014) (collecting cases taking judicial notice of documents from administrative agencies). Clearly Food has not objected to Top Shelf's request. Accordingly, for the purposes of this motion, the court grants Top Shelf's request for judicial notice.

C. Abandonment

" To prove abandonment of a mark as a defense to a claim of trademark infringement, a defendant must show that there was: '(1) discontinuance of trademark use and (2) intent not to resume such use.'" Wells Fargo & Co. v. ABD Ins. & Fin. Servs., Inc., 758 F.3d 1069, 1072 (9th Cir. 2014), as amended (Mar. 11, 2014) (quoting Electro Source, LLC v. Brandess-Kalt-Aetna Grp., Inc., 458 F.3d 931, 935 (9th Cir. 2006)); see also 15 U.S.C. § 1127. Non-use for three consecutive years constitutes prima facie evidence of abandonment. Herb Reed Enterprises, LLC v. Fla. Entm't Mgmt., Inc., 736 F.3d 1239, 1247-48 (9th Cir. 2013); 15 U.S.C. § 1127. In the Ninth Circuit, non-use for three consecutive years creates only a rebuttal presumption of abandonment--it does not shift the burden of proof to the trademark owner. Abdul-Jabbar v. Gen. Motors Corp., 85 F.3d 407, 411 (9th Cir. 1996). A trademark owner can rebut the presumption of abandonment by showing valid reasons for non-use or lack of intent to abandon the mark. Id.

" The standard for non-use is high." Herb Reed Enterprises, LLC, 736 F.3d at 1247-48. " Non-use requires ' complete cessation or discontinuance of trademark use.'" Id. (quoting Electro Source, LLC, 458 F.3d at 936). The phrase " trademark use" means use that " includes placement on goods sold or transported in commerce; is bona fide; is made in the ordinary course of trade; and is not made merely to reserve a right in a mark." [1] Electro Source, LLC, 458 F.3d at 936 (quoting 15 U.S.C. § 1127). Even a " single instance of use is sufficient against a claim of abandonment of a mark if such use is made in good faith." Wells Fargo & Co., 758 F.3d at 1072 (quoting Carter-Wallace, Inc. v. Procter & Gamble Co., 434 F.2d 794, 804 (9th Cir. 1970)).

Evaluating whether a use is in " the ordinary course of trade" is " often an intensely factual undertaking." Electro Source, LLC, 458 F.3d at 940. Courts must consider the " totality of the circumstances" to determine if genuine, albeit limited usage of the mark occurred " in the ordinary course of trade." Id. ; Wells Fargo & Co., 758 F.3d at 1072. Relevant factors include the " genuineness and commercial character of the activity, the determination of whether the mark was sufficiently public to identify or distinguish the marked [products] in an appropriate segment of the public mind as those of the holder of the mark, the scope of the [trademark] activity relative to what would be a commercially reasonable attempt to market the service [or product], the degree of ongoing activity of the holder to conduct the business using the mark, [and] the amount of business transacted." Electro Source, LLC, 458 F.3d at 941 (quoting Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1159 (9th Cir. 2001)). " Good faith nominal or limited commercial sales of trademarked goods are sufficient . . . to avoid abandonment[] where the circumstances legitimately explained the paucity of the sales." Electro Source, LLC, 458 F.3d at 939.

Because abandonment of a trademark is " in the nature of forfeiture, [it] must be strictly proved." FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 515 (9th Cir. 2010). The Ninth Circuit has not determined whether this high standard of proof requires " clear and convincing" evidence or a " preponderance of the evidence." Id. ; see Grocery Outlet Inc. v. Albertson's Inc., 497 F.3d 949, 954 (9th Cir. 2007) (separate concurrences disagreeing as to the applicable standard of proof). The court need not decide which standard of proof applies here because, viewing the evidence in the light most favorable to Clearly Food, Top Shelf fails to carry its burden under either standard. See FreecycleSunnyvale, 626 F.3d at 515 (declining to decide which standard applied to a motion for summary judgment); Electro Source, LLC, 458 F.3d at 936 (same).

a. Relevant facts

Top Shelf contends that the Clearly Canadian mark is presumptively abandoned because " there is no genuine dispute of material fact that there has not been any bona fide use of [the Clearly Canadian trademark] from 2008 to the present day." (Mot. at 17.) The relevant facts, taken in the light most favorable to Clearly Canadian, Reeves, 530 U.S. at 150, are as follows.

CC Beverage's last full-scale production run of beverages bearing the Clearly Canadian trademark occurred sometime in 2009. (Ledden Decl. Ex. 8 (" 6/3/14 Khan Email" ); Ledden Decl. Ex. 9 (" 12/22/11 Khan Email" ).) On September 4, 2009, Clearly shipped 432 cases of Clearly Canadian 20-ounce bottles to Paw Paw Wine Distributors (" Paw Paw" ) in Michigan. (Bogen Decl. (Dkt. # 55) ¶ 5, Attach. A.) In turn, Paw Paw sold Clearly Canadian 20-ounce and 14-ounce beverages to retailers from 2009 through 2011. ( Id. Attachs. B, C.) In an August 2009 transaction, GrayCo Sales Limited (" Grayco" ), a beverages distributor in Ontario, Canada, sold approximately $225,000 worth of Clearly Canadian product to the retailer Big Lots. (Colley Dep. at 23:6-15; 24:19-25:3.)

Intrastate Distributors, Inc. (" Intrastate" ), a beverage wholesale and manufacturing company located in Michigan, bottled Clearly Canadian product during 2011 and 2012. (Dabish Decl. ¶ ¶ 2-3.) Graham Colley, the president of Grayco, maintained a trade booth at the Canadian National Exhibition in 2010 and 2011 featuring Clearly Canadian products. (2012 Bus. Plan. at 32-33 (" 3/30/12 Colley Letter" ).)

In March, 2012, Graham Colley, the president of Grayco, negotiated a license with Clearly Food to sell Clearly Canadian beverages. (Colley Dep. at 32:22-33:1; 45:7-9; 47:15-23.) Under the license, Grayco was required to pay Clearly Food a royalty for each case of product sold. ( Id. at 46:10-47:8.)

In 2012, Intrastate filled approximately 1,800 12-pack cases of 11-ounce bottles with Clearly Canadian product. (Dabish Decl. ¶ 5.) On August 14, 2012, Instrastate sold 1,872 cases of Clearly Canadian beverages (in raspberry and black cherry flavors) to Grayco. ( Id. ¶ ¶ 5-6, Attachs. A, B.) The order totaled approximately $10,000.00, and was shipped to Grayco in Ontario, Canada, on August 15, 2012. ( Id. ; Colley Dep. at 33:15-18).) Grayco displayed and sold Clearly Canadian beverages during the 2012 Canadian National Exhibition. (3/30/12 Colley Letter.) This fair, which runs from mid-August to Labor Day, typically receives over 1.5 million attendees. ( Id. ) In October, 2012, Grayco sold 720 cases of Clearly Canadian beverages to an online retailer called Beverages Direct, and transported the product to Beverages Direct in the United States. (Colley Dep. at 39:343:9; 66:11-24; 79:15-79; Khan Dep. at ...


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