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“Clearly Canadian” Trademark Opinion (part 2.) – trademark abandonment

By David Lilenfeld on January 30, 2016

In this post, David Lilenfeld continues to break down the court's opinion in trademark infringement case pitting CLEARLY CANADIAN v. CLEARLY KOMBUCHA.  This posts relates to the Court's opinion with respect to defendant's argument that plaintiff abandoned its CLEARLY CANADIAN trademark.

C.        Abandonment

(David Lilenfeld: a rare discussion on trademark 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(1). 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(1). (David Lilenfeld: critical point here, since the term of non-use by plaintiff appears to be three years (2012-2015)). 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 (David Lilenfeld: showing valid reason won't be hard here (bankruptcy)) 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.’” (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)).  (David Lilenfeld: the bar to prove trademark abandonment is set high, but Top Shelf might still prevail on lack of likelihood of confusion).

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.

(David Lilenfeld: 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.”)

Although “bona fide” is not defined in Section 1127, the Ninth Circuit has noted that “Black’s Law Dictionary provides two similar definitions for ‘bona fide’: ‘1. Made in good faith; without fraud or deceit. 2. Sincere; genuine.’” Electro Source, LLC, 458 F.3d at 936 (quoting Black’s Law Dictionary at 186 (8th ed. 2004)). The Ninth Circuit has also noted that “the term ‘bona fide’ in common parlance means ‘made or carried out in good faith; sincere.’”  Id. (quoting The American Heritage College Dictionary 158 (3d. ed. 2000)).

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).  (David Lilenfeld: again, setting the bar highly for Top Shelf). 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.(David Lilenfeld: the court bangs the gavel on Top Shelf's trademark abandonment argument). See Freecycle Sunnyvale, 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 (David Lilenfeld: facts pertinent to trademark abandonment ruling).

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”).)  (David Lilenfeld: here the last use date by plaintiff was 2012).

(David Lilenfeld: court probably could have started fact discussion here since all that really matters at this point is plaintiff's date of last use of the trademark). 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 79:21-80:6 (referencing a Grayco invoice dated October 23, 2012, to Beverages Direct).) In turn, Beverages Direct sold the Clearly Canadian product exclusively to retail purchasers located in the United States. (Colley Dep. at 91:6-92:4.)

In the summer of 2013, Intrastate sold another approximately $10,000.00 worth of Clearly Canadian product to Grayco. (Id. at 32:22-2; 67:1-17.) Grayco again sold several pallets worth of the beverage to Beverages Direct, and reserved the balance for the 2013 Canadian National Exhibition. (Id. at 67:1-17.)  (David Lilenfeld: so plaintiff's trademark continues in 2013 . . . different than the 2012 facts above).

Since then, Clearly Food’s 2014 online pre-sales campaign has generated over 10,000 orders, resulting in over 27,000 cases of product due to be shipped in 2015. (2d Khan Decl. ¶ 4.) Over 90% of those transactions are with customers in the United States.

Clearly Food has also received eight “full truckload” orders from seven different beverage distributors. (Id. ¶ 5.) As a result, Clearly Food will ship over 30,000 bottles of Clearly Canadian product in 2015. (David Lilenfeld: so we have only a two year or less period of non-use -- not going to be long enough to win for defendant). (Id.see also Billick Decl. Ex. N (invoices for the purchase orders).) Clearly Canadian will be sold directly to consumers at grocery stores  within those distributors’ networks. (2d Khan Decl. ¶ 5.)  Clearly Food has deployed various online, social media, and other marketing campaigns. (Khan Dep. at 46:12-19; 91:15-92:2; 95:8-15.)

b.  Application

Contrary to Top Shelf’s contention, Clearly Food’s evidence, viewed as a whole, shows that intermittent, yet appreciable commercial sales of Clearly Canadian beverages occurred from 2009 through the present. The court concludes that a jury considering this evidence could reasonably find that those sales are sufficient to preclude a finding that use of the trademark was discontinued. See Electro Source, LLC, 458 F.3d at 939  “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.”) Specifically, a jury could find that the scope of trademark and business activity in which CC Beverage and Clearly Food engaged from 2009 to the present were commercially reasonable given the situation: namely, a brand transfer, during bankruptcy proceedings, by a declining business to a start-up company seeking to revitalize the brand. See Electro Source, LLC, 458 F.3d at 939 (finding no abandonment because a struggling business’s efforts to exhaust its remaining inventory prior to dissolution constituted “core trademark activities that necessarily contemplate trading upon the goodwill of the mark”). (David Lilenfeld: 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). Clearly Food puts forth evidence of multiple uses arguably made in good faith. Although Top Shelf adduces evidence suggesting that the sales made immediately after Clearly Food acquired the trademark were made solely for the purpose of preserving the mark, the court may not weigh the evidence on summary judgment. See Reeves, 530 U.S. at 150; (Ledden Decl. Ex. 4 (“10/2/12 Khan Email”), Ex. 5 (“3/15/12 Khan Email”), Ex. 9 (“12/22/11 Khan Email”); Khan Dep. at 51:20-52:6.) As such, when evidence of all Clearly Canadian sales between 2009 and the present is taken into account, summary judgment on the issue of non-use is inappropriate.  (David Lilenfeld: the court makes this analysis look even, suggesting it was not even a close call).

In its reply brief, Top Shelf contends for the first time that sales to third-party retailers or distributors do not constitute use in commerce within the meaning of the Lanham Act because such sales are not uses by or for the benefit of the trademark owner.  (Reply (Dkt. # 102) at 4-5.) Top Shelf bases its argument on two twenty-year-old opinions by the Trademark Trial and Appeal Board (“TTAB”) that stated: “A party cannot defend against a claim of abandonment by relying on some residual goodwill generated through post-abandonment sales of the product by distributors or retailers.” Parfums Nautee Ltd., 22 U.S.P.Q.2d 1306 (P.T.O. Jan. 15, 1992); (David Lilenfeld: Societe Des Produits Marnier Lapostolle, 10 U.S.P.Q.2d 1241, at *4 n.5 (P.T.O. Feb. 10, 1989) (finding a presumption of abandonment when the last shipment of trademarked products to the United States occurred more than three years prior, despite the fact that retailers continued to sell the product thereafter)).

Top Shelf does not explain how these TTAB rulings fit into Ninth Circuit jurisprudence regarding abandonment.2  (See Reply.) More importantly, in the court is aware of only one district court in this circuit that has followed those rulings.  See Zamacona v. Ayvar, No. CV0702767ABCFMOX, 2009 WL 279073, at *2 (C.D. Cal. Feb. 3, 2009); but see Soweco, Inc. v. Shell Oil Co., 617 F.2d 1178, 1189 (5th Cir. 1980) (finding no abandonment) (David Lilenfeld: this argument came too late).

Clearly Food has not had an opportunity to respond to Top Shelf’s newly raised argument, and because, as explained below, consideration of the argument would not change the outcome of this motion, the court declines to decide the issue at this time. See Provenz v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996) (stating that a court should not consider new issues or evidence submitted in a reply brief without giving the opposing party an opportunity to respond).

Even if the court agreed that Clearly Food could not rely on sales by unaffiliated retailers or distributors, summary judgment on the abandonment claim would not be appropriate. (David Lilenfeld: agreed -- use in commerce is use in commerce, whether by the trademark owner or a third-party). It is undisputed that Clearly Canadian beverages were sold in the United States by or on behalf of Clearly Canadian to Paw Paw in September 2009, and to Beverages Direct in October 2012. (See Bogen Decl. ¶ 5, Attach. A; Colley Dep. at 39:3-43:9; 66:11-24; 79:15-79: Khan Dep. at 79:21-80:6.); Star-Kist Foods, Inc. v. P.J. Rhodes & Co., 769 F.2d 1393, 1396 (9th Cir. 1985); 15 U.S.C. §1127.

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