Answer unclear in Clearly beverage infringement case

Clearly Food & Beverage Co. v. Top Shelf Beverages, Inc.,
No. C13–1763, 2015 WL 1926503 (W.D. Wash. Apr. 28, 2015)
 
Plaintiff Clearly Food owns, by a 2012 assignment from the
defunct Clearly Canadian corporation, a registration for Clearly Canadian for “flavored
mineral waters, fruit flavored mineral waters, non-flavored mineral waters,
carbonated mineral waters, noncarbonated mineral waters, bottled drinking
waters, spring waters, soft drinks and fruit juices.” By the time of the
assignment, the product was no longer being made, though Clearly Food intended
to “reintroduce Clearly Canadian” by “bringing back the original legacy line in
its premium glass teardrop bottle (6+ flavors).” Since then, Clearly Food
resumed manufacturing Clearly Canadian beverages in limited quantities, with
bottles of sparkling water sold online. Clearly Food has an online pre-sales
campaign directed at consumers, and also received larger-scale orders from
several beverage distributors. Its plan was to begin selling in retail grocery stores
in 2015.
 
Top Shelf sells a flavored kombucha beverage under the label
“Clearly Kombucha.” “Kombucha is a drink brewed from green tea and then
fermented with a symbiotic colony of bacteria and yeast.” Top Shelf’s kombucha
is unique because it is clear: their filtration process makes their kombucha “free
from solid ‘floaties’ typically associated with kombucha [that are] … caused
by the symbiotic colony of bacteria and yeast.” Its name was originally “Top
Shelf Kombucha,” marketed as a premium mixer and non-alcoholic drink; at the
end of 2010, Top Shelf changed marketing strategies and decided to
differentiate the product from competitors based on its “clear” quality. It
also decided that it wanted Top Shelf to be recognized as a socially conscious
brewer with transparent manufacturing practices. Thus, it changed the name to “Clearly
Kombucha.”
 
Top Shelf applied for a registration, and the mark was
published for opposition in April 2011. It was then launched in Ralph’s grocery
stores throughout California. Clearly Kombucha is now sold at various retailers
in California and the Pacific Northwest, and is also available on the internet.
 
When Clearly Canadian sued, Top Shelf first argued
abandonment, but couldn’t persuade the court to grant it summary judgment. “The
standard for non-use is high” and requires “complete cessation or
discontinuance of trademark use.” Even a single use is enough to avoid
abandonment if the use is made in good faith. Evaluating whether use is in the
ordinary course of trade is often intensely factual. Regardless of whether the
standard of proof was clear and convincing or preponderance, Top Shelf failed
to carry its burden.
 
The predecessor entity’s last full-scale production run of
Clearly Canadian beverages was sometime in 2009. In September 2009, it shipped 432
cases of Clearly Canadian 20–ounce bottles to Paw Paw Wine Distributor in
Michigan. Paw Paw sold these to retailers from 2009 through 2011. In August
2009, GrayCo Sales Limited, a beverages distributor in Ontario, Canada, also sold
approximately $225,000 worth of Clearly Canadian product to a retailer.
Intrastate Distributors, Inc., a beverage wholesale and manufacturing company
located in Michigan, bottled Clearly Canadian product during 2011 and 2012. GrayCo’s
president maintained a trade booth at the Canadian National Exhibition in 2010
and 2011 featuring Clearly Canadian products. (How are any of the Canadian
activities relevant to whether there was use in the US?)
 
In 2012, GrayCo negotiated a license with Clearly Food to
sell Clearly Canadian beverages. Also in 2012, Intrastate filled approximately
1,800 12–pack cases of 11–ounce bottles with Clearly Canadian product and sold
1,872 cases of Clearly Canadian beverages to GrayCo. GrayCo then displayed and
sold Clearly Canadian beverages during the 2012 Canadian National Exhibition,
which typically has over 1.5 million attendees. 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. Beverages
Direct sold the product exclusively to retail purchasers located in the United
States. In 2013, Intrastate sold another approximately $10,000 worth of product
to GrayCo, several pallets of which went to Beverages Direct, and the balance to
the 2013 Canadian National Exhibition.
 
Clearly Food’s 2014 online pre-sales campaign generated over
10,000 orders, resulting in over 27,000 cases of product due to be shipped in
2015. Over 90% of those transactions are with US customers. Clearly Food also
received eight “full truckload” orders from seven different beverage
distributors, meaning that it will ship over 30,000 bottles of Clearly Canadian
product in 2015.
 
Thus, the evidence showed that “intermittent, yet
appreciable commercial sales” occurred from 2009 to now. A jury could
reasonably find that those sales were sufficient to preclude a finding of
abandonment. A jury could find that the scope of the activity was commercially
reasonable given the situation: “a brand transfer, during bankruptcy
proceedings, by a declining business to a start-up company seeking to
revitalize the brand.” Although Top Shelf had evidence indicating that the
sales made immediately after Clearly Food acquired the mark were made solely to
preserve trademark rights, that wasn’t sufficient for summary judgment here.
 
The court didn’t reach Top Shelf’s argument in its reply
brief that sales to third-party retailers or distributors weren’t sufficient “use
in commerce” because they weren’t uses by or for the benefit of the trademark
owner, because Top Shelf’s argument came too late. Top Shelf relied on two old
TTAB rulings 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.” Also, Top Shelf didn’t explain
how these rulings fit into Ninth Circuit case law. And anyway, there were sales
in the US by or on behalf of Clearly Canadian in September 2009, and to
Beverages Direct in October 2012. (Which is just over the three-year nonuse
period that leads to a presumption of abandonment.) A jury could reasonably
find that this gap gave rise to a presumption of abandonment, but even so, Clearly
Food raised a question of material fact regarding the second prong of
abandonment: intent to resume use of the mark. There was a lot of documentary
evidence of Clearly Food’s intent to resume use, from August 2011 to now. A
purely subjective desire to resume use, of course, isn’t enough, but Clearly
Food also provided evidence of affirmative steps it took during 2012 to resume
use, “including seeking out manufacturing and distribution retail partners,
lining up investors, and creating a business plan.”
 
Nor could Top Shelf prove on summary judgment that the
predecessor company abandoned the mark before Clearly Food purchased it. The
mark hadn’t been out of use for more than three years at the time of sale, and financial
troubles alone don’t prove intent to abandon. After all, “[s]ome business and
financial firms even specialize in rescuing troubled companies, rehabilitating
the business, and capitalizing on their goodwill and intellectual property,
including trademarks.”
 
Top Shelf argued that Clearly Canadian’s trademark
registration should be cancelled for fraud, but that’s hard to win. Clearly
Food’s CEO’s declaration attached to its Section 8 renewal declared that the
mark was in use, and used as a specimen a photograph of an empty plastic bottle
of Clearly Canadian peach-flavored sparkling water. This bottle was bought in
Michigan in 2011 by an affiliate. This evidence wasn’t enough to show fraud for
summary judgment purposes: Top Shelf didn’t show the deception was willful. The
CEO testified in deposition that, “although he knew Clearly Food itself was not
manufacturing plastic bottles of Clearly Canadian beverages at the time he
signed the declaration, he believed that the Clearly Canadian product was still
being sold by third parties in commerce through 2011 (as shown by his affiliate’s
then- recent purchase of the specimen bottle), and understood that such sales
were sufficient to satisfy the Section 8 standard of use in commerce.” Though
there was evidence that he understood that Clearly Canadian itself needed to
use the mark in order to avoid abandonment, credibility is a question for the
jury.
 
Nor did Top Shelf succeed in getting rid of the infringement
claims. The court noted that invalidating the registration would only shift the
burden to Clearly Food to show that its claimed mark was a mark, and found that
Clearly Food could do so.
  
Clearly Canadian logo

Clearly Canadian bottles

Similarity: the bottles were shaped differently and the mark’s
appearance on the labels wasn’t “overly similar.” The Clearly Canadian label
has horizontal text and a picture of the fruit that represents the beverage’s
flavor, while the Clearly Kombucha label has vertical text in a different font and
an apparently whimsical drawing. The logos as used separately from the bottles also
weren’t “overly similar”: Clearly Canadian’s logo consists of blue, horizontal
text, and a red bottle with a maple leaf; Clearly Kombucha’s label is a black,
oversized letter “C” with the word “Clearly” written vertically inside the “C”
and the word “kombucha” written in a different font outside of the “C.”
 

Clearly Kombucha bottle

Clearly Kombucha logo

But the sound was quite similar, and “clearly” was the
operative word in both trademarks. The PTO required both registrants to
disclaim rights “Canadian” and “kombucha” without the preceding word “clearly.”
And the meaning of the trademarks was also similar, insofar as they both relied
on “clearly” to describe an aspect of their product. The rule that similarities
weigh more heavily than differences controlled here: a reasonable jury could
find that similarity favored plaintiff.
 
Marketing channels: while use of the internet doesn’t
constitute overlapping marketing channels as a matter of law, the parties hotly
contested whether the two products would typically be stored in the same
shelves, aisles, or general areas of a retail store. Top Shelf argued that
Clearly Kombucha must be located in the refrigerated section, while Clearly
Food disagreed; on summary judgment, the court assumed that the products would
be displayed near each other. “The significance of the potential adjacent
storage, however, is blunted by the fact that Clearly Canadian is not currently
sold in any brick and mortar retail stores. … [I]t remains unclear whether
Clearly Canadian will be sold in similar retail stores as Clearly Kombucha, or
in the same geographic region as Clearly Kombucha, in the near or intermediate
future.” There’s no current significant overlap in marketing channels, and
future overlap was speculative. Thus, this factor deserved little weight, and
the weight it had favored Top Shelf.
 
Relatedness of goods: the products are single-serve, carbonated,
clear bottled beverages. Though Top Shelf emphasized the affirmative health
benefits allegedly associated with kombucha, a jury could find that the
products were related enough to associate them.
 
Strength of the Clearly Canadian mark: Puzzlingly, the court
held that a jury could reasonably find that the Clearly Canadian mark was descriptive
or suggestive, even though above the court said correctly that “clearly” describes a product feature (as does
Canadian)—how could it be otherwise? (The registration was filed on a 44(d)
basis and issued under 44(e), if you’re wondering.)
 
Clearly Food’s evidence of secondary meaning was lots of
sales (though they dwindled substantially after 1992); Clearly Canadian’s
Facebook page, which has received over 35,000 “likes”; and a November 2014
episode of a daily internet comedy show with over one million subscribers that
discussed the Clearly Canadian beverages for four-and-a-half minutes. A jury
could reasonably find that this strength favored Clearly Food, or that the mark
was weak. Clearly Food contended, but did not provide evidence that, the mark
was incontestable, which would be conclusive proof of secondary meaning. But
incontestability doesn’t make a mark strong; “the relative strength or weakness
of an incontestable mark is still relevant to the likelihood of confusion
analysis.”
 
There was conflicting evidence on actual confusion. Top
Shelf’s survey found that “the majority of respondents … said that Clearly
Kombucha is either not affiliated with or sponsored by any other company
organization, or they ‘don’t know.’” Clearly Food presented five written
comments from consumers encountering Top Shelf’s products online expressing a belief
that Clearly Kombucha and Clearly Canadian were affiliated: (1) “are you no
longer making Clearly Canadian, too?”; (2) a comment next to picture of Clearly
Kombucha bottles: “instead of clearly Canadian it’s clearly Kombucha!” (that
doesn’t seem clearly confused, if you’ll excuse the pun); (3) a similar
comment, “I’ve heard of (and loved) Clearly Canadian, but never Clearly
Kombucha!” (same); (4) a query on Clearly Kombucha’s Facebook page asking, “Are
you producing Clearly Canadian too? You are the same company yes?” (note that
the cases are split on whether clarifying questions are evidence of confusion
or evidence that consumers recognize that there’s a difference worth attending
to); and (5) another query “Why are you pushing only Clearly Kombucha? Your
Clearly Canadian should be on top! I used to drink you all the time growing
up.”  Clearly Food also attacked Top
Shelf’s survey.  A jury could reasonably
find Clearly Food’s evidence to be de minimis or more credible than Top Shelf’s
survey.
 
Clearly Food also claimed that it intended to release a
sparkling tea beverage in the United States that will overlap with the Clearly
Kombucha product, but it failed to provide any supporting evidence for that
assertion.
 
Consumer care: Top Shelf’s expert called kombucha a “niche
product” and opined that the price point of Clearly Kombucha is high enough,
relative to other bottled beverages, to foster a relatively greater degree of
care among consumers. Top Shelf’s founder also testified that its clients are
particularly health-conscious, and therefore are more discerning. Clearly Food
rebutted this with evidence showing that Top Shelf’s beverages have been sold
at a variety of price points, on the low end from $1.50 to $3.00. A jury could
reasonably find a low degree of consumer care.
 
Intent to confuse is of minimal importrance, but Top Shelf’s
awareness of the Clearly Canadian brand weighed in favor of infringement.  (Argh! 
Awareness isn’t intent to confuse! 
Awareness is awareness.) Top Shelf’s founder, however, testified that
the intent in changing the name of its product to Clearly Kombucha was both to
emphasize the “clear” nature of its product and to “reflect transparency in the
brewing process.”  This factor was
neutral.
 
Because of the intensely factual nature of trademark
disputes, summary judgment is generally disfavored, and that was true here.
 
Dilution, however, was a non-starter.  As of 2011, when Clearly Kombucha was
launched, there wasn’t sufficient evidence of fame:
 
A consulting group’s 2007 report on
the Clearly Canadian trademark showed that only 34 % of the survey respondents
who had consumed flavored soda or water within the last month (and only 22% of
the survey respondents overall) were aware of the Clearly Canadian brand. This
recognition rate was much lower than the rate for competitors such as Aquafina
(94%), Schweppes (77%), Perrier (76%), VitaminWater (61%), and Pellegrino
(43%).
 
Sales had declined steadily between 1992 and 2007, and
between 2007 and 2009 they dropped to a minimal amount. In 2009, production of
Clearly Canadian beverages ceased. “Cybersquatters had taken over the Clearly
Canadian website domains. Negligible sales of Clearly Canadian were occurring
on the secondary market.” Clearly Food did not raise a question of fact on
fame.  An internet comedy show discussion
plus 35,000 Facebook “likes” were simply insufficient to show that Clearly
Canadian was a “household name.”

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