Wunderwerks, Inc. v. Dual Beverage Company LLC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

WUNDERWERKS, INC., Case No. 21-cv-04980-SI

Plaintiff,

ORDER DENYING PLAINTIFF'S

v. MOTION FOR A PRELIMINARY

INJUNCTION DUAL BEVERAGE COMPANY LLC, et al., Dkt. No. 16

Defendants.

On November 5, 2021, the Court heard oral argument on plaintiff’s motion for a preliminary injunction. Dkt. No. 17. Plaintiff Wunderwerks, Inc. (“plaintiff” or “Wunderwerks”) alleges defendants Dual Beverage Company LLC (“DBC”), WNDER, LTD (“Wnder”), and DOES 1-10, collectively “defendants,” infringe plaintiff’s trademark and should be preliminarily enjoined from doing so. Dkt. Nos. 1 and 17. Having considered the papers and arguments made, the Court hereby DENIES plaintiff’s motion.

BACKGROUND Plaintiff’s complaint (Dkt. No. 1 at 1) alleges five causes of action against defendants: (1) Federal Trademark Infringement under 15 U.S.C. § 1114; (2) Federal False Designation of Origin under 15 U.S.C. § 1125(a)(1)(A); (3) Common Law Trademark Infringement; (4) California Statutory Unfair Competition under Cal. Bus. & Prof. Code § 17200 et seq.; (5) Declaratory judgment that Trademark Reg. No. 6,198,393 is valid and enforceable. Plaintiff Wunderwerks was founded in September, 2019, as a wholly owned subsidiary of parent company Radix Labs, Inc. (“Radix”), incorporated in California. Dkt. No. 20 at ¶ 9 (Chialtas Decl.). Radix is based in Napa, California, and was founded in 2018. Id. at ¶ 3. Radix began to sell “all-natural, uninfused1 sparkling fruit beverages under the word mark WUNDER” in April, 2019, to customers in California and Florida. Id. at ¶ 4, referencing Dkt. No. 20-1 (Invoices) (emphasis added).

On September 14, 2019, Radix assigned its rights and interests in the “WUNDER” mark to plaintiff. Dkt. No. 20 at ¶ 10; see Dkt. No. 19-1 Exhibit A (Assignment and Transfer Agreement). Plaintiff maintains it has “continued to develop and refine the line of uninfused . . . beverages” and has registered several domain names in connection with uninfused beverages. Dkt. No. 19 at ¶ 9. On October 24, 2019, plaintiff filed a trademark application, U.S. Serial No. 88667500, with the USPTO to register the mark “WUNDER” (the ‘500 application). Dkt. No. 19-1 Exhibit E. The ‘500 application matured to Registration No. 6,198,393 (the ‘393 Registration) on November 17, 2020, and has a first use date of April 1, 2019. Dkt. No. 19-1 Exhibit F (Registration certificate). The ‘393 Registration indicates “CLASS 32: Fruit Juices Non-alcoholic sparkling fruit juice beverages; Non-alcoholic carbonated beverages; Concentrates and powders used in the preparation of energy drinks and fruit-flavored beverages.” See WUNDER, Registration No. 6,198,393.

Around July 2020, plaintiff launched its infused beverage product, with sales alleged to have begun thereafter around July 2020. Dkt. No. 26 at 82 (Opposition); Dkt. No. 29 at 5 (Reply); Dkt. No. 27-4 Exhibit D (plaintiff’s Instagram post of June 27, 2020); Dkt. No. 27-5 Exhibit E (plaintiff’s Instagram post of July 10, 2020). This “separate line of infused . . . beverages also sold under the WUNDER mark” is available in eight-ounce cans in three flavors. Dkt. No. 29-3 at ¶ 10. Plaintiff

In 2021, plaintiff introduced a product having “larger amounts of extracts from the Cannabis plant,” in three flavors, under the sub-brand “HIGHER VIBES 20.” Id. at ¶ 11. Both the WUNDER brand beverages and HIGHER VIBES 20 beverages are available at plaintiff’s website (www.findwunder.com) via online orders or from retail locations. Id. at ¶ 12. To date, plaintiff has spent about $165,000 on advertising and has “actively marketed and promoted its . . . [infused] beverages throughout the United States.” Id. at ¶ 15.

Defendant DBC was founded in April 2019, and defendant Wnder was formed months later “as the holding company for DBC.” Dkt. No. 26 at 7 (Defendants’ Opposition). Defendants selected the brand name “W*NDER” for a line of beverages, wherein the “*” character stands for an “abstract representation of a leaf.” Id. (referencing Dkt. No. 27 at ¶ 3).

On July 17, 2019, defendant DBC filed an intent-to-use trademark application, U.S. Serial No. 88519040, with the USPTO to register the mark “W*NDER” (the ‘040 application) in connection with uninfused beverages. Dkt. No. 28-1 Exhibit 2-A. With respect to beverages, the ‘040 application pertains to “[n]on-alcoholic beverages, namely, carbonated beverages, carbonated beverages enhanced with plant extracts, carbonated beverages enhanced with vitamins, carbonated beverages with fruit flavor with none of the foregoing comprised of any oils, extracts, derivatives or ingredients from Cannabis sativa L with a delta-9 tetrahydrocannabinol (THC) content of more Trademark Application Serial No. 88/519040 (filed July 17, 2019) (emphasis added).

In January, 2020, defendants launched the “W*NDER” branded beverages, via online and “brick-and-mortar” distribution. Dkt. No. 27 at 5-6. Defendants’ products for sale include CBD- infused beverages. See, e.g., Dkt. No. 18-1 Exhibits 1-6; See, e.g., www.wnder.com (defendants’ website). Defendants assert they are also developing a “non-CBD infused line of beverages.”? Id.

In late February 2021, defendants learned of plaintiff Wunderwerks and the WUNDER brand upon receipt of plaintiff's February 23, 2021 cease-and-desist letter. Dkt. No. 27 at § 7 (Robinson Decl.); Dkt. No. 18 at {8 (Kowsari Decl.); Dkt. No. 18-1 Ex. 10 (Plaintiff's cease and mas ee Siam yx. ll in :

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= 17 | □ desist letter). Images of plaintiffs and defendants’ product marks are shown below:

Defendants filed a Petition to Cancel No. 92076715 with the USPTO on March 18, 2021, in connection with plaintiff's ‘393 Registration. Dkt. No. 1 at 931; Dkt. No. 18 at 99; see Cancellation No. 92076715, USPTO (filed March 18, 2021).

On June 28, 2021, plaintiff filed the instant action and this Motion for Preliminary Injunction on August 23, 2021. Dkt. Nos. 1 and 17. Plaintiff contends defendants’ use of the mark “W*NDER” will cause consumer confusion in the reverse direction relative to Wunderwerks’ “WUNDER” mark,

+ Available at www.ttabvue.uspto.gov/ttabvue/v?pno=920767 15&pty=CAN as plaintiff is a relatively smaller company.5

LEGAL STANDARD To obtain a preliminary injunction, a plaintiff must establish (1) a likelihood of success on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in plaintiff’s favor, and (4) an injunction is in the public interest. Winter v. Natural Res. Def. Council, 555 U.S. 7, 20, 129 S. Ct. 365, 172 L. Ed. 2d 249 (2008). Courts have also applied an alternative “sliding scale” or “serious questions” test, requiring the plaintiff raise “serious questions going to the merits” and showing “the balance of hardships tip[s] sharply in plaintiff's favor.” See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131-32 (9th Cir. 2011); id. at 1135 (stating plaintiff must also show a “likelihood of irreparable injury and that the injunction is in the public interest.”). The sliding scale approach allows courts to balance the factors, offering flexibility where, for example, the plaintiff makes a weaker showing of likelihood of success, but a strong showing of irreparable harm. Id. at 1131. Regardless of the approach, a preliminary injunction is an “extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter, 555 U.S. at 22; see also Earth Island Inst. v. Carlton, 626 F.3d 462, 469 (9th Cir. 2010) (Plaintiffs “face a difficult task in proving that they are entitled to this ‘extraordinary remedy[.]’”).

A preliminary injunction “should not be granted unless the movant, by a clear showing, carries the burden of persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (citation omitted) (emphasis in original). However, “[d]ue to the urgency of obtaining a preliminary injunction at a point when there has been limited factual development, the rules of evidence do not apply strictly to preliminary injunction proceedings.” Herb Reed Enters., LLC v. Fla. Entm't Mgmt., Inc., 736 F.3d 1239, 1250 n.5 (9th Cir. 2013) (internal citation omitted).

DISCUSSION Plaintiff requests a preliminary injunction restraining “defendants . . ., their agents, and [others] from using the “W*NDER” mark or any mark confusingly similar to Wunderwerk’s WUNDER mark in connection with wellness and lifestyle beverages.” Dkt. No. 16 at 1 (Plaintiff’s Notice of Motion). Defendants argue plaintiff is not likely to succeed on the merits, the balance of equities tips in defendants’ favor, defendants will suffer irreparable harm, and an injunction is not in the public interest. See generally Dkt. No. 26 (Defendants’ Opposition). I. Likelihood of Success on the Merits

For the reasons discussed during the November 5, 2021 hearing, the Court agrees with defendants that plaintiff has failed to carry its burden of showing likelihood of success on the merits. These reasons include but are not limited to:

(1) There are serious questions going to the validity of plaintiff’s mark due to the fact that it encompasses an illegal product – rendering plaintiff’s likelihood of success on the merits of its federal claims unlikely.6 Marijuana and derived substances, including tetrahydrocannabinols (THC), are designated as Schedule I drugs. 21 U.S.C. § 812(c)(10) and 21 CFR § 1308.11.7 Excluded from that designation, however, is “any material, compound, mixture, or preparation that falls within the definition of hemp8 set forth in 7 U.S.C. 1639o).” 21 CFR § 1308.11. During the

In May, 2019, the PTO discussed goods derived from marijuana and hemp in an Examination Guide, stating: “[i]f an applicant’s goods are derived from ‘hemp’ as defined in the 2018 Farm Bill, the identification of goods must specify that they contain less than 0.3% THC” thus rendering the goods “compliant with federal law,“ and removing a basis for refusal of trademark registration for applications filed on or after December 20, 2018. Examination of Marks for Cannabis and Cannabis-related Goods and Services after Enactment of the 2018 Farm Bill, USPTO Examination Guide 1-19, May 2, 2019.9

Based on the evidence presented, the Court finds the “WUNDER” federally registered mark is likely to be invalid because plaintiff’s products encompass products illegal under federal law, and thus lawful use in commerce cannot be established.

(2) There are serious questions going to the validity of plaintiff’s mark due to issues around prior use – rendering plaintiff’s likelihood of success on the merits of its federal and state10 law claims unlikely. A trademark is a “symbol of good will” and accordingly cannot be assigned in gross, and any assignment must also include a “transfer of the goodwill to which the mark pertains.”

(Cal. Bus. & Pro. Code § 14272 (West); See, e.g., Jada Toys, Inc. v. Mattel, Inc., 518 F.3d 628, 632 (9th Cir. 2008) (“…infringement claims subject to the same test.”)), the requirements for protection under state and federal law can be characterized as “parallel but separate” (J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 19:8 (5th ed.)). See also J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 19:8 (5th ed.) (“Federal registration and state common law rights stand independent of each other.”).

Regarding plaintiff’s state law claims (3) and (4), the Ninth Circuit “has consistently held that state common law claims of unfair competition and actions pursuant to California business and Professions Code 17200 are ‘substantially congruent’ to claims made under the Lanham Act.” Cleary v. News Corp., 30 F.3d 1255, 1262-63 (9th Cir. 1994); see Grupo Gigante SA De CV v. Dallo & Co., Inc., 391 F.3d 1088, 1100 (9th Cir. 2004) (“As a general matter, trademark claims under California law are ‘substantially congruent’ with federal claims and thus lend themselves to the same analysis.”); see Starbuzz Tobacco, Inc. v. Melnick, No. SACV150224DOCRNBX, 2015 WL

27

12656925, at 4* (C.D. Cal. July 31, 2015) (“This also applies to common law trademark See Visa, U.S.A., Inc. v. Birmingham Trust Nat. Bank, 696 F.2d 1371, 1375 (Fed. Cir. 1982); see E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1289 (9th Cir. 1992) (“[i]t is not necessary that the entire business or its tangible assets be transferred; it is the goodwill of the business that must accompany the mark.”). “A mere recitation in the assignment agreement that the mark was assigned ‘together with the goodwill of the business symbolized by the mark’ is not sufficient to establish a valid transfer.” The Money Store v. Harriscorp Finance, Inc., 689 F.2d 666, 676 (7th Cir. 1982); see also Glow Indus., Inc. v. Lopez, 273 F. Supp. 2d 1095, 1108 (C.D. Cal. 2003) (citing Dial-A-Matress Operating Corp. v. Mattress Madness, Inc., 841 F. Supp. 1339, 1350 (E.D. N.Y. 1994 (“[T]he test is simply whether the transaction is such that the assignee can ‘go on in real continuity with the past.’”). Goodwill associated with a totally different product is not sufficient to show a valid assignment. See PepsiCo, Inc. v. Grapette Co., 416 F.2d 285, 289-90 (8th Cir. 1969); see Independent Baking Powder Co. v. Boorman, 175 F. 448, 455 (C.C.D. N.J. 1910) (The Court found the “substitution of one important ingredient for another” would forfeit trademark rights, in the context of alum and phosphate baking powders.); see W. T. Wagner’s Sons Co. v. Orange Snap Co., 18 F.2d 554, 555 (5th Cir. 1927) (The court considered ginger ale and fruit beverages to be different goods, because their “general and essential characteristics … are so different that a person desiring one … would not be likely to be misled into accepting the other.”).

Defendants argue plaintiff offers only THC-infused beverages, and the “entire nature of the product . . . was fundamentally altered from what plaintiff now claims was sold by Radix Labs.” Dkt. No. 26 at 17. Defendants also refer to California Business & Professions Code § 2608011 in asserting plaintiff’s products can only be sold legally though “licensed and regulated dispensaries” and “could not legally be sold or transported across state lines.” Dkt. No. 26 at 8, 18. Defendants assert the addition of THC precludes “legitimate use in interstate commerce” and invalidates the federal trademark rights associated with plaintiff’s ‘393 registration. Dkt. No. 26 at 18. Defendant

Plaintiff has not established its uninfused and infused beverages are essentially the same. Accordingly, the Court finds questions exist as to the Radix-Wunderwerks assignment and transfer of goodwill.

(3) There are serious questions as to consumer confusion. Prior to the November 5, 2021 hearing, the Court understood plaintiff was asserting likelihood of confusion between plaintiff’s infused products and defendants’ infused products. However, during the hearing plaintiff’s argument seemed to change such that plaintiff was alleging confusion between plaintiff’s uninfused beverages and defendants’ infused beverages. If this is indeed plaintiff’s argument, plaintiff did not offer any evidence whatsoever as to what its uninfused products look like in order to conduct a likelihood of confusion analysis.

In sum, the Court finds plaintiff failed to carry its burden with respect to likelihood of success on the merits.

II. Irreparable Harm

Plaintiff must establish it is likely to suffer irreparable harm, and more particularly, plaintiff must establish “remedies available at law, such as monetary damages, are inadequate to compensate for that injury.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). Irreparable harm is presumed upon a showing of “a violation” or a showing of “likelihood of success on the merits.” See 15 U.S.C.A. § 1116(a) (West); see also Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 877 (9th Cir. 2009).

Plaintiff asserts it has “lost and will continue to lose significant business opportunities,” and “efforts to expand its business . . . [is] being thwarted by Defendants.” Dkt. No. 17 at 26. Defendants argue plaintiff is selling an illegal product, and therefore cannot show a likelihood of provided by 15 U.S.C. § 1116(a) . Dkt. No. 26 at 21.

The Court finds plaintiff has not established irreparable harm beyond speculative concerns. Further, because the Court has already concluded plaintiff is not likely to succeed on the merits, irreparable harm is not presumed.

III. Balance of Equities

“The purpose of such interim equitable relief is not to conclusively determine the rights of the parties but to balance the equities as the litigation moves forward.” Trump v. International Refugee Assistance Project, 137 S. Ct. 2080, 2087 (2017) (internal citations omitted).

Plaintiff asserts (1) defendants’ “plans to expand” will likely destroy plaintiff’s “ability to market the WUNDER brand,” and (2) defendants “are not entitled to relief in equity” because of their choice to use the W*NDER mark. Dkt. 17 at 26-27.

Defendants argue an injunction would cause them irreparable harm, “as DBC would be forced to halt sales,” impacting cash flow and “result[ing] in DBC’s inability to continue operation.” Dkt. No. 26 at 25, referencing Dkt. No. 27 at ¶¶ 22-23 (Robinson Decl.) (defendant points to $110,000 in product inventory costs with a retail value of $450,000). Defendants also assert “momentum is crucial” for a startup in the competitive carbonated beverage industry. Id.

If granted, injunctive relief would prevent defendants from using the W*NDER mark and from providing goods in commerce bearing the W*NDER mark, which would effectively stop all of defendants’ cash flow. Plaintiff’s hardships include, potentially, at least some confusion by consumers and possible loss of sales, but the impact on plaintiff’s cash flow is speculative. While both parties point to at least some potential hardships, the Court finds plaintiff has not made a clear showing that the balance of equities tips clearly and strongly in their favor.

IV. Public Interest

Plaintiff asserts “[t]he public interest favors a preliminary injunction to prevent further confusion” amongst potential customers. Dkt. No. 17 at 27, citing Internet Specialties W., Inc. v. “{clonfusion is likely to only increase in the future due to [d]efendants’ ongoing efforts” and that “the public has a strong interest in ensuring the integrity of the USPTO’s trademark registration system.” Dkt. No. 17 at 27-28.

As indicated by plaintiffs (Dkt. No. 29 at 4), defendants did not address public interest in their reply (Dkt. No. 26). However, the Court finds the public interest does not weigh heavily in plaintiffs favor because, although plaintiff's products may be legal under state law, the products offered by plaintiff are illegal under federal law.

CONCLUSION For the foregoing reasons and for good cause shown, plaintiffs have not shown that an injunction should issue. Accordingly, the Court hereby DENIES plaintiff’s motion for a preliminary injunction.

IT IS SO ORDERED.

SUSAN ILLSTON nited States District Judge