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Elements Spirits, Inc. v. Iconic Brands, Inc.

United States District Court, C.D. California

June 11, 2015

ELEMENTS SPIRITS, INC., a California corporation; FABRICA DE TEQUILAS FINOS S.A. De C. V. a Mexican corporation; WORLDWIDE BEVERAGE IMPORTS, LLC, a Nevada limited liability company, Plaintiffs,
v.
ICONIC BRANDS, INC., a California corporaiton; GRACE KIM BRANDI, an individual, Defendants.

ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION [Dkt. No. 12.]

DEAN D. PREGERSON, District Judge.

Presently before the Court is Plaintiffs' Motion for Preliminary Injunction. (Dkt. No. 12.) Having heard oral argument and considered the parties' submissions, the Court adopts the following order.

I. BACKGROUND

Plaintiffs and Defendants both sell tequila in bottles shaped Case 2:15-cv-02692-DDP-AGR Document 31 Filed 06/11/15 Page 21 of 23 Page ID #:962 and painted to resemble "calaveras, " folk art sculptures of skulls traditionally produced for the Mexican Day of the Dead celebration. Plaintiffs sell under the name "KAH Tequila, " while Defendants sell under the name "Sangre de Vida." (Pls.' Mem. P. & A. at 1, 3; Decl. Grace Kim Brandi, ¶ 3.) Plaintiffs' packaging and Defendants' packaging are nearly, though not exactly, identical.

The exact origin of the bottle design is disputed. Defendant Brandi alleges that she came up with the idea, sculpted models from clay in her kitchen, and sought out a glassware manufacturer to produce prototypes. (Brandi Decl., ¶¶ 3-5; Pls.' Ex. PP.) She provides a declaration from the glassware manufacturer stating that she sent him the models in "the summer of 2009." (Decl. Zou Meng.) She also provides a declaration from her former attorney stating that she presented him with the prototypes in October 2009.[1] (Decl. Thomas Ziegler.) Plaintiffs, on the other hand, allege that the bottles were designed by Los Angeles street artists Javier Gonzales and Sandra Lugo and provides the Court with copies of "work for hire" agreements with those artists for unspecified "artwork." (Pls.' Mem. P. & A. at 3; Pls.' Exs. A, B.) Defendant Brandi alleges, however, that Gonzales and Lugo were hired only to create ancillary promotional artwork, not the bottle designs themselves. (Brandi Decl., ¶ 7.) Brandi has, however, stated in the course of another lawsuit, under penalty of perjury, that she was "inspired" by the work of Lugo and Gonzales. (Pls.' Ex. FF, ¶ 8.) The parties have signed an agreement that requires Plaintiffs to acknowledge Defendant Brandi as the "original creator of the KAH skull-shaped bottles and the KAH brand, in response to public or private inquiries." (Pls.' Ex. N.)

The parties agree that it was Brandi who formed the company Elements in November of 2009 and prepared to launch the KAH brand in early 2010. (Pls.' Mem. P. & A. at 3-4.) In March 2010, however, Elements and Brandi were both sued by Globefill, Inc., which sells vodka in a skull-shaped bottle. (Pls.' Ex. DD.) As the company did not yet have any substantial assets, Brandi and Elements entered into an arrangement with Timothy Owens and Worldwide Spirits, Inc. ("Worldwide"), facilitated by Federico Cabo, in which Worldwide would acquire 51% of the ownership interest in Elements. (Pls.' Mem. P. & A. at 4-5; Brandi Decl., ¶ 9.) Defendant Brandi alleges that as part of its consideration in the agreement, Worldwide agreed to "assume the defense of the Globefill litigation." (Brandi Decl., ¶ 9.) However, Plaintiffs dispute this point, noting the Common Stock Purchase Agreement does not mention any defense of the Globefill litigation. (Pls.' Ev. Obj. at 2; Pls.' Ex. F ("Common Stock Purchase Agreement").)

What happened next is not entirely clear. Defendant Brandi alleges that another company controlled by Cabo, Worldwide Beverage Imports ("WBI"), "took over ELEMENTS' role as the importer and distributor of KAH Tequila." (Brandi Decl., ¶ 10.) According to Brandi, Elements "was to receive a substantial' royalty" from WBI. (Id.) Plaintiffs allege, on the other hand, that on October 23, 2010, Elements entered into a trademark assignment agreement with Fabrica de Tequilas Finos ("Finos"), a company for which Cabo is a "consultant" - a role whose parameters are not clear to the Court. (Decl. Federico Cabo; Pls.' Ex. J ("Trademark Assignment and Royalty Agreement").) Plaintiffs' copy of the alleged agreement between Elements and Finos states that royalty payments were to be credited against the cost of defending the Globefill litigation. (Pls.' Ex. J, §4.2.) According to Plaintiffs, Finos then contracted with WBI to import "KAH" tequila. (Pls.' Mem. P. & A. at 6:9-12.) After these arrangements took place, the Globefill litigation continued to a jury trial. It is currently on appeal with the Ninth Circuit. Plaintiff alleges that attorney's fees to date in that case have run well over one million dollars. (Pls.' Ex. JJ, Decl. Federico Cabo, ¶ 20.)

The parties agree that Defendant Brandi was removed from Elements as CEO and as a director in April 2011, although she retained ownership of a good deal of stock. (Brandi Decl., ¶ 12; Pls.' Mem. P. & A. at 6.) In August 2011, Brandi registered five copyrights in the bottle designs, including the sculpted shape of the bottles. (Brandi Decl., Exs. 1-5.)

In the course of mediation during the Globefill litigation, Elements and Brandi entered into a "binding agreement" providing for payment of certain of Brandi's legal fees and, crucially, providing for a license of Brandi's copyrights to Elements:

Brandi shall provide Elements with a permanent, worldwide, exclusive, royalty-free license in any and all copyrights owned by Brandi relating to skull-shaped bottles and/or the KAH brand, which license shall not be subject to termination, provided that Elements is not in breach of its obligations to pay Brandi her pro rata share of any annual distributions made to shareholders of Elements.

(Pls.' Ex. N.) Defendant Brandi alleges that Elements has breached the agreement in numerous ways, including by failing to credit her as the creator of the KAH bottles and brand, failing to enter into a "more formal" agreement afterward, failing to hold a "proceeding" as to who the shareholders in Elements were, and failing to either distribute profits or account for its finances. (Brandi Decl., ¶¶ 17-20.) Defendant Brandi further alleges that she has learned from other sources that Elements' sales of KAH tequila worldwide are around $75 million. (Id. at ¶ 22.) She and her new company, Defendant Iconic Brands, therefore launched a new tequila line, called "Sangre de Vida, " in bottles nearly identical to the KAH bottles. (Id. at ¶ 21; Pls.' Mem. P. & A. at 8.) In response to cease-and-desist letters from Elements, Brandi's attorney declared that the "binding agreement" had been terminated. (Pls.' Exs. KK, LL.) Brandi also sent cease-and-desist letters to distributors of KAH. (Brandi Decl., ¶ 22.) Plaintiffs then filed this lawsuit, alleging trade dress and trademark infringement, unfair competition, interference with contract, and breach of contract. (Dkt. No. 1.)

II. LEGAL STANDARD

"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). Alternatively, if success on the merits is not shown to be likely, "[a] preliminary injunction is appropriate when a plaintiff demonstrates that serious questions going to the merits were raised and the balance of hardships tips sharply in the plaintiff's favor, " if the plaintiff also satisfies irreparable harm and public interest prongs. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011) (ellipsis and internal quotation marks omitted).

III. DISCUSSION

Plaintiffs seek a preliminary injunction to prevent Defendant Brandi from "sending any further cease and desist letters, or making any statement to any parties or individuals asserting that she owns the KAH copyrights or any other statement that interferes with the sale of KAH tequila brand products, " and to prevent both Defendants from using "the calavera shaped bottle with Day of the Dead designs." (Mot. Prelim Inj., ¶ 8.) As both requested injunctive orders would have to rely on the same factual premises - namely, that Plaintiffs hold valid trade dress rights in the calavera bottles and that Defendant Brandi has granted them an exclusive license to her copyrights - the Court considers both together, noting differences along the way as necessary.

A. Likelihood of Success on the Merits

To satisfy the Winter test, supra, the plaintiff must show "a likelihood of success on the merits." Winter confirmed and clarified an equitable test long applied by the courts, and the meaning of "likelihood of success" had been discussed by pre-Winter cases as meaning "a strong likelihood of success" or "probable success." Johnson v. California State Bd. of Accountancy, 72 F.3d 1427, 1430 (9th Cir. 1995). At a minimum, it must be something more than just "a fair chance of success, " which is the standard applied to an alternative test that survives, in part, as the "serious questions" test discussed below. See Part III.B., infra.

1. Trademark Infringement Versus Copyright Infringement

In the memorandum accompanying the motion, Plaintiffs lay out a prima facie case that they have established a trade dress right in the calavera bottles. Such a right can be established in a product dress when the dress is nonfunctional; the dress serves as an identification of the product's source (either because it is inherently distinctive or because it has acquired "secondary meaning"); and there is a likelihood that consumers would be confused as to the source of the defendant's product. Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1258 (9th Cir. 2001). Defendants do not directly dispute the elements of Plaintiffs' trade dress ...


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