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Grasshopper House, LLC v. Clean & Sober Media LLC

United States District Court, C.D. California

July 1, 2019

CLEAN & SOBER MEDIA LLC, ET AL., Defendants. CLIFFSIDE MALIBU, ET AL. Counterclaim Plaintiffs,
GRASSHOPPER HOUSE, LLC, ET AL., Counterclaim Defendants.



         I. Introduction

         On February 19, 2019, the Court held a jury trial in this action, in which the jury rendered a verdict finding in favor of Plaintiff Grasshopper House, LLC on its claims under the Lanham Act, 15 U.S.C. § 1125(a). The jury also found in favor of Counterclaim Defendants Grasshopper House, LLC, Passages Silver Strand, LLC, Chris Prentiss, and Pax Prentiss (collectively or individually, “Passages”) on the Lanham Act counterclaim advanced by Defendants and/or Counterclaim Plaintiffs Cliffside Malibu, Clean & Sober Media LLC, Richard Taite, Sunset Malibu, Cliffside Malibu II, Cliffside Malibu Outpatient Services, Cliffside Malibu 3, and Recovery Malibu (collectively or individually, “Cliffside”) regarding Passages' advertisements representing the existence of a “cure” for addiction. See Dkt. 352.

         Following the jury trial, the Court held a bench trial on February 26, 2019 to determine issues of equitable relief, including injunctive relief and equitable monetary relief. In advance of the bench trial, the parties submitted trial declarations containing their witnesses' direct testimony, as required by the Court's Standing Order for non-jury trials. During the bench trial, the Court heard evidence and testimony from the parties and witnesses, and in lieu of hearing oral closing arguments from the parties, the Court requested that the parties submit trial briefs addressing the legal issues for the Court to resolve as part of the bench trial.

         Having carefully reviewed and considered the evidence presented at the bench trial and the parties' trial briefs, the Court issues the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a) regarding outstanding equitable issues.

         II. Findings of Fact

          For all findings of fact set forth below, in making any credibility determinations regarding witness testimony, the Court has considered, among other things, the manner in which the witnesses testified, their interest in the outcome of the case, and the reasonableness of their testimony in light of all of the evidence. The Court has also considered the relevant factors in Section 1.14 of the Manual of Model Civil Jury Instructions for the District Courts of the Ninth Circuit (2017 Edition), located at

         A. Cliffside's Acquisition of The Fix

         In October 2013, Richard Taite, the former CEO of Cliffside Malibu, created the entity Clean & Sober Media LLC (“C&S Media”), which purchased The Fix at a bankruptcy auction. 2/20 AM Tr. at 12-13, 15.[1] The slogan for The Fix, appearing just below the title of the website, was “addiction and recovery, straight up.” See, e.g., Trial Ex. 2452.[2] Following acquisition by C&S Media, The Fix published two separate statements on its website to describe the process for writing reviews of treatment centers and to provide the overarching goals of The Fix's website.

         The first statement, which the Court will refer to as the “Mission Statement, ” was published on November 17, 2013 and stated the following:

The Fix is the world's leading website about addiction and recovery, featuring a daily mix of breaking news, exclusive interviews, investigative reports, essays and blogs on sober living, lifestyle and cultural resources, as well as knowledge and wisdom from expert counsel. We also offer rigorously reported Rehab Reviews, with input from thousands of alumni, plus extensive directories and practical guides for dealing with addiction and related mental health and life issues. Further, The Fix provides an extensive forum for debating relevant issues, allowing a large community the opportunity to express its experiences and opinions on all matters pertinent to addiction and recovery without bias or control from The Fix. Our stated editorial mission - and sole bias - is to destigmatize all forms of addiction and mental health matters, support recovery, and assist toward humane policies and resources.

         Trial Ex. 1874. The second statement, hereafter referred to as the “Process Statement, ” was published on October 1, 2014 and proclaimed:

To create our reviews, we invite selected centers to solicit former clients to complete a detailed, 20-question survey. The Fix requires at least five completed surveys before a review is generated. The surveys include questions about accommodations, meals, residents, staff, activities, and more. Alumni respond anonymously and confidentially, and reviews are written based on their responses and follow-up questions where applicable.

Trial Ex. 214.

         Jay Levin, the editor-in-chief of The Fix at the time these statements were published, developed the Process Statement and the Mission Statement in collaboration with the editorial staff at The Fix, including Allison McCabe, but without any input from Taite or anyone from Cliffside. See 2/26 AM Tr. at 57-59; 2/19 PM Tr. at 107.

         B. The Passages Review

         At the time C&S Media acquired The Fix, there was a pre-existing review of Passages Malibu, an addiction treatment center owned by Passages, written by the previous editorial staff of The Fix in 2011. See Trial Exs. 2451, 2452. The review page for the Passages Malibu facility included the tag line “THE REHAB REVIEW: The Inside Scoop From Hundreds of Former Clients.” Trial Exs. 2451, 2452. The Passages review included alleged quotes from former clients of Passages' treatment, describing the sources of the quotes as an “alum, ” “former resident, ” or “former client.” Trial Ex. 2451. The review rated Passages 5 out of 5 stars for accommodations and food, but 1 out of 5 stars for treatment, culminating in an overall rating of 1 out of 5 stars. Id. By June 4, 2011, Passages' overall star rating had been increased to 2 stars. Trial Ex. 2452.

         The Fix continued to maintain the Passages review on its website after being acquired by C&S Media. Around September 2014, The Fix introduced a new rating system for its Rehab Reviews that allowed for more precise half-star ratings, so The Fix made adjustments to the ratings of many of the treatment centers. See Trial Ex. 1764. By December 2014, Passages Malibu's overall star rating had increased from 2 to 2.5 stars. See Trial Exs. 1033, 2454. After a reformatting of The Fix's website, The Fix also began to display banner ads for Cliffside Malibu at the top of the Passages review page and displayed links to the corresponding Rehab Review page for Cliffside Malibu. See Trial Exs. 2454, 2455.

         Pax Prentiss, the CEO of Passages, stated that a search for “Passages Malibu” on Google would display a link to The Fix's review of Passages just below the link to the Passages website on the first page of the search results. Dkt. 371 ¶ 11. Internal Cliffside emails revealed that Cliffside urged prospective clients to read the Passages review before making a decision as to whether to enroll with Passages or Cliffside, and some of these clients made the decision to sign up with Cliffside Malibu after reading the Passages review. See Trial Exs. 301, 306, 406. In one email responding to an inquiry from a prospective client seeking addiction treatment, Taite gave the following suggestion: “I would do my due diligence and simply type in passages Malibu reviews into your Google bar and do the same with us and see how others view us both so that you are comfortable.” Trial Ex. 305. Cliffside characterized other clients it received as “stolen” from Passages, including one who had believed she was calling Passages Malibu but instead had called the number for Cliffside Malibu. See Trial Ex. 407.

         C. Cliffside's Concealment of Ownership of The Fix

         Although Taite acquired The Fix through C&S Media, Taite did not want to publicize the connection between The Fix and Cliffside.

         Emails from November 2013 between Jay Levin, the editor-in-chief of The Fix at the time of the acquisition by C&S Media, and McCabe, in her previous role as an editor of The Fix, reveal that The Fix had full knowledge that Taite's wife, Delphene Robertson, was the official owner and CEO of C&S Media. Trial Ex. 288. Levin acknowledged that Taite “does not want to be publicly associated with The Fix and there are good business reasons for this, ” and Levin requested that McCabe, who had a pre-existing personal relationship with Taite, be “discrete” in what information McCabe shares about Taite with the editorial staff. Id. In February 2014, in order to keep Taite's ownership of The Fix through Robertson and C&S Media confidential, Levin instructed an editor at The Fix to respond to an inquiry from a different addiction treatment center about the owner of The Fix by saying that The Fix “is owned by a private individual who does not own a treatment center.” Ex. 290. By 2016, Taite became the sole owner of C&S Media by acquiring the company from Robertson. See 2/20 AM Tr. at 13.

         Levin, who had been hired by Taite as the editor-in-chief of The Fix shortly after the acquisition by C&S Media, sent an email to Taite on June 18, 2014, in which Levin decided to “step aside from wearing the ad director's hat.” Trial Ex. 294. Levin cited frustration with Taite for Taite's “intention to manipulate the reviews” of addiction rehab centers on The Fix and Taite's efforts to “pick and choose who can advertise” on The Fix. Id. Levin warned Taite that “[o]nce public and known through the industry, the likelihood is it would permanently crash ad sales and may even invite FTC investigation and lawsuits.” Id. McCabe, who replaced Levin as the second editor-in-chief of The Fix, was a longtime friend of Robertson and previously had been the editor for Taite's book. 2/19 PM Tr. at 36-38.

         An email exchange between Taite and McCabe in March 2017 revealed Taite's efforts to keep Cliffside's ownership of The Fix secret from the other editors at The Fix. McCabe represented that “my writers and staff are not aware of a connection between The Fix and [Cliffside Malibu], ” and Taite responded by saying that “I don't want these guys [at The Fix] knowing anything” about the connection between The Fix and Cliffside. Trial Ex. 900. In that email exchange, Taite also instructed McCabe to remove an entire paragraph of an article The Fix had written regarding Cliffside Malibu, asking McCabe to “please stop giving other rehabs credit” for Cliffside's work. Id. McCabe complied with Taite's request and removed the paragraph from the article. Id.

         Other actions taken by Taite confirm the close relationship between Taite, Cliffside Malibu, and The Fix. By February 10, 2014, only a few months after C&S Media acquired The Fix, Taite manually changed the overall star rating for Cliffside Malibu from 4 to 5 stars, without conducting any additional surveys of former Cliffside clients. See Trial Exs. 215, 216. McCabe testified that Taite “on his own called somebody” at The Fix and “told them to bump [Cliffside Malibu's overall rating] up to five stars without me or Jay Levin or anyone knowing.” 2/19 PM Tr. at 88. In April 2014, Taite also sent an email to The Fix demanding that The Fix change the order of treatment centers as listed in the directory on The Fix for centers in Malibu, specifically requesting that the centers be listed in the following order: “Cliffside, visions, visions, sunset, creative care, Canyon, Canyon, Malibu Horizon, journey, paradigm, Soba, promises, passages.” Trial Ex. 291. In the same email, Taite conveyed his frustration that “I ask for something simple to be done [on The Fix] and I get blown off and treated like a redheaded stepchild.” Id. In January 2015, Taite also organized a re-review of Genesis, one of Cliffside's treatment centers, and told McCabe to write the new review based on former client surveys “without my input, so that if anybody ever asks you, you can tell them the truth, that it was done like any other review.” Trial Ex. 225.

         In an email from July 2017 Taite conveyed to an employee of Cliffside Malibu of the belief that Cliffside's competitors “are trained to simply talk shit about Cliffside and why Cliffside is a piece of shit why they are better, ” and Taite admitted that “I know this to be true, because before I had a commercial, I did the same thing, to promises and passages, that's how I filled Cliffside!” Trial Ex. 952. At trail, Taite confirmed that, before Cliffside began to run television advertisements, Cliffside would purchase online advertisements for key words associated with Cliffside's competitors: “We would buy the name from promises. Passages would run commercials we would buy the name for Passages. That is just what you did back then and now, they're doing it to us.” 2/20 AM Tr. at 36-37.

         At her deposition, McCabe admitted that The Fix intentionally did not disclose its affiliation with Cliffside because “if people knew [The Fix] was associated with the rehab [Cliffside Malibu], they might question our articles. So I wasn't going to like throw up a beacon.” 2/19 PM Tr. at 44. McCabe testified at trial that she believed that Taite's relationship with The Fix did not affect The Fix's operations and did not make The Fix biased. Id. at 41. McCabe testified that she did not even consider The Fix to be affiliated with Cliffside and that the editorial staff had always been separate. McCabe similarly stated that she believed Taite “was never involved in anything” that happened at The Fix. Id. The Court finds that McCabe's testimony about Taite's involvement with The Fix is not credible and is refuted by the documentary evidence showing Taite's direct involvement in the content of the rehab reviews on multiple occasions.

         D. Passages' Attempts to Remove the Review

         Passages was aware of The Fix's review of the Passages Malibu facility and wanted the review to be taken down. Pax Prentiss testified that he believed the Passages review was false or “highly inaccurate” when it was first posted in 2011. 2/19 AM Tr. at 57, 84.

         Passages contacted The Fix's editorial team on several occasions to request that The Fix remove the Passages review from its website, but The Fix denied all of Passages' requests. For example, on July 16, 2014, The Fix emailed Passages, stating: “In response to your last email about taking your review down, I was told all reviews will remain active.” Trial Ex. 201. The Fix additionally noted that the Passages review ranks highly on Google and receives significant traffic, and The Fix implicitly invited Passages to agree to a new review of Passages Malibu, advising that “your new review with us would only go up in rating.” Id. The Fix also informed Passages of the traffic and exposure that the Passages review had received, and, in fact, three of the top 20 key word searches used in connection with The Fix were related to Passages. See Trial Exs. 111, 201.

         During the time that Passages repeatedly asked The Fix to take down the Passages review, McCabe, then the editor-in-chief of The Fix, attempted to locate any of the surveys that may have been completed in connection with the initial Passages review published in 2011. See 2/19 PM Tr. at 70-73. On March 6, 2015, McCabe emailed May Wilkerson, a former employee of The Fix, to ask whether Wilkerson had any information about where the information in the Passages review came from. Trial Ex. 1696. Wilkerson responded that she did not have any such information and referred McCabe to Hunter Slaton, the former editor of the Rehab Reviews section of The Fix at the time the Passages review was written. Id.

         The following day, McCabe emailed Anna David, a longtime employee of The Fix at the time, to inquire if David “ha[d] any idea where the info for the rehab reviews came from before we did them on surveymonkey.” Trial Ex. 230. In the email, McCabe specifically noted that “Passages, for instance, has several quotes which I can't find in the surveys submitted by their alumni.” Id. Ultimately, McCabe was unable to find any written submissions from Passages alumni dating back to March 2011 when the Passages review was first written. 2/19 PM Tr. at 73. The only written reviews for Passages identified by McCabe were written after 2011 and did not specifically contain any of the language used in the 2011 review. See Trial Ex. 235; see also 2/19 PM Tr. at 74-76, 78 (identifying the Passages review as “one of these many reviews from 2011 for which we didn't have SurveyMonkey surveys”).

         On July 18, 2016, Passages sent a letter to McCabe in response to an email offering for The Fix to conduct a “re-review” of Passages Malibu that would replace the existing review and rating of Passages on The Fix. See Trial Ex. 699. In the letter, Passages complained that the review of Passages on The Fix did not comply with the Process Statement and demanded that The Fix remove the Passages review. Id. McCabe responded to Passages' letter, stating that “[u]nder prior management, the review process may have been different, but that does not mean there is anything wrong with the earlier reviews. They are all comprehensive and thorough, and we believe that to be the case about the review of Passages Malibu.” See Trial Ex. 745. At trial, McCabe elaborated that the “different” process that might have been used by previous editors, based on McCabe's conversations with those editors, was “more old-school journalism” involving talking to alumni by phone or in person and simply taking notes during the conversation. 2/19 PM Tr. at 77-78.

         After its requests to remove the Passages review from The Fix were denied, Passages never agreed to submit to a re-review as McCabe had offered. See 2/19 AM Tr. at 65-66.

         E. Passages' Discovery of Cliffside's Ownership of The Fix

         When Taite created C&S Media, Taite had his attorney, Loren Beck, sign C&S Media's articles of incorporation. Trial Ex. 117. Pax Prentiss testified that he had previously met Beck and knew that Beck was associated with Taite. 2/26 PM Tr. at 98-99. In September 2014, Prentiss emailed a colleague at Passages stating that Prentiss had entered a Google search for his own name and saw an advertisement for the Passages review on The Fix, but when Prentiss clicked on that link, he was directed to the review of Cliffside Malibu on The Fix instead. Trial Ex. 116. Prentiss did not take any further actions to investigate as to why this might have occurred. 2/26 PM Tr. at 101.

         On November 3, 2017, an article was released on a journalistic website called The Verge, which exposed the financial connection between Cliffside and The Fix. See Trial Ex. 2654. Pax Prentiss testified that he did not know about Taite's ownership of The Fix until the publication of the article on The Verge. 2/19 AM Tr. at 75; 2/26 PM Tr. at 91, 107. Prentiss testified that he “never made any effort to find out who owned The Fix” prior to the publication of the article in The Verge. 2/26 PM Tr. at 100. Shortly after the article was published on The Verge, The Fix added a disclaimer to its websites noting the common ownership with Cliffside Malibu and explaining that some of the older reviews in the Rehab Review section were written by the former editorial team using different criteria. Dkt. 383-1 ¶¶ 27-28.

         Passages filed the complaint in this action on February 2, 2018. See Dkt. 1. After litigation commenced, Taite contacted Passages and offered to remove the Passages review in exchange for a release of liability, which Passages rejected. See 2/26 AM Tr. at 18-20.

         F. Evidence of Cliffside's Profits from the Passages Review on The Fix

         Between 2014 and 2018, Cliffside paid C&S Media approximately $5 million for banner advertisements for Cliffside Malibu to appear on websites throughout The Fix's domain. 2/20 AM Tr. at 7; Dkt. 361 ¶ 7; Dkt. 361-2. Taite approved all advertising expenditures and monitored their effectiveness “by feel, ” as opposed to relying on analytical data. See 2/20 AM Tr. at 15-16.

         From 2014 to 2018, there were 192, 434 organic visitors to the Passages review on The Fix, with the term “organic” referring to a visitor who was directed to the Passages review from Google search results, not advertisements. Trial Exs. 1326-1691 (Google analytics showing the number of visitors); Trial Ex. 2749 (spreadsheet prepared by Cliffside compiling the underlying Google analytics data); Dkt. 369 ¶ 7 (describing the meaning of “organic” visitor). The number of visitors to the Passages review page sharply increased following C&S Media's acquisition of The Fix in October 2013. See Trial Ex. 2749; Dkt. 402 at 7 (Passages' post-trial brief graphically summarizing the number of visitors to the Passages review page per year). Similarly, Cliffside's net income increased from approximately $400, 000 per year from 2011 to 2013 to over $4 million in 2014, and again to approximately $5.5 million in 2015. See Trial Ex. 1125.[3]

         Since October 2014, according to Google analytics, there were only 793 visitors of The Fix who viewed both the Passages review page and either the About Reviews page featuring the Process Statement or the Terms and Conditions Page. Trial Ex. 2749. After July 2014, only 462 people viewed both the Passages review and the Mission Statement on The Fix. Id.

         G. Passages' Own Unbranded Website Campaign

         Truman Hedding III formerly worked for Passages Malibu from February 2006 to August 2010 to promote Passages through pay-per-click advertising and other marketing on Google and Yahoo. Dkt. 364 ¶¶ 7-8. In connection with Hedding's responsibilities, Pax Prentiss asked Hedding to participate in a campaign to purchase domain names that can be used to publish websites advocating for Passages' services and/or establish a referral service to allow prospective clients to call Passages for treatment. See Id. ¶¶ 18, 25; Dkts. 364-1-364-4, 364-7. Prentiss's goal with these websites was to “build, maximize, get traffic, and get CALLS from” the websites. Dkt. 364-3. Hedding admitted that he did not have personal knowledge as to Passages' unbranded website campaign after he stopped working for Passages in August 2010. 2/26 PM Tr. at 21.

         Over the course of more than a decade, Passages acquired many domains for the purpose of promoting Passages' brand. See Trial Ex. 2006-A. Pax Prentiss received regular emails from employees at Passages describing any updates about Passages' unbranded websites, including any new postings on those websites and the amount of interest generated by those websites. See Trial Exs. 112-15.

         Arun Thach began working for Passages in February 2016 as a search engine marketing manager. 2/26 PM Tr. at 142; Dkt. 369 ¶ 5. Part of Thach's responsibilities was to build links to websites favorable to Passages to improve Passages' position in search results on search engines such as Google. 2/26 PM Tr. at 142. In March 2016, Pax Prentiss emailed Mark Bailey, an information technology employee with Passages, stating that Cliffside is “getting all their calls from referral websites. They also use the Fix site as a way to deter clientsfrom [sic] going to Passages.” Trial Ex. 123. Prentiss conveyed his intent to “overcome” Cliffside's alleged tactics and proposed that Passages “create our own referral sites, and get Fix off our back.” Id. Bailey responded, characterizing Cliffside as utilizing The Fix to “hid[e] behind journalism and fake reviews.” Id. Bailey proclaimed, “We'll beat them at their own game.” Id.

         Under this campaign, Passages purchased numerous domains and created content on websites that would discuss Passages favorably and provide links to Passages' website. See 2/26 PM Tr. at 146 (Thach admitting that all of the content on the unbranded websites was created by Passages). One of the unbranded websites Passages created was “, ” a webpage purporting to be the Baltimore Health Resource Center and included a picture of the seal of the City of Baltimore. See Trial Ex. 2513. The website provided links to Passages under a “Resources” section at the bottom of the page and was copyrighted by “” Id. Another of Passages' unbranded websites was “, ” which purported to be an independent newspaper and published an article entitled “Passages Malibu - Revolutionizing Addiction Treatment.” Trial Ex. 1896. Passages' domain “” purported to be a blog about drug and alcohol addiction and featured multiple articles about Passages Malibu. See Trial Ex. 2486. Other of Passages' unbranded websites included “, ” “, ” “, ” “, ” and “, ” each of which appeared to be independent resources for addiction treatment but displayed favorable articles about Passages specifically. See Trial Exs. 1898, 1916, 1939, 2504, 2551. Some of these unbranded domains provided directories of phone numbers to rehab centers and even included supposed referral services for addiction treatment, which were actually phone numbers connected to Passages. See Dkt. 364 ¶¶ 34, 37, 39, 43, 47; Dkts. 364-9- 364-12, 364-16, 364-17, 364-19. One of these “referral” sites, with the domain name “, ” was receiving more organic traffic than Passages' website for Passages Malibu as of October 2009. Dkt. 364 ¶ 35; 2/26 PM Tr. at 33. Another, “, ” was averaging 1, 000 visitors per month in July 2010. Dkts. 364-21, 364-22.

         The majority of Passages' unbranded websites did not mention Cliffside at all. However, one site, “, ” featured an article entitled “Top 5 Luxury Rehab Centers in Malibu, California” and listed Passages Malibu first, Promises Malibu second, and Cliffside Malibu third. Trial Ex. 2571. The list of treatment centers was allegedly “[b]ased on reviews” but did not claim to rank the five centers from best to worst. Id. The lone comparison between Passages and Cliffside on this page was the assertion that Cliffside's facilities are “home-like and attractive without aspiring to the heights of interior décor you'll find at the super-smart Passages center.” Id. The homepage for GHC Total Health contained in the margins the representation that “[f]or California rehab centers we highly recommend Passages Malibu, ” linking to the Passages website. Trial Ex. 1950. Just below that sentence, the website then included a reference to The Verge article about Cliffside's affiliation with The Fix. Id. Additionally, the “” domain at one point featured the article from The Verge that discussed Cliffside's affiliation with The Fix, and the article appeared on Baltimore Health with the tag “cliffside malibu.” See Trial Ex. 157.

         When purchasing these domains, Passages did not identify itself as the owner and instead registered the owner as the domain name itself, meaning that Passages' identity as the true owner of the website was not publicly disclosed. See Dkt. 364 ¶ 15; see also generally Trial Ex. 2006 (Passages' report of transactions from January 2001 to December 2016 indicating that purchases of unbranded domains were registered as the domain name). At trial, Hedding testified that, as a result of the unbranded websites with referral services that actually corresponded to Passages' phone numbers, potential clients seeking addiction treatment actually called Passages believing that they were dialing a neutral referral service. See 2/26 PM Tr. at 34-36; Dkts. 364-21, 364-22 (evidence that a different unbranded website created by Passages had over 1, 000 visitors per month in 2010).

         Thach testified that, as of February 26, 2019, Passages owns approximately 169 domains. 2/26 PM Tr. at 144. Of those domains, 86 do not have a website, 53 domains were branded under the Passages name since they were created, and 28 were unbranded websites at the time Passages filed its lawsuit. Id. After Cliffside filed its counterclaims against Passages, including a claim of false advertising for failing to disclose affiliation to Passages on the unbranded websites, Passages added disclaimers to their unbranded websites to disclose Passages' ownership. 2/26 PM Tr. at 144.

         III. Conclusions of Law

         In their post-trial briefs, the parties raise four equitable issues for the Court's determination following the bench trial: (1) whether laches applies to bar any of Passages' claims on timeliness grounds; (2) whether Passages is precluded from relief due to unclean hands; (3) whether and to what extent Passages is entitled to injunctive relief; and (4) whether Passages has provided sufficient evidence to recover equitable monetary relief. The Court will address each of these issues in turn.

         A. Laches

         1. Legal Standards

         The Lanham Act does not provide for an explicit statute of limitations period, and therefore courts “borrow” the analogous state statute of limitations period. Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 836 (9th Cir. 2002) (citations omitted). However, because it was unclear as to whether Congress intended to create a separate statute of limitations defense for Lanham Act claims, as opposed to relying merely on “principles of equity, ” the Ninth Circuit applies the state statute of limitations period in the context of the equitable defense of laches. Id. at 837. A defendant asserting a laches defense has the burden to establish that (1) the plaintiff unreasonably delayed in filing suit, and (2) the defendant suffered prejudice as a result. Id. at 835 (citations omitted).

         As to the first element, the reasonableness of a plaintiff's delay in initiating litigation is determined with reference to the applicable state statute of limitations period. Id. at 836. Thus, “if a [Lanham Act] claim is filed within the analogous state limitations period, the strong presumption is that laches is inapplicable; if the claim is filed after the analogous limitations period has expired, the presumption is that laches is a bar to suit.” Id. at 837 (citations omitted).[4] Here, the Court previously held that the analogous California statute of limitations period, for claims of fraud, is three years. See Dkt. 51 at 5 (citing Cal. Civ. Proc. Code § 338); see also Jarrow Formulas, 304 F.3d at 838 (for Lanham Act false advertising claims “the analogous limitations period is California's period for fraud, which is three years”).

         For continuing Lanham Act violations, such as those at issue in this litigation, “the presumption of laches is triggered if any part of the claimed wrongful conduct occurred beyond the limitations period.” Jarrow Formulas, 304 F.3d at 837. Thus, because the purpose of laches is to “penalize[] dilatory conduct, ” the plaintiff must “file suit promptly when the defendant commences the wrongful conduct.” Id. at 837-38 (emphasis added). “To hold otherwise would ‘effectively swallow the rule of laches, and render it a spineless defense.'” Id. at 837 (quoting Danjaq LLC v. Sony Corp., 263 F.3d 942, 953 (9th Cir. 2001)).

         Once the applicable state statute of limitations period is identified, the court assesses the length of the plaintiff's delay in filing suit beyond the limitations period to determine if such a delay was reasonable. Id. at 838. The reasonableness of the delay is assessed in reference to the length of time afforded to the plaintiff under the state limitations period, as well as “whether the plaintiff has proffered a legitimate excuse for its delay.” Id. (citation omitted).

         Under federal law, “the limitations period runs from the time the plaintiff knew or should have known about his [Lanham Act] cause of action.” Id. at 838 (citing Gen. Bedding Corp. v. Echevarria, 947 F.2d 1395, 1397 n. 2 (9th Cir. 1991)). Cliffside argues that the Court should instead apply the “delayed discovery” rule under Cal. Civ. Proc. Code § 338(4), relied upon in General Bedding, to determine the point at which the statute of limitations period begins to run. See Dkt. 405 at 9; see also Id. at 9 n. 7 (arguing that Passages has the evidentiary burden to prove that Passages “could not have discovered the false advertising [by Cliffside] within three years of filing suit”) (citing Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797, 802 (2005); O'Connor v. Boeing N. Am., Inc., 311 F.3d 1139, 1150 (9th Cir. 2002)). The authority upon which Cliffside relies did not address a Lanham Act claim and instead analyzed state law causes of action. As the Ninth Circuit explicitly noted, “[f]or federal claims, federal law determines when the state statute begins to run.” Gen. Bedding, 947 F.2d at 1397 n. 2 (citing Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1412 (9th Cir. 1987)). Nevertheless, the Ninth Circuit has repeatedly noted that the federal standards are functionally identical to California's discovery rule. See Id. (the federal and California standards for when a statute of limitations period begins to run “are apparently identical, the period for each commencing when the plaintiff discovered or could have discovered the fraud with the exercise of reasonable diligence”); O'Connor, 311 F.3d at 1147 (“Under both federal and California law, the discovery rule provides that a limitations period does not commence until a plaintiff discovers, or reasonably could have discovered, his claim.”) (citations omitted). Thus, the Court views California authority interpreting and applying the delayed discovery rule to be instructive, even if not directly applicable to laches under the Lanham Act.

         One of the parties' central disagreements regarding laches is how much information a plaintiff must “know” about the existence of a Lanham Act cause of action to trigger the statute of limitations period. The majority of federal law to address the question implies that the limitations period begins even if the plaintiff does not have knowledge of every element of the federal cause of action; it is enough for the plaintiff to know about the general “essence” of its claim. See, e.g., Internet Specialties W., Inc. v. Milon-DiGiorgio Enters., Inc., 559 F.3d 985, 990 (9th Cir. 2009) (concluding that the “essence” or “central element” of a trademark infringement claim under the Lanham Act is the likelihood of confusion between marks and analyzing the point in time at which the plaintiff knew or should have known about the likelihood of confusion) (citations omitted); see also United States v. Kubrick, 444 U.S. 111, 123 (1979) (rejecting the argument that a plaintiff bringing an action under the Federal Tort Claims Act must have knowledge that his injury was the result of negligence for the statute of limitations period to begin to run). This approach comports with the delayed discovery rule under California law, which starts the clock when a plaintiff has knowledge or suspicion of “the ‘generic' elements of wrongdoing, causation, and harm” in connection with the plaintiff's cause of action. Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797, 807 (2005) (citation omitted). The Court agrees with such a general approach when determining the initiation of the limitations period, as it would defeat the purpose of the limitations statute to allow a plaintiff with full knowledge of another's improper conduct that has harmed the plaintiff to postpone filing a lawsuit until every individualized element of the cause of action is provable with a degree of certainty.

         If the plaintiff's delay in filing suit was unreasonable, the court turns to the second element of laches, whether the defendant has suffered prejudice from the unreasonable delay. Jarrow Formulas, 304 F.3d at 839. Prejudice has been referred to as the “most important aspect” of the laches doctrine. Huseman, 471 F.3d at 1126-27 (citation omitted). In a copyright case, the Ninth Circuit identified two primary forms of prejudice resulting from laches: “evidentiary” prejudice, including “lost, stale, or degraded evidence, or witnesses whose memories have faded or who have died, ” Danjaq, 263 F.3d at 955 (citations omitted); and “expectations-based” prejudice, meaning that the defendant “took actions or suffered consequences that it would not have, had the plaintiff brought suit promptly, ” id. (citations omitted). See also Seller Agency Council, Inc. v Kennedy Ctr. for Real Estate Educ., Inc., 621 F.3d 981, 989 (9th Cir. 2010) (a finding of prejudice “requires at least some reliance on the absence of a lawsuit”) (citations omitted).

         Lastly, even if both elements of laches are satisfied, “laches will not apply if the public has a strong interest in having the suit proceed.” Jarrow Formulas, 304 F.3d at 840. Furthermore, “[a] party with unclean hands may not assert laches, ” with unclean hands referring not to a willful or knowing violation of the Lanham Act but a ...

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