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Kiva Health Brands LLC v. Kiva Brands Inc.

United States District Court, N.D. California

September 6, 2019

KIVA BRANDS INC., et al., Defendants.



         In this trademark case, Plaintiff Kiva Health Brands LLC (“KHB”), a maker of natural foods and health supplements, brings suit against Defendant Kiva Brands Inc. (“KBI”), a maker of cannabis-infused chocolate and other “edibles.” Both companies claim the right to the KIVA mark. KHB has held a federally-registered trademark in the KIVA mark since 2014. However, KBI claims to have inherited the KIVA mark from predecessors who have been using it to make cannabis-infused edibles in California since 2010. Now pending are (1) KHB's Motion for a Preliminary Injunction, see KHB MPI (dkt. 21-1); (2) KHB's Motion to Dismiss two of KBI's counterclaims, see KHB MTD (also dkt. 21-1); and (3) KBI's Cross-Motion for a Preliminary Injunction, see KBI MPI (dkt. 25-1).

         Because the Court concludes that neither party has met its burden for a preliminary injunction, the Court DENIES both such motions. The Court GRANTS KHB's motion to dismiss the two counterclaims in light of KBI's manufacture of a product that is illegal under federal law.

         I. BACKGROUND

         A. Plaintiff Kiva Health Brands LLC

         Plaintiff KHB is a Nevada corporation, created in 2010, with a principal place of business in Hawaii. Henderson Decl. (dkt. 21-2) ¶ 2. KHB distributes and sells “health and wellness foods and food supplements, sourced from farmers that practice sustainable and eco-friendly farming methods.” Id. ¶ 3. KHB registered the domain name in 2009, and developed a KIVA logo and its first KIVA product (berry powder) in early 2010. Id. ¶ 5. KHB sold KIVA-branded reusable grocery bags as of mid-2010, and sold KIVA-branded food products and food supplements as of February 2013. Id. ¶¶ 7, 8. KHB's first online sales were on in June 2013; as of September 2013, KHB also made sales through its website, Id. ¶ 8. KHB has been selling continuously using the KIVA mark since 2013, in California, interstate, and internationally. Id. ¶ 8.

         In September 2013, KHB filed an application with the USPTO to register the KIVA mark in connection with food products. Id. ¶ 9. The USPTO issued that registration in April 2014. Id., Ex. A.[1] In 2015 and 2016, KHB obtained two other trademark registrations for the mark KIVA to be used on additional food and cosmetic products. Id. ¶ 9, Exs. B and C.[2]

         According to KHB's Managing Member, Tchad Henderson, KHB is “associated with quality products, and is well known as a source of safe, healthy, and environmentally friendly food products and food supplements.” Id. ¶ 10. KHB spent $245, 000 in 2016, $720, 000 in 2017, and $1, 360, 000 in 2018 to promote its KIVA-branded products. Id.

         B. Defendant Kiva Brands Inc.

         Defendant KBI is a leading provider of cannabis-infused chocolates and confections. Palmer Decl. (dkt. 24-1) ¶ 4. KBI started in November 2010 as a California not-for-profit mutual benefit corporation named Indica. Id. ¶¶ 6, 8. Founders Scott Palmer and Kristi Knoblich brainstormed potential trade names for the company, and decided on “Kiva Confections.” Id. ¶ 7, Ex. A. Indica manufactured, sold, and distributed products bearing the names KIVA and/or KIVA CONFECTIONS with permission from Palmer and Knoblich. Id. ¶ 9.

         The contract that purports to govern that arrangement is the TM License Agreement, between Palmer and Knoblich, Licensors, on the one hand, and Indica, Licensee, on the other. See id. Ex. B. It states that Licensors own the trademark Kiva and are granting to Licensee “an exclusive, royalty-bearing right and license to use the Licensed Rights in the Territory for the processing, production, and sale of the Products.” Id. at 1, 3. The TM License Agreement states that it is “entered into as of November 23, 2010, ” and also that the Execution Date of the contract is November 23, 2010. See Id. Palmer acknowledged in the course of this litigation that the “TM License Agreement was signed in or around October 2018, ” though he asserts that it “memorialized the agreement that had existed since November 2010.” Palmer Decl. ¶ 9B.[3] The TM License Agreement is signed by Palmer and Knoblich, and there is a typewritten signature for “Matt Desano, Director” on behalf of “Indica, Inc. (DBA Kiva Confections).” See id. Ex. B at 20.

         Palmer and Knoblich formed KBI in 2014. Palmer Decl. ¶ 10. Palmer asserts that “[b]etween approximately 2014 through 2017, Indica and related entities were reorganized into KBI and its wholly-owned subsidiaries.” Id.[4] As part of that reorganization, Palmer and Knoblich transferred “all rights, title, and interest (including but not limited to, all registration rights, all rights to prepare derivative works, all goodwill and all other rights, in and to the intellectual property” to KBI pursuant to an Intellectual Property and Sale Agreement (“IP Sale Agreement”) dated October 30, 2014. Id. ¶ 11, Ex. C. That agreement listed the California trademark for KIVA and the trademark application for KIVA among the intellectual property being sold. Id. Schedule A.

         Palmer and Knoblich co-founded KBI, Indica, and all of their affiliates. Palmer Decl. ¶ 12. They have been the majority and controlling owners/members since the entities' inception. Id. “The main activity of all of these businesses has always been to manufacture, distribute, and sell and promote ‘Kiva Confections' and its products.” Id.

         Indica made its first sales in Northern California in December 2010, and expanded to Southern and Central California in 2011. Id. ¶ 13. By 2015, KBI was also selling in Arizona, Nevada, Illinois, Hawaii and Michigan. Id. ¶ 14. Palmer declares that since 2010, KBI has used both “KIVA” and “KIVA CONFECTIONS” on its products, and that there has never been a strategic change in how often KBI uses one or the other. Id. ¶ 15. KBI has continuously sold products with the KIVA mark since December 2010. Id. ¶ 18. In that time, KBI has sold millions of units, including 1, 705, 000 units in California in 2018. Id. It has a marketing budget of $6.5 million for the 2019 year. Id. “Over the past several years, ” KBI registered the KIVA mark on the state level in California and other states. Id. ¶ 20, Ex. H.[5] A California trademark issued on January 20, 2018 for the mark KIVA for “Chocolate and confections, all of the foregoing containing cannabis, ” with a date of first use of December 1, 2010. Palmer Decl. Ex. H.

         C. The Conflict Between the Parties

         Palmer and KBI first became aware of KHB's use of the KIVA mark in August 2017. Palmer Decl. ¶ 21. Henderson and KHB first became aware of KBI in 2015. Henderson Decl. ¶ 12. Henderson understood at the time, apparently wrongly, “that [KBI] was selling marijuana-containing products, exclusively or primarily in the San Francisco Bay Area, and that its products were labeled ‘Kiva Confections.'” Id. Henderson learned “more recently” that KBI was selling some of its products without the “Confections” identifier, and that KBI was selling throughout the state of California and in other states. Id. In late 2016 or early 2017, KHB became aware that some of its consumers were confusing KHB's brand with KBI's. Id. ¶ 13. In January 2017, KHB staff began making a consumer confusion log. Id., Ex. E. KHB contends that the consumer confusion is causing KHB “economic damage and injury to its reputation and good will.” Henderson Decl. ¶ 15. Henderson asserts that “[KHB's] products are environmentally friendly, unadulterated and healthy, but consumers will be confused by the similar marks, and will likely [] become worried, or erroneously assume, that [KHB's] KIVA-brand food products are infused with marijuana.” Id.

         In May 2018, KHB's counsel sent a cease and desist letter to KBI. Henderson Decl. Ex. F. KBI responded in May 2018 that it had been making continuous use of the KIVA mark for seven years. Johnson Decl. Ex. 1 (dkt. 27-1). It stated that it was not aware of any consumer confusion, but that it nonetheless wished to “take appropriate steps to minimize, if not eliminate[] misdirected contact to KHB.” Id. KBI asserted that it had common law rights to the mark in California that predated KHB's USPTO registration, suggested that the KHB trademarks were vulnerable, and concluded by seeking “to discuss an amicable resolution.” Id. KBI wrote to KHB's counsel again in late July 2018. See Johnson Decl. Ex. 2. That letter continued to assert KBI's common law rights to the KIVA mark, and stated that a KHB proposal to mediate or arbitrate the dispute “may be premature.” Id.

         KHB brought suit in September 2018 for trademark infringement, unfair competition in violation of the Lanham Act, declaratory relief, and unfair and deceptive trade practices under state law. See generally Compl. (dkt. 1). It served the Complaint in December 2018, see Waiver of Service Executed (dkt. 4), after the parties participated in a structured mediation in November and December 2018, see KHB Reply re MPI (dkt. 27) at 4. KBI filed counterclaims. See Counterclaims (dkt. 8); Amended Counterclaims (dkt. 10). KHB then filed for a motion for preliminary injunction in March 2019, seeking to enjoin KBI from any further use of the KIVA mark. See KHB MPI at 18. That same filing includes a motion to dismiss two of KBI's counterclaims. See KHB MTD. In May 2019, KBI filed a cross-motion for preliminary injunction, seeking to enjoin KHB from using the KIVA mark within California. See KBI MPI at 1.

         This Court received this case in June when it was transferred in from the Southern District of California. See Case Transferred In (dkt. 31).


         A preliminary injunction should issue where the plaintiff establishes 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.” See Rodriguez v. Robbins, 715 F.3d 1127, 1133 (9th Cir. 2013) (citing Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). The Ninth Circuit has adopted a “sliding scale approach, ” such that “'serious questions going to the merits' and a balance of hardships that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011). The “[l]ikelihood of success on the merits ‘is the most important' Winter factor[.]” Disney Enters., Inc. v. VidAngel, Inc., 869 F.3d 848, 856 (9th Cir. 2017).

         Motions to dismiss are governed by Federal Rule of Civil Procedure 12(b)(6). Courts adjudicating such motions must ask whether the complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). All material factual allegations must be construed in favor of the non- moving party. W. Reserve Oil & Gas Co. v. New, 765 F.2d 1428, 1430 (9th Cir. 1985). However, courts “are not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555).


         This Order discusses the three motions now pending: (A) KHB's Motion for a Preliminary Injunction, (B) KHB's Motion to Dismiss two of KBI's counterclaims, and (C) KBI's Cross-Motion for a Preliminary Injunction.

         A. KHB's Motion for Preliminary Injunction

         The first and most substantial motion is KHB's Motion for Preliminary Injunction. As discussed below, KHB has not demonstrated that it is likely to succeed on the merits, it has failed to demonstrate irreparable harm, and the balance of the hardships weighs against KHB, although the public interest weighs in its favor. Accordingly, the motion falls short.

         1. Likelihood of Success

          The first requirement for injunctive relief is a likelihood of success on the merits. See Rodriguez, 715 F.3d at 1133. To prevail on a claim of trademark infringement, a plaintiff must show (a) ownership of a valid mark and (b) use by defendant in commerce of a mark likely to cause consumer confusion. Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1144 (9th Cir. 2011). Both prongs are in dispute here.

         a. Ownership of the Mark

          KHB has three USPTO trademarks for KIVA. See Henderson Decl. Exs. A, B, C (trademarks from 2014, 2015, 2016). A federal trademark registration is prima facie evidence of: (1) the validity of the registered mark; (2) the registration of the mark; (3) the registrant's ownership of the mark; and (4) the registrant's exclusive right to use the registered mark in commerce on or in connection with the goods or services specified. 15 U.S.C. § 1057(b); 3 McCarthy on Trademarks and Unfair Competition, § 19:9 (5th ed. 2018); Rolley, Inc. v. Younghusband, 204 F.2d 209, 211 (9th Cir. 1953). KHB thus argues that it has shown a protectable ownership interest in the KIVA mark. KHB MPI at 7.

         KBI does not dispute the validity of KHB's trademarks per se; instead, KBI argues that it “has a protectable ownership interest in the KIVA mark under California [common] law dating back to December 2010 that covers all of California.” KBI Opp'n to KHB MPI at 18. KBI contends that its common law right to the KIVA mark in California “precludes an injunction in favor of KHB covering all of California.” See id. In sum, then: KHB seeks an injunction to prevent KBI from using the KIVA mark anywhere, and KBI challenges KHB's ownership of the KIVA mark in California only.

         KHB disputes that KBI has a common law right to the KIVA mark. See KHB MPI Reply (dkt. 27) at 4. It does so on two grounds. First, KHB argues that KBI does not have a valid chain of title in the KIVA mark. Id. at 4-5. Second, KHB argues that KBI cannot demonstrate “first use” in commerce because its product is illegal. Id. at 4-6 (citing Sengoku Works Ltd. v. RMC, Int'l, Ltd., 96 F.3d 1217, 1219 (9th Cir. 1996) (“To acquire ownership of a trademark it is not enough to have invented the mark first or even to have registered it first; the party claiming ownership must have been the first to actually use the mark in the sale of goods or services.”) (emphasis added)). The second ground is persuasive.

         i. Chain of Title

          KHB's argument as to chain of title is that KBI has only existed since 2014 and so can only claim to have been the first user of the KIVA mark if it has a valid chain of title in the mark before then. KHB MPI Reply at 4. KHB notes that the only evidence of chain of title dating back to 2010 is the TM License Agreement. Id. at 5. KHB then argues that the TM License Agreement is fatally flawed because, after stating in his deposition that the agreement was signed on November 23, 2010, Palmer later admitted that it “was signed in or around October 2018, effective November 23, 2010.'” Id.; see also Miller Decl. Ex L (May 2, 2019 letter from KBI counsel submitting errata to deposition transcript); Palmer Decl. ¶ 9B (“The TM License Agreement was signed in or around October 2018, but memorialized the agreement that had existed since November 2010.”). KHB contends that KBI's admission that the license agreement was signed in 2018, after litigation had begun, “strips it of any significance.” See KHB MPI Reply at 5.

         KBI correctly responds that a backdated agreement can be valid. See KBI MPI at 4 (citing Du Frene v. Kaiser Steel Corp., 231 Cal.App. 2d 452');">231 Cal.App. 2d 452, 458 (1964) (“a party of a contract may retroactively adopt prior acts or fix retroactive dates of execution for a contract.”) and Hotel Corp. of Am. v. Inn Am., Inc., 153 U.S.P.Q. 574, at *5 (T.T.A.B. 1967) (backdated trademark agreements executed during litigation were no less “sufficient on their face to meet the essential requirements of a nunc pro tunc assignment” given “stockholders and officials of the original [applicant] and those of [subsequent corporate form of applicant] were for the most part the same”)). Du Frene is not altogether relevant, but like the more recent Raceway Ford Cases, 2 Cal. 5th 161');">2 Cal. 5th 161, 175-76 (2016), it suggests that California courts do not reject backdated contracts out of hand. The court in the more factually analogous Hotel Corp. of America observed that nunc pro tunc assignments are intended “to make the record show something which actually occurred, but has been omitted from the record through inadvertence or mistake.” 153 U.S.P.Q. at *5.

         Even so, this Court would have more confidence that the TM License Agreement was created as a legitimate, backdated agreement had it explicitly stated that it was a nunc pro tunc agreement written in 2018 to reflect what was meant in 2010. That seems to be more akin to what happened in Du Frene, 231 Cal.App. 2d at 458, where the document at issue was a “Change Order” signed by all parties, and stating, “The foregoing [o]rder . . . is hereby approved and accepted as of November 4, 1957, ” and the Raceway Ford Cases, 2 Cal. 5th at 164, where Raceway Ford would enter into a “subsequent finance contract” with a buyer and backdate the second contract to the date of the first contract. Even the assignments in Hotel Corp. of Am., 153 U.S.P.Q. at *5, appear to have been explicitly nunc pro tunc.

         Two further facts undermine the TM License Agreement. First, the TM License Agreement states that “Licensee shall pay Licensors a nonrefundable licensing fee of Twenty-Five Thousand Dollars ($25, 000) on the following basis: (a) on the Execution Date, Licensee shall pay to Licensors Fifteen Thousand Dollars ($15, 000). . . .” Palmer Decl. Ex. B ¶ 4.1 (“License Fee”). When asked at his deposition whether he actually received $15, 000 on the day the agreement was made [in 2010], Palmer answered, “Based on our financial situation at the time it's doubt[ful]. I don't think so.” Miller Decl. Ex. L. He subsequently changed that answer to “I don't think so.” Id. Second, the TM License Agreement bears the handwritten signatures of Knoblich and Palmer, as Licensors, but the signature for the representative of the Licensee, Indica, was typewritten: it says simply “ Matt Desano, Matt Desano, Director.” Palmer Decl. Ex. B at 20. KHB asserts that “Palmer testified under oath that Matt Desano was a director of Indica who had joined when it was formed, in 2010, and who had left Indica by 2014 or 2015.” KHB Opp'n to KBI MPI (dkt. 28) at 12 (citing Palmer Depo. at 46-20 to 50-7). If Desano was no longer at Indica when the TM License Agreement was signed in 2018, then the Court cannot know that Desano actually agreed to the agreement's terms on behalf of Indica in 2010.[6]“If [an] alleged ‘senior user' traces rights through an assignment, the assignment is subject to judicial scrutiny to be sure it was in fact a valid assignment.” See McCarthy § 26:5; see also Sarieddine v. Alien Visions E-Juice, Inc., No. CV 18-3658 PA (MAAx), 2019 WL 1966661, at *6 (C.D. Cal. April 12, 2019) (slip op.) (“courts must be cautious in scenarios that do not involve clear written documents of assignment. Requiring strong evidence to establish an assignment is appropriate both to prevent parties from using self-serving testimony to gain ownership of trademarks and to give parties incentive to identify expressly the ownership of the marks they employ.”) (quoting Doeblers' Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 822 (3d Cir. 2006)); TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 884 (7th Cir. 1997) (same).[7] Given the irregularities with the TM License Agreement, the Court is inclined to reject it as proof of a 2010 assignment of the KIVA mark from Palmer and Knoblich to Indica.

         Nevertheless, KBI argues that “even if the TM License Agreement is invalid . . . a license to use a trademark may be implied by the conduct of the parties.” KBI MPI at 5. This is true. “‘If there is no documentary evidence of an assignment, it may be proven by the clear and uncontradicted oral testimony of a person in a position to have actual knowledge.'” Sarieddine, 2019 WL 1966661, at *6 (quoting Doeblers' Pa. Hybrids, 442 F.3d at 822); see also Kane on Trademark Law (6th ed. 2018) § 21:2 (“Trademarks, like other forms of property, can be transferred orally or in writing. An oral assignment may be proven by the clear and uncontradicted testimony of a person with knowledge. For ease of proof, of course, you are much better off with a written assignment.”).

         KBI argues that it has demonstrated an “implied license” between Palmer and Knoblich, and Indica. KBI MPI at 5. To show an implied license, there must be “evidence of an agreement or course of conduct by the parties to contract for a trademark license.” Bazaar Del Mundo, Inc. 448 F.3d at 1130. Moreover, “it is imperative for a licensor to have ‘maintain[ed] control over the quality of the finished product or service to guarantee to the public that the goods or services are of the same, pre-license quality.'” Henderson v. Lindland, No. CV 11-01350 DDP DTBX, 2013 WL 1181957, at *5 (C.D. Cal. Mar. 21, 2013) (quoting Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1017 (9th Cir. 1985)). Here there was no “pre-license quality, ” as Palmer and Knoblich never used the KIVA mark in commerce until Indica did so in December 2010, see Palmer Decl. ¶ 13, but no matter, see TAP Mfg., LLC v. Signs, No. 2:15-cv-00797-SVW-PJW, 2015 WL 12752874, at *6 (C.D. Cal. July 23, 2015) (trademark use by licensee “inures to the benefit of the licensor.”). Given Palmer's uncontested testimony that the main business of Indica and KBI has always been to sell KIVA confections, that he and Knoblich maintained full control over Indica, KBI, and their affiliates, and that they were the “majority and controlling owners/members since the entities' inception, ” see Palmer Decl. ¶ 12, there is probably a sufficient basis to conclude that there was an implied assignment.[8]

         Accordingly, while the TM License Agreement does not necessarily demonstrate a valid assignment of the KIVA mark from Palmer and Knoblich to Indica in 2010, the doctrine of implied license likely establishes a chain of title, in California only.

         ii. First Use

         KHB's second argument in opposing KBI's assertion of a common law right to the KIVA mark is that one cannot claim first use based on an illegal product. KHB MPI at 12. There is a paucity of trademark authority addressing what happens when a product's ...

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