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.”