The TMCA

The Ninth Circuit issued two opinions in BBK Tobacco & Foods LLP v. Central Coast Agriculture, Inc. finding judicial power over pending trademark applications and an exception shielding trademark registrations for marks used with cannabis products. BBK Tobacco & Foods LLC (“BBK”) markets a variety of smoking accessories, including rolling paper, rolling machines, lighters, shredders, and grinders under the RAW brand, largely marketed to cannabis users. Central Coast Agriculture, Inc. (“CCA”) on the other hand markets cannabis concentrates and pre-rolled cannabis products under the RAW GARDEN brand. While BBK sued CCA for trademark infringement, unfair competition, and related claims, the interesting development in this case relates to each party’s attempt to cancel the other party’s trademarks. CCA filed four trademark applications for RAW GARDEN relating to various smoking accessories and products. Each application was filed on an intent to use basis under Section 1(b) of the Lanham Act. BBK sought to void the RAW GARDEN applications, alleging that CCA lacked the requisite bona fide intent to use the marks in commerce. CCA, for its part, lodged a counterclaim seeking to cancel BBK’s RAW trademark registrations, alleging that they are based on “unlawful use” because BBK’s products are “drug paraphernalia” marketed for use with cannabis. On appeal, the Ninth Circuit addressed these claims in two separate opinions. For BBK’s attempt to void CCA’s applications, the Ninth Circuit, for the first time, addressed whether federal district courts have the power to alter or void pending trademark applications. In a published opinion, the split Ninth Circuit panel said “yes.” The majority examined 15 U.S.C. § 1119, which provides that “in any action involving a registered mark the court may determine the right to registration. . . and otherwise rectify the register with respect to the registrations of any party to the action.” It found that the plain language of the statute grants a district court jurisdiction to consider challenges to a pending application, so long as the action involves a registered trademark, here BBK’s RAW registrations. This is because a challenge to an application “necessarily affects the applicant’s ‘right to a registration.’” Further, the parties and the Court have an interest in resolving all registration disputes in one action. The dissent disagreed. It read Section 1119 as permitting federal courts to cancel registrations only, not “to prematurely cancel pending trademark registration applications.” According to the dissent, the language of Section 1119 requires a completed registration—a Court cannot “determine the right to registration” or “rectify the register” absent an issued registration. The dissent also notes that the Trademark Trial and Appeal Board (“TTAB”) agrees, having previously found that district court authority under Section 1119 “concerns registrations” and that courts are “without authority to direct the USPTO to grant or deny pending applications.” Still, the majority opinion rules. In its appeal, CCA did not contest the district court’s finding that it lacked a bona fide intent to use the RAW GARDEN mark on the applied-for goods. As a result of the Ninth Circuit’s opinion, those applications are ordered to be voided. While the panel did not agree on the Section 1119 issue, all of the judges agreed that CCA’s counterclaim seeking to cancel BBK’s registrations is dead in the water. In an unpublished memorandum opinion, the Ninth Circuit found BBK’s RAW marks are not subject to cancellation for unlawful use. Only lawful use of a mark can be a basis for a trademark registration. Generally speaking, this means a party cannot obtain or maintain a trademark registration if the mark is used for illegal conduct, including the sale of illegal products. The Controlled Substances Act (“CSA”) prohibits the sale of controlled substances and “drug paraphernalia” including products designed to aid in preparing or inhaling controlled substances. While the legal status of cannabis has been in flux for some time, cannabis is still considered a controlled substance under federal law and is subject to the CSA. Luckily for BBK, the CSA includes a “tobacco exception” which excludes products that are “traditionally intended for use with tobacco products, including any pipe, paper, or accessory” from the CSA’s definition of “drug paraphernalia.” The court found that RAW rolling papers, rolling machines, shredders, grinders, and other smoking accessories are traditionally used with tobacco and shielded by the tobacco exception. The fact that BBK advertises its RAW products for use with cannabis was not sufficient to make BBK’s trademark use unlawful. Indeed, according to the Ninth Circuit, BBK’s subjective intent is wholly irrelevant to whether the tobacco exception applies. Finding RAW products fall within the exception, CCA’s counterclaim went up in smoke and the RAW trademarks remain valid. The unpublished memorandum gives some hope and guidance to cannabis companies seeking to protect their brands. But, they still face hurdles obtaining trademark registrations in the first place. The Trademark Manual of Examining Procedure (TMEP) is clear that “evidence indicating that the identified goods or services involve the sale or transport of a controlled substance or drug paraphernalia in violation of the [CSA]” is a basis for refusal of a trademark application. TMEP § 907. It even directly addresses cannabis stating: “regardless of state law, marijuana and marijuana extracts remain Schedule I controlled substances under federal law and are subject to the CSA’s prohibitions.” Id. As we reported previously, when applying these rules, the UPSTO has considered a party’s advertising and denied registration of marks that relate to cannabis. For example, in In Re Brown, the applicant sought to register HERBAL ACCESS for “retail store services featuring herbs.” As with the RAW marks, the claimed services encompass legal activity—the sale of legal herbs. Nonetheless, the USPTO examined the applicant’s website and determined that the mark also, perhaps primarily, encompasses unlawful activity—the sale of cannabis. The TTAB, reviewing this advertising, affirmed the refusal to register the HERBAL ACCESS mark. Still, if cannabis companies are able to obtain registrations for products traditionally used with tobacco, the Ninth Circuit’s opinion suggests those registrations will not be disturbed, regardless of how the products are marketed.

A federal magistrate judge in the United States District Court for the Southern District of Florida, in a trade secrets dispute involving CBD-based pain cream, recently granted summary judgment in favor of all but one defendant. The Court’s ruling is a useful illustration of why it is important to present actual (rather than speculative) evidence of misappropriation of a trade secret in order to prevail on such a claim. The ruling is also a good reminder that plaintiffs must be diligent in defining what is being claimed as trade secret(s) at the outset, rather than trying to have this definition evolve as the litigation develops. Background Plaintiff Healthcare Resources Management Group, LLC (“HRMG”) sued Defendants EcoNatura All Healthy World, LLC (“EcoNatura”), Medterra CBD, LLC (“Medterra”), Rejuvenol Laboratories, Inc. (“Rejuvenol”), and NoXeno Health Sciences, Inc. (“NoXeno”). HRMG, a producer of pharmaceutical-grade hemp products, cooperated with EcoNatura, a cosmetic health product developer and seller, to reformulate and manufacture a CBD-based pain cream for Medterra, a retailer introduced to EcoNatura by HRMG. The CBD-based pain cream was then manufactured by Rejuvenol, an owner and operator of a production facility through which EcoNatura manufactures its products. The CBD-based pain cream was created using one of EcoNatura’s creams as the base. After the relationship between HRMG and EcoNatura deteriorated and ultimately terminated, Medterra discontinued ordering the CBD-based pain cream from HRMG and purchased it from EcoNatura. HRMG alleged that it had entrusted the Defendants with highly sensitive confidential information – the formula for proprietary CBD cream – and that the Defendants misappropriated the formula by continuing to use it outside of their business relationship with HRMG and without HRMG’s consent. HRMG’s complaint alleged trade secret misappropriation by all of the Defendants under the Florida Uniform Trade Secrets Act (“FUTSA”) and the federal Defend Trade Secrets Act (“DTSA”), violations of the Florida Deceptive and Unfair Trade Practices Act by EcoNatura, Medterra, and NoXeno, as well as tortious interference with a business relationship by EcoNatura. In its complaint, HRMG identified its alleged trade secret as a CBD cream formula consisting of “the combination of specific ingredients”, “the relative percentages of each individual ingredient and the manner in which the specific amount of each ingredient gets blended with the remaining ingredients to form the finished product.” HRMG’s Belated Attempt to Redefine the Alleged Secret Formula The Defendants each moved for summary judgment on all claims asserted in the lawsuit, arguing, among other things, that HRMG had failed to identify its trade secret with reasonable particularity. In response, HRMG attempted to redefine the alleged formula as “a combination of precise concentrations of CBD, the manufacturing process for the CBD (time, temperature, mixing rate, and others), along with the complementary active ingredients at specific concentrations for pain relief (menthol, tea tree oil, and arnica).” The Court rejected HRMG’s attempt to make such a significant change to its trade secret definition so late in the proceeding, i.e., after discovery was closed and summary judgment had been filed against HRMG. Instead, the Court evaluated HRMG’s trade secret misappropriation claims solely based on the trade secret definition it set forth in the complaint. The Court’s Findings on Trade Secret Misappropriation The Court addressed the federal and state trade secrets claims (DTSA and FUTSA) together. The Court noted that, for both claims, misappropriation of a valid trade secret occurs when a person: (1) acquires the trade secret while knowing, or having reason to know, that he or she is doing so by improper means; (2) acquires or derives knowledge of the trade secret and discloses it without the owner's consent; or (3) acquires or derives knowledge of the trade secret and uses it without the owner's consent. In ruling in favor of Defendant Rejuvenol, the Court found that evidence in the record showed that HRMG did not know how the CBD-based pain cream was manufactured by Rejuvenol, that Rejuvenol did not receive any instructions or other information from HRMG concerning the formulation of this cream, and that Rejuvenol did not use the same process that HRMG claimed to be its trade secret. The Court concluded that there was no evidence that the alleged trade secret process had ever been conveyed to, or used by, Rejuvenol as required to properly support the DTSA and FUTSA claims. The Court likewise ruled in favor of Defendant Medterra. The Court found that while evidence demonstrated that HRMG shared with Medterra a list created by EcoNatura of the ingredients in descending order based on the percentages of the ingredients in the CBD-based pain cream and subsequently provided Medterra with the percentage of “key ingredients,” there was no evidence that Medterra knew any instructions or processes for manufacturing the cream in issue or that Medterra had deceived HRMG into disclosing its list of “key ingredients.” Accordingly, the Court held that HRMG could not establish that Medterra used, acquired, or disclosed HMRG’s alleged trade secret as required by both the DTSA and FUTSA. The Court also granted summary judgment in favor of NoXeno because there was no evidence that NoXeno had misappropriated the alleged trade secret. The Court’s analysis with respect to NoXeno was aided by the fact that HRMG failed to respond to any of the arguments in NoXeno’s summary judgment motion or oppose NoXeno’s statement of material facts, essentially leaving the motion unopposed. Finally, in contrast to the summary judgment holdings in favor of the other Defendants, the Court found that there was a genuine issue of material fact concerning alleged misappropriation by Defendant EcoNatura because there was evidence in the record that HRMG had sent a list of ingredients with their amounts to EcoNatura and that several calls took place between representatives of HRMG and EcoNatura during which HRMG explained how ingredients were heated and cooled during the manufacturing process. The Court deferred the factual issue of whether the manner in which the CBD cream’s ingredients blend to form the finished product is, in fact, HRMG’s trade secret, and whether it was misappropriated by EcoNatura, to determination at trial. HRMG’s Florida Deceptive and Unfair Trade Practices Act Claim Preempted by State Trade Secrets Claim In its decision, the Court also made clear that FUTSA can preempt certain conflicting state tort, restitutory, and other laws providing civil remedies for misappropriation of a trade secret, such as the Florida Deceptive and Unfair Practices Act (“FDUPTA”), if allegations of trade secret misappropriation alone comprise the underlying wrong. The Court found that the only unfair or deceptive practice alleged by HRMG against Medterra under the FDUPTA was the same trade secret misconduct that formed the basis for HRMG’s trade secret misappropriation claim. Finding no material distinction between the basis for HRMG’s trade secrets claim and FDUTPA claim, the Court granted Medterra’s motion for summary judgment as to the latter on grounds of preemption. As for HRMG’s FDUTPA claim against EcoNatura, the Court found that HRMG’s complaint contained separate trade secret allegations regarding a different CBD-based roll-on product or psoriasis cream. However, it also found that HRMG had failed to prove these separate allegations or to respond to EcoNatura’s arguments against these allegations, such that HRMG had effectively abandoned them. Since there were no material distinctions left between HRMG’s remaining allegations in support of its FDUTPA and trade secrets claims, the FDUTPA claim was likewise found to be preempted, and the Court granted summary judgment on this claim. Practice Points The Court’s decision provides a useful reminder on several important principles in trade secrets litigation. First, the Court’s varying summary judgment opinions on misappropriation illustrate how appropriately proving actual misappropriation of a trade secret is essential to prevailing on such a claim. Second, the Court’s decision to confine the Plaintiff HRMG to the definition of its trade secret in its complaint, rather than its eleventh-hour reformulation, demonstrates the importance of carefully formulating such a definition at the pleading stage. Finally, plaintiffs asserting trade secret claims along with additional non-trade secret claims, should consider the possibility of preemption of the latter, and whether separate and distinct allegations exist to support those claims in order to avoid preemption.

Late last month, Dorsey led a panel at the inaugural Investing in Women Cannabis Pioneers – The Brand Builders investor conference put on by Roth. The panel was made up of female business leaders at Bhang, Leafly, Insa, Tilray and Hollister Biosciences discussing the topic of scaling cannabis brands nationally across state lines despite current legal and regulatory hurdles. As more and more states legalize cannabis (with New York now on the list), establishing a national cannabis brand has never been more important. But cannabis companies still face significant obstacles to doing so. Since cannabis in many forms remains federally illegal, cannabis companies are generally barred from selling product across state lines. Being forced to rely on cannabis grown within different states creates quality control issues, which makes giving consumers across the country the same product experience more difficult. Cannabis companies are also subject to state and/or local packaging and distribution requirements that differ from jurisdiction to jurisdiction and packaging regulations can be subject to change on a moment’s notice. On the advertising side, many outlets available to traditional consumer packaged goods are off limits. Use of social media platforms is severely restricted and other online tools such as advertising keywords are unavailable. Television, radio, billboard and print ads are generally prohibited unless at least 85% of the audience is reasonably expected to be 21 years of age or older. To overcome these hurdles, and to scale nationally, the panelists discussed the importance of creating a strong brand story that resonates with consumers and transcends state differences. The panel also discussed the importance of building brand awareness at the grassroots level, for example, by investing heavily in education at the dispensary or “budtender” level. Content creation through written editorial and educational materials for consumers was also very important. Because federal trademark registration generally remains unavailable for anything “plant touching,” the panelists reaffirmed existing trademark protection strategies of seeking federal registration for informational services, merchandising items and other non-plant goods and services. State trademark registration, which has gained importance for cannabis companies, even though the legal presumptions and other benefits conferred are arguably limited, was also mentioned, along with common law protection. The panelists generally remarked at the creativity and additional investment that was required to build successful brands, and how hard it is for cannabis companies to build trust with consumers. Finally, the panelists weighed in on the opportunities presented by recent adult use legalization in New York. 20,000 new jobs were anticipated to be created within the first 18 months of legalization and the projected market size is $4 billion, likely surpassing Canada and becoming the world’s second-largest legal market after California. One panelist described the New York market as being the largest illicit cannabis market in the world, with most product supplied currently coming from California. Legalization was viewed as eventually suffocating the black market that currently exists.

Like me, Judge Otis D. Wright of the Central District of California remembers KOOL. A once leading menthol cigarette label, KOOL brands and its owner ITG Brands, LLC sued Capna Intellectual claiming Capna’s Bloom Brands’ use of interlocking “OO”s in its marketing of packaged cannabis products infringes on and dilutes the KOOL marks. After a June 7 hearing in which Judge Wright urged the parties to come to an agreement regarding an appropriate preliminary injunction, on June 21 Judge Wright signed ITG’s revised proposed preliminary injunction, which was more limited and prohibited Bloom from using interlocking “OO”s and/or circles in its marketing and promotional materials. This ultimately led to a settlement and stipulated permanent injunction issued earlier this month. While the preliminary and stipulated permanent injunctions are relatively standard form, and are perhaps not noteworthy, a couple points from the parties’ briefing on the preliminary injunction and the hearing are interesting to consider. Based on my own review of the briefing and application of the Sleekcraft likelihood of confusion factors, this case was a close call, and I perhaps would not have issued a preliminary injunction. Bloom Brands’ most interesting argument did not fit neatly into any one of the eight Sleekcraft factors. Bloom Brands juxtaposed the fall of menthol cigarettes as a product, and the consequent falls of brands affiliated with that product, including KOOL, against the mass legalization and rise of cannabis products and brands across the majority of the United States. For example, Bloom argued that KOOL brands and its interlocking “OO”s may have had “a worldwide reputation for quality and authenticity” in the 1930s, but Bloom claimed that in 2021, KOOL’s “reputation is for peddling toxic addictive carcinogens to minorities.” Bloom also argued that on April 29, 2021 the FDA announced that it would ban menthol cigarettes nationwide. By contrast, Bloom claimed that much of the nation has moved toward legalization of cannabis. In short, Bloom made a persuasive argument that KOOL brands’ star had fallen, while Bloom Brands’ star was rising such that any confusion was not only unintentional (a Sleekcraft factor), but would actually hurt Bloom’s image (and benefit KOOL’s). This argument is persuasive and arguably spans numerous of the Sleekcraft factors, as it goes to the strength of marks, actual confusion, defendant’s intent in selecting the mark and likelihood of expansion into other markets. Perhaps KOOL’s best retort fits within the eighth Sleekcraft factor—likelihood of expansion into other markets—because even assuming menthol cigarettes are forever on their way out, after 88 years, KOOL should have the right to expand its use of the interlocking “OO”s to cannabis if it decides to do so in the future. Judge Wright picked up on a corollary to this potential retort during the June 7 hearing when he questioned whether ITG’s “goodwill could be harmed for the straight-laced among us who might now feel that KOOL has gone into the cannabis market and find that objectionable even in California?” From a purely theoretical standpoint, I would have liked to see how this dispute played out. Among geriatric Millennials and Generation X, KOOL is a strong mark and there is good reason to believe a strong likelihood of confusion exists. And as previewed by Judge Wright, that same demographic might be offended if it mistakenly believed KOOL had ventured into cannabis, which could damage KOOL’s goodwill. On the other hand, Bloom is not wrong that among the younger demographic, KOOL has very little, if any, brand strength largely as a result of the strict limitations placed on cigarette advertising since the late 1990s. And the so-called “straight-laced” from this younger demographic is also more likely to view menthol cigarettes as the evil, and cannabis as the good, such that any actual consumer confusion could actually benefit KOOL, and harm Bloom, among that demographic. One also cannot help but wonder whether an unwritten, ninth, non-Sleekcraft factor would have tipped the scale in favor of KOOL and against Bloom here. While the majority of the states have legalized cannabis in one form or another, the federal government has not. If he had been forced to decide whether to issue a preliminary injunction against Bloom on the original papers alone, curious whether Judge Wright would have leaned toward issuing the injunction simply because Bloom sells a federally illegal product. Regardless, Judge Wright did the parties a huge favor by forcing them to confer and find a business solution to share the pain equally, which ultimately led to a settlement. Judge Wright even commented that he was tired after every hearing of half of the people “going away pissed off,” and after he apprised the parties that if either side acted unreasonably he’d decide against the unreasonable party, he sent them off to figure it out and gave them time to do it. And they did. Both sides benefited from Judge Wright’s pragmatic approach, and, in the end, “cooler” heads prevailed. Kudos to all.

The FTC recently reached deals with six CBD companies after it issued formal complaints against them in December 2020 over concerns about deceptive practices. The initial complaints (found here: In re Bionatrol Health, LLC, In re Epichouse, LLC, In re CBD Meds, Inc., In re Easybutter, LLC, In re Reef Industries, Inc., and In re Steves Distributing, LLC) brought various counts against the companies, including allegedly making a wide range of claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and other diseases. Some complaints also include deceptive pricing allegations. The FTC approved final consent orders resolving all the complaints. Those orders (found here: In re Bionatrol Health, LLC, In re Epichouse, LLC, In re CBD Meds, Inc., In re Easybutter, LLC, In re Reef Industries, Inc., In re Steves Distributing, LLC) obligate the companies to take and avoid various actions, including refraining from making misleading statements about the health benefits of CBD (including that such products prevent Alzheimer’s disease, autoimmune diseases, arthritis, cancer, diabetes, heart disease, seizures, skin cancer or other diseases), refraining from deceptive pricing tactics, notifying customers of the FTC’s lawsuit, and paying fines ranging from $20,000 to $85,000. These orders come on the heels of two years of relatively aggressive enforcement efforts against CBD companies by both the FDA (which we wrote about here) and the FTC. The FDA has already written two more warning letters to CBD companies in 2021, which you can find here. As shown on that same page, the FDA sent 21 letters to CBD companies in 2020 and, in 2019, sent another 22 letters. Sometimes these letters were jointly signed by the FTC, and the FTC has sent other letters to CBD companies over the past years (such as those discussed here). While the FDA continues to consider further regulations governing more widespread use of CBD products, these orders and letters will continue to act as de facto guidance for CBD companies. Dorsey will continue to monitor the FTC's and FDA’s actions in this area.

A bong distributor with a reputation as a serial trademark plaintiff managed to persuade a Florida federal court that it should not be on the hook for the prevailing party’s attorney’s fees. In Sream Inc. et al. v. CIJ Enterprises Inc., Plaintiffs Roor, a German “water pipe” maker and its U.S. licensee, Sream, alleged that defendant CIJ infringed Plaintiffs’ trademark by selling a bong at its convenience store that bore the Roor mark. After CIJ prevailed at trial, it moved for attorney’s fees. On March 3, however, Judge Reinhart of the Southern District of Florida issued an order denying the motion on the grounds that CIJ had failed to establish that the case was exceptional under the Lanham Act. Judge Reinhart began with a brief overview of the applicable law regarding what constitutes an exceptional case. As another Southern District of Florida court noted, courts may consider whether there was purposeful, intentional or willful conduct that went beyond "mere negligence” in assessing whether a case is exceptional. An attorney’s fees award may also be justified when a plaintiff has brought an "obviously weak" Lanham Act claim and the evidence shows that the plaintiff acted in bad faith and with an "improper motive.” The policy reason for this doctrine is clear:  to, ahem, weed out frivolous claims. As this case demonstrates, however, it is no easy feat to recoup attorney's fees under the exceptional case doctrine. In this case, CIJ made three principal arguments in support of its position that this was an exceptional case justifying an award of attorney’s fees. CIJ first argued that Plaintiffs were on notice of the weakness of their case, as a judgment had been entered against them in a similar case, Sream, Inc. v. Smokers Edge, LLC, just nine months earlier. Notably, in Smokers Edge, the court had ruled it was an exceptional case meriting an award of attorney’s fees. Next, CIJ claimed that Plaintiffs’ “apparent business model” is to file trademark infringement lawsuits against “smaller, stand-alone, independent stores” and obtain settlements before trial an (oh no, not again) chronic litigant, if you will. According to CIJ, Plaintiffs likely earn more revenue from these settlements than from sales of their water pipes. Finally, CIJ contended that Plaintiffs’ attempt to obtain damages for allegedly infringing the mark of what it deemed an unlawful product made this an exceptional case. CIJ noted that Plaintiffs’ bongs had competed in the Cannabis Cup (the horror!) and that it had asserted the affirmative defense of illegality. Apparently, CIJ failed to see the irony in raising this argument given that its own presence in the bong market is what led to the suit to begin with. Judge Reinhart found CIJ’s Smokers Edge argument to be its strongest. In that case, the same plaintiffs had raised identical claims against a smoke shop that sold a counterfeit Roor water pipe. Nevertheless, Judge Reinhart found several reasons to distinguish the two cases. First, while the Smokers Edge court found that the bongs at issue were not “remotely similar in design, construction or quality,” the CIJ court found that a consumer seeing the two bongs next to each other could reasonably conclude that both came from the same source. Second, the defendant in Smokers Edge had twice made settlement offers that the plaintiffs rejected; in this case, however, there was no evidence that CIJ had offered to settle and been rebuffed (perhaps CIJ should have—please make it stop—tried to hash it out with Plaintiffs before trial?). Third, in Smokers Edge, despite the fact that the plaintiffs knew the identity of the distributor who sold the counterfeit bong to the defendant, they had never investigated the distributor nor sought to add them as a party, suggesting that the infringement was not actually causing Plaintiffs the harm they claimed. By contrast, in CIJ, there was nothing in the record regarding the distributor’s identity. Fourth, Judge Reinhart was also unpersuaded by CIJ’s argument that Plaintiffs did not actually care about the alleged infringement and only brought these actions to achieve settlement payments. As the court noted, there was no evidence Plaintiffs’ settlement proceeds exceeded their sales revenues (as CIJ had speculated), and Plaintiffs had a reasonable basis for bringing an infringement action, despite the fact they ultimately failed to prevail. Finally, the court rejected CIJ’s claim that the case was exceptional due to the alleged illegality of the water pipes. CIJ’s affirmative defenses did not include a claim that Plaintiffs had fraudulently procured their trademark by misrepresenting the nature of their water pipes. And, at least according to testimony from Plaintiffs’ corporate representative, Plaintiffs “advertise and market their water pipes only for tobacco use.” One suspects, of course, that most consumers of Roor bongs employ them for marijuana use. Absent evidence of misrepresentations to the USPTO, however, the fact that most consumers likely use Plaintiffs’ bongs to smoke an unlawful product does not make this case exceptional. It’s not at all surprising that winning trademark defendants are anxious to have their attorney’s fees paid—particularly when it appears to them that the plaintiff is in the trademark infringement litigation business. Judge Reinhart’s opinion reminds us once again that, absent truly exceptional cases, the expectation of an attorney’s fees award under the Lanham Act is generally nothing but … a pipe dream.

A federal district court has eliminated a cannabis company’s affirmative defense to federal trademark infringement claims based on the company’s prior use of a trademark that was legal under state law but not federal law. The Court concluded that, although use of the mark may have been legal under California law, “[c]annabis is illegal under federal law [and] the Lanham Act preempts the state law.” As the TMCA discussed previously, Kiva Health Brands (a national health food and supplements company) and Kiva Brands (a company selling cannabis-infused edibles) are locked in a dispute over the trademark KIVA. The parties cross-filed motions for summary judgment in late 2019 related to Kiva Brands’ various affirmative defenses to Kiva Health Brands’ infringement claim, including defenses based on prior use, laches, acquiescence, waiver, and estoppel. The Northern District Court of California ruled on the motions last Friday, eliminating Kiva Brands’ prior use defense but preserving its other equitable defenses. With respect to the prior use defense, the Court looked to its previous rulings in the case and reiterated that “while [Kiva Brands’] product is legal under California law, its illegality under federal law means that [Kiva Brands] cannot have trademark priority.” The opposite conclusion, it reasoned, would “put the government in the anomalous position of extending the benefits of trademark protection to a seller based upon actions the seller took in violation of that government’s own laws.” The Court rejected Kiva Brands’ argument that Section 1065 of the Lanham Act requires consideration of state trademark rights. This section applies only when a plaintiff has asserted incontestable trademark rights, on which Kiva Health Brands does not rely. The Court went a step further, indicating that even if it were required to consider state trademark rights under the Lanham Act, a federally-illegal use of a trademark simply cannot “support a prior use defense to a federal trademark” and any state law that would allow Kiva Brands to obtain common law (unregistered) trademarks rights would encroach upon and are thus preempted by Kiva Health Brands’ federal trademark rights. Notably, Kiva Brands’ counterclaim based on its common law rights under California law is still pending. However, the preemption aspect of this decision certainly leaves questions about the viability of that counterclaim. The TMCA will continue to monitor the progress of this case, which continues to provide helpful insights into trademark disputes involving cannabis, especially the potential limitations of common law trademark rights for such products.