Ak Futures LLC v. Boyd St. Distro, LLC

• Decision Date: 19 May 2022
• Docket Number: 21-56133
• Citation: 35 F.4th 682
• Parties: AK FUTURES LLC, Plaintiff-Appellee, v. BOYD STREET DISTRO, LLC, a California limited liability company, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

35 F.4th 682

AK FUTURES LLC, Plaintiff-Appellee,

v.BOYD STREET DISTRO, LLC, a California limited liability company, Defendant-Appellant.

No. 21-56133

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 18, 2022 Las Vegas, Nevada

Filed May 19, 2022

Darrel C. Menthe (argued), Sage Law Partners PC, Culver City, California, for Defendant-Appellant.

James R. Sigel (argued) and Joyce Liou, Morrison & Foerster LLP, San Francisco, California; Benjamin J. Fox and Ani Oganesian, Morrison & Foerster LLP, Los Angeles, California; Thomas Frost, The Frost Firm, San Diego, California; for Plaintiff-Appellee.

Before: Andrew J. Kleinfeld, D. Michael Fisher,^* and Mark J. Bennett, Circuit Judges.

D.M. FISHER, Circuit Judge:

AK Futures LLC, a manufacturer of popular e-cigarette and vaping products, brought suit for trademark and copyright infringement against Boyd Street Distro, LLC, a downtown Los Angeles storefront and smoke products wholesaler. According to AK Futures, Boyd Street has been selling counterfeit versions of its "Cake"-branded e-cigarette and vaping products containing delta-8 tetrahydrocannabinol ("delta-8 THC"), a chemical compound derived from hemp. Boyd Street contends that AK Futures does not have protectible trademarks for its Cake products because delta-8 THC remains illegal under federal law. Faced with AK Futures' request for a preliminary injunction, the District Court held that the 2018 Agriculture Improvement Act (the "Farm Act") legalized the company's delta-8 THC products, and it granted injunctive relief. Plain statutory text compels the conclusion that AK Futures' products are lawful, and we see no other reason to deny a preliminary injunction. We affirm.

I. Background

A. Factual History

AK Futures is a producer and distributor of e-cigarette and vaping products, including electronic delivery systems and cartridges containing e-cigarette liquid. This suit involves the company's Cake-branded delta-8 THC products. Delta-8 THC is a chemical compound that occurs naturally in the cannabis plant, Cannabis sativa L. , which can be grown into either hemp or marijuana (alternatively spelled marihuana) depending on cultivation method. 5 Things to Know about Delta-8 Tetrahydrocannabinol – Delta-8 THC , U.S. Food & Drug Admin. (Sept. 14, 2021). According to the Food and Drug Administration, delta-8 THC has "psychoactive and intoxicating effects" similar to delta-9 tetrahydrocannabinol ("delta-9 THC"), a different chemical compound and the main psychoactive component of marijuana. Id. The FDA notes that delta-8 THC "is not found in significant amounts in the cannabis plant. As a result, concentrated amounts of delta-8 THC are typically manufactured from hemp-derived cannabidiol." Id.

In 2018, Congress passed and the President signed the Farm Act, Pub. L. No. 115-334, 132 Stat. 4490, which legalized the possession and cultivation of hemp. See 21 U.S.C. §§ 802(16)(B), 812 sched. I(c)(17). Because hemp and marijuana are different varieties of the same plant, the Farm Act uses the concentration of delta-9 THC to set a threshold distinguishing the two. As defined by the Act, hemp includes "any part of" the plant Cannabis sativa L. "and all derivatives, extracts, [and] cannabinoids ... , whether growing or not," with a delta-9 THC concentration of no more than 0.3 percent on a dry weight basis. 7 U.S.C. § 1639o (1). The Act is silent with regard to delta-8 THC.

AK Futures manufactures flavored e-cigarette liquid containing delta-8 THC, which it describes as "a hemp-derived product with less than 0.3% of the psychoactive delta-9-[THC] compound." According to the company, its products come with a QR code permitting verification of "the percent of THC in the e-liquid (less than 0.3%)." The company also states that it "regularly tests its products for potency and regulatory compliance purposes, and screens for heavy metals, pesticides, and other contaminates." The record reveals little else about the manufacturing process.

In October 2020, AK Futures devised the Cake brand—a logo depicting a two-tier cake overlaid with a stylized letter "C"—to market its delta-8 THC products. The company registered this Cake logo with the U.S. Copyright Office. It also has pending trademark applications for six marks, four of which are various permutations of the word Cake and two are versions of the logo. All trademark applications are for use in connection with e-cigarette liquid, cartridges, and delivery systems. The Cake name and logo appear on the packaging of the devices. AK Futures avers that its Cake products are extremely popular, having generated $60 million in revenue over a nine-month period.

AK Futures learned of counterfeit versions of its Cake e-cigarette products being sold by Boyd Street, a smoke products wholesaler and storefront in downtown Los Angeles, over the summer of 2021. Boyd Street is not one of AK Futures' authorized retailers. Suspecting infringement, AK Futures hired a private investigator to visit Boyd Street and purchase the purported Cake products. AK Futures' packaging manufacturer compared the Cake products obtained from Boyd Street to the originals, and, despite a strong resemblance between the two, it observed differences in packaging materials, labeling, and color. It concluded the Cake products sold by Boyd Street were inauthentic. As part of this case, AK Futures has submitted images showing its own Cake e-cigarette products and packaging next to virtually identical counterfeits.

Boyd Street claims it had only two interactions with Cake-branded products. The first involved an unidentified "someone" approaching the store and selling Cake products on consignment. Boyd Street does not have "checks or receipts for these sales." According to its CEO, the store conducts most of its business in cash. The second entailed Boyd Street making a purchase from a person who "told [the CEO] they were an authorized distributor" of Cake products. The CEO states that his usual method of verifying a seller's authenticity is to ask for an invoice. Boyd Street claims its entire inventory of Cake products has been sold and that it has "no plans" to sell Cake products in the future.

B. Procedural History

AK Futures brought suit in the U.S. District Court for the Central District of California alleging copyright infringement under 17 U.S.C. § 101 et seq. , and federal unfair competition and false designation under the Lanham Act, 15 U.S.C. § 1125(a). It also brought two California law claims that are irrelevant to this appeal. The company moved for a preliminary injunction.

Boyd Street initially failed to file a motion in opposition, so the District Court entered a preliminary injunction without hearing from the store. The Court enjoined Boyd Street from selling goods bearing imitations of AK Futures' two Cake logo trademarks or "any copy or colorable imitation of" the company's "CAKE trademarks." In a separate section of the order, it enjoined Boyd Street from "reproducing, distributing ... , or displaying" copies of the copyrighted Cake design. After allowing Boyd Street leave to file and considering both parties' submissions, the District Court issued an amended order and opinion keeping the injunction in place.

Reciting the facts, the District Court's opinion stated that AK Futures had applied for trademark registration and "had continuously used one or more of the aforementioned [m]arks in commerce" since October 2020. Later, the Court concluded that AK Futures owned a valid copyright because the company "owns six [m]arks for its Cake product, all of which are registered." In its trademark discussion, the Court determined that AK Futures, by showing a likelihood of success on its copyright claim, had impliedly met the standard for ownership of a valid trademark. It concluded that AK Futures was likely to succeed in showing both copyright and trademark infringement, noting that the Cake products sold by Boyd Street were "almost identical" to the originals. The Court ultimately agreed with AK Futures that—on the available record—its products are lawful under the Farm Act.

Boyd Street timely appealed.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction under 15 U.S.C. § 1121 (federal trademark) and 28 U.S.C. §§ 1331, 1338(a) (federal question and federal intellectual property). We have jurisdiction under 28 U.S.C. § 1292(a)(1) (appeal from injunction). We review the District Court's decision to grant a preliminary injunction for an abuse of discretion; we review underlying legal conclusions de novo and factual findings for clear error. Roman v. Wolf , 977 F.3d 935, 941 (9th Cir. 2020) (per curiam). A "district court abuses its discretion if its conclusions are without support in inferences that may be drawn from the facts in the record." LA All. for Hum. Rts. v. Cnty. of Los Angeles , 14 F.4th 947, 957 (9th Cir. 2021) (quotation omitted).

III. Discussion

Appealing the preliminary injunction, Boyd Street does not contest the District Court's finding that it was selling counterfeit versions of AK Futures' Cake products. Instead, its chief argument is that AK Futures could not own a valid trademark in connection with these products because federal law forbids the possession and sale of delta-8 THC. AK Futures responds that the Farm Act legalized delta-8 THC and, by extension, its products incorporating the compound. We agree with AK Futures, and we hold the District Court properly issued a preliminary injunction.

To obtain a preliminary injunction, a party must show: (1) it will likely succeed on the merits, (2) it will likely suffer irreparable harm in the absence of preliminary relief, (3) the balance of the equities tips in its favor, and (4) the public interest favors an injunction. Disney Enters., Inc. v. VidAngel, Inc. , 869 F.3d 848, 856 (9th Cir. 2017). In addition to claiming delta-8 THC remains illegal, Boyd Street attacks the District Court's determinations on irreparable harm and...