Headspace Int'l LLC v. Podworks Corp.

Decision Date29 October 2018
Docket NumberNo. 77016-1-I,77016-1-I
Citation428 P.3d 1260
CourtWashington Court of Appeals
Parties HEADSPACE INTERNATIONAL LLC, a limited liability company formed in the State of California, Appellant, v. PODWORKS CORP., a corporation in the State of Washington; and Thomas Werth, an individual residing in the State of Washington, Respondent.

Eric John Harrison, Attorney at Law, 5400 California Ave. Sw Ste. E, Seattle, WA, 98136-1501, for Appellant.

Mark Phillip Walters, Timothy John Billick, Lowe Graham Jones PLLC, 701 5th Ave. Ste. 4800, Seattle, WA, 98104-7009, for Respondent.

PUBLISHED OPINION

Dwyer, J.

¶ 1 Headspace International LLC (Headspace), a California-based marijuana business, filed this lawsuit alleging infringing use of its mark, "THE CLEAR," by Podworks Corp., a Washington-based marijuana business, and Thomas Werth, Podworks Corp.’s chief executive officer (collectively, Podworks). In response, Podworks filed a CR 12(b)(6) motion to dismiss all claims. The trial court granted the motion, ruling that Headspace did not allege any lawful use of its mark in the ordinary course of trade in Washington and therefore had no trademark rights in "THE CLEAR" in Washington. Holding that Headspace did allege lawful use of its mark in the ordinary course of trade in Washington, we reverse.

I

¶ 2 On January 26, 2017, Headspace filed suit against Podworks alleging trademark infringement, unfair competition, unfair business practices, and violation of the Washington Consumer Protection Act, chapter 19.86 RCW. Headspace made the following factual allegations in its complaint:

[Headspace], is and has been for many years, a well-known seller and licensor of concentrated and refined essential plant oils including cannabis concentrates, vapor related products, educational and other services sold under the trademark THE CLEAR. [Headspace] developed a notoriety in the cannabis industry because their in-house chemist and engineer developed a proprietary chemical process to create highly refined essential plant oils including cannabis concentrates. [Headspace] has, since April 10th 2013, adopted and used the mark THE CLEAR for its products in California and for its services including licensing the mark THE CLEAR in Washington State....
... Since the initial use of THE CLEAR, [Headspace] has continually used the mark for its products and services. [Headspace]’s Washington State trademark registration was granted by the Washington State Secretary of State on December 15th, 2014, file number 57531, in class 34 - cannabis concentrates.
....
... In 2014 [Headspace] entered into an agreement to license their proprietary chemical process and THE CLEAR mark to X-Tracted Laboratories 502 Inc., a Washington State business that is licensed with [the] Washington Liquor and Cannabis Board. X-Tracted Laboratories 502 Inc. sells and distributes various marijuana related products, including cannabis concentrates, in Washington State. X-Tracted Laboratories 502 Inc. licensed [Headspace]’s THE CLEAR mark to use on cannabis concentrates and related products sold and/or used in commerce in Washington State. X-Tracted Laboratories 502 Inc. continues to license [Headspace]’s proprietary chemical process and use [Headspace]’s THE CLEAR mark in commerce in Washington State according with its Washington Liquor and Cannabis Board license.

¶ 3 Headspace further alleged that Podworks had used and continues to use the mark "THE CLEAR," or "CLEAR," for the sale of cannabis concentrates in Washington. Headspace also alleged that it sent Podworks a cease and desist letter, informing Podworks of its trademark for the mark "THE CLEAR," and demanding that Podworks immediately terminate further use of the mark or confusingly similar marks. Podworks refused, and Headspace filed this lawsuit.

¶ 4 Podworks responded by filing a CR 12(b)(6) motion to dismiss all claims against it for failure to state a claim upon which relief could be granted. Podworks argued that Headspace failed to allege that it had trademark protection in Washington for its mark "THE CLEAR," because it did not allege lawful use of the mark in the ordinary course of trade in Washington. The trial court granted the motion, reasoning that Headspace failed to allege lawful use of its mark in the ordinary course of trade in Washington and holding that there "is no claim for trademark infringement where the plaintiff does not allege that its mark is lawfully placed in the ordinary course of trade."

¶ 5 Headspace appeals.

II

¶ 6 Headspace asserts that the trial court erred by dismissing its complaint for failure to state a claim. Specifically, Headspace contends that it alleged lawful use of its mark in the ordinary course of trade in Washington and, therefore, had trademark protection for its mark pursuant to Washington’s trademark statute. We agree.

¶ 7 We review dismissals pursuant to CR 12(b)(6) de novo. Wash. Trucking Ass’ns v. Emp’t Sec. Dep’t, 188 Wash.2d 198, 207, 393 P.3d 761, cert. denied, ––– U.S. ––––, 138 S.Ct. 261, 199 L.Ed.2d 124 (2017). Dismissal is appropriate only when "it appears beyond doubt that the plaintiff cannot prove any set of facts, consistent with the complaint, justifying recovery." Hipple v. McFadden, 161 Wash. App. 550, 556, 255 P.3d 730 (2011). When reviewing a CR 12(b)(6) dismissal, we presume all factual allegations in the complaint to be true and also consider any hypothetical facts, consistent with the complaint, proffered by the plaintiff. Gorman v. Garlock, Inc., 155 Wash.2d 198, 214, 118 P.3d 311 (2005).

¶ 8 To determine whether Headspace obtained trademark protection for its mark pursuant to Washington law, we must interpret our state’s trademark statute, codified at chapter 19.77 RCW. Washington’s trademark statute is based on the Model State Trademark Bill (MSTB) produced by the International Trademark Association. In the most recent update to the statute, the Senate and House Committees on the Judiciary recommended updating Washington’s trademark statutes to more closely conform to federal law and the MSTB. See FINAL B. REP. on S.B. 5122, 58th Leg., Reg. Sess. (Wash. 2003).

¶ 9 One of the assumed benefits for states that have adopted the MSTB is that it is designed to enable state courts interpreting state trademark statutes to rely on federal court decisions interpreting federal trademark law, as set forth in the Lanham Act, 15 U.S.C. § 1051.1 Our state legislature affirmed this assumption by explicitly instructing Washington courts to construe the language of our trademark statute in accordance with federal decisions interpreting the Lanham Act. RCW 19.77.930.

¶ 10 Our Supreme Court has employed just such an approach. In Seattle Endeavors, Inc. v. Mastro, 123 Wash.2d 339, 345, 868 P.2d 120 (1994), the court explained that trademark infringement claims brought pursuant to Washington’s trademark statute are evaluated consistently with prevailing federal standards, noting that the analysis employed by federal courts "operates tacitly in Washington trademark cases." Thus, consistent with the direction provided by both the legislature and our Supreme Court, we turn to federal court interpretations of the Lanham Act to guide our interpretation of the requirements of our state trademark statute.

¶ 11 Both the Lanham Act and Washington’s trademark statute require that a mark be used before it will receive trademark protection. See RCW 19.77.030 ; CreAgri, Inc. v. USANA Health Scis., Inc., 474 F.3d 626, 630 (9th Cir. 2007). Federal law requires lawful use in commerce, CreAgri, 474 F.3d at 630, and Washington’s statute contains an analogous provision requiring that a mark be placed in the ordinary course of trade in Washington. See RCW 19.77.010(H).2 Although Washington’s statute does not explicitly state that such placement must be lawful, such a requirement is clearly implied. As the Ninth Circuit explained when interpreting the federal lawful use requirement:

[A]s a logical matter, to hold otherwise would be to 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 ... [and] as a policy matter, to give trademark priority to a seller who rushes to market without taking care to carefully comply with the relevant regulations would be to reward the hasty at the expense of the diligent.

CreAgri, 474 F.3d at 630. To avoid placing the government in such an "anomalous position," we interpret Washington’s statute to require lawful placement of a mark in the ordinary course of trade.

¶ 12 Here, the allegations in Headspace’s complaint, when treated as verities, are sufficient to satisfy its obligation to allege a set of facts that could justify recovery. The allegations of the complaint, as well as hypothetical facts consistent with the complaint, set forth the following: (1) that Headspace used its mark "THE CLEAR" in Washington when it licensed the mark to X-Tracted Laboratories 502 Inc. (X-Tracted) and that X-Tracted placed the mark on cannabis concentrates placed in the ordinary course of trade in Washington; and (2) that such use was lawful because such a licensing agreement was and is not prohibited by Washington’s Uniform Controlled Substances Act, codified at chapter 69.50 RCW (CSA), when it does not require Headspace to produce, process, or sell cannabis products in Washington.

A

¶ 13 Headspace asserts that it alleged use of its mark in the ordinary course of trade in Washington when it alleged X-Tracted’s use of the mark on cannabis products X-Tracted produced and sold in Washington. In response, Podworks avers that such indirect placement of the mark in the ordinary course of trade in Washington does not satisfy the requirements of the statute. We disagree. It does not matter if the use of the mark is direct or indirect. Either can be sufficient to satisfy the requirements of the statute.

¶ 14 While the language of RCW 19.77.010(11) does not directly...

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    • U.S. District Court — Northern District of California
    • September 6, 2019
    ...no sway with the USPTO. See Trademark Laundering, 73 Wash. & Lee L. Rev. at 245–46.KBI also relies on Headspace Int'l LLC v. Podworks Corp., 428 P.3d 1260, 1264 (Wash. Ct. App. 2018), as "recognizing a cannabis business'[s] state trademark rights within Washington state because cannabis act......
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    • United States
    • University of Georgia School of Law Journal of Intellectual Property Law (FC Access) No. 28-1, 2021
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