Kiva Health Brands LLC v. Kiva Brands Inc.

• Decision Date: 06 September 2019
• Docket Number: Case No. 19-cv-03459-CRB
• Citation: 402 F.Supp.3d 877
• Parties: KIVA HEALTH BRANDS LLC, Plaintiff, v. KIVA BRANDS INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

402 F.Supp.3d 877

KIVA HEALTH BRANDS LLC, Plaintiff,

v.KIVA BRANDS INC., et al., Defendants.

Case No. 19-cv-03459-CRB

United States District Court, N.D. California.

Signed September 6, 2019

Jon Bernard Miller, Miller Johnson Law, San Diego, CA, Kathryn J Fritz, Fenwick & West LLP, San Francisco, CA, Seth M. Reiss, Seth M. Reiss, AAL, ALLLC, Honolulu, HI, Armen Nercess Nercessian, Fenwick and West LLP, San Francisco, CA, for Plaintiff.

Brett Michael Schuman, Jeremy Noah Lateiner, Nicholas M. Costanza, Goodwin Procter LLP, San Francisco, CA, for Defendants.

ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION AND CROSS-MOTION FOR PRELIMINARY INJUNCTION, AND GRANTING MOTION TO DISMISS

CHARLES R. BREYER, United States District Judge

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 kivahealthbrands.com 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 Amazon.com in June 2013; as of September 2013, KHB also made sales through its website, www.kivahealthfood.com. 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...