428 P.3d 1260
Wash. Ct. App.2018Background
- Headspace International LLC, a California cannabis company, sued Washington-based Podworks Corp. and its CEO for trademark infringement over the mark "THE CLEAR."
- Headspace alleged it used the mark since 2013, registered it in Washington (file no. 57531, class 34), and licensed the mark to Washington licensee X-Tracted Laboratories 502 Inc. for sale of cannabis concentrates in Washington.
- Podworks allegedly used the same or confusingly similar mark in Washington; Headspace sent a cease-and-desist and then sued.
- Podworks moved to dismiss under CR 12(b)(6), arguing Headspace failed to allege lawful use in the ordinary course of trade in Washington (a statutory prerequisite for state trademark protection).
- The trial court granted dismissal, holding Headspace had not alleged lawful in-state use; the Court of Appeals reversed, finding Headspace had adequately alleged lawful use via licensing and that such licensing need not violate Washington’s Uniform Controlled Substances Act (CSA).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Headspace alleged use of its mark "in the ordinary course of trade" in Washington | Licensing the mark to X-Tracted and X-Tracted's sale of labeled products in WA constitutes use in the ordinary course of trade | Indirect/licensed use by a third party does not satisfy statutory placement requirement | Licensing use by X-Tracted can constitute in-state use; complaint and plausible hypothetical facts suffice to survive 12(b)(6) |
| Whether indirect (licensee) use inures to owner absent direct manufacture/sale | Indirect use inures if licensor retains sufficient quality control or reasonably relies on licensee controls | Such control would require illegal participation in production under the CSA | Indirect use is sufficient where licensor shows contractual control, actual control, or reasonable reliance on licensee quality controls; Headspace plausibly alleged such control or reliance |
| Whether a licensor’s quality control necessary to preserve trademark rights necessarily violates the CSA or requires licensor to be licensed/participate in production | License terms can secure quality without licensed production or physical participation; such agreements are not per se illegal | Any effective quality control implies the out-of-state licensor illegally participated in processing, violating CSA and licensing rules | Quality-control arrangements do not necessarily require unlawful participation; alleged license could be lawful because it need not mandate Headspace’s physical involvement |
| Whether sufficient control would make Headspace a "true party of interest" under WSLCB rules, requiring disclosure and making license unlawful if undisclosed | Headspace could maintain control without becoming a WSLCB-defined "true party of interest" (e.g., not an officer, shareholder, or profit-participant) | Sufficient control would require disclosure as a true party of interest and non-disclosure would render the arrangement unlawful | Controlling quality for trademark protection does not automatically make licensor a "true party of interest"; prior to 2017 WSLCB did not require disclosure of such agreements, and later statute (RCW 69.50.395) clarified disclosure obligations rather than retroactively making licenses illegal |
Key Cases Cited
- Seattle Endeavors, Inc. v. Mastro, 123 Wn.2d 339, 868 P.2d 120 (Wash. 1994) (state trademark claims evaluated consistent with federal Lanham Act standards)
- CreAgri, Inc. v. USANA Health Scis., Inc., 474 F.3d 626 (9th Cir. 2007) (trademark rights require lawful use in commerce)
- FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509 (9th Cir. 2010) (licensor control analysis: contractual terms, actual control, or sufficient reliance inform quality-control inquiry)
- Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001 (9th Cir. 1985) (quality control can be satisfied by reliance on licensee integrity and procedures)
- Arthur Murray, Inc. v. Horst, 110 F. Supp. 678 (D. Mass. 1953) (contractual provisions authorizing licensor control support trademark maintenance)
- Embedded Moments, Inc. v. Int'l Silver Co., 648 F. Supp. 187 (E.D.N.Y. 1986) (actual exercise of control by licensor can preserve trademark rights)