AK FUTURES LLC v. BOYD STREET DISTRO, LLC
No. 21-56133
United States Court of Appeals, Ninth Circuit
May 19, 2022
35 F.4th 682
Opinion by Judge Fisher
D.C. No. 8:21-cv-01027-JVS-ADS. Argued and Submitted March 18, 2022, Las Vegas, Nevada.
FOR PUBLICATION
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
AK FUTURES LLC, Plaintiff-Appellee, v. BOYD STREET DISTRO, LLC, a California limited liability company, Defendant-Appellant.
Appeal from the United States District Court for the Central District of California
Before: Andrew J. Kleinfeld, D. Michael Fisher,* and Mark J. Bennett, Circuit Judges.
Opinion by Judge Fisher
SUMMARY**
Trademark Infringement / Preliminary Injunction
The panel affirmed the district court‘s grant of a preliminary injunction in favor of AK Futures LLC, a manufacturer of e-cigarette and vaping products, in a copyright and trademark infringement action in which AK Futures alleges that Boyd Street Distro, LLC, has been selling counterfeit versions of AK Futures’ “Cake“-branded e-cigarette and vaping products containing delta-8 tetrahydrocannabinol (“delta-8 THC“).
The panel wrote that the district court‘s order, which limited the scope of copyright protection to AK Futures’ one registered copyright and granted trademark protection to its six unregistered marks, properly distinguished between trademark and copyright protection.
Boyd Street did not contest the district court‘s finding that it was selling counterfeit versions of AK Futures’ Cake products. Its chief argument was that AK Futures could not own a valid trademark in connection with these products because federal law forbids possession and sale of delta-8 THC. Granting the preliminary injunction, the district court held that the 2018 Agricultural Improvement Act (the “Farm Act“) legalized the company‘s delta-8 THC products.
The panel held that the plain and unambiguous text of the Farm Act compels the conclusion that AK Futures’ delta-8 THC products are lawful. Observing that the relevant portion of the Farm Act removes “hemp” from the definition of marijuana in the Controlled Substances Act, the panel concluded that on the available record, the delta-8 THC in AK Futures’ e-cigarette liquid appears to fit comfortably within the statutory definition of “hemp“—i.e., the liquid is properly understood as a derivative, extract, or cannabinoid originating from the cannabis plant and containing “not more than 0.3 percent” delta-9 THC. The panel wrote that because the Farm Act‘s definition of hemp is not ambiguous, the panel does not consider agency interpretation, and even if it did, the Drug Enforcement Agency‘s view of the Farm Act‘s plain text aligns with the panel‘s own. The panel wrote that any congressional intent that the Farm Act legalize only industrial hemp, not a potentially psychoactive substance like delta-8 THC, appears neither in hemp‘s definition nor in its exemption from the Controlled Substances Act. The panel therefore concluded that AK Futures is likely to succeed on the merits of its trademark claim.
The panel held that Boyd Street failed to overcome the district court‘s finding and presumption of irreparable harm absent an injunction. The panel wrote that none of Boyd Streets’ arguments why the injunction is not in the public interest succeed in convincing it that the district court erred.
The panel remanded for further proceedings.
COUNSEL
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.
OPINION
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
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,
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
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
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
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 the public interest. It does not challenge the finding that the equities favor AK Futures. We therefore consider in turn each injunction element besides the equities, after first clearing up some confusion about the differences between copyright and trademark.
A. Copyright-Trademark Distinction
At the outset, Boyd Street concedes that AK Futures has shown a likelihood of success on its copyright infringement claim with regard to its one registered copyright. But Boyd Street argues the District Court erroneously extended copyright protection to AK Futures’ six unregistered trademarks. Indeed, the District Court‘s statement in its copyright discussion that AK Futures “owns six [m]arks for its Cake product, all of which are registered,” was incorrect. AK Futures owns just one registered copyright, which covers a single version of the Cake logo design. It has applied for trademark registration for six marks, but these applications remain pending.
Copyright and trademark registration are not interchangeable. The two involve different government offices. Compare
However, the District Court‘s order entering the injunction properly distinguished
B. Likelihood of Success on the Merits: Trademark
AK Futures is likely to succeed on its trademark claim because its delta-8 THC products are not prohibited by federal law, and they may therefore support a valid trademark. AK Futures sought a preliminary injunction to prevent the infringement of its six unregistered trademarks under
Turning briefly to priority of use in commerce, nobody disputes that AK Futures was the first to use the Cake brand. Perplexingly, the District Court, in its discussion of this element, repeated its mistake conflating AK Futures’ unregistered trademarks with its registered copyright. This was error, but such error is immaterial to our decision on appeal. AK Futures’ uncontradicted declaration shows it developed and first used the Cake brand in commerce in October 2020, a statement the District Court appears to have credited in its recitation of the facts. Boyd Street has not claimed to be the prior user of the Cake brand at any point in this litigation, nor has it asserted that any third party owns the mark. As a result, the record uniformly supports affirmance despite the District Court‘s error because there is no dispute between the parties as to AK Futures’ prior use. See Sony Comput. Ent., Inc. v. Connectix Corp., 203 F.3d 596, 608 (9th Cir. 2000) (permitting affirmance of preliminary injunction on any ground supported by the record, but declining to do so). Having addressed first use, we arrive at the key disagreement: whether AK Futures’ use was lawful.
“[O]nly lawful use in commerce can give rise to trademark priority.” CreAgri, Inc. v. USANA Health Scis., Inc., 474 F.3d 626, 630 (9th Cir. 2007). This rule prevents the absurd result of the government “extending the benefits of trademark protection to a seller based upon actions the seller took in violation of that government‘s own laws.” Id. And it favors sellers who take the time to comply with government regulation before bringing products to market. Id. At the same time, we have explained that illegal activity of insufficient gravity or connection to a mark‘s use in commerce might not defeat an otherwise valid trademark. See S. Cal. Darts Ass‘n, 762 F.3d at 931. The parties do not advance arguments based on these exceptions, so we do not consider them now.
1. The Farm Act: Plain Text
When engaging in statutory interpretation, “we start where we always do: with the text.” Van Buren v. United States, 141 S. Ct. 1648, 1654 (2021). As we explain further, the plain and unambiguous text of the Farm Act compels the conclusion that the delta-8 THC products before us are lawful.
The relevant portion of the Farm Act removes “hemp” from the definition of marijuana in the Controlled Substances Act,
The Farm Act‘s definition of hemp represents the crux of the parties’ disagreement, and we quote it in full.
The term “hemp” means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 [THC] concentration of not more than 0.3 percent on a dry weight basis.
AK Futures argues the Farm Act‘s definition of hemp encompasses its delta-8 THC products so long as they contain no more than 0.3 percent delta-9 THC. Plain meaning supports this interpretation. A straightforward reading of
Importantly, the only statutory metric for distinguishing controlled marijuana from legal hemp is the delta-9 THC concentration level. In addition, the definition extends beyond just the plant to “all derivatives, extracts, [and] cannabinoids.”
Certainly, a substance must be a derivative, extract, cannabinoid, or one of the other enumerated terms to fall within the Farm Act‘s statutory definition. However, these terms do not impose meaningful constraints. We may consider whether a term carries a technical meaning in a particular context. For instance, in Van Buren, a case concerning the Computer Fraud and Abuse Act, the Supreme Court considered the technical meaning of the term “access” in the “computing context.” 141 S. Ct. at 1657. Here, the various terms of
On the available record, the delta-8 THC in AK Futures’ e-cigarette liquid appears to fit comfortably within the statutory definition of “hemp.” According to the company‘s uncontradicted declaration, its delta-8 THC products are “hemp-derived” and contain “less than 0.3” percent delta-9 THC. The FDA materials cited by Boyd Street also refer to delta-8 THC as “one of over 100 cannabinoids produced naturally by the cannabis plant.” 5 Things to Know about Delta-8, supra (emphasis added). This indicates that the delta-8 THC in the e-cigarette liquid is properly understood as a derivative, extract, or cannabinoid originating from the cannabis plant and containing “not more than 0.3 percent” delta-9 THC. See
The conclusion that AK Futures’ delta-8 THC products are lawful necessarily depends on the veracity of the company‘s claim that these products contain no more than 0.3 percent delta-9 THC. A showing that AK Futures’ products contain more than the permitted threshold level of delta-9 THC would defeat AK Futures’ entitlement to trademark protection. According to the DEA and FDA, “many cannabis-derived products do not contain the levels of cannabinoids that they claim to contain on their labels.” Implementation of the Agriculture Improvement Act of 2018, 85 Fed. Reg. 51,639, 51,641 (Aug. 21, 2020). So it is entirely possible that AK Futures may ultimately fail to show that its products stay within acceptable delta-9 THC limitations.
But at the preliminary injunction stage we must assess likely success, and the only probative record evidence is AK Futures’ statement that its products contain less than 0.3 percent delta-9 THC. Further evidentiary support is not required at this stage. See K-2 Ski Co. v. Head Ski Co., 467 F.2d 1087, 1088–89 (9th Cir. 1972) (“A verified complaint or supporting affidavits may afford the basis for a preliminary injunction, [unless they] consist largely of
2. Boyd Street‘s Counterarguments
Boyd Street advances two principal arguments that the legalization of hemp in the Farm Act does not extend to delta-8 THC, neither of which overcomes the clear statutory text. First, Boyd Street argues the DEA has interpreted the Act not to apply to delta-8 THC because of the compound‘s method of manufacture or concoction. Second, it argues that Congress never intended for the Act to legalize any psychoactive substances, such as delta-8 THC. Both arguments fail.
a. Agency Interpretation
Boyd Street argues that, according to the DEA, delta-8 THC remains a schedule I substance because of its method of manufacture. Boyd Street relies on the DEA‘s explanation of its implementing regulations. It points to the phrase, “[a]ll synthetically derived tetrahydrocannabinols remain schedule I controlled substances.” 85 Fed. Reg. at 51,641. According to Boyd Street, delta-8 THC is “synthetically derived” because it must be extracted from the cannabis plant and refined through a manufacturing process. In Boyd Street‘s view, “[d]elta-8 [THC] is considered a synthetic cannabinoid by the DEA because, among other things, it is concentrated and flavored.”
Although we disagree with Boyd Street on the DEA‘s stance, we need not consider the agency‘s interpretation because
Even if the relevant portions of the Farm Act were ambiguous, the DEA does not appear to agree with Boyd Street as to what makes a cannabis product synthetic and thus unlawful. In the same passage quoted by Boyd Street, the DEA explains the Farm Act does not affect “the control status of synthetically derived tetrahydrocannabinols” because hemp, as defined by the statute, “is limited to materials that are derived from the plant Cannabis sativa L.” 85 Fed. Reg. at 51,641. This language suggests the source of the product—not the method of manufacture—is the dispositive factor for ascertaining whether a product is synthetic. A recent agency letter bolsters this understanding. There, the DEA clarifies that “synthetic” delta-8 THC is produced “from non-cannabis materials” and thus remains banned. Letter from Terrence L. Boos, Drug & Chem. Evaluation Section Chief, Drug Enf‘t Admin., U.S. Dep‘t of Justice, to Donna C. Yeatman, Exec. Sec‘y, Ala. Bd. of Pharmacy
Boyd Street further points to a copy of the controlled substances schedule from the DEA‘s website that lists delta-8 THC among tetrahydrocannabinols controlled under schedule I. To the extent that this copy of the schedule suggests that hemp-derived delta-8 THC remains controlled regardless of its delta-9 THC concentration level, this is inconsistent with both statutory text and the DEA‘s own duly enacted regulations. See
In sum, the Farm Act‘s definition of hemp is not ambiguous, so we do not consider agency interpretation. Even if we did, the DEA‘s view of the Farm Act‘s plain text aligns with our own and does not support Boyd Street‘s proposed distinction based on manufacturing method.
b. Congressional Intent
Boyd Street next argues Congress intended the Farm Act to legalize only industrial hemp, not a potentially psychoactive substance like delta-8 THC. As evidence, it quotes from statements in the legislative history referring to industrial hemp. See, e.g., 164 Cong. Rec. H10,145 (daily ed. Dec. 12, 2018) (statement of Rep. Comer) (“I am particularly glad to see industrial hemp de-scheduled from the controlled substances list . . . .“). Boyd Street is effectively asking us to recognize the following limitation: that substances legalized by the Farm Act must be somehow suited for an industrial purpose, not for human consumption.
Unfortunately for Boyd Street, this limitation appears neither in hemp‘s definition, nor in its exemption from the Controlled Substances Act. See Farm Act, §§ 10113–14, 12619, 132 Stat. at 4908-14, 5018. The term “industrial hemp” does appear in a separate section modifying previously enacted authorization for research into the plant. § 7605, 132 Stat. at 4828-29. But the relevant U.S. Code provision contains its own definition of “industrial hemp” that is even broader than the one we have considered so far. See
Regardless of the wisdom of legalizing delta-8 THC products, this Court will not substitute its own policy judgment for that of Congress. If Boyd Street is correct, and Congress inadvertently created a loophole legalizing vaping products containing delta-8 THC, then it is for Congress to fix its mistake. Boyd Street‘s intent-based argument is thus unsuccessful. With that, neither of Boyd Street‘s counterarguments dissuade us from the conclusion that AK Futures is likely to succeed on the merits
c. Irreparable Harm
The District Court correctly found that AK Futures is likely to suffer irreparable harm absent an injunction. By statute, AK Futures is entitled to a rebuttable presumption of irreparable harm on its trademark claim because the company has shown it will likely succeed on the merits. See
Boyd Street‘s arguments fail to rebut the presumption in AK Futures’ favor or to show the injunction should not have issued on the copyright claim. Boyd Street relies on its CEO‘s declaration, which states the store has stopped selling Cake-branded products and has no plans to do so in the future. Following Boyd Street‘s logic, AK Futures cannot suffer harm if the sale of counterfeit Cake products has ceased. Alas for Boyd Street, it waived this argument. Before the District Court, it argued the lack of intent to make future sales as an aspect of success on the merits, not irreparable harm. Consequently, the District Court never had an opportunity to consider whether the intent to stop selling Cake products could defeat a presumption and showing of irreparable harm. We will not do so for the first time on appeal. See Lemmon v. Snap, Inc., 995 F.3d 1085, 1095 (9th Cir. 2021) (“[W]e refrain from deciding an issue that the district court has not had the opportunity to evaluate.” (quotation omitted)).
Even if the argument were not waived, we strongly doubt Boyd Street‘s stated intent to stop selling Cake products would defeat AK Futures’ presumption and showing of irreparable harm. Boyd Street‘s declaration contains a number of admissions that call into question its ability to adequately control the flow of products through its store. Most of its business is in cash, it does not keep documentation associated with at least some portion of its sales, and its CEO relies on the mere fact that a seller issues an invoice to assess authenticity. This all suggests a business structure without safeguards against selling counterfeit products. Thus, in pointing to its CEO‘s declaration to no longer sell Cake products, Boyd Street fails to overcome the District Court‘s finding and presumption of irreparable harm in AK Futures’ favor.
d. Public Interest
Boyd Street presents several arguments why the injunction is not in the public interest, but none succeed in convincing us the District Court committed error. Boyd Street begins with a challenge to the trademark claim. It argues that various public interests typically present in trademark cases—for instance, protecting consumers from the confusion caused by counterfeit goods—do not apply where the underlying product is unlawful. This argument necessarily rises or falls with our view of the lawfulness of delta-8 THC. Because we have determined AK Futures will likely succeed in showing its delta-8 THC products are lawful, this first argument gets Boyd Street nowhere.
Next, Boyd Street attacks the District Court‘s reasoning that an injunction will serve the public health by allowing consumers to avoid potentially unsafe counterfeit products. According to Boyd Street, there is no evidence that the original products are safe because they are not tested or otherwise regulated by the FDA. However, Boyd Street fails to grapple with the quality-control measures that AK Futures
More broadly, Boyd Street suggests that delta-8 THC is potentially unsafe for consumers, so an injunction protecting marks used in connection with these products may never be in the public interest. But Boyd Street misunderstands the nature of trademark law. Agreeing with Boyd Street at this stage would not keep delta-8 THC products off of the market, rather it would let a store continue to sell counterfeit versions of unknown origin.
AK Futures has staked its name and reputation on the safety and quality of its Cake-branded products. See Manhattan Med. Co. v. Wood, 108 U.S. 218, 222 (1883) (“[A] trade-mark is . . . a sign of the quality of the article . . . .“); FTC v. Procter & Gamble Co., 386 U.S. 568, 603 (1967) (Harlan, J., concurring) (“[A] brand name may also be an assurance of quality . . . .“). The protections of trademark law mean that AK Futures does not need to do the same for the untested products of other companies. See 1 J. Thomas McCarthy on Trademarks and Unfair Competition § 3:11 (5th ed. 2017) (“When there is trademark infringement, the reputation for quality enjoyed by the senior user is now in the hands of a stranger: the infringer.“). And these protections allow consumers to distinguish between brands that take consumer health seriously—as AK Futures declares it does—and those that do not. See 1 McCarthy, supra, § 2:24; 4 id. § 25:10. The public health interest favors an injunction.
Finally, Boyd Street alludes to an argument that an injunction will not help trace the origins of the counterfeit Cake products. But as already explained, the public interest benefits from curtailing the sale of counterfeit products, which this injunction does.
IV. Conclusion
The record on appeal convinces us that AK Futures’ delta-8 THC products are lawful under the plain text of the Farm Act and may receive trademark protection. As we have noted, this conclusion is necessarily tentative given the nature of preliminary relief. Yet Boyd Street fails to persuade us the District Court should not have issued an injunction. Therefore, we AFFIRM the grant of a preliminary injunction in AK Futures’ favor, and we remand for further proceedings.
D. MICHAEL FISHER
UNITED STATES CIRCUIT JUDGE