GRAPERY, INC. V. BLOOM FRESH INTERNATIONAL LIMITED
Case No. 2:23-cv-01567-CAS (PVCx)
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
August 19, 2024
CHRISTINA A. SNYDER
Present: The Honorable CHRISTINA A. SNYDER; Catherine Jeang, Deputy Clerk; Deborah Parker, Court Reporter / Recorder; Attorneys Present for Plaintiffs: William O‘Neil; Attorneys Present for Defendants: Robert Paris
I. INTRODUCTION
On March 2, 2023, plaintiff Grapery, Inc. (“Grapery“) filed this action against defendant International Fruit Genetics, LLC (“IFG“). Dkt. 1. Plaintiff asserts three claims for relief: (1) declaratory judgment—no violation of the Lanham Act; (2) declaratory judgment—no breach of contract; and (3) violation of California‘s Unfair Competition Law (“UCL“),
On May 3, 2023, IFG filed an answer to the complaint and asserted four counterclaims: (1) breach of contract; (2) federal unfair competition; (3) federal dilution; and (4) false advertising/false designation of origin. Dkt. 22.
On June 1, 2023, the parties filed a stipulation and motion to temporarily stay all proceedings, which the Court granted the next day. Dkts. 37, 38.
On August 9, 2023, Grapery filed an answer to IFG‘s counterclaims. Dkt. 41.
On December 21, 2023, the parties filed a joint stipulation to substitute Bloom Fresh International Limited (“Bloom Fresh“) as defendant pursuant to Rule 25(c) and to update the case caption, which the Court granted that same day. Dkts. 42, 43.
On May 7, 2024, Bloom Fresh filed a stipulation to grant it leave to file amended counterclaims, which the Court granted that same day. Dkts. 60, 61.
On July 1, 2024, Grapery filed a motion to dismiss Bloom Fresh‘s Lanham Act claims and a declaration of Jeffrey Davidson in support of its motion. Dkts. 65 (“Mot.“), 65-2. On July 22, 2024, Bloom Fresh filed an opposition to Grapery‘s motion to dismiss and objections to Davidson‘s declaration.1 Dkts. 66 (“Opp.“), 66-1. On August 5, 2024, Grapery filed a reply in support of its motion, a reply declaration, and a response to Bloom Fresh‘s objections to Davidson‘s declaration. Dkts. 67 (“Reply“), 67-1, 67-3.
On August 19, 2024, the Court held a hearing. Grapery‘s motion to dismiss Bloom Fresh‘s Lanham Act claims is presently before the Court. Having carefully considered the parties’ arguments and submissions, the Court finds and concludes as follows.
II. BACKGROUND
On August 11, 2023, counterclaimant Bloom Fresh acquired IFG‘s intellectual property rights and assumed IFG‘s contracts with its licensees pursuant to an Asset Purchase Agreement. FAC ¶ 13. As such, the background section references both IFG and Bloom Fresh. Counter-defendant Grapery is a grower and marketer of table grapes and one of IFG‘s licensees. Id. This action arises from “Grapery‘s decisions to substitute its trademarks and branding for those of Bloom Fresh, confusing consumers about the true source of the grapes being sold into the market.” Id. ¶ 7.
In 2001, IFG was formed to use advanced hybridization and other natural breeding practices to develop new fruit varietals. Id. ¶ 14. IFG developed popular grape varieties trademarked under the following names: SWEET SURRENDER, SWEET SUNSHINE, SWEET CELEBRATION, COTTON CANDY, SWEET GLOBE, CANDY HEARTS,
Under IFG‘s and now Bloom Fresh‘s Global Licensing Program, the grape varieties are licensed to over 300 licensees throughout the world, spanning over thirty-nine million acres. Id. ¶¶ 19-21. Bloom Fresh carefully monitors the leasing of its proprietary fruit plants and licensing of its intellectual property to growers to “ensure that its fruits are marketed and sold under its well-known trademarks to maintain the integrity of its intellectual property.” Id. ¶ 22. The unique trademarks for each varietal also help “ensure that the fruit is marketed consistently across all markets and helps to build consumer recognition, trust in the product, and goodwill in the Bloom Fresh brands.” Id. ¶ 25. Each varietal—marketed and sold exclusively under a registered mark—has unique features. Id. ¶¶ 26-35. IFG and Bloom Fresh have expended substantial resources, i.e., over $4 million, on marketing and promoting the grapes sold under its marks, which are “distinctive to both the consuming public and Bloom Fresh‘s trade.” Id. ¶¶ 47-48. Grocery stores throughout the world, such as Whole Foods, Costco, Albertsons, Sprouts, and others, sell Bloom Fresh‘s table grapes, which have also been featured in national media coverage, such as NPR and ABC, international documentaries, films, and social media. Id. ¶ 49. Bloom Fresh contends that the distinctiveness of its marks render them famous within the meaning of Section 43(c) of the Lanham Act. Id. ¶ 51.
Under the Global Licensing Program, every licensee, including Grapery, must sign several agreements that control the distribution of Bloom Fresh‘s varietal fruits. Id. ¶ 52. On January 12, 2011, and August 25, 2020, Grapery executed the Proprietary Cultivar Plant Lease and Trademark Licensing Agreement, which generally “provides that Bloom Fresh retains ownership of the fruit plants, that the licensee leases the plants for a number of years from Bloom Fresh, and that all fruit harvested from the fruit plant must be marketed and sold under the corresponding trademark.” Id. ¶¶ 54-55. On February 2, 2008, January 13, 2011, and January 2, 2012, Grapery executed the Proprietary Cultivar Marketing Rights and Trademark Licensing Agreement which provides “conditions regarding the proper way a licensee must use Bloom Fresh‘s Marks on all fruit harvested from Bloom Fresh‘s fruit plants and the marketing of goods to consumers.” Id. ¶¶ 57-58. On January 12, 2011, Grapery executed the Proprietary Cultivar Exclusive Marketing
For example, IFG‘s and Bloom Fresh‘s trademark policy requires the use of the Bloom Fresh trademark with the corresponding fruit. Id. ¶ 76. Yet “Grapery is engaged in the growing, distribution, advertising, promotion, offering for sale, and the selling of the Licensed Cultivars solely under Grapery‘s own naming conventions, marks, and branding, omitting the required use of Bloom Fresh‘s Marks.” Id. ¶ 77. Grapery uses the trademarks LIMITED and TEMPTATION and the following trademarks that it owns to market fruit from the IFG Proprietary Cultivars: TEAR DROPS (Registration No. 4908338), GUM DROPS (Registration No. 4863698), MOON DROPS (Registration No. 4852504), ALL NATURAL WOW (Registration No. 6223764), and Grapery Logo (Registration No. 4141607). Id. ¶¶ 79-85. Because Bloom Fresh‘s marks do not appear anywhere on Grapery‘s packaging, Bloom Fresh contends that “consumers are unlikely to perceive Grapery‘s use of its ‘Gum Drops,’ ‘Moon Drops,’ ‘Tear Drops,’ ‘Temptation,’ and ‘Limited’ marks as merely the presentation of an ‘umbrella brand’ used to identify the grower.” Id. ¶ 86. Grapery‘s use of unapproved and non-IFG trademarks violates the license agreements. Id. ¶ 88. Further, Grapery‘s marketing of fruit of a Proprietary Cultivar under a Grapery trademark both materially breaches the license agreements and infringes Bloom Fresh‘s trademark rights. Id. ¶ 89. “Grapery‘s unauthorized substitution of its own marks for the relevant Licensed Trademarks has caused confusion and uncertainty concerning the Marks, as the fruit marketed by Grapery under its own trademarks competes with identical fruit properly marketed under the correct Licensed Trademarks.” Id. ¶ 94. It has also caused consumer confusion regarding the source or origin of Bloom Fresh‘s fruits that Grapery sells, diminishing the value in Bloom Fresh‘s trademarks. Id. ¶¶ 97-98. On February 15, 2023, IFG sent Grapery a letter addressing its improper use of trademarks and requesting its compliance with the parties’ various agreements. Id. ¶ 101. In response, Grapery initiated this action against IFG. Id. ¶ 103.
A motion pursuant to
In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all material allegations in the complaint, as well as all reasonable inferences to be drawn from them. Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). However, “a court considering a motion to dismiss can begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009); see Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir. 2009) (“[F]or a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.“). Ultimately, “[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679.
Unless a court converts a Rule 12(b)(6) motion into a motion for summary judgment, a court cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits, or discovery materials). In re American Cont‘l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996), rev‘d on other grounds sub nom Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998). A court may, however, consider exhibits submitted with or alleged in the complaint and matters that may be judicially noticed pursuant to
As a general rule, leave to amend a complaint which has been dismissed should be freely granted.
IV. DISCUSSION
Grapery moves to dismiss Bloom Fresh‘s three Lanham Act claims: (1) federal unfair competition; (2) federal dilution; and (3) false advertising/false designation of origin. See generally Mot. It argues that Bloom Fresh cannot rely on its allegations that Grapery breached the parties’ licensing agreements to establish a Lanham Act violation and that Bloom Fresh fails to separately plead its Lanham Act claims. Reply at 2-3.
A. Federal Unfair Competition
Grapery argues that Bloom Fresh‘s claim that Grapery marketed and sold IFG varieties using its trademarks rather than the Disputed IFG Trademarks—or “reverse passing off” claim—fails for two reasons. Mot. at 6-9. First, Grapery argues that Bloom Fresh cannot demonstrate that it is the “origin” of the grapes. Id. at 8. Grapery cites Dastar Corp. v. Twentieth Century Fox Film Corp. to assert that “origin” under the Lanham Act “refers to ‘the producer of the tangible product sold in the marketplace,’ not ‘the person or entity that originated the ideas . . . that ‘goods’ embody or contain.‘” Id.; see also Dastar Corp., 539 U.S. 23, 31-32 (2003). As the entity that grows and thus produces the grapes, Grapery contends that Bloom Fresh, which develops the intellectual property associated with the grapes, cannot assert a reverse passing off claim. Mot. at 8. Second, Grapery argues that Bloom Fresh has not alleged that Grapery altered, removed, or obliterated an IFG trademark to prove its reverse passing off claim. Id. at 9.
In opposition, Bloom Fresh argues that its unfair competition claim encompasses more than “reverse passing off” and concerns Grapery‘s mislabeling of Bloom Fresh‘s fruit and substitution of Bloom Fresh‘s trademarks. Opp. at 6-7. Bloom Fresh asserts that it, not Grapery, is the “origin” of the goods sold by Grapery pursuant to the parties’ license agreements, which state that “Bloom Fresh retains ownership of the fruit plants.” Id. at 7-8. It contends that while Grapery acts as its agent in growing the grapes and
In reply, Grapery asserts that “‘ownership’ is not an element of a reverse passing off claim,” and it is thus irrelevant that Bloom Fresh may own the “fruit plants,” “plant materials,” and intellectual property used to produce the grapes. Reply at 3-4. Instead, as the entity that grows and distributes the grapes at issue, Grapery contends that it is the owner, producer, and “origin” of the grapes. Id. at 4. While Bloom Fresh argues that Grapery acts as its agent in growing the grapes, Grapery asserts that it is only a licensee, and that the parties’ licensing agreement even prohibits Grapery from acting as Bloom Fresh‘s agent. Id. at 4-5. Finally, Grapery contends that, contrary to Bloom Fresh‘s arguments, a reverse passing off claim in the Ninth Circuit requires alteration or removal of a trademark. Id. at 6. Because there are no allegations that Grapery removed or altered a Disputed IFG Trademark, Grapery argues that the Court should dismiss Bloom Fresh‘s unfair competition claim. Id.
“The ‘ultimate test’ for unfair competition is exactly the same as for trademark infringement: ‘whether the public is likely to be deceived or confused by the similarity of the marks.‘” Century 21 Real Est. Corp. v. Sandlin, 846 F.2d 1175, 1178 (9th Cir. 1988). It appears to the Court that this “ultimate test” presents several factual questions that are inappropriate for determination on a motion to dismiss. Moreover, the Court finds that Bloom Fresh has sufficiently pled its unfair competition claim at this juncture. Here, Bloom Fresh alleges that it leases fruit plants—the IFG Proprietary Cultivars—to its licensees, including Grapery, pursuant to several agreements. While the agreements require the licensees to harvest the fruit and then market and sell the fruit under the corresponding Bloom Fresh trademark, Bloom Fresh alleges that Grapery is instead selling the fruit using its own trademarks. Bloom Fresh asserts that this substitution of trademarks “confus[es] consumers about the true source of the grapes being sold into the market.” FAC ¶ 7. Thus, Bloom Fresh has sufficiently alleged that Grapery‘s conduct
B. Federal Trademark Dilution
Grapery contends that Bloom Fresh‘s dilution claim also fails for several reasons. First, Grapery argues that Bloom Fresh does not allege that Grapery is selling unrelated or different goods using the Disputed IFG Trademarks to support a trademark dilution claim but instead alleges that Grapery “is using its own marks—which differ significantly from the Disputed IFG Trademarks—to market and sell IFG varieties.” Mot. at 10-11 (emphasis in original). Second, Grapery argues that Bloom Fresh fails to allege that the Disputed IFG Trademarks are “famous and distinctive” in a nonconclusory manner. Id. at 12-14. According to Grapery, Bloom Fresh fails (1) to distinguish between the Disputed IFG Trademarks and the Cotton Candy mark, which Bloom Fresh concedes Grapery is properly using to sell the “best known” variety of grapes, (2) to identify on which specific mark IFG expended more than $4 million, and (3) to specify which grape varieties are sold at the top grocery stores and have received media attention. Id. at 14-16. Thus, Grapery contends that Bloom Fresh‘s allegations of fame are not specific or detailed enough for a dilution claim. Id. at 15-16. Finally, Grapery argues that Bloom Fresh fails to allege that Grapery used the Disputed IFG Trademarks after the marks became famous. Id. at 16. In fact, Grapery asserts that Bloom Fresh alleges that Grapery has not used the Disputed IFG Trademarks. Id. at 17. Grapery contends that “[i]n the absence of allegations about when a mark became famous—and when the defendant began using it—a dilution claim must fail.” Id. at 16 (emphasis in original).
In opposition, Bloom Fresh contends that it has sufficiently pled a trademark dilution claim by alleging that Grapery‘s use of its own marks on Bloom Fresh‘s products has “lessened the capacity of Bloom Fresh‘s famous marks to identify and distinguish its grape varietals.” Opp. at 12. For example, it asserts that “Grapery‘s substitution of ‘Gum Drops’ for CANDY DREAMS, ‘Moon Drops’ for SWEET SAPPHIRE, and use of ‘Tear Drops’ for multiple Bloom Fresh varietals, are sufficiently close in the imagery and flavors they evoke to create consumer confusion and lessen Bloom Fresh‘s marks’ capacity to distinguish its grape varietals.” Id. at 13. According to Bloom Fresh, a dilution claim does not require using the marks to sell a different good, particularly here where Grapery—as a licensee—is mislabeling Bloom Fresh‘s varietals and batching multiple varietals under one mark. Id. at 14. Further, Bloom Fresh contends that the
In reply, Grapery asserts that “Bloom Fresh must allege that Grapery is using the Disputed IFG Trademarks—or something ‘similar’ to the Disputed IFG Trademarks—to market and sell a product,” but instead, it alleges that Grapery is not using the Disputed IFG Trademarks. Reply at 7-8. It also contends that there are “obvious differences” between the marks Grapery uses and the Disputed IFG Trademarks. Id. Further, Grapery asserts that Bloom Fresh fails to allege that Grapery is selling “different goods” from the IFG varieties it licenses from Bloom Fresh. Id. With regard to the alleged fame of the Disputed IFG Trademarks, Grapery first asserts that the licensing agreement does not prevent it from challenging the marks’ fame. Id. at 9. Grapery also contends that Bloom Fresh‘s allegations fail to plead fame “on a mark-by-mark basis,” but even in the aggregate, “are no different from those rejected by other courts.” Id. at 9-10. Finally, it argues that Bloom Fresh‘s sole allegation that “the Disputed IFG Trademarks ‘became distinctive and famous prior to’ Grapery‘s alleged misconduct” is too conclusory to allege when the marks became famous, particularly “when the ‘time-period’ referenced in the FAC spans more than 20 years.” Id. at 11-12.
The Court does not find that Bloom Fresh has sufficiently pled a claim for trademark dilution. For a trademark dilution claim, “a plaintiff must show that (1) the mark is famous and distinctive; (2) the defendant is making use of the mark in commerce; (3) the defendant‘s use began after the mark became famous; and (4) the defendant‘s use of the mark is likely to cause dilution by blurring or dilution by tarnishment.” Jada Toys, Inc. v. Mattel, Inc., 518 F.3d 628, 634 (9th Cir. 2008). Here, it appears to the Court that
C. False Advertising/False Designation of Origin4
Grapery argues that the false designation of origin claim fails because there is no allegation that it misrepresented the geographic origin of the grapes, which is its fields in California. Id. at 18. Further, Grapery argues that the Court should dismiss Bloom Fresh‘s false advertising claim under
In opposition, Bloom Fresh asserts that a false designation of origin claim under
In reply, Grapery argues that the Court should dismiss Bloom Fresh‘s false designation of origin claim because Bloom Fresh (1) does not specify whether the claim arises under
It appears to the Court that Bloom Fresh has sufficiently pled its false advertising and false designation of origin claims. Bloom Fresh has alleged that Grapery‘s use of its own trademarks, instead of the Bloom Fresh trademarks, on the grapes “conveys the false and misleading commercial impression to the public that Grapery is the source of and rights holder to these goods, when it is not.” FAC ¶ 128. As with Bloom Fresh‘s federal unfair competition claim, the Court finds that these allegations are sufficient to plead a violation of the Lanham Act for purposes of a motion to dismiss. Accordingly, the Court DENIES Grapery‘s motion to dismiss Bloom Fresh‘s false advertising/false designation of origin claim.
In accordance with the foregoing, the Court GRANTS IN PART and DENIES IN PART Grapery‘s motion to dismiss Bloom Fresh‘s Lanham Act claims. The Court GRANTS Grapery‘s motion to dismiss Bloom Fresh‘s trademark dilution claim and DENIES Grapery‘s motion to dismiss Bloom Fresh‘s federal unfair competition claim and false advertising/designation of origin claim. The Court grants plaintiff leave to amend its trademark dilution claim and directs plaintiff to file an amended complaint by September 9, 2024.
IT IS SO ORDERED.
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