Elements Spirits, Inc. et al v Iconic Brands, Inc

Filing 31

ORDER by Judge Dean D. Pregerson: denying 12 Motion for Preliminary Injunction (shb)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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ELEMENTS SPIRITS, INC., a
California corporation;
FABRICA DE TEQUILAS FINOS
S.A. De C.V., a Mexican
corporation; WORLDWIDE
BEVERAGE IMPORTS, LLC, a
Nevada limited liability
company,

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Plaintiffs,
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v.
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ICONIC BRANDS, INC., a
California corporaiton;
GRACE KIM BRANDI, an
individual,
Defendants.
___________________________

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Case No. CV 15-02692 DDP (AGRx)
ORDER DENYING MOTION FOR
PRELIMINARY INJUNCTION
[Dkt. No. 12.]

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Presently before the Court is Plaintiffs’ Motion for

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Preliminary Injunction.

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and considered the parties’ submissions, the Court adopts the

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following order.

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I.

(Dkt. No. 12.)

Having heard oral argument

BACKGROUND

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Plaintiffs and Defendants both sell tequila in bottles shaped

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and painted to resemble “calaveras,” folk art sculptures of skulls

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traditionally produced for the Mexican Day of the Dead celebration.

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Plaintiffs sell under the name “KAH Tequila,” while Defendants sell

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under the name “Sangre de Vida.”

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Decl. Grace Kim Brandi, ¶ 3.)

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Defendants’ packaging are nearly, though not exactly, identical.

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(Pls.’ Mem. P. & A. at 1, 3;

Plaintiffs’ packaging and

The exact origin of the bottle design is disputed.

Defendant

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Brandi alleges that she came up with the idea, sculpted models from

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clay in her kitchen, and sought out a glassware manufacturer to

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produce prototypes.

(Brandi Decl., ¶¶ 3-5; Pls.’ Ex. PP.)

She

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provides a declaration from the glassware manufacturer stating that

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she sent him the models in “the summer of 2009.”

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She also provides a declaration from her former attorney stating

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that she presented him with the prototypes in October 2009.1

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(Decl. Thomas Ziegler.)

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the bottles were designed by Los Angeles street artists Javier

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Gonzales and Sandra Lugo and provides the Court with copies of

(Decl. Zou Meng.)

Plaintiffs, on the other hand, allege that

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Plaintiffs object to the declaration of Mr. Ziegler on the
ground that he previously represented Elements in the Globefill
litigation, described infra. (Pls.’ Ev. Obj. at 5.) Plaintiffs
cite to Cal. R. Prof. Conduct 3-310(E), which states that an
attorney “shall not, without the informed written consent of the
client or former client, accept employment adverse to the client or
former client where, by reason of the representation of the client
or former client, the member has obtained confidential information
material to the employment.” However, Mr. Ziegler has not accepted
any employment by submitting his declaration, distinguishing this
case from Brand v. 20th Century Ins. Co., 124 Cal.App.4th 594
(2004), in which an attorney was hired as an expert witness, for
pay, against his former client. Mr. Ziegler also does not violate
Cal. R. Prof. Conduct 3-100 or Cal. Bus. & Prof. Code § 6068(e)(1),
which require attorneys to “maintain inviolate the confidence, and
at every peril to himself or herself to preserve the secrets, of
his or her client.” Here, the only information disclosed is the
fact that Defendant Brandi had the bottle prototypes in her
possession in October 2009. That information is not secret or a
confidence, nor was Elements a client of Mr. Ziegler’s at the time
he learned that information, inasmuch as it was not formed until
the following month.
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“work for hire” agreements with those artists for unspecified

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“artwork.”

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Brandi alleges, however, that Gonzales and Lugo were hired only to

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create ancillary promotional artwork, not the bottle designs

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themselves.

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the course of another lawsuit, under penalty of perjury, that she

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was “inspired” by the work of Lugo and Gonzales.

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8.)

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to acknowledge Defendant Brandi as the “original creator of the KAH

(Pls.’ Mem. P. & A. at 3; Pls.’ Exs. A, B.)

(Brandi Decl., ¶ 7.)

Defendant

Brandi has, however, stated in

(Pls.’ Ex. FF, ¶

The parties have signed an agreement that requires Plaintiffs

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skull-shaped bottles and the KAH brand, in response to public or

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private inquiries.”

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(Pls.’ Ex. N.)

The parties agree that it was Brandi who formed the company

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Elements in November of 2009 and prepared to launch the KAH brand

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in early 2010.

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however, Elements and Brandi were both sued by Globefill, Inc.,

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which sells vodka in a skull-shaped bottle.

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the company did not yet have any substantial assets, Brandi and

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Elements entered into an arrangement with Timothy Owens and

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Worldwide Spirits, Inc. (“Worldwide”), facilitated by Federico

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Cabo, in which Worldwide would acquire 51% of the ownership

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interest in Elements.

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9.)

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the agreement, Worldwide agreed to “assume the defense of the

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Globefill litigation.”

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dispute this point, noting the Common Stock Purchase Agreement does

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not mention any defense of the Globefill litigation.

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Obj. at 2; Pls.’ Ex. F (“Common Stock Purchase Agreement”).)

(Pls.’ Mem. P. & A. at 3-4.)

In March 2010,

(Pls.’ Ex. DD.)

As

(Pls.’ Mem. P. & A. at 4-5; Brandi Decl., ¶

Defendant Brandi alleges that as part of its consideration in

(Brandi Decl., ¶ 9.)

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However, Plaintiffs

(Pls.’ Ev.

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What happened next is not entirely clear.

Defendant Brandi

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alleges that another company controlled by Cabo, Worldwide Beverage

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Imports (“WBI”), “took over ELEMENTS’ role as the importer and

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distributor of KAH Tequila.”

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Brandi, Elements “was to receive a ‘substantial’ royalty” from WBI.

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(Id.)

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2010, Elements entered into a trademark assignment agreement with

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Fabrica de Tequilas Finos (“Finos”), a company for which Cabo is a

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“consultant” – a role whose parameters are not clear to the Court.

(Brandi Decl., ¶ 10.)

According to

Plaintiffs allege, on the other hand, that on October 23,

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(Decl. Federico Cabo; Pls.’ Ex. J (“Trademark Assignment and

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Royalty Agreement”).)

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between Elements and Finos states that royalty payments were to be

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credited against the cost of defending the Globefill litigation.

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(Pls.’ Ex. J, §4.2.)

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contracted with WBI to import “KAH” tequila.

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at 6:9-12.)

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litigation continued to a jury trial.

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with the Ninth Circuit.

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date in that case have run well over one million dollars.

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Ex. JJ, Decl. Federico Cabo, ¶ 20.)

Plaintiffs’ copy of the alleged agreement

According to Plaintiffs, Finos then
(Pls.’ Mem. P. & A.

After these arrangements took place, the Globefill
It is currently on appeal

Plaintiff alleges that attorney’s fees to
(Pls.’

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The parties agree that Defendant Brandi was removed from

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Elements as CEO and as a director in April 2011, although she

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retained ownership of a good deal of stock.

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Pls.’ Mem. P. & A. at 6.)

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copyrights in the bottle designs, including the sculpted shape of

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the bottles.

(Brandi Decl., ¶ 12;

In August 2011, Brandi registered five

(Brandi Decl., Exs. 1-5.)

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In the course of mediation during the Globefill litigation,

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Elements and Brandi entered into a “binding agreement” providing
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for payment of certain of Brandi’s legal fees and, crucially,

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providing for a license of Brandi’s copyrights to Elements:

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Brandi shall provide Elements with a permanent, worldwide,

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exclusive, royalty-free license in any and all copyrights

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owned by Brandi relating to skull-shaped bottles and/or the

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KAH brand, which license shall not be subject to termination,

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provided that Elements is not in breach of its obligations to

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pay Brandi her pro rata share of any annual distributions made

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to shareholders of Elements.

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(Pls.’ Ex. N.)

Defendant Brandi alleges that Elements has breached

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the agreement in numerous ways, including by failing to credit her

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as the creator of the KAH bottles and brand, failing to enter into

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a “more formal” agreement afterward, failing to hold a “proceeding”

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as to who the shareholders in Elements were, and failing to either

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distribute profits or account for its finances.

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17-20.)

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other sources that Elements’ sales of KAH tequila worldwide are

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around $75 million.

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Defendant Iconic Brands, therefore launched a new tequila line,

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called “Sangre de Vida,” in bottles nearly identical to the KAH

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bottles.

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cease-and-desist letters from Elements, Brandi’s attorney declared

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that the “binding agreement” had been terminated.

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LL.)

Brandi also sent cease-and-desist letters to distributors of

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KAH.

(Brandi Decl., ¶ 22.)

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alleging trade dress and trademark infringement, unfair

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competition, interference with contract, and breach of contract.

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(Dkt. No. 1.)

(Brandi Decl., ¶¶

Defendant Brandi further alleges that she has learned from

(Id. at ¶ 22.)

She and her new company,

(Id. at ¶ 21; Pls.’ Mem. P. & A. at 8.)

In response to

(Pls.’ Exs. KK,

Plaintiffs then filed this lawsuit,

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II.

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LEGAL STANDARD
“A plaintiff seeking a preliminary injunction must establish

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that he is likely to succeed on the merits, that he is likely to

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suffer irreparable harm in the absence of preliminary relief, that

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the balance of equities tips in his favor, and that an injunction

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is in the public interest.”

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Inc., 555 U.S. 7, 20 (2008).

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merits is not shown to be likely, “[a] preliminary injunction is

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appropriate when a plaintiff demonstrates that serious questions

Winter v. Natural Res. Def. Council,
Alternatively, if success on the

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going to the merits were raised and the balance of hardships tips

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sharply in the plaintiff's favor,” if the plaintiff also satisfies

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irreparable harm and public interest prongs.

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Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011)

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(ellipsis and internal quotation marks omitted).

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III. DISCUSSION

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Alliance for the Wild

Plaintiffs seek a preliminary injunction to prevent Defendant

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Brandi from “sending any further cease and desist letters, or

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making any statement to any parties or individuals asserting that

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she owns the KAH copyrights or any other statement that interferes

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with the sale of KAH tequila brand products,” and to prevent both

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Defendants from using “the calavera shaped bottle with Day of the

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Dead designs.”

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injunctive orders would have to rely on the same factual premises –

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namely, that Plaintiffs hold valid trade dress rights in the

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calavera bottles and that Defendant Brandi has granted them an

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exclusive license to her copyrights – the Court considers both

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together, noting differences along the way as necessary.

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A.

(Mot. Prelim Inj., ¶ 8.)

Likelihood of Success on the Merits
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As both requested

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To satisfy the Winter test, supra, the plaintiff must show “a

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likelihood of success on the merits.”

Winter confirmed and

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clarified an equitable test long applied by the courts, and the

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meaning of “likelihood of success” had been discussed by pre-Winter

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cases as meaning “a strong likelihood of success” or “probable

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success.”

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1427, 1430 (9th Cir. 1995).

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more than just “a fair chance of success,” which is the standard

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applied to an alternative test that survives, in part, as the

Johnson v. California State Bd. of Accountancy, 72 F.3d
At a minimum, it must be something

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“serious questions” test discussed below.

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1.

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See Part III.B., infra.

Trademark Infringement Versus Copyright Infringement
In the memorandum accompanying the motion, Plaintiffs lay out

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a prima facie case that they have established a trade dress right

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in the calavera bottles.

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product dress when the dress is nonfunctional; the dress serves as

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an identification of the product’s source (either because it is

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inherently distinctive or because it has acquired “secondary

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meaning”); and there is a likelihood that consumers would be

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confused as to the source of the defendant’s product.

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Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1258 (9th Cir.

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2001).

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Plaintiffs’ trade dress argument.

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assert that Plaintiffs’ trade dress, even if established, infringes

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Brandi’s copyright in the calaveras skull designs.

Such a right can be established in a

Clicks

Defendants do not directly dispute the elements of
(Opp’n at 12-13.)

Instead, they

(Id.)

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The universe of cases that deal with conflicts between

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trademarks and copyrights is small and not fully developed.

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general rule stated by the leading treatise is that the two kinds

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of intellectual property are different, and the acquisition of one
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The

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is not a defense to an allegation of infringement of the other.

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McCarthy on Trademarks and Unfair Competition § 6:14 (4th ed.).

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However, the cases that rule is based on are worth discussing,

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because their holdings do not create an easily applied rule.

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In Boyle v. United States, the Federal Circuit was faced with

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the question of whether the United States government authorized or

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consented to copyright infringement by registering the alleged

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infringer’s trademark.

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court concluded that it did not, because “although the grant of a

200 F.3d 1369, 1373 (Fed. Cir. 2000).

The

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service mark registration entitles the registrant to certain rights

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and privileges under the Trademark Act, the right to infringe

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another's copyright is not one of those rights.”

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omitted).

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Id. (citation

In Nova Wines, Inc. v. Adler Fels Winery LLC, the court held

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that the holder of a copyright in certain photos of Marilyn Monroe

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could not license those photos to be used on a wine bottle, because

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a competing wine company had a valid trade dress right in “the use

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of Marilyn Monroe's name and image on wine labels.”

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2d 965, 983 (N.D. Cal. 2006).

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trademark does not grant the holder a right to infringe a

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copyright, the Nova Wines court held that the “complementary

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conclusion is that a valid copyright does not entitle the copyright

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holder to infringe another's trade dress rights.”

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“Plaintiff's trade dress rights . . . entitle it to prevent TKS

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from exercising the narrow portion of its copyright interests

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consisting of licensing images of Marilyn Monroe for use on wine

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bottles.”

467 F. Supp.

Citing Boyle for the rule that a

Id.

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Id.

Thus,

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Finally, in Univ. of Alabama Bd. of Trustees v. New Life Art,

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Inc., the Eleventh Circuit held that a painter’s copyrights in

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paintings that depicted a university’s trademarked sports uniforms

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did not provide blanket protection against a trademark infringement

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claim against him by the university, at least as to reproduction of

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the painting on ancillary “mundane” goods like coffee mugs.

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F.3d 1266, 1280 (11th Cir. 2012) (citing Nova Wines, 467 F. Supp.

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2d at 983).

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could easily circumvent trademark law by drawing another's

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“If it were otherwise,” the court noted, “a person

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trademark and then placing that drawing on various products with

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impunity.”

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Id.

Plaintiffs argue that Nova Wines shows that Defendants cannot

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assert copyright as a defense to trademark infringement.

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Defendants, in turn, point out that in that case, “the plaintiffs’

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trade dress did not include the defendant’s copyrighted pictures,

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so there was no issue of copyright infringement.”

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In this case, Defendants argue, “plaintiffs’ alleged trade dress

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consists entirely of BRANDI’s copyright.”

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(Opp’n at 23.)

(Id.)

Defendants raise an important point: although copyright is

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not, by itself, a defense to trademark infringement, a trademark

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consisting entirely of someone else’s copyrighted material is

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presumably invalid.

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Cola,” for example, with Orson Welles’ beefy newspaperman plastered

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all over the package, without seeking the permission of the owner

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of the film’s copyright.

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“exclusive” right to “reproduce the copyrighted work” and to

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“prepare derivative works based upon the copyrighted work”).

A bottler could not market “Citizen Kane

See 17 U.S.C. § 106 (copyright is an

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This

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would be true even if the bottler could otherwise establish the

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elements of trade dress.

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Indeed, University of Alabama makes this very point.

Although

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the positions of the trademark holder and the copyright holder in

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that case were the opposite of what they are here, the general

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principle is the same.

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trademark, copyright the drawing, and thereby evade trademark law,

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one also may not appropriate another’s copyrighted work as one’s

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trademark, place it into use so as to create secondary meaning and

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Just as one may not draw another’s

customer brand familiarity, and thereby evade copyright law.

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Thus, if Plaintiffs’ trade dress infringes Defendant Brandi’s

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copyrights in the calavera skull bottle designs, there is no trade

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dress right, Plaintiffs’ satisfaction of the trade dress elements

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notwithstanding.

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2.

Validity of Brandi’s Copyrights

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A registered copyright “made before or within five years after

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first publication of the work shall constitute prima facie evidence

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of the validity of the copyright and of the facts stated in the

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certificate.”

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registration certificates in the calavera designs, and therefore it

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is presumed, as an initial matter, that she holds valid copyrights

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in them.

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can “offer some evidence or proof to dispute or deny the

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plaintiff's prima facie case of infringement.”

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Int'l, Inc. v. C&J Wear, Inc., 630 F.3d 1255, 1257 (9th Cir. 2011).

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Plaintiffs allege that the bottle designs were created by “two

17 U.S.C. § 410(c).

Brandi holds copyright

That presumption may be rebutted, however, if Defendants

United Fabrics

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street artists from Los Angeles, Javier Gonzales and Sandra Lugo.

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(Pls.’ Mem. P. & A. at 3.)

Plaintiffs provide exhibits to show
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that Gonzales and Lugo signed letters of intent to enter into a

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work-for-hire arrangement with Elements in November 2009 and then

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actually signed work-for-hire agreements in January 2010.

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Exs. A, B.)

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than Brandi, was the creator or author of the bottle designs.

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(Pls.’ Mem. P. & A. at 4.)

(Pls.’

Plaintiffs therefore contend that Elements, rather

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Plaintiffs’ exhibits, however, show only that Gonzales and

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Lugo were hired to create some artwork in January 2010; they do not

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show that the artists were hired to create the calavera bottle

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designs specifically.

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declarations by the artists confirming that the bottles were the

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“artwork” referred to in the agreements.

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witness who could fill in the meaning of that term in the

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agreements would appear to be Brandi herself, but she states in a

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sworn declaration that Gonzales and Lugo were hired to do ancillary

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artwork, not to design the bottles.

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provides declarations from her former lawyer and the manufacturer

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of the prototypes confirming that she had fixed the designs in a

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tangible medium well before November 2009, let alone January 2010.2

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(Meng & Ziegler Decls.)

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Nor do Plaintiffs present, say, sworn

The only other competent

(Brandi Decl., ¶ 7.)

She also

Plaintiffs have therefore not provided any meaningful evidence
to show that Brandi’s copyright is invalid.

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If Brandi’s proffered evidence is accurate, her copyright
likely dates from sometime in the summer of 2009. “Copyright
protection subsists from the moment the work is ‘fixed in any
tangible medium of expression.’” S.O.S., Inc. v. Payday, Inc., 886
F.2d 1081, 1085 (9th Cir. 1989) (quoting 17 U.S.C. § 102(a)).
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3.

Effect of the Licensing Agreement
Although Brandi at this point enjoys the presumption of

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validity in her copyrights, however, that copyright would not

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prevent Plaintiffs from obtaining legitimate trade dress rights in

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the bottle designs if there were an effective license agreement

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authorizing them to use the copyrighted works as their trade dress.

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Indeed, there may be many instances in which, for example, the

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copyright to a design is owned by one company and licensed to a

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parent, subsidiary, or sibling company for use in trade dress.

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Plaintiffs allege that the binding agreement reached in

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mediation gives them a “permanent, worldwide, exclusive, royalty-

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free license” to use the bottle designs.

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Plaintiffs allege that this license is “not . . . subject to

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termination, provided that Elements is not in breach of its

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obligations to pay Brandi her pro rata share of any annual

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distributions made to shareholders of Elements.”

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Plaintiffs argue that where a copyright holder provides another

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with a license to use the copyrighted material, pursuant to a valid

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licensing agreement, a claim for infringement lies only when the

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licensee violates a “condition” of the license.

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Indus., LLC v. Blizzard Entm't, Inc., 629 F.3d 928, 940 (9th Cir.

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2010).

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which limit the scope of the license and; other terms of the

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agreement are ordinary covenants, remediable by a breach of

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contract claim rather than a claim for infringement.

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(Pls.’ Ex. N, ¶ 12.)

(Pls.' Ex. N.)

See, e.g., MDY

“Conditions” of the license are terms of the agreement

Id.

Defendants do not dispute that Plaintiffs and Defendant Brandi

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signed the binding agreement.

But they allege that Elements is,

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indeed, in breach of the obligation to distribute Brandi’s share of
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the profits as well as several other key terms of the agreement,

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that the license is therefore terminated, and that as a result they

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cannot be held liable for trade dress infringement.

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Elements’ license is in doubt for three reasons.

First,

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Plaintiffs admit that if a condition attached to the license is not

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met, the license falls.

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pro rata share profit distributions limits the temporal scope of

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the license and is therefore a “condition” of the license, the

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violation of which could give rise to a claim for copyright

The obligation to pay Defendant Brandi her

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infringement and which could also invalidate Plaintiffs’ claims for

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trade dress infringement.

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Plaintiffs assert that Elements is “not in breach of its

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obligations to pay Brandi her pro rata share of any annual

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distributions,” because no such distributions have been made.

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Plaintiffs note, correctly, that the decision to make distributions

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to shareholders ordinarily falls under the “business judgment

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rule,” which requires “deference to the business judgment of

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corporate directors in the exercise of their broad discretion in

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making corporate decisions.”

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Co., 16 Cal. App. 4th 365, 378 (1993).

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rule that a court will not interfere with a corporate decision to

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withhold dividends in the absence of a showing of abuse of the wide

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discretion which the courts grant to corporate directors.”

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378.

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action is taken “without reasonable inquiry, with improper motives,

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or as a result of a conflict of interest.”

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McNeil Partners, 114 Cal. App. 4th 411, 430 (2003).

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motives include bad faith and fraud.

Barnes v. State Farm Mut. Auto. Ins.
“It is thus the general

Id. at

The business judgment rule does not apply, however, where the

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Everest Investors 8 v.

Id. at 432.

Improper
“[T]he rule

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cannot be held to supplant the implied covenant of good faith and

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fair dealing.”

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911, 925 (1999).

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Notrica v. State Comp. Ins. Fund, 70 Cal. App. 4th

Plaintiffs are entitled to the presumption that Elements’

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corporate directors have made the decision not to make

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distributions in good faith.

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App. 4th 694, 715 (1996).

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serious questions potentially rebutting that presumption.

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Defendants allege that Plaintiffs have transferred all the value of

Lee v. Interinsurance Exch., 50 Cal.

However, in this case, Defendants raise

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Elements – its goodwill and profit streams – to other companies,

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while attributing (possibly bogus) expenses to Elements,

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intentionally and expressly leaving the company an “insolvent,”

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unprofitable shell.

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that sales of KAH tequila worldwide are around $75 million – an

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amount that is more an order of magnitude larger than the alleged

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amounts of the Globefill legal fees.

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is not supported by documentation, but it is consistent with

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Brandi’s allegation that she had already sold around $4 million in

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orders before she was voted out of her position in early 2011, (id.

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at ¶ 12), and it is also consistent with Richard Cabo’s statement

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that “KAH tequila is sold throughout the United States at most

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major retail stores, including, but not limited to, Costco, BevMo,

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Walgreens, Pavilions, Whole Foods, Cost Plus, Kroger, and Bristol

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Farms, and is distributed in all 50 states by over 70 distributors,

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including many of the largest U.S. distributors of alcoholic

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beverages.”

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(Brandi Decl., ¶¶ 10-12.)

Defendants allege

(Id. at ¶ 22.)

This number

(Decl. Richard Cabo, ¶ 2.)

Plaintiffs, on the other hand, provide no specific figures as
to sales, expenses, or profit other than the estimated costs of
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their legal fees in the Globefill matter.

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Timothy Owens states, in a cursory declaration, that the company

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has not made any distributions of profits because it has received

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no profits: “Elements has not received any of the royalties it

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accrued under its trademark assignment and royalty agreement with

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[Finos], since the legal fees continue to exceed the royalties

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owed.”

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information as to the sales of KAH or the royalties earned to date.

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In any event, the fact that Elements is stuck with the legal bills

(Suppl. Decl. Timothy Owens.)

Elements President

However, Owens provides no

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and does not earn any profits, if true, would seem to be consistent

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with Defendant Brandi’s narrative of a bad-faith hollowing of the

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corporate entity.

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Of course, the Court must consider the fact that Defendants’

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allegations are supported largely by a single declaration by an

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interested party, Brandi, and bolstered chiefly by a lack of hard

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information from Plaintiffs.

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discovery, could Brandi have supplied?

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companies’ books and has not yet been able to depose corporate

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officers.

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the lack of opportunity for discovery and, if true, would support a

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finding that the business judgment rule does not apply.

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But what other evidence, prior to
She has no access to the

Her factual allegations are reasonably specific given

Thus, Plaintiffs may not succeed on the merits because they

23

have not adequately fulfilled the condition attached to the

24

license.

25

However, Plaintiffs might also not have a license for another,

26

possibly simpler reason: they may have materially breached the

27

contract.

28

licensing agreement gives rise to a right of rescission which

“[U]nder federal and state law a material breach of a

15

1

allows the nonbreaching party to terminate the agreement.

2

the agreement is terminated, any further distribution would

3

constitute copyright infringement.”

4

F.2d 580, 586 (9th Cir. 1993)

5

Fosson v. Palace (Waterland), Ltd., 78 F.3d 1448, 1455 (9th Cir.

6

1996) (same); Costello Publishing Co. v. Rotelle, 670 F.2d 1035,

7

1045 (D.C.Cir.1981) (“[E]ven if the counterclaims asserted merely

8

constitute a breach of contract, an action for copyright

9

infringement would lie if the breach is so material that it allows

10
11

After

Rano v. Sipa Press, Inc., 987

(citations omitted).

See also

the grantor power to recapture the rights granted . . . .”)
Apart from the possible failure to distribute profits

12

discussed above, at a minimum the record appears to show that

13

Elements has breached the term of the agreement requiring it to

14

“accord Brandi full credit as the original creator of the KAH

15

skull-shaped bottles and the KAH brand, in response to public or

16

private inquiries.”

17

papers deny Brandi full credit as the creator of the bottles.

18

(Mem. P. & A. at 3 (“[I]n January 2010, Elements entered into ‘work

19

for hire’ agreements with [Javier Gonzales and Sandra Lugo] to

20

create the artwork for the bottles . . . .”).)

21

characterization is consistent with Defendants’ assertions that

22

Plaintiffs deleted references to her as the brand creator on the

23

corporate website and “began to attribute the creation of the

24

product to employees of ELEMENTS.”

25

(Pls.’ Ex. N, ¶ 10.)

Plaintiffs’ own moving

This

(Brandi Decl., ¶¶ 14, 19.)

It is not clear on this record whether the covenant to give

26

Brandi full credit as the creator of the bottles and the brand is

27

so important to the contract that breach of it would constitute a

28

material breach.

But the history of litigation between the parties
16

1

suggests that the “full credit” term may have been a critical term.

2

See Complaint, Elements Spirits, Inc. v. Brandi, No.

3

8:12-cv-00510-DOC-MLG (Apr. 4, 2012) (initiating lawsuit alleging

4

that Sandra Lugo, not Brandi, designed the bottles and that Brandi

5

committed fraud on the Copyright Office when she registered her

6

copyrights).

7

Even apart from the litigation history, recognition as the

8

creator of a work of art is a strong interest for many artists,

9

both for personal reasons and because of the ultimate pecuniary

10

value of that recognition.

11

authors of visual works of art with “right[] of attribution”);

12

Smith v. Montoro, 648 F.2d 602 (9th Cir. 1981) (replacement of

13

actor’s name with fictitious name in film credits was grounds for

14

claim under Lanham Act); Meta-Film Associates, Inc. v. MCA, Inc.,

15

586 F. Supp. 1346, 1362 (C.D. Cal. 1984) (“[D]efendants' alleged

16

failure to provide plaintiff with a screen credit for having

17

written portions of Animal House states a claim under Business and

18

Professions Code § 17203 . . . [because]

19

attempt to misappropriate another's talents and workmanship.”).

20

Indeed, providing a mechanism to give an author appropriate credit

21

as a creator, both for moral purposes and for purposes of payment,

22

is often a key component of negotiated contracts with artists.

23

See, e.g., Marino v. Writers Guild of Am., E., Inc., 992 F.2d 1480,

24

1481-82 (9th Cir. 1993) (collective bargaining agreement gives

25

writers’ union authority to determine screenwriting credit, because

26

“[b]oth economic benefits and the writer's status in the industry

27

are affected by the receipt of screen credit”).

See, e.g., 17 U.S.C. § 106A (providing

28
17

their action involves an

1

Thus, on this record, it also appears possible that Elements

2

lost its license due to material breach of the terms of the

3

contract.

4

Finally, the allegation that Plaintiffs entered into the

5

licensing agreement in bad faith implicates the validity of the

6

agreement from the beginning.

7

who made the key decisions and signed off on the key agreements

8

knew there would never be distributions of profits, then the

9

license clause in paragraph 12 of the “Binding Agreement” may be an

If the various corporate directors

10

illusory promise or otherwise lack consideration, or may simply be

11

fraudulent.

12

invalid from the start.

13

In other words, the contract may simply have been

Given all this, it is an open question whether Plaintiffs have

14

a valid license.

As Plaintiffs point out in their reply brief,

15

when a licensee fails to fulfill a condition to the grant of

16

license, “the rights dependent on satisfaction of that condition

17

have not been effectively granted.”

18

Nimmer, Nimmer on Copyright § 10.15[A][2] (Matthew Bender, Rev.

19

Ed.).

20

likely to succeed on the merits on that point.3

3 Melville B. Nimmer and David

The Court therefore cannot yet find that Plaintiffs are

21
3

22
23
24
25
26
27
28

Plaintiffs argue that even if the terms of the agreement were
breached, Brandi’s remedy was to go back to Justice Wallin to
arbitrate. (Reply at 8-9; Pls.’ Ex. N, ¶ 14.) This may be true,
but the parties are not in court because Defendant Brandi alleges
breach of contract. Rather, the parties are in court because
Plaintiffs allege that they have trade dress rights in the calavera
designs; Defendant’s invocation of the terms of the license clause
is only by way of an affirmative defense, to show that Plaintiffs
lost their license due to bad faith failure to distribute profits.
It would be unjust of Plaintiffs to skip over arbitration
themselves to assert the license in this court (when it is clearly
contested) and then to assert that Defendants may not challenge the
license as an affirmative defense because Brandi has not
(continued...)
18

1

Because Defendant Brandi has a presumptively valid copyright,

2

and because Defendants raise serious questions as to whether her

3

license of that copyright to Elements remains valid, the Court

4

cannot conclude that Plaintiffs have established a likelihood of

5

success on the merits of their trade dress/trademark infringement

6

claims.

7

For similar reasons, the Court cannot conclude that Plaintiffs

8

have established a likelihood of success on the merits of their

9

interference with contract claim.

A “valid and existing contract”

10

is an element of such a claim.

11

Care Enterprises, 177 Cal. App. 3d 1120, 1130 (1986).

12

of Plaintiffs’ contracts with their distributors to sell KAH

13

tequila in the calavera bottles necessarily depends on Plaintiffs

14

having either created or licensed the intellectual property

15

underlying their alleged trade dress.

16

sufficient evidence to call that precondition to the contracts into

17

serious doubt.

18

B.

19
20

Ramona Manor Convalescent

Hosp. v.

The validity

Defendants have presented

Balance of Hardships
In the Ninth Circuit, a preliminary injunction may nonetheless

issue, even if the plaintiff does not show a likelihood of success

21
3

22
23
24
25
26
27
28

(...continued)
arbitrated. Plaintiffs cite no case that supports such
gamesmanship.
The Court further notes that Plaintiffs have not sought to
compel Defendant Brandi to arbitrate before requiring her to incur
the cost of defending a substantive motion. This suggests that
Plaintiffs have simply waived their right to enforce the
arbitration clause, at least as to the specific questions raised in
this motion. Creative Telecommunications, Inc. v. Breeden, 120 F.
Supp. 2d 1225, 1233 (D. Haw. 1999) (“Courts have found waiver where
the party seeking arbitration allows the opposing party to undergo
the types of litigation expenses that arbitration was designed to
alleviate, such as by filing substantive motions.”).
19

1

on the merits, if the plaintiff does raise “serious questions going

2

to the merits” and the balance of hardships “tips sharply in the

3

plaintiff’s favor.”

4

F.3d 1127, 1134-35 (9th Cir. 2011).

5

Alliance for the Wild Rockies v. Cottrell, 632

Here, Plaintiffs raise serious questions on the merits.

They

6

make out a prima facie case of trade dress infringement that is

7

only called into question because of the possibility that Defendant

8

Brandi holds valid copyrights and Elements no longer holds a valid

9

license to the copyrighted material.4

10

The balance of hardships, however, does not sharply favor

11

Plaintiffs.

12

claims to this intellectual property are mutually exclusive, so

13

that the actual hardship (loss of income from one’s valid trade

14

dress or copyright) can legally belong only to one side or the

15

other.

To some extent this balance is zero-sum: the parties’

16

Thus, the Court looks to other considerations, such as the

17

relative market power and financial resources of the two sides.

18

Sardi's Rest. Corp. v. Sardie, for example, the Ninth Circuit

19

affirmed a district court’s denial of a preliminary injunction to

In

20
21
22
23
24
25
26
27
28

4

If Brandi does not hold a copyright, or if Plaintiffs’
license continues to be valid, Plaintiffs can likely also satisfy
the elements of irreparable injury and public interest. If
Plaintiffs hold valid trade dress rights, loss of income due to
consumer confusion during the litigation period is an irreparable
injury, and there is a strong public interest in consumers not
being confused as to the source of goods. See Vision Sports, Inc.
v. Melville Corp., 888 F.2d 609, 615 (9th Cir. 1989) (“In trademark
infringement or unfair competition actions, once the plaintiff
establishes a likelihood of confusion, it is ordinarily presumed
that the plaintiff will suffer irreparable harm if injunctive
relief is not granted.”); Fiji Water Co., LLC v. Fiji Mineral Water
USA, LLC, 741 F. Supp. 2d 1165, 1183 (C.D. Cal. 2010) (“The public
interest favors a preliminary injunction where, as here, the
plaintiff has shown a likelihood of confusion.”).
20

1

prevent a California restaurant from using the name “Sardi’s,”

2

explaining that:

3

[T]he balance of hardships did not tip sharply in appellant's

4

favor . . . [because] the New York concern was much more

5

successful than the struggling Burbank restaurant. The more

6

established restaurant is in a better position to deal with

7

any minor identity problems that might arise than the newer

8

restaurant, which Lyle Sardie explained might not survive at

9

all without a rapid increase in local name recognition.

10

755 F.2d 719, 726 (9th Cir. 1985).

11

Cigarettes For Less, 215 F.3d 1333 (9th Cir. 2000) (“We . . .

12

conclude that the district court did not abuse its discretion in

13

balancing the parties' relative hardships . . . [T]he district

14

court properly considered the relative size and economic status

15

between the parties.”).

16

See also Philip Morris Inc. v.

Similarly, in this case, it appears that Plaintiffs’ brand is

17

the larger, more well-established brand.

18

brand is sold widely and may have sales in the millions or tens of

19

millions.

20

Cabo states that the company has “spent millions of dollars over

21

the last five years developing our brand.”

22

7; Decl. Richard Cabo, ¶ 2.)

23

was launched only last year and does not appear to be as well-

24

funded or as widely distributed.

25

¶ 6 (“I have only seen the Sangre de Vida product available for

26

purchase at one store location.”); Pls.’ Ex. BB (email stating that

27

Sangre de Vida was “making inroads” in the market – implying that

28

the brand is not yet established).)

As discussed above, the

Federico Cabo calls the brand “successful,” and Richard

(Decl. Federico Cabo, ¶

Defendants’ brand, on the other hand,

(See, e.g., Decl. Federico Cabo,

21

Thus, while the status of the

1

intellectual property is unclear, the larger, more established

2

brand must bear the hardship of competition.

3

As to an injunction against Defendants’ cease and desist

4

letters, the balance of hardships is somewhat different.

5

one hand, Plaintiffs suffer, perhaps, a more far-reaching harm than

6

mere loss of sales due to confusion – they may suffer reputational

7

harm as well.

8

therefore a bad investment.

9

On the

The KAH brand may be seen as legally unstable and

On the other hand, the injunction Plaintiffs seek is a prior

10

restraint on Defendants’ speech, and as such carries “a heavy

11

presumption against its constitutional validity.”

12

Co. v. United States, 403 U.S. 713, 714 (1971).

13

Plaintiffs’ theory of the case is correct, Defendants’ cease-and-

14

desist letters could potentially be seen as trade libel, which is

15

not protected speech.

16

is that communication will be suppressed, either directly or by

17

inducing excessive caution in the speaker, before an adequate

18

determination that it is unprotected by the First Amendment.”

19

Pittsburgh Press Co. v. Pittsburgh Comm'n on Human Relations, 413

20

U.S. 376, 390 (1973).

21

in particular, are unfit subjects for preliminary injunctions.

22

Near v. State of Minnesota ex rel. Olson, 283 U.S. 697, 718-20

23

(1931).

24

trade libel, is a lawsuit, not a preliminary injunction.

25

whatever wrong the appellant has committed or may commit, by his

26

publications, the state appropriately affords both public and

27

private redress by its libel laws.”

28

///

New York Times
At best, if

But “[t]he special vice of a prior restraint

This is why allegedly defamatory statements,

Plaintiffs’ remedy, if Defendants’ letters do constitute

22

Id. at 715.

“For

1

IV.

CONCLUSION

2

Because Plaintiffs have not established a likelihood of

3

success on the merits, nor that they have raised serious questions

4

on the merits and the balance of hardships tilts sharply in their

5

favor, the motion for a preliminary injunction is DENIED.

6
7

IT IS SO ORDERED.

8
9
10

Dated: June 11, 2015
DEAN D. PREGERSON
United States District Judge

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