Seed Services, Inc. v. Winsor Grain, Inc., et al

Filing 85

ORDER re 66 Preliminary Injunction, signed by Chief Judge Anthony W. Ishii on 4/11/2012. (Hearing on the Motion previously set for 4/13/2012 in Courtroom 2 before District Judge Anthony W. Ishii is VACATED.)(Gaumnitz, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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SEED SERVICES, INC., a California
corporation,

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Plaintiff,
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v.
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WINSOR GRAIN, INC., a Minnesota
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corporation, WILLIAM L. COOK, an
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individual, and DOES 1 through 35,
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inclusive,
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Defendants.
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____________________________________ )

CASE NO. 1:10-CV-2185 AWI GSA
ORDER RE: PRELIMINARY
INJUNCTION

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Plaintiff has obtained a temporary restraining order against Defendants prohibiting them

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from infringing upon certain trademarks; Plaintiff now seeks a preliminary injunction.

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Defendants oppose the motion. The court grants Plaintiff’s request for a preliminary injunction.

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I. History

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Plaintiff Seed Services, Inc. (“Seed Services”) produces and supplies seeds for

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agricultural production. Defendant Winsor Grain, Inc. (“Winsor Grain”) sells Seed Services’s

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products in the Middle East. Defendant William Cook (“Cook”) is the owner and president of

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Winsor Grain (collectively “Defendants”). On August 30, 2010, Seed Services and Defendants

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entered into a contract whereby Seed Services agreed to buy certain assets of Winsor Grain

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(“Contract”). In key part, Winsor Grain agreed to give Seed Services certain trademarks
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registered in the United States (the use of the name “California Gold” among others), to turn over

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its customer list, to have Cook act as Seed Services’s agent for nine months, and to cease all new

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sales to the Middle East. In return, Seed Services agreed to pay Winsor Grain a total of

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$1,000,000.

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Seed Services filed suit on November 22, 2010, alleging Defendants violated the Contract

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by selling alfalfa seed to Erzam Agricultural Trading Co. in Saudi Arabia (“Erzam”), one of the

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customers on the list. Recently, Seed Services also alleged that Cook has sought to sell alfalfa

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seeds grown in Australia to Erzam under the brand “California Gold”. Seed Services originally

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sought a temporary restraining order in December 2011; the motion was denied as it concerned

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trademark violations, which was a claim that was not part of this case. Seed Services filed an

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amended complaint that alleged violations of the Lanham Act. Seed Services made a motion for

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temporary restraining order and preliminary injunction. Doc. 66. The temporary restraining order

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was granted pending resolution of the preliminary injunction motion. Doc. 70. Defendants filed

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an opposition to the motion. Doc. 75. The court ordered additional briefing. Doc. 80. The

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parties complied and the matter was taken under submission without oral argument.

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II. Legal Standards
A plaintiff seeking a preliminary injunction must establish: (1) that he/she is likely to

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succeed on the merits, (2) that he/she is likely to suffer irreparable harm in the absence of

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preliminary relief, (3) that the balance of equities tips in his/her favor, and (4) that an injunction

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is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 18 (2008).

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“Injunctive relief...must be tailored to remedy the specific harm alleged.” Park Vill. Apt. Tenants

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Ass’n v. Mortimer Howard Trust, 636 F.3d 1150, 1160 (9th Cir. 2011).

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III. Discussion
In relevant part, the Contract provided that Seed Services would acquire Winsor Grain’s

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customer list and the associated right to sell to those customers in the Middle East and certain

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tradenames or trademarks to Seed Services, including: (a) U.S. Trademark Registration No.
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3,909,586, the “California Gold” mark; (b) U.S. Trademark Registration No. 2,755,555, the

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“Frisco” mark; (c) U.S. Trademark Registration No. 2,958,765, the “Pacific Grain and Seed

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Brand” mark; (d) U.S. Trademark Registration No. 2,982,806, the “Circle and Plant Design”

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mark; (e) U.S. Trademark Registration No. 2,986,619, the “Red Panic” mark; and (f) U.S.

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Trademark Registration No. 2,987,117, the “PSW and Design” mark. Doc. 66, Part 2, Ex. 2, (21-

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25 of 34). The “California Gold” mark was filed with the U.S. Patent and Trademark Office on

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May 27, 2004 and registered on January 25, 2011; it is described as “Mark: California Gold.

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Drawing Type: An illustration drawing with word(s)/letter(s)/number(s) in stylized form.” Doc.

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66, Part 2, (23 of 34). A picture shows the trademark consists of an image which includes the

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strongly bolded words “California Gold” between two stylized vertical stalks of grain; there is

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additional text in smaller font size describing the product as “certified alfalfa seed,” a “Product of

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U.S.A.,” and other information. See Doc. 66, Part 3, Ex. 5, (16 of 18). The trademark was

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recorded as assigned to Seed Services on September 23, 2011. Doc. 66, Part 2, (23 of 34).

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In this motion, Seed Services alleges Defendants have attempted to infringe on the

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“California Gold” mark by trademarking the name “California Gold” in Australia and making

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inquiries about selling alfalfa seed under that name to Seed Services’s customers in Saudi

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Arabia. The alleged impending infringement concerns Cook and the Cook Land and Cattle Pty.,

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Ltd. (“CLAC”). CLAC applied for the “California Gold” mark with the appropriate Australian

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government entity on April 1, 2011 and was registered on November 2, 2011; it is described as

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“Indexing Details - Word Constituents: California Gold. Indexing Details- Image Constituents:

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Grain, Ear + Stylized Two.” Doc. 66, Part 3, Ex. 6, (17 of 18). A picture shows that the

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trademark consists of an image with the strongly bolded words “California Gold” between two

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stylized vertical stalks of grain. Doc. 66, Part 3, Ex. 6 (18 of 18). A comparison between the

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American and Australian trademarks shows that the vertical stalks of grain are identical and the

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words “California Gold” share the exact same font.

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Defendants argue that CLAC is not a party to this case and the court has no jurisdiction

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over CLAC, and they can not be held responsible for CLAC’s actions. Cook claims “2. As of

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April of 2010, CLAC is wholly owned by the William L. Cook Revocable Trust. It is an
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Australian company with its principal place of business in South Australia. CLAC’s primary

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purpose is to make and oversee various financial investments using assets belonging to the

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William L. Cook. CLAC does not perform any of its business within the boundaries of the

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United States. 3. I am only one of several directors for CLAC, but I am not the president. The

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management and operational decisions for CLAC are made by an officer or agent of the company

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who resides in Australia.” Doc. 81, Cook Declaration, 1:24-2:3. Seed Services has provided

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documents from the Australian Securities and Investments Commission which shows that Cook

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is the sole owner of CLAC and that he and his wife are two of the three directors of the company.

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Doc. 83, Part 1, Exs. A and B (4-18 of 20). CLAC is not a party to this case but Cook is plainly

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responsible for CLAC’s actions. He admits that “I suggested that CLAC register the Australian

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trademark ‘California Gold.’” Doc. 81, Cook Declaration, at 2:18-19. CLAC’s actions must be

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imputed to Cook.

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Gamal Ashour, Seed Services’s sales broker, states “Mr. Cook has approached Australian

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suppliers about selling ‘CUF’ alfalfa seeds to Saudi Arabian customers under the ‘California

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Gold’ brand.” Doc. 66, Part 6, Ashour Declaration, at 2:19-20 (4 of 12).1 The inquiries were

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quite specific. Cook sent an e-mail to at least two people representing Australian growers in

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November 2011 proposing to sell Australian seed stating “We will use the California Gold

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bag....If you can come up with one container, we could introduce it into [Saudi Arabia], giving us

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a one year jump.” Doc. 66, Part 3, Ex. 2, (9 of 18). Cook also sent an e-mail to Erzam, an

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existing Seed Services customer, on December 28, 2011 stating “There is a possibility that a

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good line of certified alfalfa seed will come out of Australia this year. It will be in a bag,

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California Gold, the added phrase: ‘American genetics for the best quality, Australian grown for

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economic.’ If you like this idea, let me know. You might like an exclusive on this. Let’s keep this

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to ourselves for the time being. OK?” Doc. 66, Part 2, (33 of 34). The court notes that these e-

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Defendants object to several pieces of Seed Services’s evidence, alleging it is based on
hearsay. Doc. 77. “A district court may, however, consider hearsay in deciding whether to issue
a preliminary injunction.” Johnson v. Couturier, 572 F.3d 1067, 1083 (9th Cir. 2009), citations
omitted.
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mail were apparently sent by Cook himself and not another representative of CLAC.
Cook states, “I have not used the Australian trademark nor have I made any sales or

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attempted sales using that trademark.” Doc. 81, Cook Declaration, at 2:21-22. Defendants argue

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“All Plaintiff can arguably show is that Defendants made inquiries. That does not support an

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injunction.” Doc. 75, Opposition, at 2:16-17. While it may be true that Defendants have not

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consummated a sale to Saudi Arabia using the “California Gold” brand, the clear evidence shows

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that Defendants have the capability and intent to do so and are taking active measures to covertly

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accomplish such sales within a matter of weeks or months. In the trademark context, a showing

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of imminent infringement is sufficient. See American Bd. of Psychiatry & Neurology v.

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Johnson-Powell, 129 F.3d 1, 4 (1st Cir. 1997) (affirming denial of preliminary injunction where

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“imminent infringement” not shown).
Seed Services also vaguely suggests that a preliminary injunction should issue based on

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the claim that Defendants are in violation of a non-compete clause contained in the Contract “by

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selling alfalfa seed to any country in the Middle East.” Doc. 66, Part 5, Brief, at 15:13.

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Defendants challenge that the Contract does not include a valid non-compete clause. Doc. 75,

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Opposition, at 6:1-7. Whether or not a preliminary injunction should issue based on violation of

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a non-compete clause has not been adequately raised or briefed by Seed Services.

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A. Probability of Success on the Merits
“[I]n order to show a probability of success in the causes of action for trademark

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infringement, false designation of origin and unfair competition, [parties] need show that a

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likelihood of confusion exists.” Sardi’s Restaurant Corp. v. Sardie, 755 F.2d 719, 723 (9th Cir.

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1985), citations omitted. Likelihood of confusion is determined by an eight factor test: “1.

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strength of the mark; 2. proximity of the goods; 3. similarity of the marks; 4. evidence of actual

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confusion; 5. marketing channels used; 6. type of goods and the degree of care likely to be

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exercised by the purchaser; 7. defendant’s intent in selecting the mark; and 8. likelihood of

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expansion of the product lines.” AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir.

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1979).
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Seed Services provides the statement of Charles Deatherage, its own officer, who states

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“The ‘California Gold’ mark and its goodwill was a very important part of the transaction

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because it is a trusted brand of seed in the Middle East, specifically with Seed Services’

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customers in the Kingdom of Saudi Arabia. ‘California Gold’ seeds have a reputation for quality

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with its buyers in the Middle East.” Doc. 66, Part 3, Deatherage Declaration. 2:17-20. This is

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weak evidence concerning how well the trademark is known. However, the trademark is strongly

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distinctive as it identifies the commercial source of the alfalfa seed rather than describing the fact

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that the product is alfalfa seed. See Classic Foods Int'l Corp. v. Kettle Foods, Inc., 2006 U.S.

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Dist. LEXIS 97200, *36 (C.D. Cal. Mar. 2, 2006) (“Suggestive, arbitrary, and fanciful marks

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receive automatic protection because they serve to identify a particular product’s source, as

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opposed to describing the product itself”), citing Yellow Cab Co. v. Yellow Cab of Elk Grove,

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Inc., 419 F.3d 925, 927 (9th Cir. 2005). As discussed above, the trademarks are almost identical.

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The product is the same: alfalfa seed. As the market appears to be wholesale transactions of

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alfalfa seed across large distances, the buyers are likely to be sophisticated parties who exercise a

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fair degree of care. Seed Services disputes this conclusion, claiming that the farmers who

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ultimately plant the alfalfa seed are the relevant market. Doc. 79, Reply, at 4:23-5:2. However,

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Seed Services has not provided any evidence to support that assertion so for the purposes of this

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motion, the intermediary buyers are considered the market. The marketing channel used by the

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two is identical as Cook directly approached Erzam. Seed Services admits there is not yet

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evidence of actual confusion. At this point, it is clear that Cook deliberately chose to use the

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“California Gold” brand to associate his product with Seed Services’s alfalfa seed. Taken as a

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whole, these factors suggest that Seed Services will prevail on the merits of the Lanham Act

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claim. The fact that Cook used to sell American “California Gold” brand alfalfa seed in the past

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adds to the likelihood of confusion notwithstanding the fact that the buyers are assumed to be

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sophisticated parties. See Church of Scientology International v. Elmira Mission of Church of

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Scientology, 794 F.2d 38, 44 (2nd Cir. 1986) (“A licensee or franchisee who once possessed

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authorization to use the trademarks of its licensor or franchisor becomes associated in the

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public’s mind with the trademark holder. When such party, as defendants here, loses its
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authorization yet continues to use the mark, the potential for consumer confusion is greater than

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in the case of a random infringer. Consumers have already associated some significant source

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identification with the licensor. In this way the use of a mark by a former licensee confuses and

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defrauds the public”). Seed Services will likely prevail on the merits.

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B. Irreparable Harm
The longstanding standard for preliminary injunctions in the trademark context presumed

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irreparable injury if likelihood of success on the merits were shown. See Brookfield Communs.,

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Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1066 (9th Cir. 1999), citing Metro

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Publ’g, Ltd. v. San Jose Mercury News, 987 F.2d 637, 640 (9th Cir. 1993). More recent

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precedent has cast doubt on that presumption. Namely, eBay Inc. v. MercExchange, L.L.C., 547

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U.S. 388, 393 (2006) and Perfect 10, Inc. v. Google, Inc., 653 F.3d 976, 981 (9th Cir. 2011)

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rejected similar presumptions in the patent and copyright contexts. Together with the recent

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restatement of the overall preliminary injunction standard in Winter v. Natural Res. Def. Council,

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Inc., 555 U.S. 7 (2008), the law is in flux. While acknowledging Winter but not considering

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eBay, the Ninth Circuit stated, “Because the court found a likelihood of success on the merits, it

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reasonably presumed irreparable injury,” approving of the older standard. Marlyn Nutraceuticals,

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Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 877 (9th Cir. 2009). However another panel

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almost simultaneously approved of a district court opinion which rejected that presumption,

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stating “the district court correctly identified the legal standards” in an unpublished opinion.

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Cytosport, Inc. v. Vital Pharms., Inc., 348 Fed. Appx. 288, 289 (9th Cir. 2009), affirming

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CytoSport, Inc. v. Vital Pharms., Inc., 617 F. Supp. 2d 1051 (E.D. Cal. 2009). The standard in

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the Ninth Circuit with respect to trademark is not clear. See SunEarth, Inc. v. Sun Earth Solar

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Power Co., 2012 U.S. Dist. LEXIS 13506, *43 (N.D. Cal. Feb. 3, 2012) (“the continuing vitality

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of this presumption in trademark infringement cases is not clear”). Given the overall trend of the

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case law, the court will not assume the existence of irreparable injury due to a showing of success

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on the merits.

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“Evidence of threatened loss of prospective customers or goodwill certainly supports a
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finding of the possibility of irreparable harm.” Stuhlbarg Int'l Sales Co. v. John D. Brush & Co.,

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240 F.3d 832, 841 (9th Cir. 2001). In this case, Cook has offered Erzam, an existing Seed

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Services customer, an exclusive supply of “California Gold” alfalfa seed. Defendants argue that

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“there is no evidence that Plaintiff’s customers intend to purchase any seed from CLAC or that

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the buyers confuse the California and Australian seed. Indeed, the opposite seems to be more

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likely since those customers contacted Plaintiff as soon as inquiries were made.” Doc. 75,

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Opposition, 5:13-16. However, Cook’s e-mail to Erzam offering “California Gold” seed was not

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provided by Erzam to Seed Services, but rather provided to Seed Services in discovery. Doc. 66,

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Part 2, Belden Declaration, 4:5-7. “In trademark cases, courts have found irreparable harm in the

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loss of control of a business’ reputation, a loss of trade and loss of goodwill. Trademarks serve as

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the identity of their owners and in them resides the reputation and goodwill of their owners.

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Thus, if another person infringes the marks, that person borrows the owner’s reputation, whose

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quality no longer lies within the owner’s control. A trademark owner’s loss of the ability to

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control its marks, thus, creates the potential for damage to its reputation.” CytoSport, Inc. v. Vital

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Pharms., Inc., 617 F. Supp. 2d 1051, 1080 (E.D. Cal. 2009), citing Opticians Ass'n of Am. v.

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Indep. Opticians of Am., 920 F.2d 187, 195-96 (3rd Cir. 1990). If Defendants are permitted to

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go ahead with their plan to sell “California Gold” alfalfa seeds to Seed Services’s customers,

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Seed Services will have lost control of its business reputation. The likelihood of irreparable

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harm is established.

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C. Balance of Equities, Public Interest, and Bond Amount

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The equities fall firmly in Seed Services’s favor. Seed Services promptly sought

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injunctive relief as soon as Defendants’ actions were known. Defendants purposefully chose the

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Australian trademark to copy the American trademark. See Cadence Design Sys. v. Avant! Corp.,

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125 F.3d 824, 829 (9th Cir. 1997) (“a defendant who knowingly infringes another’s copyright

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cannot complain of the harm that will befall it when properly forced to desist from its infringing

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activities”). In this case, Cook technically disclaims any interest in using the “California Gold”

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mark: “I have not used the Australian trademark nor have I made any sales or attempted sales
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using that trademark.” Doc. 81, Cook Declaration, at 2:21-22. So, preventing him from doing so

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should not be much of a burden at all. Thus, the $25,000 bond Seed Services provided to support

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the temporary restraining order is sufficient to support a preliminary injunction.

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The public interest in preventing trademark infringement is avoiding confusion in the

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marketplace. See CytoSport, Inc. v. Vital Pharms., Inc., 617 F. Supp. 2d 1051, 1080 (E.D. Cal.

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2009). Defendants assert that “no product has been distributed at all. There have only been

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inquiries made in Saudi Arabia by way of an Australian company. There is simply no public

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interest in such overseas activity.” Doc. 75, Opposition, at 8:17-19. The court does not see why

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prevention of market confusion in Saudi Arabia is not a valid public interest. Putting that aside,

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“the public has an interest in requiring parties to honor their contractual obligations.” Dunkin'

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Donuts Franchised Rests. LLC v. ABM Donuts, Inc., 2011 U.S. Dist. LEXIS 139074, *23 (D.R.I.

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Oct. 4, 2011). Defendants sold the “California Gold” trademark to Seed Services. Protecting the

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enjoyment of that trademark is a valid public interest.

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D. Extraterritorial Reach

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This injunction involves activity outside the United States. To support this sort of

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injunction under the Lanham Act, “there are three criteria that must be considered: (1) there must

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be some effect on American foreign commerce; (2) the effect must be sufficiently great to present

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a cognizable injury to plaintiffs under the federal statute; (3) the interest of and links to American

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foreign commerce must be sufficiently strong in relation to those of other nations.”

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Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500, 503 (9th Cir. 1991). Seed Services is an

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American company selling goods produced in the United States to foreign customers. The

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crowding out of Seed Services’s sales to customers in Saudi Arabia meets the first factor and the

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monetary injury from those foregone sales meets the second factor. The third factor is further

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subdivided into seven considerations: “(1) Degree of conflict with foreign law....(2) Nationality

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of the parties....(3) Extent to which enforcement is expected to achieve compliance....(4) Relative

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significance of effects on U.S. as compared to elsewhere....(5) Explicit purpose is to harm U.S.

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commerce....(6) Foreseeability of such effect....(7) Relative importance of violations within the
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U.S.” Ocean Garden, Inc. v. Marktrade Co., 953 F.2d 500, 503-4 (9th Cir. 1991). An injunction

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against use of the Australian trademark to sell to the Middle East does not create a conflict with

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Australian trademark law: “For at the most defendants’ Mexican registration of plaintiff’s mark

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can have no greater effect than to confer upon defendants a license or permission to use the mark

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in Mexico. It is not even contended that any public policy of Mexico requires defendants ever to

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exercise that license. So there could be no affront to Mexican sovereignty or Mexican law if, as

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between the parties, this court should declare that defendants may not so use their license under

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Mexican law as to injure plaintiff’s foreign commerce conducted from the United States.”

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Ramirez & Feraud Chili Co. v. Las Palmas Food Co., 146 F. Supp. 594, 602 (S.D. Cal. 1956),

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adopted and summarily aff’d, 245 F.2d 874 (9th Cir. 1957). In this case, Defendants have not

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shown that any Australian or Saudi Arabian court decision has touched upon the trademarks in

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question. Further, Cook is an American citizen who resides in Florida and Winsor Grain is an

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American company. The preliminary injunction should be fully effective as Cook is a party to

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this case and bound to follow court orders. As explained above, CLAC is not a party to this case

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but CLAC’s actions must be attributed to Cook; he must answer for those actions if CLAC

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violates this preliminary injunction order. The relative impact on the United States and

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Australia is ambiguous. However, the potential infringement would purposefully harm Seed

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Services’s commerce in a significant manner. The facts of this case support an injunction that

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restricts the overseas activity of Defendants.

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IV. Order

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William L. Cook, Winsor Grain, Inc., or their agents, employees, or persons acting in

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concert or participation with them, either directly or through another entity including but not

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limited to Cook Land & Cattle Pty. Ltd., are temporarily restrained and enjoined from doing the

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following:

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a.

Using for any purpose the name “Winsor Grain”;

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b.

Using for any purpose any tradenames or trademarks conveyed to Seed Services,

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including: (a) U.S. Trademark Registration No. 3,909,586, the “California Gold” mark; (b) U.S.
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Trademark Registration No. 2,755,555, the “Frisco” mark; (c) U.S. Trademark Registration No.

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2,958,765, the “Pacific Grain and Seed Brand” mark; (d) U.S. Trademark Registration No.

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2,982,806, the “Circle and Plant Design” mark; (e) U.S. Trademark Registration No. 2,986,619,

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the “Red Panic” mark; and (f) U.S. Trademark Registration No. 2,987,117, the “PSW and

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Design” mark. (Collectively these tradenames and trademarks and associated intellectual

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property rights, along with the name “Winsor Grain,” are the “Tradenames and Trademarks.”)
c.

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Importing or attempting to import seeds to the Kingdom of Saudi Arabia or any

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other country in the Middle East using any of the Tradenames and Trademarks or any

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confusingly similar names or marks, including but not limited to the “California Gold” name and

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trademark registered in Australia by a company called “Cook Land and Cattle Pty. Ltd.”
d.

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Selling or attempting to make sales of seeds utilizing any of the Tradenames and

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Trademarks or any confusingly similar marks to customers located in the Kingdom of Saudi

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Arabia or any other country in Middle East.
e.

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Contacting any persons in the Middle East for the purposes of making sales of

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seeds to the Middle East under any of the Tradenames and Trademarks or any confusingly

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similar names or marks.

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2.

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injunction, which meets the requirement of Fed. Rule Civ. Proc. 65(c).

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3.

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IT IS SO ORDERED.

Plaintiff has posted a bond in the amount of $25,000.00 as security for this preliminary

The previously scheduled hearing on Friday, April 13, 2012 is vacated.

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Dated:
0m8i78

April 11, 2012
CHIEF UNITED STATES DISTRICT JUDGE

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