Spicy Beer Mix v. New Castle Beverage

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
CASE NO.: CV 14-00720 SJO (JEMx) DATE: August 1, 2014
TITLE: Spicy Beer Mix, Inc., et al. v. New Castle Beverage, Inc., et al.
========================================================================
PRESENT: THE HONORABLE S. JAMES OTERO, UNITED STATES DISTRICT JUDGE
Victor Paul Cruz
Courtroom Clerk
Not Present
Court Reporter
COUNSEL PRESENT FOR PLAINTIFFS:
Not Present
COUNSEL PRESENT FOR DEFENDANTS:
Not Present
========================================================================
PROCEEDINGS (in chambers): ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION TO DISMISS [Docket No. 33]
This matter comes before the Court on Defendants New Castle Beverage, Inc. and Ricky D.
Monugian's (collectively, "Defendants") Motion to Dismiss ("Motion") Plaintiffs Spicy Beer Mix, Inc.,
Gregory Murkijanian, Sr. and Premier Foods, LLC's (collectively, "Plaintiffs") First Amended
Complaint ("FAC"), filed on May 7, 2014. Plaintiffs filed an Opposition on J une 2, 2014, to which
Defendants Replied on J une 9, 2014.
1
The Court found this matter suitable for disposition without
oral argument and vacated the hearing set for J une 23, 2014. See Fed. R. Civ. P. 78(b). For the
reasons stated herein, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion.
I. FACTUAL AND PROCEDURAL HISTORY
Plaintiffs allege the following facts. Plaintiff Spicy Beer Mix, Inc. ("SBMI") manufactures and sells
a spicy beverage cup commonly known as a "Michelada Cup," which consists of a disposable cup
rimmed with a spice mixture, for use with beer, using the trademarks "SPICY BEER MIX" (the
"Trademark") and "SPICY BEER MIX CHEVELADA." (FAC 9, 13, ECF No. 26.) Plaintiff
Gregory Murkijanian Sr. ("Murkijanian") is an officer and employee of SBMI. (FAC 4.) Plaintiff
Premier Foods, LLC ("Premier") manufactures Michelada cup products on SBMI's behalf. (FAC
14.) Defendant New Castle Beverage, Inc. ("New Castle") manufactures and sells its own
Michelada Cup product it calls "Michelada Antojitos" within the United States. (FAC 9.)
1
The Court notes that Defendants' Motion, Plaintiffs' Opposition, and Defendants' Reply
exceed the page limits set out in the Court's Standing Order. (Standing Order 21.) ("[N]o
memorandum or points and authorities or opposition may exceed twenty pages, excluding
indices and exhibits, unless permitted by the Court."). The Court has read and considered
all of the pages filed, but strongly advises the parties to comply with all applicable rules
going forward.
MINUTES FORM 11 :
CIVIL GEN Initials of Preparer Page 1 of 11
Case 2:14-cv-00720-SJO-JEM Document 52 Filed 08/01/14 Page 1 of 11 Page ID #:547
Defendant Ricky Monugian ("Monugian") is the named inventor of two design patents, U.S. Patent
Nos. D652,681 ("'681 Patent") and D682,035 ("'035 Patent"), (FAC 11), which describe
ornamentation on beverage cups with spices adhering to their rim. (FAC 21-30.) Monugian
claims that he is the exclusive licensor, and New Castle the exclusive licensee, of the '681 Patent.
(FAC 12.) Monugian also claims that he is the owner and exclusive licensor, and New Castle
the exclusive licensee, of certain trade secrets for the production of the Michelada Cups ("Trade
Secrets"). (FAC 10.) Defendant Robert A. Montiel ("Montiel") is an authorized agent of
Defendants who has been engaged by them in connection with various aspects of their business,
including sales efforts. (FAC 59.)
On March 7, 2013, Defendants filed suit against Plaintiffs for misappropriation of Trade Secrets
under the California Uniform Trade Secrets Act (unrelated to the design patents) in Los Angeles
County Superior Court ("State Action"). (FAC 79.) In the State Action, Montiel filed a declaration
stating that Plaintiffs had bribed him to disclose the Trade Secrets in exchange for 50% ownership
in SBMI (Req. for J udicial Notice ("RJ N"), Ex. 6, ECF No. 34-6.) Montiel also stated that he filed
a trademark application with the United States Patent and Trademark Office ("USPTO") for the
mark "CHEVELADA" on November 13, 2012 (RJ N, Ex. 4, ECF No. 34-4), to which Plaintiffs filed
an opposition on J uly 13, 2013 (RJ N, Ex. 5, ECF No. 34-5).
On March 21, 2013, Defendants filed a suit in this Court against SBMI and Premier for patent
infringement (the "2013 Patent Action"), but the case was voluntarily dismissed without prejudice
on J une 5, 2013. (FAC 36; see Decl. of Murkijanian in Supp. of Opp'n ("Murkijanian Decl.") 4,
ECF No. 41.)
In May and October 2013, New Castle sent letters to an SBMI distributor and two SBMI retailers
informing them that New Castle was the exclusive licensee of the '681 Patent and that if the
parties did not cease distributing or selling SBMI products, it would sue them for patent
infringement. (See Murkijanian Decl. 3-6.)
In or about May 2013, without being authorized by SBMI to do so, Montiel offered via text
message to sell to one of SBMI's distributors an "unlimited amount" of "the exact spicy beer mix
chevalada[,] . . . [s]ame original sticker [and] everything." (FAC 60, 62.) He claimed to have
a 14,000 square foot "approved" facility in City of Industry. (FAC 61.) Plaintiffs believe this
connects Montiel to New Castle because New Castle has a facility of a similar size located in City
of Industry, but Montiel personally has no facility there. (FAC 61.) Plaintiffs allege that Montiel
knew that SBMI had adopted and had been using the Trademark since October 2011. (FAC
58, 63.)
On J anuary 30, 2014, Plaintiffs filed the instant action against New Castle and Monugian. (See
Compl., ECF No. 1.) In response to Plaintiffs' Complaint, on March 21, 2014, Defendants sent
Page 2 of 11
Plaintiffs a covenant not to sue ("Covenant Not to Sue" or "Covenant"). (Decl. of Niria Arvizu in
Supp. of Mot. ("Arvizu Decl.") 2, Ex. 1, ECF No. 33-1.)
Plaintiffs then filed their FAC against New Castle, Montiel, and Monugian on April 23, 2014,
alleging that the '681 and '035 Patents are invalid because Defendants knew that Michelada Cup
products with similar designs as those claimed in the two patents were in public use at least as
early as J uly 2009more than a year before Monugian filed his earliest patent application in
October 2010. (FAC 23-30.) Plaintiffs also claim that the patents are unenforceable because
Monugian engaged in inequitable conduct by failing to disclose to the USPTO material prior art
of which he was aware during the prosecution of the two patents. (FAC 42-45.) Plaintiffs
assert that, by offering to sell Michelada Cups to an SBMI distributor bearing SBMI's Trademark,
Defendants infringed on their Trademark. (FAC 56, 73.)
Plaintiffs asserted five causes of action in their FAC: (1) declaratory judgment that the '681 and
'035 Patents are invalid; (2) declaratory judgment that the '681 and '035 patents are
unenforceable; (3) Defendants' use of the Trademark constitutes unfair competition in violation of
section 43(a) of the Lanham Act; (4) Defendants' use of the Trademark constitutes unfair
competition in violation of the California Business and Professions Code 17200 et seq.
("CBPC"); and (5) declaratory judgment that Plaintiffs did not misappropriate Defendants' trade
secrets in the State Action. (See generally FAC.)
Defendants filed the instant Motion on May 7, 2014, to dismiss Plaintiffs': (1) claims one and two
(collectively, "Patent Claims") pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of
subject matter jurisdiction and claim two pursuant to Rule 12(b)(6) for failure to state a claim upon
which relief can be granted; (2) claims three ("Lanham Act Claim") and four ("CBPC State Claim")
pursuant to Rule 12(b)(1) and the Lanham Act Claim pursuant to Rule 12(b)(6); and (3) claim five
("Trade Secrets Claim") pursuant to Rule 12(b)(1) and the doctrine of claim splitting. (Mot. 2-3,
ECF No. 33.)
II. LEGAL STANDARD
"It is . . . a fundamental precept that federal courts are courts of limited jurisdiction. The limits
upon federal jurisdiction, whether imposed by the Constitution or by Congress, must be neither
disregarded nor evaded." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). "A
federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively
appears." A-Z Int'l v. Phillips, 323 F.3d 1141, 1145 (9th Cir. 2003) (quotes and citation omitted).
A. Rule 12(b)(1)
MINUTES FORM 11 :
A Rule 12(b)(1) jurisdictional attack may be facial or factual. White v. Lee, 227 F.3d 1214, 1242
(9th Cir. 2000) (citation omitted). "In a facial attack, the challenger asserts that the allegations
contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast,
in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would
otherwise invoke federal jurisdiction." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th
Cir. 2004). When considering a factual jurisdictional attack, "the district court is not restricted to
the face of the pleadings, but may review any evidence, such as affidavits and testimony, to
resolve factual disputes concerning the existence of jurisdiction." McCarthy v. United States, 850
F.2d 558, 560 (9th Cir. 1988). In such circumstances, "[n]o presumptive truthfulness attaches to
plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court
from evaluating for itself the merits of jurisdictional claims." Thornhill Publ'g Co. v. Gen. Tel. Corp.,
594 F.2d 730, 733 (9th Cir.1979). Here, Defendants' jurisdictional attack is factual because
Defendants challenge Plaintiffs' assertion of jurisdiction by relying on a Covenant Not to Sue sent
to Plaintiffs, which is not mentioned in the FAC. See Morrison v. Amway Corp., 323 F.3d 920, 945
n.5 (11th Cir. 2003) (jurisdictional challenge was a factual attack where it "relied on extrinsic
evidence and did not assert lack of subject matter jurisdiction solely on the basis of the
pleadings"). Thus, for purposes of this Motion to Dismiss, the Court considers evidence beyond
the FAC.
B. Rule 12(b)(6)
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) "tests the legal
sufficiency of the claims asserted in the complaint." Ileto v. Glock, Inc., 349 F.3d 1191, 1199-200
(9th Cir. 2003). In evaluating a motion to dismiss, a court accepts the plaintiff's factual allegations
in the complaint as true and construes them in the light most favorable to the plaintiff. Shwarz v.
United States, 234 F.3d 428, 435 (9th Cir. 2000). "Dismissal can be based on the lack of a
cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory."
Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988).
Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires "a short and plain
statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2); see
Ileto, 349 F.3d at 1200. "While legal conclusions can provide the framework of a complaint, they
must be supported by factual allegations." Iqbal, 556 U.S. at 679. To plead sufficiently, Plaintiff
must proffer "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). "[W]here the well-pleaded facts do not permit the court to
infer more than a mere possibility of misconduct," the complaint is subject to dismissal. Iqbal, 556
U.S. at 679. "A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
Id. at 678. "Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice." Id. at 663.
MINUTES FORM 11 :
III. DISCUSSION
A. Patent Claims
As a result of their Covenant Not to Sue, Defendants assert that the Court lacks subject matter
jurisdiction over Plaintiffs' Patent Claims. For the following reasons, the Court agrees.
The Declaratory J udgment Act provides jurisdiction "[i]n a case of actual controversy . . . [to] any
court of the United States . . . [so that it] may declare the rights and other legal relations of any
interested party seeking such declaration, whether or not further relief is or could be sought." 28
U.S.C. 2201(a). A party claiming jurisdiction based on the Declaratory J udgment Act carries the
burden to establish that such jurisdiction "existed at the time the claim for declaratory relief was
filed and that it has continued since." Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340,
1344 (Fed. Cir. 2007); see also Steffel v. Thompson, 415 U.S. 452, 459 n.10 (1974) ("The rule in
federal cases is that an actual controversy must be extant at all stages of review, not merely at
the time the complaint is filed.") (citations omitted). To satisfy the "actual controversy" requirement
of the Declaratory J udgment Act,"the facts alleged, under all the circumstances, [must] show that
there is a substantial controversy, between the parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judgment." MedImmune, Inc. v.
Genentech, Inc., 549 U.S. 118, 127 (2007) (citation omitted). "A case becomes mootand
therefore no longer a 'Case' or 'Controversy' for purposes of Article III [of the U.S.
Constitution]when the issues presented are no longer 'live' or the parties lack a legally
cognizable interest in the outcome." Already, LLC v. Nike, Inc., 133 S. Ct. 721, 726 (2013)
(quoting Murphy v. Hunt, 455 U.S. 478, 481 (1982) (some internal quotation marks omitted).
Even if an actual controversy exists, a covenant not to sue can extinguish it so long as the
covenant is broad and unrestricted enough to make it "absolutely clear [that] the allegedly wrongful
behavior [of the defendant] could not reasonably be expected to recur." Friends of the Earth, Inc.
v. Laidlaw Envt'l. Servs. (TOC), Inc., 528 U.S. 168, 190 (2000); see e.g., Already, 133 S. Ct. at
728; Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1058 (Fed. Cir. 1995),
overruled on other grounds, MedImmune, 549 U.S. 118, (citing Spectronics Corp. v. H.B. Fuller
Co., 940 F.2d 631, 636-38 (Fed. Cir. 1991) ("A patentee defending against an action for a
declaratory judgment of invalidity [and unenforceability] can divest the trial court of jurisdiction over
the case by filing a covenant not to assert the patent at issue against the putative infringer with
respect to any of its past, present or future acts . . . .")). In determining whether a covenant not
to sue eliminates a justiciable case or controversy, courts often look to the totality of the
circumstances, including "(1) the language of the covenant, (2) whether the covenant covers
future, as well as past, activity and products, and (3) evidence of intention . . . on the part of the
party asserting jurisdiction to engage in . . . [conduct] not covered by the covenant." Nike, Inc. v.
Already, LLC, 663 F.3d 89, 96 (2d Cir. 2011), aff'd, 133 S. Ct. 721 (2013).
Here, Defendants' Covenant Not to Sue divests the court of subject matter jurisdiction. In the
Covenant, Defendants:
Page 5 of 11
[U]nconditionally and irrevocably agree to refrain from making any
claims or demands against Gregory Murkijanian, Spicy Beer Mix, Inc.,
and Premier Foods, LLC, its employees, distributors, and customers
for patent infringement based on Design Patents D652,681 and
0682,035. The agreement further applies to any future products made
by Gregory Murkijanian, Spicy Beer Mix, Inc. and Premier Foods,
LLC, that may infringe Design Patents D652,681 and D682,035.
(Arvizu Decl. 2, Ex. 1 (Covenant Not to Sue.) The Covenant not to sue is essentially the same
as the one at issue in Already. In Already,
[t]he breadth of [defendant Nike's] covenant suffice[d]. . . [because]
[t]he covenant [was] unconditional and irrevocable. Beyond simply
prohibiting Nike from filing suit, it prohibit[ed] Nike from making any
claim or any demand. It reach[ed] beyond Already to protect Already's
distributors and customers. And it cover[ed] not just current or
previous designs, but any colorable imitations.
Already, 133 S. Ct. at 728. Likewise, in this case, Defendants' Covenant is irrevocable and
unconditional. (See Covenant Not to Sue) It prohibits Defendants from making any claims or
demands against Plaintiffs for patent infringement; it reaches beyond Plaintiffs to protect Plaintiffs'
employees, distributors, and customers; and the Covenant applies to any future products made
by Plaintiffs that may infringe on the design patents. (See See Covenant Not to Sue) (emphasis
added). Given the broad and unrestricted nature of the Covenant, Defendants' enforcement
efforts against Plaintiffs cannot reasonably be expected to recur.
Still, Plaintiffs allege that, unlike Nike's covenant in Already, Defendants' is too narrow because
it only covers Premier's employees, distributors, and customers and not SBMI's. (Opp'n 12, ECF
No. 41.) The Covenant is unclear on this point. Due to the punctuation used in the Covenant,
Plaintiffs contend Defendants irrevocably and unconditionally agree to refrain from making any
claims or demands against Murkijanian, SBMI and Premier Foods, and only Premier Foods'
employees, distributors and customers for patent infringement. (Opp'n 12-13.) However,
Defendants explicitly represent in their Reply that all aspects of their Covenant extend to all
defendants, defendants' employees, distributors and customers. (Defs.' Reply 2.) It makes no
difference that this representation is made by Defendants' counsel in motion papers and briefs,
rather than in a covenant signed by Defendants themselves. Defendants would still be estopped
from asserting anything to the contrary in any future judicial proceedings. See Super Sack, 57
F.3d at 1059 (explaining that a covenant made by party's counsel in motion papers and briefs has
the same judicial estoppel effect as one made by the party himself in a formal covenant). Thus,
despite Plaintiffs' distinction, Defendants' Covenant is sufficiently broad to eliminate any actual
controversy.
Page 6 of 11
Plaintiffs allege that Defendants' Covenant does not divest this Court of jurisdiction because it fails
to cover SBMI's future retailers, distributors, and customers (collectively, "SBMI's Future
Concerns"). (Opp'n 13-15.) Although such future concerns were not an issue in Already, Plaintiffs
claim that they would have been had Nike used the threat of trademark litigation to intimidate any
potential customers from buying any non-Nike products. (Opp'n 13.) However, the Federal
Circuit has repeatedly required that the "putative infringer's 'present activity' place it at a risk of
infringement liability" in order to establish liability. See Super Sack, 57 F.3d at 1059 (quoting BP
Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 978 (Fed. Cir. 1993)) (emphasis added). "The
residual possibility of a future infringement suit based on [the alleged infringer's] future acts is
simply too speculative a basis for jurisdiction over [a claim] for declaratory judgments of invalidity
[or unenforceability]." Id. at 1059 (emphasis added); see also Amana Refrigeration, Inc. v.
Quadulux, Inc., 172 F.3d 852, 855 (Fed. Cir. 1999) ("[A]n actual controversy cannot be based on
a fear over litigation of future products."). In other words, a covenant not to sue does not fail to
eliminate an actual controversy simply because it fails to cover some future acts. It makes no
difference that the Federal Circuit made this comment in direct reference to a covenant's failure
to cover future acts of the alleged infringer himself rather those of his future retailers, distributors,
or customers. The reasoning is equally applicable in this case. By arguing that this Court has
jurisdiction because Defendants' Covenant fails to cover SBMI's Future Concerns, what Plaintiffs
are essentially asking for is an advisory opinion regarding the liabilities of SBMI's Future Concerns
who sell their Michelada Cups. Such opinions go against the very purpose of the Declaratory
J udgment Act. Coffman v. Breeze Corps., 323 US. 323, 324 (1945) ("The declaratory judgment
procedure . . . may not be made the medium for securing an advisory opinion in a controversy
which has not arisen."). Thus, this Court rejects this argument as unavailing.
Plaintiffs also point to Defendants' 2013 Patent Action and their threats to sue SBMI's distributors
and retailers as evidence of an actual controversy. (FAC 36, 53.) However, the Supreme
Court has held that an actual controversy must exist at all stages of the litigation, not just when
the complaint is filed. Alvarez v. Smith, 558 U.S. 87, 92 (2009). In this case, nothing in the record
suggests that Defendants have continued to make threats of litigation after they provided Plaintiffs
with the Covenant Not to Sue. (See generally FAC). Rather, all the threats Defendants allegedly
made took place well before March 21, 2014, the effective date of Defendants' Covenant. (See
Opp'n 4; Murkijanian Decl. 3, 5-6, Ex. 1-3.) Thus, a present actual controversy is absent.
In sum, Plaintiffs' allegations are insufficient to establish jurisdiction over the Patent Claims.
Because an actual controversy between the parties is absent, the Court GRANTS Defendants'
Motion to Dismiss Plaintiffs' Patent Claims.
2

B. Lanham Act Claim
2
Because this Court dismisses both Patent Claims for lack of subject matter jurisdiction,
it need not also address the merits of Defendants' 12(b)(6) arguments relating to claim two.
Page 7 of 11
Defendants argue that the Court lacks subject matter jurisdiction to address Plaintiffs' Lanham Act
Claim, and, in the alternative, that such a claim fails to state a claim upon which relief can be
granted pursuant to the Federal Rule of Civil Procedure 12(b)(6). (See generally Mot.)
1. Lanham Act Claim: Rule 12(b)(1)
Defendants argue that this Court lacks subject matter jurisdiction over the Lanham Act Claim
because co-owners of a trademark cannot bring a trademark dilution claim against another owner
under the Lanham Act. (Mot. 13.) Defendants argue that the plain language of the trademark
dilution provision, 15 U.S.C. 1125(c)(1), distinguishes between the mark's owner and the person
against whom an action may be brought, which demonstrates that Congress never intended to
create a trademark dilution cause of action between co-owners. 15 U.S.C. 1125(c)(1) ("The
owner of a famous mark shall be entitled . . . to an injunction against another person."). According
to Defendants, Montiel is a co-owner of the Trademark by virtue of having been promised 50%
ownership in SBMI and having filed a trademark application with the USPTO for the mark
"CHEVELADA." (Mot. 14.)
Even if the foregoing is true, it is unclear why such an argument is relevant to this case. Plaintiffs'
cause of action is for false designation of origin, 15 U.S.C. 1125(a)(1)(A), not trademark dilution.
(FAC 65.) Under the false designation of origin section of the Lanham Act, the statute does not
discriminate between the mark's owner and the person against whom an action may be brought.
15 U.S.C. 1125(a)(1)(A). Rather, it states that "[a]ny person who . . . uses . . . any false
designation of origin . . . shall be liable in a civil action by any person who believes that he or she
is or is likely to be damaged by such act." Id. (emphasis added).
Assuming Defendants' argument is relevant, the 12(b)(1) motion would still be denied. As
mentioned earlier, in a Rule 12(b)(1) jurisdictional attack, "the district court may review evidence
beyond the complaint without converting the motion to dismiss into a motion for summary
judgment." Safe Air, 373 F.3d at 139 (citing Savage, 343 F.3d at 1039 n. 2). Here, Defendants'
jurisdictional attack is factual because Defendants challenge Plaintiffs' contention that SBMI is the
sole owner of the Trademark by relying on Montiel's Declaration filed in the State Action, which
is not mentioned in the FAC. (Mot. 13-14; see generally FAC.) However, there is an exception
to this rule. The Ninth Circuit has held that "where the jurisdictional issue and substantive issues
are so intertwined that the question of jurisdiction is dependent on the resolution of factual issues
going to the merits, the jurisdictional determination should await a determination of the relevant
facts on either a motion going to the merits or at trial." Augustine v. United States, 704 F.2d 1074,
1077 (9th Cir. 1983) (citing Thornhill, 594 F.2d at 733-35; 5B Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure 1350 (3d ed.)). The question of jurisdiction and the
merits of an action are intertwined where "a statute provides the basis for both the subject matter
jurisdiction of the federal court and the plaintiffs' substantive claim for relief." Sun Valley Gas., Inc.
v. Ernst Enters., Inc., 711 F.2d 138, 139 (quoting Augustine, 704 F.2d at 1077).
Page 8 of 11
Here, the question of jurisdiction and the merits of Plaintiffs' action are intertwined because
Plaintiffs filed their claim under the false designation of origin provision of the Lanham Act, 15
U.S.C. 1125(a)(1)(A). (FAC 65.) The provision provides the basis for both the subject matter
jurisdiction of the court and Plaintiffs' substantive claim for relief. It states:
[a]ny person who. . . uses in commerce. . . any false designation of
origin. . . which(A) is likely to cause confusion, or to cause mistake,
or to deceive as to the affiliation, connection, or association of such
person with another person, or as to the origin, sponsorship, or
approval of his or her goods, services, or commercial activities by
another person. . . shall be liable in a civil action by any person who
believes that he or she is or is likely to be damaged by such act.

15 U.S.C. 1125(a)(1)(A). It is true that in Bell v. Hood, 327 U.S. 327, U.S. 678, 682-83 (1964)
the Supreme Court determined that jurisdictional dismissals are warranted "where the alleged
claim under the constitution or federal statutes clearly appears to be immaterial and made solely
for the purpose of obtaining federal jurisdiction or where such claim is wholly insubstantial and
frivolous." However, Defendants do not argue that Plaintiffs' claim is wholly insubstantial or
frivolous. Thus, Defendants' 12(b)(1) arguments relating to the Lanham Act Claim are
unpersuasive.
2. Lanham Act Claim: Rule 12(b)(6)
In the alternative, Defendants argue that Plaintiffs' Lanham Act Claim should be dismissed for
failure to state a claim upon which relief can be granted for four reasons: (1) Plaintiffs do not
explicitly plead that the Trademark is "inherently distinctive" or has acquired "secondary meaning";
(2) Plaintiffs do not plead that the Trademark was used in interstate commerce; (3) Montiel's text
message does not rise to the level of false advertising; and (4) Plaintiffs fail to meet the heightened
pleading standard for fraud under Rule 9(b). (Mot. 14-20.) Defendants' first argument is
persuasive.
In relevant part, section 43(a) of the Lanham Act states as follows:
Any person who, on or in connection with any goods or services, or
any container for goods, uses in commerce any word, term, name,
symbol, or device, or any combination thereof, or any false
designation of origin, false or misleading description of fact, or false
or misleading representation of fact, which
(A) is likely to cause confusion, or to cause mistake, or to deceive as
to the affiliation, connection, or association of such person with
another person, or as to the origin, sponsorship, or approval of his or
her goods, services, or commercial activities by another person, or
MINUTES FORM 11 :
(B) in commercial advertising or promotion, misrepresents the nature,
characteristics, qualities, or geographic origin of his or her or another
persons goods, services, or commercial activities, shall be liable in a
civil action by any person who believes that he or she is or is likely to
be damaged by such act.
15 U.S.C. 1125(a)(1). "As indicated by the statute, there are essentially two general categories
of 43(a) violationstrademark infringement/false designation of origin (15 U.S.C.
1125(a)(1)(A)) and false advertising (15 U.S.C. 1125(a)(1)(B))." Summit Tech., Inc. v. High-
Line Med. Instruments, Co., 939 F. Supp. 918, 928 (C.D. Cal. 1996). Plaintiffs only assert the
former types of violations. (FAC 65.)
In order to succeed on a trademark infringement/false designation of origin claim under
1125(a)(1)(A), Plaintiffs must prove each of the following elements:
(1) defendant uses a designation (any word, term, name, device, or
any combination thereof) or false designation of origin;
(2) the use was in interstate commerce;
(3) the use was in connection with goods or services;
(4) the designation or false designation is likely to cause confusion,
mistake, or deception as to (a) the affiliation, connection, or
association of defendant with another person, or (b) as to the origin,
sponsorship, or approval of defendant's goods, services, or
commercial activities by another person; and
(5) plaintiff has been or is likely to be damaged by these acts.
3 J . Thomas McCarthy, McCarthy on Trademarks and Unfair Competition 27.03(1)(a). Plaintiff
must also establish that the mark is "distinctive." KendallJackson Winery, Ltd. v. E. & J. Gallo
Winery, 150 F.3d 1042, 1046-47 (9th Cir.1998) ("To state an infringement claim under
43(a)whether it be a trademark claim or a trade dress claima plaintiff must meet three basic
elements: (1) distinctiveness, (2) nonfunctionality, and (3) likelihood of confusion."). "A mark is
distinctive if the mark is inherently distinctive, or if the mark has acquired secondary meaning."
WalMart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 210-11 (2000).
Defendants rightfully point out that Plaintiffs fail to allege anywhere in their FAC that the
Trademark is inherently distinctive or has acquired secondary meaning. (See generally FAC.)
Plaintiffs try to dispute this by citing to a case that states, "on a motion to dismiss, a plaintiff does
not have to specifically allege [that] its common law trademark has attained secondary meaning,
MINUTES FORM 11 :
because it can be inferred from evidence relating to proof of intentional copying or public exposure
achieved by the designation." BottleHood, Inc. v. Bottle Mill, No. CV 11-02910 MMA, 2012 WL
1416272, at *5 (S.D. Cal. Apr. 23, 2012) (citing Solid Host, NL v. Namecheap, Inc., 652 F. Supp.
2d 1092, 1107 (C.D. Cal. 2009), overruled on other grounds by Petroliam Nasional Berhad v.
GoDaddy.com, Inc., 737 F.3d 546 (9th Cir. 2013)). However, inherent distinctiveness and
secondary meaning are two separate concepts. WalMart Stores, 529 U.S. at 211 ("The judicial
differentiation between marks that are inherently distinctive and those that have developed
secondary meaning has solid foundation in the statute itself."). Thus, Plaintiffs must allege one
or the other in order to survive a 12(b)(6) motion to dismiss.
Thus, the Court GRANTS Defendants' Motion to Dismiss Plaintiffs' Lanham Act Claim.
C. CBPC Claim and Trade Secrets Claim
Because the Court grants Defendants' Motion as it relates to Plaintiffs' federal Patent Claims and
Lanham Act Claim, the Court declines to exercise supplemental jurisdiction over the CBPC State
Claim and Trade Secrets claim.
3
28 U.S.C. 1376(c) (A district court "may decline to exercise
supplemental jurisdiction . . . [if] the district court has dismissed all claims over which it has original
jurisdiction.").
IV. RULING
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART Defendants'
Motion. The Court DISMISSES Plaintiffs' Patent Claims without leave to amend. The Court
DISMISSES the Lanham Act Claim with leave to amend. The Court DISMISSES the CBPC State
Claim and Trade Secrets Claim with leave to amend.
Plaintiffs may file a Second Amended Complaint in compliance with this Order by no later than
August 25, 2014. Plaintiffs are NOT granted leave to add additional parties or causes of action
to this case. Should Plaintiff file a Second Amended Complaint, Defendant must file a responsive
pleading within fourteen (14) days of such filing date. Failure to file a Second Amended
Complaint will result in this case being dismissed.
The Scheduling Conference scheduled for August 18, 2014 is hereby VACATED and
CONTINUED to October 14, 2014 at 8:30 AM.
IT IS SO ORDERED.
3
The Declaratory J udgment Act does not itself confer federal jurisdiction. See Home
Loans, Inc. v. Mortg. Guar. Ins. Corp., 642 F.3d 849, 853 (9th Cir. 2011).
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