Wunderwerks, Inc. v. Dual Beverage Company LLC

Background

Wunderwerks alleged five claims against Dual Beverage Company LLC, WNDER, LTD, and Does 1–10: federal trademark infringement, federal false designation of origin, common-law trademark infringement, California statutory unfair competition, and a declaration that its trademark registration was valid and enforceable. The dispute concerned Wunderwerks’ registered “WUNDER” mark and defendants’ “W*NDER” mark for beverage products.

Wunderwerks’ parent company began selling uninfused sparkling fruit beverages under “WUNDER” in April 2019 and assigned its rights in the mark to Wunderwerks in September 2019. Wunderwerks later sold infused beverages containing cannabis-derived substances under the mark. Defendants filed an intent-to-use application for “WNDER” in July 2019 and launched WNDER-branded beverages in January 2020, including CBD-infused products. Defendants also stated that they were developing a non-CBD-infused beverage line.

Wunderwerks sought a preliminary injunction—temporary relief intended to preserve the parties’ positions while litigation continues—barring defendants from using “W*NDER” or a confusingly similar mark for wellness and lifestyle beverages.

Legal standard

The court explained that a preliminary injunction requires a clear showing of four things: a likelihood of success on the merits, likely irreparable harm without the injunction, a balance of hardships favoring the plaintiff, and consistency with the public interest. The court also discussed an alternative sliding-scale test that permits some balancing when the plaintiff raises serious merits questions and shows that the hardships sharply favor an injunction.

Court’s analysis

Likelihood of success

The court concluded that Wunderwerks had not carried its burden of showing a likelihood of success. It identified several reasons.

First, the court found serious questions about the validity of the “WUNDER” mark because it covered products that encompassed goods illegal under federal law. At the November 5, 2021 hearing, Wunderwerks admitted that its products contained CBD and THC derived from marijuana rather than hemp. The court found that the federally registered mark was likely invalid because Wunderwerks could not establish lawful use in commerce for products illegal under federal law.

Second, the court found serious questions about prior use and the assignment of the mark from Radix to Wunderwerks. A trademark cannot generally be assigned separately from the goodwill associated with it. The court stated that Wunderwerks had not established that its uninfused and infused beverages were essentially the same, and therefore questions remained about whether the assignment validly transferred the relevant goodwill.

Third, the court found serious questions about consumer confusion. Before the hearing, the court understood Wunderwerks to be asserting confusion between Wunderwerks’ infused products and defendants’ infused products. At the hearing, Wunderwerks appeared to shift to an argument about confusion between its uninfused beverages and defendants’ infused beverages. If that was Wunderwerks’ argument, the court found that Wunderwerks had provided no evidence showing what its uninfused products looked like, making a likelihood-of-confusion analysis impossible on the evidence presented.

The court therefore found that Wunderwerks had not shown a likelihood of success on the merits of its claims.

Irreparable harm

Wunderwerks argued that it had lost and would continue to lose business opportunities and that defendants were interfering with its efforts to expand. The court found that Wunderwerks had not established irreparable harm beyond speculative concerns. Because Wunderwerks had not shown a likelihood of success, the court also found that irreparable harm was not presumed.

Balance of equities

Wunderwerks argued that defendants’ planned expansion could destroy its ability to market the “WUNDER” brand. Defendants argued that an injunction would force them to stop sales, harm cash flow, and threaten their continued operation. Defendants pointed to approximately $110,000 in product inventory costs and a retail value of $450,000.

The court found that an injunction would prevent defendants from using the “W*NDER” mark and providing goods bearing that mark in commerce, effectively stopping defendants’ cash flow. Wunderwerks could potentially suffer consumer confusion and lost sales, but the effect on its cash flow was speculative. The court concluded that Wunderwerks had not clearly shown that the balance of equities tipped clearly and strongly in its favor.

Public interest

Wunderwerks argued that the public interest favored an injunction to prevent customer confusion and protect the integrity of the trademark-registration system. The court found that the public interest did not weigh heavily in Wunderwerks’ favor because, although Wunderwerks’ products might be legal under state law, the court found that the products offered by Wunderwerks were illegal under federal law.

Disposition

The court concluded that Wunderwerks had not shown that an injunction should issue and denied plaintiff’s motion for a preliminary injunction. The order did not finally resolve the underlying trademark claims.