IP Law Daily, TRADEMARK—E.D. Mich.: Vodka maker’s claims of trademark infringement against liquor broker dismissed, (Mar 23, 2022)

By George Basharis, J.D.

First-sale doctrine protected liquor broker’s sale of inventory of vodka purchased from distributor.

Claims of trademark infringement and unfair competition by a manufacturer of vodka against a liquor broker were dismissed by the federal district court in Detroit. The court converted a motion to dismiss by the liquor broker, Benchmark Beverage Company, LLC (Benchmark), to a motion for summary judgment, finding that both the liquor broker and the vodka maker, One Vodka, LLC, relied heavily on extraneous materials in their arguments which fell outside the scope of a motion to dismiss. The court did not agree that the entire case should be dismissed for failure to join the registered owner of the One Vodka Mark and granted summary judgment to Benchmark for One Vodka’s claims largely because of the of the first-sale doctrine. The court also determined that there was no likelihood of confusion to the public between One Vodka and Benchmark: one sold a single product to consumers, the other sold to many wholesalers and retailers. (One Vodka, LLC v. Benchmark Beverage Co., LLC, March 22, 2022, Parker, L.).

One Vodka is a Texas-based craft vodka start-up company. Benchmark is a Michigan state-level liquor broker. One Vodka entered into an agreement with Pennsylvania-based importer and distributor Redemption Spirits, LLC, d/b/a American Spirits Exchange Ltd. (ASE) to import One Vodka from France and process orders to spirits wholesalers and brokers. When the pandemic hit, One Vodka experienced a downturn in income which led to late payments to ASE. Benchmark entered into an agreement with ASE to purchase One Vodka’s inventory. One Vodka assured ASE it would pay the outstanding balance but failed to do so. One Vodka learned of the purchase by Benchmark when it contacted ASE regarding payment of its outstanding balance. Benchmark had purchased the inventory at a “substantially discounted price.”

Benchmark proceeded to advertise One Vodka in its brochure. The advertisement included a photograph of a One Vodka bottle bearing the One Vodka logo, which was registered by the company’s founder and CEO (the One Vodka Mark). Benchmark sold cases of One Vodka but halted sales after receiving a cease-and-desist letter from One Vodka. The CEO then assigned his interests in the One Vodka Mark to One Vodka.

One Vodka filed suit in Texas, alleging that Benchmark’s use of the One Vodka Mark together with its discounted sale of the vodka was likely to deceive consumers, cause confusion, and devalue the brand. Benchmark moved to dismiss.

The court noted that although Benchmark framed its motion as one for dismissal under Rule 12(b)(6), the company included an affidavit and other extrinsic evidence that falls outside the scope of that rule. Because both parties relied heavily on the extraneous materials in their arguments, the court converted the motion to one for summary judgment. Notice was not required because Benchmark’s motion was pending for nearly nine months, and One Vodka responded to Benchmark’s extrinsic material with extrinsic material of its own. The court found that neither party could be surprised by its decision to convert.

Joinder of necessary party. Benchmark contended that One Vodka’s action should be dismissed in its entirety for failure to join the CEO, the current registered owner of the One Vodka Mark. One Vodka Mark said it was unnecessary because the CEO had assigned his rights to the mark. The Lanham Act allows the “registrant” of a trademark to sue for infringement of that mark. However, if the current registrant had no rights at the time of infringement, the registrant typically lacks statutory standing. The court found that the challenged conduct took place before the assignment. Therefore, only the CEO could bring a claim for federal trademark infringement based on Benchmark’s sales. However, Benchmark was incorrect that outright dismissal of the entire action was warranted. The Lanham Act permits suit by “any person who believes that he or she is or is likely to be damaged.” The CEO was not a necessary party, and his absence did not require joinder or dismissal of the entire action.

First-sale doctrine. However, Benchmark was granted summary judgment on One Vodka’s remaining claims because of the first-sale doctrine. The doctrine provides that “a purchaser who does no more than stock, display, and resell a producer’s product under the producer’s trademark violates no right conferred upon the producer by the Lanham Act One Vodka argued the doctrine did not apply because ASE’s sale of One Vodka was not authorized by One Vodka. The court noted that this argument was incorrect because the plain language in the agreement with ASE permitted the sale if One Vodka was behind in its account with ASE. ASE was entitled to all inventory in its management and to liquidate that inventory, the court said. This was true despite One Vodka’s argument that ASE waived its rights under the agreement by allowing it to make late payments. Even if One Vodka was correct that ASE initially waived its right to liquidate by accepting late payments, ASE was entitled to later insist on strict performance with proper notice, which it did. Additionally, the court found no exceptions to the first-sale doctrine applied in this case. Benchmark did not sell a materially different version of One Vodka nor was the product repackaged, both exceptions to the doctrine.

Likelihood of confusion. The court determined that there was no evidence that Benchmark used the One Vodka Mark in a manner likely to cause the public to believe that Benchmark was part of One Vodka’s sales force or a franchisee of the company. Benchmark merely listed One Vodka’s genuine product in its online brochure. Benchmark did not use the One Vodka Mark for any purpose other than describing the product. Finally, One Vodka and Benchmark clearly are in different businesses, making public confusion unlikely.

The Case is No. 2:21-cv-11456-LVP-DRG.

Attorneys: Eric D. Fein (Fein Law Firm) for One Vodka LLC. Michael P. Aigen (Stinson LLP) for Benchmark Beverage Co. LLC.

Companies: One Vodka LLC; Benchmark Beverage Co. LLC

Cases: Trademark GCNNews MichiganNews