Wrigley v. Terphogz LLC is a case from the Northern District of Illinois — despite all of the defendant’s efforts to have it moved to California. The case represents a sort of coming of age of the cannabis industry, a reminder that being taken seriously comes at a cost.
Terphogz is a California company that was involved with shipping cannabis paraphernalia and licensing its brand to third parties throughout 49 states, all from its location in California. One family of products was branded ZKITTLEZ, an obvious play on the trademark SKITTLES®, the ubiquitous bite-sized candy owned by William Wrigley and Company.
Wrigley sued Terphogz and five John Does in the Northern District of Illinois. Its complaint cited trademark infringement, false designation of origin, unfair competition, trademark dilution, cybersquatting, and “related claims under the federal Lanham Act.” Terphogz made a motion to dismiss for lack of personal jurisdiction or alternatively for an improper venue (seeking to transfer the case to the Northern District of California).
The court held that it had personal jurisdiction over Terphogz because of the “interactive”, sales-oriented website (rather than a passive, information-only website) that sold ZKITTLEZ merchandise. On the one hand, the website was not aimed at Illinois, and Illinois sales amounted to only $634.98 out of $31,648.82 gross proceeds for the site. On the other hand, simply because the website was interactive and any sales that occurred in Illinois was sufficient to drag the defendants into court there.
Terphogz also argued that because the proceeds of the website only went to one of the three LLC members — who absconded with the paltry profits from online sales and never shared with the other two — the company and other members should not be liable or subject to the court’s jurisdiction. Again, the court said no, reminding the partners that each of them is a member of the LLC and the LLC is liable for actions taken on its behalf (even if the LLC didn’t receive the revenue retained by its rogue member).
Also, the alleged injury (trademark infringement) was felt in Illinois because that is where the plaintiff resided. In other words, Wrigley had grounds for bringing the case on their home turf.
Further driving the nail in Terphogz’s defense, the court addressed the change of venue request. Terphogz claimed that, as a small company located in California, all of its witnesses would be inconvenienced traveling to Illinois. The court reminded Terphogz that, when the issue of convenience is the only one, the plaintiff’s choice of venue should be honored. So, the case will proceed in the Northern District of Illinois (a/k/a Chicago).
This case should serve as a wake-up call for people in the cannabis industry: One does not simply disregard trademark rights in the real world. A defense based on supposed parody or fair use will seldom work, because parody and fair use (typically in copyright cases) are generally not defenses in trademark law. The only exception is nominative fair use. That’s when, for example, a retailer uses in advertisements the trademarks of the products it sells — because it’s hard to sell goods without describing them.
As cannabis becomes legalized in more states and perhaps someday federally, the people who are involved are going to have to be responsible business people, and that includes respecting the trademark rights of others.
POSTSCRIPT: We understand that Zkittles is actually the name of a strain of marijuana (which begs the question as to who named it). If it is known as a “strain,” that suggests that it’s generic or merely descriptive, despite the candy-maker’s consternation that it infringes on SKITTLES®. In any event, regardless of who purportedly started this trend, it’s the defendants in this case who apparently tried to harness that name to themselves alone — which left them sticking up their heads high enough to be seen and sued by the plaintiff.
