Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-06149/USCOURTS-cand-3_06-cv-06149-4/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1114 Trademark Infringement

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UNITED 

STATES 

DISTRICT 

COURT

U

For the Northern District of California

NITED 

STATES 

DISTRICT 

COURT

U

For the Northern District of California

NITED 

STATES 

DISTRICT 

COURT

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

NOVA WINES, INC., 

Plaintiff,

v.

ADLER FELS WINERY LLC, SAAL

BROWN, INC. dba PACIFIC LICENSING,

GARY SAAL, TOM KELLY STUDIOS, INC.

and DOES 1 THROUGH 10,

Defendants.

_____________________________________/

No. C 06-6149 MHP

MEMORANDUM & ORDER

Re: Plaintiff’s Motion to Stay

Counterclaims and Compel Arbitration

AND RELATED COUNTERCLAIMS.

_____________________________________/

On September 29, 2006, plaintiff Nova Wines, Inc. (“Nova” or “plaintiff”) brought this

action against defendants Adler Fels Winery LLC (“Adler Fels”), Saal Brown, Inc. dba Pacific

Licensing (“Pacific Licensing”), Gary Saal (“Saal”), and Tom Kelly Studios, Inc. (“TKS”)

(collectively “defendants”) asserting claims for trademark infringement, trade dress infringement,

unfair competition and passing off. Defendants filed their answer and counterclaims on November

2, 2006. Now before the court is plaintiff’s motion to compel arbitration and stay defendants’

counterclaims. Having considered the parties’ arguments and for the reasons stated below, the court

enters the following memorandum and order.

BACKGROUND

The underlying facts of this case are set forth in this court’s previous Order on Plaintiff’s

Motion for Preliminary Injunction. See Nova Wines, Inc. v. Adler Fels Winery LLC, No. C 06-

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06149 MHP, 2006 WL 3498574, at *1–*3 (N.D. Cal. Dec. 4, 2004) (Patel, J.). The relevant facts

related to the instant motion are set forth below.

Nova and TKS entered into a Merchandise License Agreement (“the License Agreement”) in

May 2004, whereby TKS granted Nova an exclusive license to use certain photographs of Marilyn

Monroe on its wine bottles. Howard Dec., Exh. A. The License Agreement contained an arbitration

clause that provided, in relevant part:

Except as specifically set forth in this Agreement, any and all disputes,

controversies and claims arising out of or relating to this Agreement,

or concerning the respective rights or obligations hereunder, of the

parties hereto shall be settled and determined by arbitration in Santa

Rosa or San Francisco, California, in accordance with and pursuant to

the then existing rules of the American Arbitration Association. The

arbitrators shall have the power to award specific performance or

injunctive relief and reasonable attorneys’ fees and expenses to any

party in such arbitration power.

Howard Dec., Exh. A ¶ 21(b). The relationship between Nova and TKS collapsed in Summer 2005,

giving rise to a number of disputes between the parties. In February 2006, Nova commenced

arbitration proceedings against TKS and Pacific Licensing, TKS’s agent, before the American

Arbitration Association (“AAA”), asserting damages based on fraud and concealment. Howard Dec.

¶ 5. The following month, TKS brought a counterclaim alleging breach of contract and copyright

infringement, asserting that Nova continued to use TKS’s copyrighted images after the termination

of the License Agreement. Howard Dec., Exh. B at 3. On November 1, 2006 TKS filed an amended

answering statement and counterclaims with AAA, asserting counterclaims for breach of contract

“and other wrongs” without explicitly stating a claim for copyright infringement. Richardson Dec.,

Exh. A.

Meanwhile, in April 2005 TKS had filed a declaratory relief action against Marilyn Monroe

LLC and CMG Worldwide Inc. (“the Monroe Entities”) in the United States District Court for the

Central District of California, alleging that the Monroe Entities wrongfully claimed rights of

publicity, association and sponsorship in the name and image of Marilyn Monroe, and that the

Monroe Entities asserted these rights against third parties to prevent those third parties from

contracting with TKS. Howard Dec., Exh. C ¶¶ 17–20. As part of the Central District action, TKS

also asserted rights allegedly obtained under model releases from Marilyn Monroe that prevented the

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Monroe Entities from asserting any rights that would interfere with TKS’s right to exploit its

photographs. Id. TKS asserted claims for unfair competition, unfair trade practices, interference

with actual and prospective economic advantage, imposition of a constructive trust, false

advertising, and false designation. Id. The Central District action was later consolidated with CMG

Worldwide, Inc. et al. v. The Milton Greene Archives, et al., No. CV 05-02200-MMM (Mcx). The

consolidated action is still pending in the Central District of California.1

Finally, in September 2006 Nova filed this action asserting claims against Adler Fels, TKS,

Pacific Licensing and Saal for trademark infringement, false designation, unfair competition,

trademark dilution, and intentional interference with economic advantage. Defendants filed their

answer and counterclaims on November 2, 2006 (one day after filing their amended answer and

counterclaims with AAA), naming Robert and Donna Holder (“the Holders”) and the Monroe

Entities as counter-defendants. Defendants brought the following counterclaims:

I. Copyright Infringement against Nova and the Holders

II. Trademark Infringement against Nova and the Holders

III. False Designation against Nova and the Holders

IV. Unfair Competition against Nova and the Holders

V. Common Law Unfair Competition against all counter-defendants

VI. Unfair Business Practices under Section 17200 against all counter-defendants

VII. Interference with Actual and Prospective Economic Advantage against all counterdefendants

VIII. Cancellation of Registered Mark against Marilyn Monroe LLC

IX. Declaratory Relief against all counter-defendants

X. Constructive Trust against all defendants

On December 4, 2006 this court granted Nova’s motion for preliminary injunction, focusing

exclusively on trade dress and declining to reach much of the parties’ trademark allegations. This

court likewise substantially declined to address defendants’ claims related to copyrights, contractual

rights, and rights of publicity, holding that such arguments likely had little bearing on Nova’s trade

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dress claim. Defendants have appealed this court’s preliminary injunction order, and the appeal is

currently pending in the Ninth Circuit.

Nova and the Holders now move to compel arbitration and stay defendants’ counterclaims. 

The Monroe Entities have not joined this motion.

LEGAL STANDARD

 The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1–16, requires federal courts to enforce

arbitration agreements and to stay any litigation that contravenes such agreements. Arbitration is a

matter of contact, and the court cannot require a party to arbitrate a dispute unless the party has

agreed to do so. United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582

(1960). Accordingly, the court's role under the Act is limited to (1) determining whether a valid

agreement to arbitrate exists and, if it does, (2) deciding whether the agreement encompasses the

dispute at issue. 9 U.S.C. § 4; Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719–20 (9th Cir.1999). 

On the other hand, a district court retains the inherent power to stay litigation “to control the

disposition of the cases on its docket with economy of time and effort for itself, for counsel, and for

the litigants.” Landis v. North Am. Co., 299 U.S. 248, 254 (1936). In exercising this power, the

court must balance the hardship and inequity of allowing the action to proceed with “the ossification

of rights which attends inordinate delay.” Yong v. INS, 208 F.3d 1116, 1119 (9th Cir.2000)

(internal quotations omitted).

DISCUSSION

It is undisputed that there is a valid arbitration agreement between Nova and TKS. The

court’s inquiry, therefore, focuses entirely on whether the agreement encompasses defendants’

counterclaims. A threshold issue, however, is whether Nova waived its rights to compel arbitration

by bringing this action in federal court.

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I. Waiver

“A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of

an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice

to the party opposing arbitration resulting from such inconsistent acts.” Fisher v. A.G. Becker

Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986). Defendants assert that, by naming TKS as a

defendant in its action against Adler Fels rather than seeking remedies in arbitration, Nova acted

inconsistently with its arbitration rights and waived its ability to compel arbitration of any

counterclaims asserted by TKS. Nova responds that there was no right to compel arbitration at the

time it filed its suit because the subject matter of Nova’s complaint is outside the License

Agreement. The threshold inquiry, therefore, is whether Nova’s claims against TKS could have

been brought in arbitration. To answer that question the court must determine whether the

arbitration provision encompasses Nova’s causes of action against TKS.2

Courts have interpreted the phrase “arising out of or relating to [this Agreement]” in the

context of arbitration provisions as encompassing “tort, as well as contractual, liabilities so long as

the tort claims have their roots in the relationship between the parties which was created by the

contract.” Tate v. Saratoga Sav. & Loan Ass’n, 216 Cal. App. 3d 843, 855 (1989) (internal

quotations omitted). The Ninth Circuit has held that similar language is “broad and far reaching.” 

Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1131 (9th Cir. 2000) (interpreting the

phrase “Any dispute, controversy or claim arising out of or relating to the validity, construction,

enforceability or performance of this Agreement”); Britton v. Co-op Banking Group, 4 F.3d 742,

745 (9th Cir. 1993) (holding that such language is “routinely used in many securities and labor

agreements to secure the broadest possible arbitration coverage”). Other courts have held that this

language is coterminous with the phrase “arising in connection with.” YP Corp. v. Sitrick and Co.,

Inc., No. CV050769PHXSRB, 2005 WL 3334326, at *6 (D. Ariz. Dec. 8, 2005). The Ninth Circuit

has interpreted the latter phrase to cover “every dispute between the parties having a significant

relationship to the contract and all disputes having their origin or genesis in the contract.” Simula,,

175 F.3d at 721. The Fifth Circuit recently considered the phrase “arising out of or relating to” at

length, and concluded that such language covers actions where “the tort or breach in question was an

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immediate, foreseeable result of the performance of contractual duties.” Telecom Italia, SPA v.

Wholesale Telecom Corp., 248 F.3d 1109, 1116 (11th Cir. 2001).

Nova clearly could not have brought an arbitration action against Adler Fels, there being no

arbitration agreement between these two parties. As for its claims against TKS, although Nova’s

trademark claims involve the subject matter of the License Agreement—TKS’s photographs of

Marilyn Monroe—the rights that Nova asserts are wholly independent of the contract. Nova’s

purported right to prevent TKS from licensing its images to other wineries stems not from Nova’s

agreement with TKS, but from Nova’s assertion that it owns trademark and trade dress interests in

its use of the images. Nova’s rights in this regard would exist with or without the License

Agreement. Furthermore, TKS’s licensing activities involving third parties have nothing to do with

its License Agreement with Nova. Accordingly, Nova could not have brought its trademark and

unfair competition claims against TKS in arbitration. The fact that Nova did assert its arbitration

rights by initiating arbitration on those claims arising out of the agreement well before filing this

action further persuades the court that Nova did not intend to waive its right to compel arbitration by

subsequently bringing these claims in federal court. The court therefore finds that Nova has not

waived its right to compel arbitration.

II. Defendants’ Counterclaims

As with the waiver inquiry, the question of whether to compel arbitration focuses on whether

defendants’ counterclaims are encompassed by the arbitration agreement. The court will consider

each species of counterclaim separately.

A. Copyright Counterclaim (Count I)

Nova asserts that defendants’ copyright infringement counterclaim must be stayed because

defendants’ copyright infringement claim arises out of the License Agreement. TKS originally

asserted copyright infringement in the arbitration context, bringing its copyright claim in this court

only after being named as a defendant in Nova’s complaint. TKS’s own conduct, therefore,

indicates that the copyright claim is arbitrable. Furthermore, Nova’s alleged copyright infringement

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consists of using the specific images that were the subject of the License Agreement. Nova began

using these images when it was granted permission to do so under the License Agreement. The

dispute over Nova’s continued use of these specific images therefore has its genesis in the License

Agreement, and defendants’ copyright counterclaims are subject to arbitration.

B. Trademark Counterclaims (Counts II–IV)

Defendants claim trademark protection in the two Marilyn Monroe images that it licensed to

Nova, as well as the term “Velvet Collection” as a derivative of “Red Velvet Collection.” Answer

¶¶ 28–29. TKS alleges that it owns common law trademark rights to “Red Velvet Collection,” and

that one of the poses within the collection (“Pose No. 2”) is a federally registered trademark. 

Answer ¶ 101. TKS’s trademark interests in Pose No. 2 and “Red Velvet Collection” therefore exist

independently of the License Agreement. However, TKS’s asserted trademark interest in another of

the Red Velvet Collection poses (“Pose No. 1"), appears to be based on the theory that any

trademark interest that arose out of Nova’s use of Pose No. 1 inured to TKS under the terms of the

contract. See License Agreement ¶ 7; Counterclaim ¶¶ 27–29. Accordingly, the trademark claim

with respect to Pose No. 1 arises directly from the contract. At the very least, therefore, defendants’

trademark claims related to Pose No. 1 are subject to the arbitration provision.

Defendants’ trademark claims are further complicated by their challenge to the copyright

license that Nova obtained from Playboy. Defendants’ counterclaim alleges that Nova obtained a

license only to the copyright in Pose No. 1, and that this license does not entitle Nova to infringe

TKS’s trademark and trade dress interests in the commercial use of the pose.3

 Nova characterizes

this as TKS claiming that Nova’s Playboy license is improper because Nova agreed not to use the

images after the termination of the agreement. Although the interplay between trademark and

copyright interests does not necessarily depend upon the License Agreement, defendants are

claiming that Nova’s rights in this arena are limited by its obligations under the contract, further

implicating the arbitration provision.

Finally, as with defendants’ copyright claims, Nova’s alleged trademark infringement is

based on its continued use of the specific images and words that were the subject of the License

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Agreement. Given these considerations, defendants’ trademark claims arise from or relate to the

License Agreement and are subject to arbitration.

C. Counts V–X

Nova asserts that the remaining claims should be stayed because they are duplicative of

defendants’ claims in the Central District action. A review of Counts V–X in defendants’

counterclaims in this action and their claims in the Central District action reveals several parallels. 

Defendants’ separate claims for tortious interference, for example, are strikingly similar. 

Counterclaim at ¶¶ 73–77; Howard Dec., Exh C ¶¶ 58–62. The wording of the Declaratory Relief

claims are also quite similar, though the Declaratory Relief counterclaim is directed at Nova only. 

Counterclaim ¶¶ 84–87; ¶¶ 28–31.

Defendants’ response to this argument is cursory. First, defendants claim that Nova and the

Holders lack standing to move to stay claims against the Monroe Entities, because they do not

represent those entities. In addition, defendants assert, without elaboration, that the claims at issue

here are different from the claims at issue in the Central District action because they “are focused on

the fact that NOVA and the other third-party defendants are claiming trademark rights.”

After oral argument on this motion, the Monroe Entities filed a separate motion to stay

counterclaims V–X. In light of defendants’ argument regarding Nova’s standing, but without

reaching the merits of that argument, the court will hold Nova’s motion in abeyance as to Counts

V–X pending the resolution of the Monroe Entities’ motion.

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UNITED 

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For the Northern District of California

CONCLUSION

For the reasons stated above, the court GRANTS IN PART plaintiff’s motion to stay

counterclaims and compel arbitration. Plaintiff’s motion is GRANTED with respect to Counts I–IV

and held in abeyance with respect to Counts V–X.

IT IS SO ORDERED.

Dated: _______________________________

MARILYN HALL PATEL

District Judge

United States District Court

Northern District of California

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1. In addition to this action, the Central District action, and the arbitration proceeding, there are

separate cases pending in the Southern District of New York and elsewhere.

2. As a preliminary matter, the court notes that the remedies Nova is seeking against TKS were all

available under the arbitration agreement, assuming that the agreement reached the substance of

Nova’s claims. Paragraph 21(b) of the License Agreement explicitly empowers the arbitrators to

grant injunctive relief. If the subject matter of Nova’s lawsuit falls within the arbitration clause,

therefore, Nova cannot claim that civil litigation was necessary to obtain the appropriate remedies.

3. Oddly, TKS has set forth the mirror image of this argument in its own defense, alleging that its

own copyrights in the Red Velvet Collection images entitle it to license the images notwithstanding

any trademark or trade dress interests in the Marilyn Monroe images.

ENDNOTES

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