Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_06-cv-00823/USCOURTS-caed-1_06-cv-00823-1/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1051 Trademark Infringement

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

E. & J. GALLO WINERY,

Plaintiff,

v.

PERNOD RICARD USA, LLC, an

Indiana Limited Liability

Company

Defendants.

1:06-CV-00823 OWW-SMS

MEMORANDUM DECISION AND ORDER

DENYING DEFENDANT’S MOTION TO

DISMISS

1. INTRODUCTION

Defendant Pernod Ricard USA (“Pernod”) moves to dismiss

Plaintiff E. & J. Gallo Winery’s (“Gallo”) declaratory judgment

action, which seeks a declaration that Pernod has no protectable

rights under federal and state law to its use of packaging and

label design elements (trade dress) for its “cooler” products. 

(Doc. 7-1, Motion to Dismiss, Filed July 19, 2006.) Gallo

opposes the motion. (Doc. 18, Opposition, Filed August 15,

2006.)

2. PROCEDURAL HISTORY

On June 26, 2006 Gallo filed a complaint for declaratory

relief. (Doc. 1, Complaint.) On July 19, 2006 Pernod filed a

motion to dismiss the complaint for lack of justiciability. 

(Doc. 7-1, Motion to Dismiss.) On August 15, 2006 Gallo opposed

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the motion. (Doc. 18, Opposition.) On August 31, 2006 Pernod

filed its reply. (Doc. 19, Reply to Plaintiff’s Opposition.)

3. FACTUAL BACKGROUND

A. The Parties 

Gallo is a corporation with its principal place of business

in California. (Doc. 1, Complaint ¶ 2, Filed June 25, 2006.) 

Gallo is in the business of producing and distributing wines and

other alcoholic beverages in the United States through wholesale

distributors. (Id.) Gallo produces and distributes a product

known in the industry and to consumers as a “cooler” under the

brand and trademark “Bartles and Jaymes.” (Id. at ¶ 4.)

Pernod is a limited liability company organized under the

laws of the State of Indiana with its principal place of business

in White Plains, New York. (Id. ¶ 3.) Pernod is also in the

business of producing and distributing various alcoholic

beverages in the United States and is licensed to do business, is

doing business, and maintains an office in California. (Id.)

Pernod produces and distributes a cooler product under the brand

and trademark “Seagram’s.” (Id. at ¶ 4.)

Gallo’s complaint alleges that there has been a decline in

recent sales of coolers in the market and that its cooler sales

have exceeded the rate of decline, while Pernod’s cooler sales

have been worse. (Id.)

B. The Demand Letter

By letter to Gallo dated June 20, 2006 (“demand letter”),

counsel for Pernod asserted that Gallo was infringing Pernod’s

alleged rights by Gallo’s use of packaging and label design for

Gallo’s flavored Bartles & Jaymes coolers. (Id. at ¶ 5.) 

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Counsel demanded that Gallo “must immediately cease such unlawful

misappropriation.” (Id.) 

Pernod’s demand letter further charged that Gallo

intentionally misappropriated Pernod’s good will by remodeling

its packaging to include the principal elements of: 

1. a beach theme, including sand and a

beach prominently displayed throughout

the packaging

2. depiction of fruit that indicates the

flavor of the cooler on the left side of

each panel of the packaging with a

picture of a sailboat on the right side

of the panel as part of the beach theme;

and 

3. dominant use of the color blue on the

packaging and on the bottle labels. 

(Id.) Counsel for Pernod alleged that in 2005 Gallo introduced a

new package design for Bartles & Jaymes that “effectively adopted

an identical design concept and color theme as the redesigned

2004 Pernod packaging.” (Id.)

Pernod asserts that there are no significant differences

between Pernod and Gallo cooler labels and packaging. (Id.) The

letter states that the Gallo cooler packaging “blurs” with the

Pernod packaging; that the use of similar label colors “further

exacerbates the situation;” and that consumers are likely to be

confused as to believe that Gallo coolers are related to,

sponsored by, or associated with the Pernod product. (Id.) 

According to Pernod, “this likelihood of confusion hurts

consumers and invades Pernod’s rights.” (Id.) The letter

charges that Gallo’s packaging and labels constitute trademark

and trade dress infringement in violation of the Lanham Act, 15

U.S.C. § 1051, et seq., as well as various state unfair

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competition laws. (Id.) The letter further states that “it

cannot tolerate (Gallo’s) poaching of Pernod’s label and

packaging.” (Id.) 

Pernod’s letter includes counsel’s statement that she is

making an attempt to “resolve this matter amicably.” (Id.) 

However counsel’s expressed intent to reach an “amicable

resolution” is followed by a demand that Gallo immediately cease

manufacturing the blue beach theme labels and begin creating a

new packaging that is not likely to lead to confusion. Gallo was

given a thirty day deadline to cease all distribution of the

Bartles & Jaymes blue beach theme packaging and eight days to

respond to the letter. (Id.) In the alternative Pernod agreed

to allow Gallo to continue the packaging through September 30,

2006 so long as Gallo restores the black rim on its bottles that

was present prior to 2005. (Id.) 

C. The Email Exchange

Gallo sent Pernod an email on June 21, 2006 acknowledging

receipt of Pernod’s letter. (Doc. 9-3, Richman Decl., Ex. B.) 

Gallo informed Pernod that it would require more time to give

Pernod a substantive response due to personnel summer travel

schedules. (Id.) Counsel for Gallo also denied that Gallo

“poached” the packaging of Pernod. (Id.) Gallo asked Pernod to

provide answers to the following four questions: 

1. To provide a factual basis for Pernod’s

claim of “likely confusion,” including

any instances of confusion; 

2. To provide a factual claim for Pernod’s

claim of “trademark infringement;”

3. To give an exemplar of the specific

trade dress that Pernod believes is

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being infringed and an exemplar of the

specific trade dress that Pernod

believes is infringing it; and 

4. Whether Pernod is claiming that the

problem arises from the “blue color” on

the label, the “beach scene” on the

label, or the combination of both? 

(Id.) 

In response to these inquiries Pernod’s counsel sent a

second communication on June 22, 2006 which referred Gallo back

to the initial demand letter and stated: “It would be a mistake

to focus attention on any single aspect of the packing and

labeling since it is the overall impression that creates

confusion.” (Id.) Pernod’s counsel also refused to give Gallo

an extension of time to provide a substantive response to

Pernod’s demand letter. (Id.) 

Gallo then inquired as to whether Pernod’s response to

Gallo’s inquiries was a refusal to answer Gallo’s questions. 

(Id.) Pernod’s counsel stated that its responses were the

replies to Gallo’s questions and that Pernod’s investigation was

ongoing regarding instances of actual confusion. (Id.) 

Gallo filed its complaint for declaratory relief on June 26,

2006. (Doc. 1, Complaint.)

D. Post Filing Conduct

On July 31, 2006 Gallo sent a letter to Pernod’s counsel

inquiring whether Pernod intended to sue Gallo based on the

matters stated in the demand letter. (Doc. 18-2, Decl. of Kip

Edwards “Edwards Decl.”, Filed August 8, 2006.) Gallo offered to

dismiss its action if Pernod agreed in writing not to bring an

infringement action against Gallo. (Id.) Pernod refused this

agreement and accused Gallo of attempting to manufacture “after

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the fact ‘evidence’” that would give an indication of Pernod’s

intent to file an infringement action. (Id., Ex. B.) Lastly,

Pernod agreed to confirm no intention to bring suit if Gallo

reintroduced the black neck band on its bottle packaging that

characterized the Gallo trade dress prior to 2005. (Id.) 

Gallo also alleges that it emailed a copy of the complaint

to Pernod the day after it was filed. (Doc. 19, Opposition,

Filed August 31, 2006.) Gallo argues that counsel for Pernod did 

not call or have any communication with it after receipt of the

complaint. (Id.) Gallo also asserts that Pernod contacted a

lawyer, who previously represented Gallo and who knew counsel for

Pernod, to inquire whether litigation would be filed by Gallo. 

(Id.) Counsel for Pernod was unwavering in her position that

Gallo had to change the packaging. (Id.) 

The primary issue in this case is whether Pernod’s demand

letter and subsequent email created a sufficient threat of

litigation against Gallo to create an actual controversy

cognizable as required by the declaratory judgment act. 

E. Pernod’s Litigation Reputation

Paul Reidl (“Reidl”), a business executive, has handled

trademark enforcement and litigation matters for Gallo for

fifteen years. (Id., ¶ 2.) Pernod is one of the largest alcohol

beverage companies in the world. (Doc. 18-4, Decl. of Paul W.

Reidl “Reidl Dec.,” Filed August 15, 2006, ¶ 16.) Reidl opines

that Pernod has a reputation in the industry for being aggressive

in litigation. (Id.) For example, Pernod has engaged in a

multi-year battle against a competing beverage company, Bacardi,

over the rights to the “Havana Club” trademark. (Id.)

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Reidl found Gallo’s letter to have an “unusually aggressive”

tone. (Id., ¶ 7.) Based on Reidl’s experience, he believes the

author of a demand letter who is genuinely interested in

resolving a trade dispute and who is asked to clarify the factual

basis for the claim will work with the opposing party and exhibit

flexibility in enforcing demands. (See, Id., ¶ 10.) Reidl

expected to see a business executive or in-house attorney

handling preliminary negotiations, not litigation counsel. Reidl

based his belief that Pernod would sue Gallo on Pernod’s refusal

to extend the time of its imposed deadlines; its failure to

provide evidence of the alleged consumer confusion; its failure

to explain the basis for its case, and its requirement that Gallo

cease the use of its current packaging and change the packaging

within 38 days. (Id.)

The circumstances of this case are very similar to those

Reidl describes that arose in litigation between Gallo over its

“Turning Leaf” label and Kendall Jackson Winery. (Id., ¶ 11.) 

In that case Gallo also faced a plaintiff with a reputation for

being litigious. (Id.) Kendall Jackson brought suit for

competitive purposes, retained experienced litigation counsel,

who intentionally kept the trademark and trade dress claims vague

for tactical reasons, and whose only “settlement position” was

that Gallo capitulate to its demands. (Id.) The case, which was

filed in New York, resulted in several years of bitter and

expansive litigation. (Id.) Based on this experience, Gallo

determined that it did not want to litigate Pernod’s case in New

York, “the most expensive venue in the nation due to high billing

rates.” (Id.) In fifteen years of handling Gallo’s trademark

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litigation matters, this is the only declaratory judgment

complaint Reidl directed be filed. (Id., ¶ 13.)

4. STANDARD OF REVIEW

A motion to dismiss under Fed. R. Civ. P. 12(b)(1) addresses

the court’s subject matter jurisdiction, derived from the case or

controversy clause of Article III of the U.S. Constitution. 

Gingo v. United States Dep’t of Educ., 149 F. Supp. 2d 1195, 1200

(E.D. Cal. 2000). Federal courts are limited in jurisdiction; it

is presumed that a case lies outside the jurisdiction of the

federal courts and the burden of establishing the contrary rests

upon the party asserting jurisdiction. Kokkonen v. Guardian Life

Ins. Co. of Am., 511 U.S. 375, 377 (1994); see also, Vacek v.

United States Postal Serv., 447 F.3d 1248, 1250 (9th Cir. 2006). 

A Rule 12(b)(1) jurisdictional attack may be facial or

factual. Safe Air v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). 

In a facial attack, the challenger asserts that the allegations

contained in a complaint are insufficient on their face to invoke

federal jurisdiction. Id. By contrast, in a factual attack, the

challenger disputes the truth of the allegations that, by

themselves, would otherwise invoke federal jurisdiction. Id. A

jurisdictional challenge is a factual attack which relies on

extrinsic evidence and does not assert lack of subject matter

jurisdiction solely on the basis of the pleadings. Id.

Unlike a Fed. R. Civ. P. 12(b)(6) motion, for motions under

Fed. R. Civ. P. 12(b)(1), the moving party may submit affidavits

or any other evidence properly before the court. Association of

Am. Med. Colleges v. United States, 217 F.3d 770, 778 (9th Cir.

2000). It then becomes necessary for the party opposing the

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motion to present affidavits or any other evidence to satisfy its

burden of establishing that the court, in fact, possesses subject

matter jurisdiction. Id. The district court does not abuse its

discretion by looking to this extra-pleading material in deciding

the issue, even if it becomes necessary to resolve factual

disputes. Id. 

In a factual 12(b)(1) motion, no 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. Ritza

v. International Longshoremen’s & Warehousemen’s Union, 837 F.2d

365, 369 (1988); see also Gingo, 149 F. Supp. at 1200 (quoting

Mortensen v. First Fed. Sav. & Loan Assoc., 549 F.2d 884, 891

(3rd Cir. 1977).) Moreover, the plaintiff has the burden of

proof that jurisdiction does in fact exist. Gingo, 149 F. Supp.

at 1200. Although deference is given to a plaintiff’s factual

allegations in a 12(b)(6) motion, plaintiff’s allegations need

not be taken as true when considering a rule 12(b)(1) motion. 

Id.

5. DISCUSSION

A. The Declaratory Judgment Act and Subject Matter Jurisdiction

Requirement.

The Declaratory Judgment Act provides that “in a case of

actual controversy within its jurisdiction... any court of the

United States... 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). Any

such declaration shall have the force and effect of a final

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judgment or decree and shall be reviewable as such. Id. 

Before declaratory relief can be granted, federal subject

matter jurisdiction requirements must be satisfied. Gov’t.

Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1222-1223 (9th Cir.

1998) (citing Skelly Oil Co. v Phillips Petroleum Co., 339 U.S.

667, 671 (1950).) The court's jurisdiction in this case is based

on diversity of citizenship and federal question jurisdiction

under the Lanham Act, 15 U.S.C. §§ 151, et seq. Original

diversity jurisdiction exists when the parties are of diverse

citizenship and the amount in controversy exceeds $75,000,

exclusive of interests and costs. 28 U.S.C. § 1332(a). Where

diversity jurisdiction exists, the district court has discretion

to hear a declaratory judgment action. Avemco Ins. Co. v.

Davenport, 140 F3d 839, 842 n. 1 (9th Cir. 1998). 

Gallo is a corporation with its principal place of business

in California. (Doc. 1, Complaint ¶ 2.) Pernod is a limited

liability company organized under the laws of the State of

Indiana with its principal place of business in White Plains, New

York. (Id. ¶ 3.) Pernod is the only defendant named in this

action. The amount in controversy exceeds the sum or value of

$75,000 exclusive of interests and costs. (Doc. 1, Complaint ¶

1.)

i. Actual Case or Controversy Requirement Under the

Declaratory Judgment Act

In determining whether declaratory relief can be granted, an

inquiry must be made as to whether there is a case of actual

controversy between the parties. Principal Life Ins. Co. v.

Robinson, 394 F.3d 665, 669 (9th Cir. 2005); American States Ins.

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Co. v. Kearns, 15 F.3d 142, 144 (9th Cir. 1994). This

requirement is identical to the Article III's constitutional case

or controversy requirement. Kearns, 15 F.3d at 144. In order

for a case to be justiciable under Article III of the

Constitution, it must be ripe for review. Id. A controversy in

this sense must be definite and concrete, touching the legal

relations of the parties having adverse legal interests. West v.

Secretary of the DOT, 206 F.3d 920, 924 (9th Cir. 2000). It must

be a real and substantial controversy, admitting of a specific

relief through a decree of conclusive character, as distinguished

from an opinion advising what the law would be upon a

hypothetical state of facts. Id. The party invoking federal

jurisdiction bears the burden of establishing the existence of an

actual case or controversy. See, Dizol, 133 F.3d at 1228. The

Ninth Circuit has held that something less than an “actual

threat” of litigation is required to meet the “case or

controversy” requirement; instead, courts must focus on whether a

declaratory plaintiff has a “reasonable apprehension” that he or

she will be subjected to liability. Paramount Pictures Corp. v.

Replay TV, 298 F. Supp. 2d 921, 924 (C.D. Cal. 2004)(citing

Societe de Conditionnement en Aluminum v. Hunter Engineering Co.,

Inc., 655 F.2d 938, 944 (9th Cir. 1981).) 

ii. Actual Case or Controversy in Patent and Trademark

Cases

The United States Court of Appeals for the Federal Circuit,

which has appellate jurisdiction over all patent and trademark

cases applies a two part test for determining the justiciability

of a declaratory judgment claim concerning patent and trademark

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actions. See, Fresenius USA, Inc. v. Transonic Systems, Inc.,

207 F. Supp. 2d 1009, 1011 (N.D. Cal. 2001). There must be both

(1) an explicit threat or other action by the patentee which

creates a reasonable apprehension on behalf of the declaratory

plaintiff that it will face an infringement suit, and (2) present

activity which could constitute infringement or concrete steps

taken with the intent to conduct the infringing activity. See,

Id.; see also, O’Hagins, Inc. v. M5 Steel Mfg., Inc., 276 F.

Supp. 2d 1023, 1025 (N.D. Cal. 2003). The apprehension must have

been caused by the defendant’s actions. Hal Roach Studios, Inc.

v. Richard Feiner and Co., Inc., 896 F.2d 1542, 1556 (9th Cir.

1989). If the plaintiff is engaged in the ongoing production of

the allegedly patented item, the showing of apprehension “need

not be substantial.” Id. (citing, Societe de Conditionnement, v.

Hunter Engineering, 655 F.2d 938, 944 (9th Cir. 1981).) These

principles must be applied with a flexibility “that is oriented

to the reasonable perceptions of the plaintiff. Id. Here,

Pernod claims a protectable trademark in Seagram’s coolers that

is infringed by Gallo’s Bartles & James island coolers, which are

alleged to be marketed in deceptive and confusing packaging. 

Plaintiff Gallo is actively competing in the cooler market by

current sales of its allegedly infringing coolers. The suit

results from Pernod’s demands to Gallo to cease marketing coolers

in allegedly infringing packaging and trade dress. 

In Hal Roach Studios, the Ninth Circuit held that there was

a case or controversy present between the parties suitable for

declaratory relief. Hal Roach Studios, 896 F.2d at 1556.

Plaintiffs had entered into a written agreement with Defendants

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 The agreement was to expire in September of 1986. 1

Plaintiffs letter was sent in March of 1984. Hal Roach Studios,

896 F.2d at 1556. 

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to licence the television rights to certain Laurel and Hardy

silent films for a ten year period with an option to renew the

license for a second ten year term. Id. at 1544. As the ten

year period was coming to an end, Plaintiff filed a complaint

against Defendant seeking a declaration that the licensing

agreement would expire and that Plaintiff had valid copyrights to

the films. Id. at 1545. The Defendant answered and filed a

counterclaim seeking a declaration that Hal Roach Studios did not

own valid copyrights to the silent films or to numerous other

silent films in the Hal Roach library. Id. In addressing the

district court’s dismissal of defendant’s declaratory relief

counterclaim, the Ninth Circuit found a justiciable controversy

between the parties. Id. The court identified that Defendant

was currently engaged in and had alleged that they would continue

to engage in the use and exploitation of the films. Id. at 1556. 

There, Plaintiffs had sent a letter to Defendants two years prior

to the expiration of the agreement stating that, after the 1

agreement expired, Defendants would have no rights of any kind

whatsoever in the films. Id. The letter also questioned that

certain rumors that Defendants’ intended to continue to

distribute the films after the expiration date. Id. The court

noted that this statement could reasonably be viewed as a threat

to Defendants. It was also relevant that Hal Roach Studios had

not stated that it would not institute an infringement action. 

Id. The totality of these circumstances were sufficient to

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establish a real case or controversy existed to support a

declaratory relief action. 

The Ninth Circuit also found a case and controversy between

the parties in Chesebrough Pond’s, Inc. v. Faberge, 666 F.2d 393,

397 (9th Cir. 1982). Plaintiff and Defendant were competitors in

the market for men’s toiletries and cosmetics. Id. at 395. 

Plaintiff applied to register its trademark “Match.” Id. 

Defendant had acquired the “Macho” trademark from a prior owner.

Id. Defendant received a notice of the pending registration of

“Match” and sent Plaintiff a letter stating that it believed the

two marks to be “confusingly similar,” and that unless Plaintiff

withdrew its application, Defendant would file an opposition. 

Id. Plaintiff refused and Defendant filed an opposition with the

Patent and Trademark Office. Id. Defendant alleged that “Match”

so resembled “Macho” as to be likely to cause confusion, mistake,

and deception. Id. Plaintiff filed an answer and a petition to

cancel Plaintiff’s “Macho” mark. Id. The administrative action

continued for three years but remained in the discovery stage

when Plaintiff filed a declaratory judgment action. Id. The

Chesebrough court found a real case or controversy to exist

between the parties for the following reasons: 

1. The letter sent from Defendant to

Plaintiff stated a prima facie case for

trademark infringement as outlined in 15

U.S.C. § 1114(1) because it alleged

Defendant’s ownership of a registered

trademark and Plaintiff’s use in

commerce of a mark so similar to

Plaintiff’s that it was likely to cause

confusion. Id. at 396. The court

reasoned that the likelihood of

confusion standard is relevant to both

registration and infringement

proceedings. Id. 

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 In support of its argument, Pernod primarily relies on 2

Dunn Computer Corp. v. Loudcloud Inc., 133 F. Supp. 2d 823 (E.D.

VA 2001) as well as a series of unpublished cases. However, in

this circuit Societe de Conditionnement and its progeny are

binding authority. Chesebrough Pond’s, Inc. v. Faberge, 666 F.2d

393, 396 (9th Cir. 1982). Dunn is distinguishable since the

Plaintiff in that case filed a three count complaint eight days

after receiving the letter without so much as responding to the

letter or contacting Defendant. Id. at 826. 

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2. It was reasonable to infer from

Defendant’s letter a threat of an

infringement action. Id. at 396-397.

3. Defendant did not act to dispel such

infringement action. Id. at 397. 

4. Instead of disclaiming an intent to

pursue an infringement action, Defendant

responded to the complaint with a

counterclaim seeking damages for

infringement. Id. The actual filing of

a counterclaim for infringement bolsters

Plaintiff’s claim that a real threat

existed. Id. 

5. The inference drawn from Plaintiff’s

actions was reasonable in view of the

business relationship of the parties. 

Id. Plaintiff and Defendant are both

involved in an expanding and highly

competitive market. Id. Plaintiffs

were faced with the choice of continuing

to forgo competition in the market

pending resolution of the Patent and

Trademark action or entering the market

and risking substantial future damages

and harm to the relationship with its

customers and retailers. Id.

Pernod’s first argument for dismissal is that the court

lacks subject matter jurisdiction because there was no actual

case or controversy between Gallo and Pernod when Gallo initiated

this declaratory judgment action. Pernod argues that upon

receipt of its demand letter Gallo should have first attempted to

resolve the matter out of court. Pernod does not claim that 2

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 Statement of Pernod counsel at oral argument heard on 3

September 11, 2006. 

16

Gallo or any other party threatened with trade dress infringement

by a competitor has a duty to seek alternative dispute resolution

(“ADR”) before seeking judicial relief. Pernod asserts that 3

Gallo has no reasonable basis to support a fear of imminent

litigation arising from Pernod’s letter or its conduct following

the initial demand. 

Pernod relies on Shoom Inc. v. Electronic Imaging Sys. of

Am., Inc., 2006 U.S. Dist. LEXIS 39594, 9-10 (N.D. Cal. 2006). 

The Shoom court dismissed a declaratory judgment action because

the defendants’ letter and subsequent emails did not threaten

litigation and therefore did not create a reasonable apprehension

of litigation. Id. at 91-10. Shoom is distinguishable. The

letter in Shoom was sent to hundreds of newspapers and newspaper

organizations and it consisted of nothing more than an offer to

license a patent. Id. at 14. It specifically stated that “EISA

intended to soon license its rights or interests in the patent in

question.” Id. The court found the language of the letter not

threatening and containing “very vague” language that only

mentioned that the patent “may concern existing or contemplated

system decisions that may relate to the [systems] in question.” 

Id. at 14-15. The letter was signed by the company president

rather than legal counsel and did not threaten litigation or

insinuate actual infringement by Shoom or its customers. Id. at

15. 

//

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 Trademark owners have a monopoly over their marks, which 4

they can license as they see fit as long as such licensing does

not cause public confusion. Idaho Potato Comm’n v. G&T Terminal

Packaging, Inc., 425 F.3d 708, 715 (9th Cir. 2005). The test of

trademark infringement under state, federal, and common law is

whether there will be a likelihood of confusion. M2 Software,

17

iii. Analysis

As in Hal Roach, Gallo currently uses similar

characteristics in its “cooler” packaging to those used by

Pernod. Gallo directly competes with Pernod in the cooler

market. Specifically as of 2005 Gallo allegedly incorporated the

following characteristics in its “cooler” packaging: 

1. a beach theme, including sand and a

beach prominently displayed throughout

the packaging. 

2. the depiction of fruit that indicates

the flavor of the cooler on the left

side of each panel of the packaging with

a picture of a sailboat on the right

side of the panel a part of the beach

theme and

3. dominant use of the color blue on the

packaging and on the bottle labels. 

Pernod’s outside patent litigation counsel sent Gallo a

demand letter on June 20, 2006 stating that Gallo’s new packaging

system effectively adopted an identical design concept and color

theme as the Pernod packaging. Further, Pernod accused Gallo of

“invading Pernod’s rights” and of creating confusion among the

two “cooler” brands. In contrast to Shoom, Pernod’s letter

includes specific accusations that Gallo’s packaging constituted

trademark and trade dress infringement in violation of the United

States Trademark Act, 15 U.S.C. § 1051 as well as “various unfair

competition laws.”4

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Inc. v. Madacy Entm’t, 421 F.3d 1073, 1080 (9th Cir. 2005). To

determine whether there is a likelihood of confusion between the

parties allegedly related goods and services, the Ninth Circuit

considers the following eight factors: 1. strength of the mark;

2. proximity of the goods; 3. similarity of the marks; 4.

evidence of actual confusion; 5. marketing channels used; 6. type

of goods and degree of care likely to be exercised by the

purchaser; 7. defendant’s intent in selecting the mark; and 8.

the likelihood of expansion of the product lines. Id.

18

Pernod’s letter threatened that it would “not tolerate the

poaching of (its) label and packaging.” As a result, Gallo was

given eight days to provide a substantive response to the letter

and thirty days to discontinue use of the packaging. In the

alternative, Pernod would permit Gallo to use the packaging

through September 30, 2006 so long as Gallo changed its packaging

and reincorporated the black rim on its bottles that was present

prior to 2005 (capitulation to the charged infringement claim).

The letter was written in aggressive and traducing language,

setting forth a strict 30 day deadline for Gallo to cease the use

of its beach theme and existing packaging. While Pernod’s

counsel used the term “amicable resolution,” this was contingent

upon Gallo acquiescing in Pernod’s demands, which required Gallo

discontinuing use of existing packaging and inferentially

removing the allegedly infringing packaging from the marketplace

within the 30 day demand period. Although the letter did not

expressly say: “comply or be sued,” the statement that Pernod

would not “tolerate” continued use and Pernod’s express reference

to Gallo’s alleged violations of the Lanham Act, coupled with the

aggressive deadlines imposed on Gallo to comply, provide ample

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basis for an objectively reasonable belief that litigation would

follow if Gallo did not comply. 

As in Chesebrough, Gallo and Pernod are competitors in the

same market for “coolers.” Pernod’s letter accused Gallo of

infringing Pernod’s trademark by creating confusion among

“cooler” consumers. Pernod’s lack of response to Gallo’s

subsequent emails is inconsistent with an attempt to amicably

resolve the dispute. Pernod made no attempt to dispel any of

Gallo’s fears that Gallo faced an intractable demands and

imminent infringement action if it did not meet the deadlines

Pernod imposed. When counsel for Gallo requested further

information, Pernod’s counsel simply referred him back to

Pernod’s original letter and stated that Pernod’s investigation

as to specific instances of consumer confusion was ongoing. When

Gallo’s counsel requested additional time to provide a

substantive response, Pernod refused to modify its deadline. 

Under the principles of Societe de Conditionnement, the initial

Pernod letter, the subsequent email exchange between the parties,

and Pernod’s unyielding conduct, which did not invite or suggest

a standstill while the status quo was maintained, gave Gallo a

reasonable apprehension that an infringement action by Pernod was

imminent. 

Gallo knew that Pernod has chosen eminent New York patent

and trademark counsel, who enjoyed the reputation of being

vigorous litigators in trial courts, state and federal. Pernod

did not open contact with Gallo through a business executive or

in-house counsel. Rather, Pernod’s initial contact was through

outside trial counsel. Gallo also justifiably believed that

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Pernod, had in the past vigorously and aggressively litigated

intellectual property cases against its clients competitors in

the courts. From this, Gallo believed that Pernod had geared up

for a lawsuit. Gallo also argues that Pernod’s post litigation

behavior bolsters Gallo’s belief that a real threat of litigation

existed. Pernod did not respond in any way to Gallo’s request

for an assurance that Pernod would not immediately bring an

action. This is further evidence of the reasonableness of

Gallo’s belief. 

Gallo and Pernod are direct competitors in a highly

competitive beverage market. Pernod gave Gallo a strict 30 day

deadline to change its packaging and an extension until September

to bring back the distinctive black rim on Gallo’s “cooler”

bottles if Gallo needed more time to change the packaging. Gallo

alleges that it and Pernod are leaders in the “cooler” market,

but that Pernod has suffered a greater reduction in sales in a

softening market. Pernod gave Gallo no alternative if Gallo

failed to meet Pernod’s deadlines. Given the language of the

letter, the only reasonable conclusion Gallo could draw was that,

absent its compliance with Pernod’s demands, Pernod would file a

lawsuit. Gallo faced the risk of substantial future damages,

legal expenses, and potential harm to the relationship with its

customers and retailers if it failed to comply with Pernod’s

deadlines and did not change its cooler packaging. The dispute

over Pernod’s packaging claims creates an actual case or

controversy between Pernod and Gallo over Gallo’s cooler

beverages’ packaging and trade dress. 

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In distinguishing Chesebrough, Pernod argues: (1) Defendants

in Chesebrough outlined a prima facie case for trademark

infringement in its letter, (2) Defendants in Chesebrough filed

an opposition with the trademark office against Plaintiff’s

registering the “Macho” mark, and (3) Plaintiffs filed a

counterclaim against Defendants. Pernod maintains that the

Chesebrough facts “pale in comparison,” but does not specifically

distinguish the Chesebrough facts from the facts of this case. 

The Chesebrough court expressly rejected an argument that a

pending administrative action influenced the “case or

controversy” inquiry. Chesebrough, 666 F.2d at 396 (rejecting

Merrick v. Sharp & Dohme, Inc., 185 F.2d 713 (7th Cir. 1950) held

that the filing of notice of opposition with the Patent and

Trademark Office is not equivalent to a charge of infringement. 

A simple opposition proceeding in the Patent and Trademark Office

generally will not raise a real and reasonable apprehension of

suit. Id. Under Societe de Conditionnement and its progeny, the

focus is on the position and perceptions of the Plaintiff. Id. 

The Ninth Circuit declined to identify specific acts or

intentions of the defendant that would automatically constitute a

threat of litigation. Id. Instead, Pernod’s acts are examined

in view of their likely impact on competition and the risks

imposed upon Gallo to determine if the threat of suit Gallo

perceived was real and reasonable. Id. This requires a flexible

approach, oriented in the reasonable perceptions of the

plaintiff. Id. 

Gallo also referred to its prior experience in being sued

for copyright trademark infringement in New York. Pernod’s

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aggressive letter and course of conduct provided Gallo an

objectively reasonable apprehension that a lawsuit was imminent. 

Rather than having a company executive send a letter to Gallo

outlining its concerns, Pernod had outside litigation counsel

draft and send the demand letter. The attorney was not part of

Pernod’s in house legal staff, but rather an attorney at a well

known intellectual property law firm. The letter itself was

written in unequivocal terms, explicitly stating the laws Pernod

accused Gallo of violating, and imposing strict deadlines for

Gallo to comply with the demands. Gallo’s representative, Reidl,

who has at least fifteen years of trademark litigation experience

with the company, concluded that Gallo would be sued based on the

aggressive language of the letter, the lack of response by

Pernod’s counsel to Reidl’s email, the lack of flexibility

regarding the imposed deadlines, and Pernod’s litigious

reputation. Gallo’s fear of facing litigation in New York in a

more expensive venue in the backyard of an aggressive and

litigious opponent was reasonably justified given the conduct of

the parties. 

Pernod’s motion to dismiss for lack of subject matter

jurisdiction is DENIED.

C. Factors Weigh Against Dismissal of This Action 

If a suit passes constitutional and statutory muster, the

district court must be satisfied that entertaining the action is

appropriate. Dizol, 133 F.3d at 1223. This determination is

discretionary, for the Declaratory Judgment Act is deliberately

cast in terms of permissive rather than mandatory authority. Id. 

However, this discretion is not unfettered. Id. Prudential

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guidance for retention of authority over a declaratory relief

action is provided by Brillhart v. Excess Insurance Co. of

America, 316 U.S. 491 (1942). In deciding whether to abstain in

a federal declaratory relief action, the following factors are

considered:

1. Avoiding needless determination of state

law issues

2. Discourage litigants from filing

declaratory actions as a means of forum

shopping 

3. Avoid duplicative litigation 

4. Whether there are parallel state

proceedings

5. Whether the declaratory action will

settle all aspects of the controversy

6. Whether the declaratory action will

serve a useful purpose in clarifying the

legal action at issue

7. Whether the declaratory judgment action

is being sought merely for the purposes

of procedural fencing or to obtain a

“res judicata” advantage

8. Whether the use of a declaratory action

will result in entanglement between the

federal and state court systems

9. The convenience of the parties

10. The availability and relative

convenience of other remedies

11. Whether there are other claims joined

with an action for declaratory relief

(i.e. bad faith, breach of contract,

breach of fiduciary duty, rescission, or

claims for other monetary relief) 

Dizol, 133 F.3d at 1225 n.5 (citing Kearns, 15 F.3d at 145;

discussing Brillhart v. Excess Ins. Co., 316 U.S. 491, 495 

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(1942)); United Nat’l Ins. Co. v. R&D Latex Corp., 242 F.3d 1102,

1112 (9th Cir. 2001). In exercising jurisdiction, the district

court is required to articulate its rationale justifying its

exercise of jurisdiction. R&D Latex Corp., 242 F.3d at 1107;

Dizol, 133 F.3d at 1223. 

Pernod’s second argument in favor of dismissal is that even

if there is a sufficient case or controversy between the parties,

in the interest of efficiency, the court should dismiss the

declaratory judgment action and require Gallo to resolve the

matter outside of court. This unique contention is made without

regard to the Brillhardt factors. Beyond its opinion, Pernod

offers no support in law or fact to show how this declaratory

action will fail to resolve this active controversy and decide

the rights and liabilities of the parties. Litigation will serve

the useful purpose of clarifying and resolving the dispute

between Pernod and Gallo, instead of leaving the parties to risk

and uncertainty in the continued conduct of their businesses. 

Brillhart abstention is insufficient based on the totality of the

circumstances. 

6. CONCLUSION

Pernod’s Motion to Dismiss for lack of subject matter

jurisdiction is DENIED.

SO ORDERED. 

Dated: 10/5/06

/s/ Oliver W. Wanger

OLIVER W. WANGER

United States District Judge

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