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IP Alert: Grumpy Cat Not Amused by Grumpy Beverages

July 3, 2018

A recent case from the U.S. District Court for the Central District of California involved Grumpy Cat, a pet cat with a grumpy appearance (not demeanor) who is popular on social media, and the brand the cat has come to represent. The case, Grumpy Cat Limited v. Grenade Beverage LLC, et al., illustrates the importance of ensuring that license agreement terms permit the activities that the licensee wants to undertake.

In 2013, defendant Grenade Beverage LLC and its principals, Nick and Paul Sandford (collectively “Grenade”), licensed the exclusive right to use on certain beverage products the Grumpy Cat trademark and copyrighted images from Grumpy Cat Limited, the company formed by Tabatha Bundesen, the famous feline's owner, and her brother Bryan Bundesen. Grenade’s license authorized it to use the Grumpy Cat trademark and copyrighted images with the manufacture, advertisement, merchandising, promotion, distribution, and sale of iced-coffee products. The license agreement terms stated that additional products would only become part of the license upon prior approval. A jury in an earlier phase of the case determined that Grenade’s license authorized the use of the Grumpy Cat trademark and copyrighted images only with iced coffee.

Under the license, Grenade created a line of iced-coffee products branded “Grumpy Cat Grumppucino” and featured a caricature of Grumpy Cat on the products. Subsequently, in 2015, Grenade and its sublicensee Grumpy Beverage LLC wanted to sell ground coffee featuring the Grumpy Cat trademark and likeness and sought the approval of Grumpy Cat Limited. Being persnickety, as felines are known to be, Grumpy Cat Limited declined approval for the ground-coffee products. Grenade scampered off and produced and sold the Grumpy Cat ground-coffee products anyway. Grumpy Cat Limited pounced, suing Grenade for trademark and copyright infringement over the unauthorized use of its intellectual property. The jury found for Grumpy Cat Limited and awarded it more than $700,000 in damages for the unauthorized use of the Grumpy Cat trademark and images on the ground coffee.

Following the trial, the court decided Grenade’s declaratory judgment counterclaim for non-infringement of the Grumpy Cat trademark and copyrights. Grenade unsuccessfully argued that the term in the license agreement requiring prior approval for use of the licensed marks on additional products was a covenant and not a condition of the license agreement. The relevant portion of the license agreement stated that “other additional products within the Product Category [non-alcoholic beverages] . . . may, upon the Parties’ mutual approval, be marketed hereunder.” Grenade sought the interpretation of this provision as a covenant to avoid liability for infringement of Grumpy Cat Limited’s trademark and copyrights. After reviewing the license agreement, the court determined that the “additional products” language in the agreement is a condition that specifically excludes Grenade from using the licensed mark and images on additional products without the mutual approval of the parties. The court swatted down Grenade’s claim for declaratory relief. 

The court also decided Grumpy Cat Limited’s claim for cybersquatting following the trial. During the license, Grenade came to own from a third party the domain name "," which they used to redirect internet traffic to their coffee products. Grenade offered to transfer this domain name to Grumpy Cat Limited in exchange for Grumpy Cat Limited granting approval to Grenade’s expanding use of the Grumpy Cat mark and images to ground-coffee products. Grumpy Cat Limited declined. As part of its complaint, Grumpy Cat Limited included a count for cybersquatting.

To win on cybersquatting, Grumpy Cat Limited needed to prove that (1) Grenade registered, trafficked in, or used the domain name; (2) the domain name is identical or confusingly similar to a protected mark owned by Grumpy Cat Limited; and (3) Grenade acted with bad faith intent to profit from its use of the domain name. Grumpy Cat Limited claimed that the Grenade had used the domain name registration to redirect consumers from Grumpy Cat to the branded coffee products and as leverage during its efforts to get permission to use the Grumpy Cat mark and images on the ground coffee products.

The court declined to find bad faith intent on the part of Grenade. Grenade had reasonable grounds under the circumstances (i.e., being licensed to use mark to sell branded coffee products) to believe that the use of the website was lawful. The court also found that Grenade did not use the domain name as leverage for ransom to get money. Instead, Grenade’s offer to sell the domain name in exchange for modifications to the license agreement was part of a business negotiation. The court held that Grumpy Cat Limited did not show that Grenade acted in bad faith and denied its cybersquatting claim. At present Grumpy Cat is on the prowl to claw back the attorneys’ fees her owner spent prosecuting the case and defending against Grenade’s counterclaim.   

To avoid experiencing the grumpiness the defendants did in this case—and worse, paying damages for infringement—a licensee must carefully review and negotiate the terms of license agreements to make certain that the licensee receives the permissions desired for the products and services that it intends to offer under the licensed brand. The licensee should also try to obtain limitations on a licensor’s approval of new products, such as specifying time frames for approval and not unreasonably withholding approval. In addition to any accountings required by the license terms, a licensee should also audit its activities periodically under license agreements to make sure that they continue to comply with the license terms. When a licensee wants to expand use of the licensed mark to new and different products, the licensee should follow any notice provisions and instructions in the agreement for seeking the prior permission of the licensor to expand use of the licensed mark. If the brand owner declines to grant permission, then the licensee should not use the licensed mark on unlicensed products; doing so risks willful infringement liability and damages. 

Licensors should carefully identify the licensed properties and clearly define the scope of licensed products and services in their license agreements. Clearly defined licensed products and services help prevent ambiguities about what defined terms in the agreement mean. Licensors should also consider provisions restricting whether and how a licensee may use licensed marks online, including as domain names and on social media sites. If a licensor permits a licensee to register and own domain names that include the licensed mark, then the licensor should include provisions that facilitate the transfer of those domain names to licensor upon termination or expiration of the license.   

Please contact Fitch Even partner Alisa C. Simmons with any grumpy comments concerning this case.

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