Hershey Vs. Pot Dealer in Trademark Suit

May 31, 2007 — -- In what experts call one of the strangest trademark lawsuits in recent memory, chocolate giant Hershey Co. is suing a California marijuana dealer for ripping off the company's name by selling marijuana-laced knockoffs.

The tainted treats, with names like Rasta Reese's, Keef Kat, Puff-A-Mint Pattie and Stoney Rancher, were sold to California state-authorized medicinal marijuana shops, according to police. Stickers on the treats' packaging resembled labels of Hershey's Reese's Peanut Cups, Kit Kat, York Peppermint Pattie and Jolly Rancher.

Intellectual property lawyers who spoke to ABC News said the chocolate company might have a strong case under current trademark laws.

"Does the customer really believe Hershey is making marijuana-laced candy? I don't think so," said Robin Feldman, a professor who teaches intellectual property law at the University of California at San Francisco's law school.

"But now you're associating illegal drugs with the Hershey mark. You're thinking about bad things, illegal things, things that will harm your body when you think of the Hershey mark, and that is terribly damaging to the company and its mark."

Companies need to be careful to not let their marks be associated with goods the public considers negative, said Stanford Law School professor Mark Lemley.

"Maybe you'll use my famous mark on bad-quality goods," Lemley told ABC News' Law & Justice Unit. "Imagine Disney-brand pornography. No one's going to think Disney's actually selling porn, but when they think of Disney they'll have that association."

Already Serving Time for Dealing Pot

The federal civil lawsuit was served on Kenneth Affolter, 40, of Lafayette, Calif., on May 15 while he was in county jail awaiting transfer to state prison, making him a unique defendant in a trademark case.

Trademark suits are rarely served to people in prison, legal experts told ABC News.

"I can't remember seeing a trademark infringement suit brought against someone behind bars," said Jim Crowne, the communications director of the American Intellectual Property Law Association. "That's quite unusual. Felons behind bars are not usually defendants in trademark infringement cases."

Molly Van Houweling, an assistant professor of law at the University of California at Berkeley's law school, called the case unusual.

"Trademark law usually involves disputes between potential competitors," she said. "These seem to be goods marketed in different channels. You do not find these products marketed next to each other on store shelves."

Affolter's lawyer, David M. Michael, said he was negotiating with Hershey. Both Hershey and its lawyers declined to comment for this story.

DEA Raid on Beyond Bomb

The Drug Enforcement Administration and a laundry list of local law enforcement agencies raided the Oakland and Emeryville, Calif., warehouses of Affolter's company, Beyond Bomb, as well as Affolter's home in Lafayette, Calif., in March 2006. Officials seized thousands of marijuana plants, hundreds of packages and bottles of the marijuana-laced candies and soft drinks, three guns and a large amount of cash, according to a DEA statement. The San Francisco Chronicle reported the cash seizure at $189,000.

Affolter and 11 other people associated with the business were arrested, and Affolter pleaded guilty to conspiracy to manufacture and distribute marijuana plants in September. He was sentenced to 70 months in prison on March 2, 2007.

Beyond Bomb sold marijuana-laced goodies to California marijuana dispensaries, or "pot clubs," which sell medicinal marijuana legally under California law, according to Casey McEnry, a special agent for the DEA.

Although state law in California permits the sale of medicinal marijuana, federal law prohibits any possession of the drug.

"It's all illegal under federal law," McEnry said. "[Affolter's possession] was clearly in violation of federal law."

Beyond Bomb sold other products in addition to the Hershey knockoffs, such as Pot Tarts, Toka-Cola and Buddahfinger.

"In a way, this case sort of answers the question, 'What will they think of next?'" DEA special agent in charge Javier Peña said in a statement. "What so many people don't realize is that innocent children may somehow get their hands on these products and think they are just normal candy or soft drinks -- thus, making this action not only illegal, but potentially tragic."

"We believe they were taking the actual miniature candy and dipping it into hash oil and repackaging it into those packages and selling it in those marijuana dispensaries," McEnry said.

The candy bars retailed for between $10 and $15, she said, depending on amount of THC or tetrahydrocannabinol in each one.

"Depending on their strength, the prices varied," McEnry said.

Actual vs. Likely Dilution

The trademark suit, filed on May 10 in U.S. District Court in San Jose, Calif., accuses Affolter of trademark infringement, trademark dilution and unfair competition. Hershey is seeking $100,000 in damages.

Trademark dilution laws forbid the use of a famous trademark in a way that would dampen its uniqueness or harm the mark's reputation.

Legal standards for dilution were redefined by Congress in October 2006 with the Trademark Dilution Revision Act. The act, prompted by a U.S. Supreme Court decision, states that a trademark owner must only prove likely dilution. Before the reform act, trademark owners had to prove actual dilution.

"The way the law was originally written the trademark owner had to prove actual dilution before they could get an injunction" to stop the sale of the product in question, Jim Crowne, of the American Intellectual Property Law Association, told ABC News. "That made it impossible to enforce. The law needed to be rewritten for dilution so the standard was likelihood of dilution."

"[The lawsuit] is basically going to stand or fall with the dilution claim," Stanford's Lemley told ABC News.

Chewy Vuiton and Trademark Dilution

One of the first cases decided after the passage of the Trademark Dilution Revision Act involves luxury handbag maker Louis Vuitton and a company called Haute Diggity Dog, which made a series of plush dog toys and beds under the name Chewy Vuiton.

The toys and beds featured an interlocking C and V similar to Louis Vuitton's trademark interlocking L and V. Chewy Vuiton products cost between $10 and $120, compared to Louis Vuitton dog products that sell for between $250 and $1,600.

Louis Vuitton sued Haute Diggity Dog for both trademark infringement and dilution over the use of the name Chewy Vuiton and the similar symbol of the interlocking C and V. Louis Vuitton lost the suit.

The court, applying the standards of the dilution reform act, held that Haute Diggity Dog's parody of the Louis Vuitton name and symbol would not likely create consumer confusion between the products and that Chewy Vuiton would not ruin the reputation of Louis Vuitton's high-end products.

However, Feldman said she saw important differences between that case and Hershey's lawsuit because of the link to marijuana.

"If you compare that case to what would happen if the Hershey case came forward, what Hershey is going to say is this is very damaging because in our case there are all kinds of negative associations," Feldman said.

More Trouble Than It's Worth?

Van Houweling said Hershey's unusual lawsuit could actually end up increasing the public's association of the Hershey name with illegal drugs.

"It never probably would have been brought to my attention if it weren't for this lawsuit," she said. "If [Hershey is] really worried about the association in the public's mind about their name associated with these illicit products, it seems that the lawsuit has amplified that."

Feldman said the $100,000 Hershey is asking for is inconsequential compared to the company's wealth, and she said the case likely would not even make it to trial. But Hershey may want to send a message to other potential imitators, she said.

"Trademark holders have to police their mark," Feldman said. "If they don't, they're at risk of losing their mark in particular because it becomes generic. People work very hard to protect it. That's probably what's going on here."

And it won't hurt to get the candies in question off the market.

Crowne, of the American Intellectual Property Law Association, said Hershey "may have brought this action to ensure that the seized items are destroyed under court order."