Originally posted on Seyfarth’s The Blunt Truth blog.

Last year, the case of BBK Tobacco & Foods LLP v. Central Agriculture Inc. made headlines in the trademark world when the Ninth Circuit held that district courts have jurisdiction to alter or cancel trademark applications.  97 F.4th 668 (9th Cir. 2024). 

Once again, the case is shaking up the trademark space.  In what appears to be a matter of first impression, the United States District Court for the District of Arizona held that, in a trademark infringement case, an infringer could be subject to profit disgorgement despite the fact that its profits arose from federally illegal sales of cannabis.  BBK Tobacco & Foods LLP v. Cent. Coast Agric. Inc., No. CV-19-05216-PHX-MTL (D. Ariz. Feb 28, 2025). 

The case could have a significant impact for trademark owners and those operating in the cannabis space. 

BBK Tobacco & Foods LLP (“BBK”) offers smoking-related products, including rolling papers, under its RAW trademark.  BBK alleged that Central Coast Agriculture Incorporated (“CCA”) was infringing on its trademark by offering cannabis products under the RAW GARDEN mark.  CCA markets and sells cannabis products under the RAW GARDEN brand exclusively through California-licensed dispensaries and mobile delivery services.  CCA’s sales are legal within the state of California.  But the Controlled Substances Act makes it unlawful to distribute cannabis at the federal level. 

Both parties filed motions for summary judgment on several grounds.  In particular, CCA moved for summary judgment on BBK’s profit disgorgement claim.  Profit disgorgement requires a party that profits from its own illegal acts against an opposing party to give up profits made as a result of such acts. 

The court acknowledged CCA’s concession that no court has addressed the issue of profit disgorgement specifically in the context of trademark infringement. 

BBK argued that allowing CCA to be immune from a profit disgorgement claim would incentivize the violation of federal criminal law.  On the other hand, CCA argued that awarding damages from profits earned from the sale of cannabis would violate federal law. 

CCA relied on several cases where courts have found against awarding damages from profits earned on businesses that process and sell cannabis.  See e.g., J. Lily, LLC. Clearspan Fabric Structures Int’l, Inc. No. 3:18-cv-01104-HZ, 2020 WL 1855190, at *12 (D. Or. Apr. 13, 2020) and Wildflower Brands Inc. v. Camacho, No. 2:22-CV-09044-MCS-PLA, 2023 WL 3150091, at *2 (C.D. Cal. Mar. 20, 2023) (an award of profit disgorgement concerning cannabis business would “run afoul of federal law.”) 

The court distinguished the cases cited by CCA because both parties were engaged in the federally illegal cannabis industry.  So, an award of profit disgorgement would benefit a party violating federal law. 

Here, only CCA operates in the cannabis industry.  The court stated that allowing CCA to be immune from a profit disgorgement claim would incentive, not discourage, the violation of federal law.

Therefore, the court denied CCA’s motion for summary judgment and held that, if a jury finds that CCA infringed BBK’s trademark, BBK may seek profit disgorgement. 

Cannabis companies attempting to use the federal illegality of cannabis sales to their benefit in litigation is not new.  Previous attempts to dismiss cases based on the illegality doctrine (i.e., courts should not be used to engage in unlawful conduct) were rejected.  This is something we’ve previously discussed.  See e.g., California Ruling May Sow Seeds of Cannabis Patent Precedent.

This case takes things one step further.  Not only may cannabis companies be subject to claims in federal court, but they may also be required to disgorge their profits or pay damages in trademark infringement cases based on activity that is illegal under federal law.  It’s unclear whether the same may be true regarding other forms of intellectual property infringement claims.  But based on this court’s reasoning, if profit disgorgement does not benefit a cannabis company, the same outcome may apply. 

Moreover, brand owners outside of the cannabis space should be cognizant of the potential to recover damages from a cannabis company infringing its trademark rights.

As the legal proceedings continue, the outcome of this case could have significant implications for trademark law and the cannabis industry.  But at this point, CCA may consider that the court provided it a RAW deal.