Heritage Guitar, Inc. v. Gibson Brands, Inc.

District Court, W.D. Michigan·Decided December 13, 2021·No. 1:20-cv-00229·Unknown

Opinion

WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

HERITAGE GUITAR, INC.,

Plaintiff, Case No. 1:20-cv-229 v. Hon. Hala Y. Jarbou GIBSON BRANDS, INC.,

Defendant. ___________________________________/ OPINION This case began as a trademark infringement and breach of contract case. Plaintiff Heritage Guitar, Inc. brought suit seeking declaratory relief holding that it has neither infringed on Defendant Gibson Brands, Inc.’s intellectual property nor has it breached the settlement agreement between the two parties. Now Plaintiff seeks leave to file a Second Amended Complaint1 (“SAC”) with four additional causes of action under federal and state antitrust laws: (1) monopolization in violation of 15 U.S.C. § 2; (2) attempted monopolization in violation of 15 U.S.C. § 2; (3) monopolization in violation of Mich. Comp. Laws § 445.773; and (4) attempted monopolization in violation of Mich. Comp. Laws § 445.773. (ECF No. 84.) The motion will be granted. I. BACKGROUND Both Plaintiff and Defendant produce guitars. Defendant’s line of products features some of the most iconic electric guitars in the world, such as the Les Paul model. The parties have a shared history as Plaintiff was formed by former employees of Defendant in the 1980s when Defendant moved its operations from Kalamazoo, Michigan to Tennessee. Plaintiff remained in Kalamazoo to “carry on the tradition of hand-crafted guitar-making that started at Parsons Street

1 Plaintiff filed its Amended Complaint to update certain redactions, without any substantive amendments. (See Proposed 2d Am. Compl., ECF No. 84-1, PageID.1517 n.2.) in 1917.” (Compl., ECF No. 1, PageID.58.) Plaintiff began to manufacture guitars that resembled the designs of famous Gibson models. Defendant accused Plaintiff of copying its designs and the parties litigated the issue in federal court and before the United States Trademark Trial & Appeal Board. The litigation ended in 1991 when the two companies executed a confidential settlement agreement. The settlement agreement required Plaintiff to make certain specific changes to its

guitar designs but left other elements intact. The settlement also permitted Plaintiff a reasonable degree of design freedom, so long as those future designs were not “closer in appearance to Gibson’s registered and unregistered trademarks” than the Heritage guitars that led to the legal battle. (1991 Settlement Agreement, ECF No. 22, PageID.133.) Twenty-five years after the settlement, in February 2015, Defendant sent Plaintiff a cease- and-desist letter, stating that certain Heritage guitar designs violated Gibson’s trademarked Les Paul body shape design and ES body shape design. The record does not indicate whether Plaintiff responded to that letter, and it does not appear that Defendant took any further action. In February 2019, Defendant sent another cease-and-desist letter, repeating the claim that

Heritage guitars infringed the Les Paul and ES body shapes, which it alleged violated the 1991 settlement agreement. Plaintiff replied in May, contending that the challenged models were not infringing and complied with the settlement agreement. Defendant responded, reiterating its position, but stating its willingness to “settle this matter amicably” rather than go to court. Nevertheless, Defendant also attached a draft complaint it was prepared to file in the Northern District of California should the issue remain unresolved. (5/24/2019 Gibson Reply, ECF No. 53- 4, PageID.728.) The letter gave Plaintiff until June 7, 2019, to tell Gibson whether it would “agree to settle this matter without the need for litigation.” (Id., PageID.720.) According to Plaintiff, after a phone conference, “Gibson dropped the matter and Heritage heard nothing further for months.” (Compl., PageID.67.) At some point, the parties discussed a “collaboration relating to the redevelopment of the 225 Parsons Street building,” where Defendant originally manufactured its guitars in Kalamazoo. (Id.) But, Plaintiff claims, Defendant “conditioned its participation in the project on [the] cessation

of operations by Heritage.” (Id.) Defendant argues it merely demanded compliance with the settlement agreement before proceeding further. Either way, Defendant sent a third cease-and- desist letter on February 20, 2020. The letter imposed a March 5 deadline for Plaintiff to “comply with the terms” of the settlement agreement and noted that failure to do so will leave Defendant with “no other choice but to seek remedy against [Heritage].” (2/20/2020 Letter, ECF No. 53-2, PageID.73.) On March 13, 2020, Plaintiff filed suit in this Court. Plaintiff’s Amended Complaint contained challenges to the validity of Defendant’s trademarks. Defendant filed a motion to dismiss (ECF No. 43), which the Court granted in part and denied in part (ECF No. 58). The Court found that Plaintiff permanently waived the right to

challenge the validity of Defendant’s trademarks based on the 1991 Settlement Agreement and granted Defendant’s motion on the counts related to that finding. Defendant then filed its answer and counterclaims. (ECF No. 62.) Plaintiff alleges that following Defendant’s counterclaims, in May 2021, Defendant terminated a profitable contract with Swee Lee, a Singaporean musical instrument and equipment distribution and retail platform, without cause. Swee Lee is a sister company to Plaintiff as they share a part owner, BandLab Technologies. Plaintiff alleges that Defendant is targeting Swee Lee in order to punish BandLab Technologies, Plaintiff’s investor, to pressure Plaintiff out of the market. Plaintiff brings its Motion for Leave to file a Second Amended Complaint in light of these events that occurred after it filed its initial and amended complaints seeking to add federal and state law antitrust claims against Defendant. II. STANDARD A. Leave to Amend Rule 15 of the Federal Rules of Civil Procedure permit a party to amend its pleading once

as a matter of course within twenty-one days of service. Fed. R. Civ. P. 15(a)(1)(A). Afterwards, “[t]he court should freely give leave” to amend a pleading “when justice so requires.” Fed. R. Civ. P. 15(a)(2). A “district court may weigh the following factors when considering a motion to amend: undue delay or bad faith in filing the motion, repeated failures to cure previously-identified deficiencies, futility of the proposed amendment, and lack of notice or undue prejudice to the opposing party.” Knight Cap. Partners Corp. v. Henckel AG & Co., 930 F.3d 775, 786 (6th Cir. 2019). “When amendment is sought at a late stage in the litigation, there is an increased burden to show justification for failing to move earlier.” Wade v. Knoxville Utils. Bd., 259 F.3d 452, 459 (6th Cir. 2001). Futility exists where “the pleading as amended could not withstand a motion to dismiss.” Hoover v. Langston Equip. Assocs., Inc., 958 F.2d 742, 745 (6th Cir. 1992) (internal

quotations marks omitted). B. Failure to State a Claim To determine whether a pleading fails to state a claim, courts must ask whether the plaintiff has alleged “facts that, if accepted as true, are sufficient to raise a right to relief above the speculative level,’ and . . .

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Heritage Guitar, Inc. v. Gibson Brands, Inc., (W.D. Mich. 2021).

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