Heritage Guitar, Inc. v. Gibson Brands, Inc., Case No. 1:20-cv-229

HERITAGE GUITAR, INC., Plaintiff, v. GIBSON BRANDS, INC., Defendant.

Case No. 1:20-cv-229

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

March 10, 2021

Hon. Hala Y. Jarbou

OPINION

This case centers on whether trademarks are being infringed and whether a 1991 confidential settlement agreement has been breached. Plaintiff Heritage Guitar, Inc. seeks 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. Heritage is also requesting the cancellation of two trademarks registered by Gibson. Before the Court is Gibson's motion to dismiss, or, in the alternative, to transfer this case to the Middle District of Tennessee. (ECF Nos. 43, 44.)¹ The motion will be granted in part: the Court will not dismiss or transfer the case, but it will dismiss the equitable claims challenged by Gibson.

I. Background

Gibson makes guitars. Its line of products features some of the most iconic electric guitars in the world, such as the Les Paul model. Gibson was originally based in Kalamazoo, Michigan, where it manufactured guitars at 225 Parsons Street. (Compl., ECF No. 1, 14, PageID.58.) In the1980s, the company moved its operations to Tennessee. Not everyone went along. Some former employees decided to stay in Kalamazoo and "carry on the tradition of hand-crafted guitar-making that started at Parsons Street in 1917." (Id.) In 1985 they formed a new company called Heritage - ostensibly a reference to the tradition that the stay-behind luthiers sought to preserve. (Id., PageID.58-59.)

Heritage began to manufacture guitars that resembled the designs of famous Gibson models. (Id., PageID.59.) Gibson accused Heritage of copying its designs and the parties litigated the issue in federal court and before the United States Trademark Trial & Appeal Board. (Id.) The litigation ended in 1991 when the two companies executed a confidential settlement agreement. (Id.) The settlement agreement required Heritage to make certain specific changes to its guitar designs but left other elements intact. The settlement also permitted Heritage 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.)

The companies seem to have left each other alone for nearly twenty-five years after the settlement. In February 2015, a law firm representing Gibson sent Heritage 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. (02/03/2015 Letter, ECF No. 53-6, PageID.802.) The record does not indicate whether Heritage responded to that letter, and it does not appear that Gibson took any further action.

In February 2019, Gibson sent another cease-and-desist letter, repeating the claim that Heritage guitars infringed the trademarked Les Paul and ES body shapes, which it alleged violated the 1991 settlement agreement. (02/06/2019 Letter, ECF No. 53-6, PageID.751.) Heritage repliedin May, contending that the challenged models were not infringing and complied with the settlement agreement. (5/01/2019 Heritage Response, ECF No. 53-7, PageID.832-833.) Gibson responded, reiterating their position. (5/24/2019 Gibson Reply, ECF No. 53-4, PageID.717.) Gibson stated its willingness "to settle this matter amicably" rather than go to court, but also attached a draft complaint it was prepared to file in the Northern District of California should the issue remain unresolved. (Id., PageID.728.) The letter gave Heritage 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 Heritage, 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 Gibson originally manufactured its guitars in Kalamazoo. (Id.) But, Heritage claims, Gibson "conditioned its participation in the project on [the] cessation of operations by Heritage." (Id.) Gibson argues it merely demanded compliance with the settlement agreement before proceeding further. (Def.'s Br., ECF No. 43-1, PageID.304.) Either way, Gibson sent a third cease-and-desist letter on February 20, 2020. The letter imposed a March 5 deadline for Heritage to "comply with the terms" of the settlement agreement and noted that failure to do so will leave Gibson with "no other choice but to seek remedy against [Heritage]." (2/20/2020 Letter, ECF No. 53-2, PageID.673.) Gibson avers that Heritage requested - and received - an extension of that deadline to March 13. (Br., PageID.304.) Nothing in the record shows that this happened one way or the other. On March 13, 2020, Heritage filed suit in this Court.

II. Standards

A. Failure to State a Claim

When considering a motion to dismiss brought under Rule 12(b)(6), 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 . . . 'state a claim to relief that is plausible on its face.'" Hensley Mfg. v. ProPride, Inc., 579 F.3d 603, 609 (6th Cir. 2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw a reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Plausible does not mean probable, but the standard "asks for more than a sheer possibility that a defendant has acted unlawfully . . . . Where a plaintiff pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557).

On a motion to dismiss, courts must accept factual allegations as true, but will reject conclusory statements as "not entitled to the assumption of truth." Id. (citing Twombly, 550 U.S. at 555-56). Hence, courts will ignore conclusory assertions and, accepting well-pleaded factual allegations as true, determine whether the allegations "plausibly give rise to an entitlement to relief." Id. Determining the plausibility of a claim is a "context-specific" inquiry, "requiring the reviewing court to draw on its experience and common sense." Id. If the court decides that there is no plausible claim to relief, then the motion to dismiss will be granted.

B. Subject Matter Jurisdiction

The standard for evaluating a Rule 12(b)(1) motion depends on the nature of the "attack" on subject matter jurisdiction. A "facial attack" on subject matter jurisdiction "merely questions the sufficiency of the [complaint]." Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325(6th Cir. 1990). Facial attacks are reviewed under the same standard as is applied to a Rule 12(b)(6) motion: the court accepts the plaintiff's well-pleaded allegations as true and asks whether subject matter jurisdiction exists based on the complaint. Id. No presumption of truth applies in a "factual attack" on subject matter jurisdiction. Id. Factual attacks challenge the actual existence of matters affecting jurisdiction. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). To resolve a factual attack, "'the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. . . . [T]he existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.'" Id. (quoting Mortensen v. First Fed. Savings & Loans Ass'n, 549 F.2d 884, 890-91 (3d Cir. 1977)). The plaintiff bears the burden of proof of jurisdiction when a factual attack is made. Id.

III. Analysis

Gibson's motion to dismiss raises several arguments. First, it contends that the Court lacks subject matter jurisdiction because Heritage's lawsuit does not concern a live case or controversy. Assuming that the Court has jurisdiction, the motion asks the Court to decline to exercise it. Finally, Gibson argues that certain equitable defenses raised by Heritage be dismissed as barred by the 1991 settlement agreement.² Should the Court reject those arguments Gibson asks that, in the alternative, the case be transferred to the Middle District of Tennessee. Each issue will be addressed in turn.

A. Jurisdiction

1. Subject matter jurisdiction

As will be explained in more detail, Gibson argues that the Court lacks subject matter jurisdiction because there is no live case or controversy. It argues that there is no live case or controversy because a thirty-day notice-and-cure period set forth in the 1991 settlement agreement had not lapsed before Heritage filed this lawsuit. Gibson therefore brings a factual attack on this Court's subject matter jurisdiction, meaning the Court may consider evidence outside the pleadings and need not treat the complaint as true.

The Declaratory Judgment Act permits a federal district court to "declare the rights and other legal relations of any interested party seeking such declaration." 15 U.S.C. § 2201(a). However, declaratory judgments can only be issued with respect to "a case of actual controversy within its jurisdiction." Id. The phrase "case of actual controversy" in section 2201(a) "refers to the type of 'Cases' and 'Controversies' that are justiciable under Article III" of the United States Constitution. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). "'[T]he question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties...