IP Law Daily, TOP STORY—W.D. Mich.: Guitar manufacturer can proceed with antitrust claims against competitor, (Jun 7, 2022)

By Steven D. Cole, J.D.

A federal district court denied the competitor guitar manufacturer’s partial motion to dismiss the monopolization and attempted monopolizations claims.

Heritage Guitar, Inc. (Heritage) stated viable antitrust claims for monopolization and attempted monopolization against a rival guitar manufacturer, held the federal district court in Michigan. Heritage alleged that Gibson Brands, Inc. (Gibson) engaged in anti-competitive conduct by serving upon Heritage meritless cease-and-desist letters and refusing to transact business with a sister company of Heritage in order to punish a common investor and to pressure Heritage out of the market. The court found that the SAC plausibly alleged relevant markets for antitrust purposes, the refusal-to-deal assertion was actionable, and Gibson was not entitled to antitrust immunity under the Noerr-Pennington doctrine (Heritage Guitar, Inc. v. Gibson Brands, Inc., June 6, 2022, Jarbou, H.).

Gibson’s origin as a manufacturer of stringed instruments dates back to the late Nineteenth and early Twentieth Centuries. When Gibson relocated its operations from Michigan to Tennessee in 1984, several former Gibson employees remained behind and established Heritage. A 1991 Settlement Agreement between the two companies permitted Heritage to continue manufacturing guitars as long as it made specific changes to its models. It also gave Heritage a reasonable degree of design freedom for future changes, so long as the changes did not infringe upon Gibson’s trademarks. Between 2015 and 2020, Gibson sent Heritage several cease-and-desist letters, claiming that Heritage’s instruments too closely resembled Gibson’s trademarked Les Paul and ES body shapes, in violation of the Settlement Agreement. Heritage filed a declaratory judgment action in response to these allegations of trademark infringement. In December 2021, the court permitted Heritage to file its SAC in which it added federal and state antitrust claims, alleging violations of Section 2 of the Sherman Act and Michigan’s unlawful monopoly statute. Gibson moved to dismiss these claims.

Relevant market. Heritage’s SAC identified one relevant market for premium solid-body single-cutaway (SBSC) electric guitars and another for premium semi-hollow double-cutaway (SHDC) electric guitars. In contrast to Gibson’s contention that the market definitions were too narrow, the court concluded that the characteristics of both the premium SBSC and the premium SHDC guitars were unique and not reasonably interchangeable with other products because each possessed distinctive body shapes that both affected the playability of the instrument and were associated with particular guitarists, genres, and eras of music.

The SAC’s definition of the premium SBSC and the premium SHDC guitar markets included references to the Les Paul and the ES-335, respectively. Gibson contended that the claims should be dismissed because the definitions of the relevant markets improperly included Gibson’s trademarks. Unpersuaded, the court explained that the markets were defined broadly enough to encompass both Gibson’s and Heritage’s guitars and were not limited to only Gibson’s trademarks.

Refusal to deal. In May 2021, Gibson allegedly 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 of Heritage in that they share a common investor, BandLab Technologies. The SAC plausibly alleged that Gibson refused to deal with Swan Lee in order to punish Bandlab Technologies and to pressure Heritage out of the relevant markets. According to the SAC, “[t]he decision by Gibson management—contrary to the recommendation of its regional representatives—made no economic sense other than as a means to advance its anticompetitive scheme to monopolize the relevant markets.”

Noerr-Pennington immunity. Gibson claimed, on the basis of the Noerr-Pennington doctrine, that it was immune from antitrust liability in this action since it exercised its First Amendment rights when sending the cease-and-desist letters to enforce its trademark rights. However, Gibson’s trademark infringement allegations were premised on an objectively unreasonable interpretation of the 1991 Settlement Agreement. The Agreement clearly delineated what design modifications Heritage could and could not implement, and Heritage abided by these mutually-agreed upon instructions regarding Gibson’s Les Paul and ES body shapes.

Gibson also argued for trademark infringement based on the fact that Heritage’s website contained a picture of a factory with the word “GIBSON” painted on its smokestack. The court determined that this “may provide a basis for a weak, but not objectively baseless trademark infringement claim.” Nevertheless, since all other activity on which Gibson premised its trademark infringement claims was objectively baseless, the court decided to “follow the decisions of other courts that have dealt with ‘mixed’ claims” and denied granting Noerr-Pennington immunity to Gibson.

The case is No. 1:20-cv-00229-HYJ-RSK.

Attorneys: Allyson Theresa Slater (Wilmer Cutler Pickering Hale and Dorr LLP) for Heritage Guitar, Inc. Andrea Bates (Bates & Bates LLC) for Gibson Brands, Inc.

Companies: Heritage Guitar, Inc.; Gibson Brands, Inc.

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