BD Performing Arts v. B.A.C. Musical Instruments, LLC

Background

BD Performing Arts is a nonprofit organization focused on youth marching bands and related activities. It owns registered SYSTEM BLUE trademarks used with, among other products, percussion and wind instruments.

Defendant Tianjin Jinbao Musical Instruments Co., Ltd. created Azulo, Inc. to develop and manufacture musical instruments and accessories sold under the SYSTEM BLUE marks. BD Performing Arts granted Azulo a sublicensable license to use the marks in exchange for royalty payments, according to a declaration cited by the court.

In 2015, Azulo entered into a Distribution and Marketing Services Agreement with RMI, LLC and its subsidiary, B.A.C. Musical Instruments, LLC, doing business as BAC Music Kansas City. Under that agreement, Azulo arranged for the manufacture of instruments using the SYSTEM BLUE marks, while the RMI defendants marketed, sold, and arranged for delivery of those instruments. The agreement included restrictions concerning intellectual-property rights and use of the SYSTEM BLUE marks, and it provided for a ten-year term subject to specified termination provisions.

BD Performing Arts was not a party to the distribution agreement. It separately entered into a Commitment of Intellectual Property Rights Agreement with the RMI defendants concerning Azulo's intellectual-property rights under the distribution agreement.

Azulo stopped operating in 2020 but did not file for bankruptcy. BD Performing Arts stated that it terminated Azulo's license because of Azulo's insolvency and notified the RMI defendants that Azulo no longer had authority to manufacture instruments under the SYSTEM BLUE mark. The RMI defendants disputed that the distribution agreement had been mutually terminated or otherwise validly ended. They continued selling products using the marks and asserted that the agreement gave them the right to do so.

BD Performing Arts filed this action on March 30, 2022, seeking emergency injunctive relief for alleged violations of the Lanham Act and the Tariff Act, 19 U.S.C. § 1526. The application sought a temporary restraining order, a short-term form of emergency injunctive relief.

Legal Standard

The court explained that temporary restraining orders and preliminary injunctions are extraordinary remedies. Ordinarily, a plaintiff must show a likelihood of success on the merits, likely irreparable harm without relief, that the balance of hardships favors the plaintiff, and that an injunction would serve the public interest. Under the Ninth Circuit's sliding-scale approach, a court may also grant a temporary restraining order when there are serious questions about the merits and the hardship balance tips sharply toward the plaintiff, provided the other requirements are met.

Court's Analysis

For the Tariff Act claims, BD Performing Arts had to show that the RMI defendants were using the SYSTEM BLUE marks without written consent. For the Lanham Act claims, it had to show valid, protectable trademarks and a likelihood that the defendants' conduct would cause confusion.

The court concluded that BD Performing Arts had a strong argument that the RMI defendants were infringing the marks and importing them without written consent because BD Performing Arts was not a party to the distribution agreement. The court also considered the parties' dispute over whether Azulo had terminated that agreement based on payment failures, whether the parties had modified the agreement through their conduct, and whether the agreement impliedly allowed continued manufacture of instruments. The court found serious questions about whether the RMI defendants had exceeded the rights granted under the agreement.

The court did not apply a presumption of irreparable harm on the existing record. Although such a presumption may follow a showing that a plaintiff is likely to succeed on a trademark-infringement claim, the court noted that BD Performing Arts had waited after being told in April 2021 that the RMI defendants continued selling instruments bearing the marks. BD Performing Arts also had not presented direct evidence of harm to its reputation or goodwill. The court noted that the record did not include evidence of customer complaints about product quality.

The court then weighed the parties' competing potential injuries. The RMI defendants stated that being unable to sell SYSTEM BLUE instruments could shut down their business and could damage their reputation and goodwill if they had to breach contracts. BD Performing Arts offered evidence suggesting that the RMI defendants also sold other instruments. On the existing record, however, the court concluded that the balance of equities did not tip sharply in BD Performing Arts' favor.

Disposition

Judge Jeffrey S. White denied BD Performing Arts' application for a temporary restraining order, without prejudice to renewing its request for injunctive relief through a regularly noticed motion for a preliminary injunction. The order directed the parties to focus any renewed request on the analysis and evidentiary issues identified in the order. The court did not enter a final ruling on the alleged trademark or importation violations.