Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-01831/USCOURTS-casd-3_15-cv-01831-3/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125la Trademark Infringement (Lanham Act)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

LEADERSHIP STUDIES, INC., dba

CENTER FOR LEADERSHIP

STUDIES, a California corporation,

Plaintiff/Counterclaim-Defendant,

CASE NO. 15cv1831-WQH-KSC

ORDER

v.

BLANCHARD TRAINING AND

DEVELOPMENT, INC., a California

corporation, and Does 1-10, inclusive,

Defendant/Counterclaim-Plaintiff.

HAYES, Judge:

The matter before the Court is the Motion to Dismiss the Counterclaim and Strike

the Third Affirmative Defense filed by Plaintiff and Counterclaim-Defendant

Leadership Studies, Inc. (“Leadership”). (ECF No. 54).

I. Background

On August 17, 2015, Leadership commenced this action by filing a complaint

against Defendant/Counterclaim-Plaintiff Blanchard Training and Development, Inc.

(“Blanchard”). (ECF No. 1). On November 9, 2015, Leadership filed a first amended

complaint. (ECF No. 10). On April 13, 2016, Leadership filed a second amended

complaint. (ECF No. 27). On November 7, 2016, Leadership filed the Third Amended

Complaint (ECF No. 49) (“TAC”), which is the operative complaint in this matter. On

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November 23, 2016, Blanchard filed an Answer to the Third Amended Complaint,

Affirmative Defenses, and Counterclaim for Cancellation of Trademark. (ECF No. 52).

On December 19, 2016, Leadership filed the Motion to Dismiss the Counterclaim

for Cancellation of Trademark and Strike the Third Affirmative Defense of Estoppel by

Naked Licensing. (ECF No. 54). On January 9, 2017, Blanchard filed a response in

opposition. (ECF No. 55). On January 13, 2017, Leadership filed a reply. (ECF No.

56).

II. Allegations of the Third Amended Complaint (ECF No. 49)

Leadership “is a corporation organized and existing under the laws of the State

of California and doing business and having offices in Cary, North Carolina. 

Leadership Studies is engaged in the business of teaching and promoting the

“Situational Leadership Model,” which enables managers, salespeople, peer leaders,

teachers, and parents to interface with and influence others more effectively.” Id. at 2. 

Blanchard “is a corporation organized and existing under the laws of California and

doing business and having offices in Escondido, California. Blanchard is engaged in the

business of leadership training, which includes development and implementation of

leadership training models for businesses that wish to increase productivity and

efficiency among their workforces.” Id.

“The founder of Leadership Studies, Paul Hersey, developed a theory concerning

a methodology for leaders to influence others based on their readiness for a particular

task. He named the model ‘Situational Leadership.’” Id. at 3. “Ken Blanchard worked

with Dr. Hersey as Dr. Hersey developed his theory. Dr. Blanchard became a partner

in Dr. Hersey’s company, Center for Leadership Studies.” Id. at 3-4.

“In 1980 Dr. Blanchard sold his interest in Center for Leadership Studies and he

was paid thirty thousand dollars ($30,000.00) incrementally through 1981 for his

interest in the company.” Id. at 4. “In conjunction with the sale of his interest in Center

for Leadership Studies, Dr. Blanchard released any and all rights he had in any

materials copyrighted by Center for Leadership Studies including those in which he had

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any role in preparing.” Id. “In 1982, Blanchard also assigned to Center for Leadership

Studies its interest in then-pending a trademark application before the United States

Patent and Trademark Office for the mark ‘Situational Leadership,’ including ‘all right,

title and interest in and to said mark, together with the good will of the business

symbolized by the mark,’ bearing serial number 73283537.” Id. “When Dr. Blanchard

decided he wanted to branch out on his own and provide management training through

his company, Blanchard, [Dr. Blanchard] wanted to use the concepts that he had worked

on with Dr. Hersey[.]” Id. “Dr. Hersey agreed to license the right to use the mark

‘SITUATIONAL LEADERSHIP’ with the understanding that Dr. Blanchard’s use of

the Mark would inure to the benefit of Dr. Hersey’s company, Leadership Studies.” Id.

“Accordingly, Leadership Studies and Blanchard entered into a license agreement

(the ‘License Agreement’) on or about December 19, 1987, pursuant to which

Leadership Studies licensed to Blanchard the right to use Leadership Studies’ trademark

‘SITUATIONAL LEADERSHIP’ under the condition that ‘(1) BLANCHARD shall

utilize the mark “SITUATIONAL LEADERSHIP” only in association with goods and

services which meet or exceed a level of quality exemplified by the goods and services

presently offered under the mark “SITUATIONAL LEADERSHIP” . . . .’” Id. “In the

License Agreement, Blanchard acknowledges Leadership Studies’ ownership of the

‘Situational Leadership®’ trademark (the ‘Mark’). Blanchard further agrees to the

additional condition that ‘In utilizing the mark “SITUATIONAL LEADERSHIP”,

BLANCHARD shall at all times use the appropriate statutory notice symbol in

conjunction therewith[.]’” Id. at 5. “The License Agreement also requires that

‘BLANCHARD shall inform LEADERSHIP STUDIES of any infringement of the

[Mark].’” Id. “The License Agreement also requires that ‘BLANCHARD shall inform

LEADERSHIP STUDIES of any infringement of the [Mark].’ The License Agreement

does not grant Blanchard rights to assign or sublicense the Mark, other than in

conjunction with the sale of Blanchard’s entire business, in which case Blanchard is

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required to offer Leadership Studies a right of first refusal.” Id.

“The Mark ‘Situational Leadership®’ is the subject of a valid trademark

registration by Leadership Studies with the U.S. Patent and Trademark Office

(Registration No. 3,407,887) for educational kits[.]” Id. “The Mark ‘Situational

Leadership®’ also is the subject of a valid trademark registration by Leadership Studies

with the U.S. Patent and Trademark Office (Registration No. 4,222,028) for audio and

video recordings featuring educational material[.]” Id. at 5-6. “Leadership Studies

learned that Blanchard, in violation of the parties’ respective rights and duties under the

Licensing Agreement, has commenced a pattern and practice of registering the marks

‘Situational Leadership’ and ‘Situational Leadership II’ in other countries.” Id. at 7.

“The derivative junior marks ‘Situational Leadership II’ and ‘SLII’ are

confusingly similar to Leadership Studies’ registered senior mark, ‘Situational

Leadership®.’” Id. at 9. “Blanchard’s use of the derivative junior marks ‘Situational

Leadership II’ and ‘SLII’ are likely to cause, and cause, consumer confusion, thereby

infringing upon the Leadership Studies’ rights to its mark, ‘Situational Leadership.’ In

fact, Blanchard markets ‘Situational Leadership II’ (‘SLII’) as another version of

‘Situational Leadership,’ which confirms that it seeks to benefit from the goodwill and

secondary meaning associated with the mark, ‘Situational Leadership®,’ but now seeks

to attribute the goodwill of both the senior and junior marks to Blanchard instead of

Leadership Studies.” Id. “Blanchard increasingly provides information to prospective

clients and on its website that emphasizes the ‘vast’ differences between Situational

Leadership and ‘Situational Leadership II’/‘SLII’, and now disparages both the

foundation and content of Situational Leadership®, all to the detriment of the

Situational Leadership® Mark.” Id. 

“On September 25, 2015, subsequent to the filing of the original complaint in the

instant action, and in response to the instant action, Blanchard filed a separate lawsuit

against Leadership Studies . . . (the ‘Blanchard Lawsuit’) that asserted claims that are

affirmative defenses to the instant action.” Id. at 10. “The Blanchard Lawsuit alleged

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that Leadership Studies is precluded from asserting claims against Blanchard related to

Leadership Studies’ Mark because, inter alia, Leadership Studies allegedly did not

adequately police Blanchard’s use of the Mark and that the License Agreement that has

governed Blanchard’s use of the Mark since 1987 is a naked license.” Id. “The

Blanchard Lawsuit asserted positions concerning the ownership of the Mark, and the

validity of the License Agreement, that are contrary to the express terms of the License

Agreement and the parties’ course of conduct pursuant to the License Agreement.” Id.

at 10-11.

“On September 30, 2015 Leadership Studies sent a letter to Blanchard

terminating the License Agreement on the grounds that Blanchard had materially

breached its terms and conditions.” Id. at 11. “Despite the termination of the License

Agreement, Blanchard continues to use the Mark, more often than not without

attribution.” Id.

In the Third Amended Complaint, Leadership alleges nine causes of action: (1)

breach of written contract; (2) breach of the covenant of good faith and fair dealing; (3)

trademark infringement under the Lanham Act, § 43(A) and 15 U.S.C. § 1125; (4)

trademark infringement via reverse confusion under the Lanham Act, § 43(A) and

15 U.S.C. § 1125; (5) fraud in obtaining registered marks under 15 U.S.C. §§ 1064(3)

& 1119; (6) unfair competition; (7) copyright infringement; (8) accounting; and (9)

declaratory relief. (ECF No. 49).

III. Allegations of the Counterclaim (ECF No. 52 at 42-53)

In its Answer to the Third Amended Complaint, Blanchard contends that “Ken

Blanchard and Paul Hersey first met in 1966 at Ohio University. . . . Ken Blanchard

agreed to join Paul Hersey as a co-author of the book that would become Management

of Organizational Behavior.” (ECF No. 52 at 43-44). “In 1978, Ken Blanchard

founded Blanchard Training to continue and expand his work with Situational

Leadership and the further development of the Situational Leadership Theory.” Id. at

45. “From 1979 to 1981, Blanchard Training and Leadership Studies collaborated as

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partners, though their partnership agreement expressly permitted the partners to

“participate in other business ventures of every kind whether or not those other business

ventures compete with the partnership” without sharing income or profit derived from

any such other business venture.” Id.

“In 1981, as Blanchard Training continued to grow and Ken Blanchard continued

to teach and lecture on Situational Leadership, Blanchard Training and Leadership

Studies began to follow separate paths, and Blanchard Training left the partnership

consisting of Blanchard Training, Leadership Studies, and Keilty, Incorporated.” Id.

“Blanchard Training’s success in the following years was fueled by the work that Ken

Blanchard and his associates at Blanchard Training were doing to create a new version

of the original Situational Leadership Theory, model, and application that they referred

to as ‘Situational Leadership II’ and/or ‘SLII.’” Id. at 46. “By the early 1980s, the

success of Ken Blanchard and Blanchard Training began to impact the competitive but

friendly relationship between Blanchard Training and Leadership Studies.” Id.

“After several years of operating independently of each other, the companies

negotiated an arrangement whereby each company would continue to use the

SITUATIONAL LEADERSHIP mark independently of each other, in perpetuity,

without any inspection rights, exercise of quality control, or payments of royalties.” Id.

at 47. “The arrangement was memorialized in an agreement executed on December 19,

1987 (the ‘1987 Agreement’).” Id. “The 1987 Agreement nominally identified

Leadership Studies as the owner of the SITUATIONAL LEADERSHIP trademark and

Blanchard Training as the licensee, but in the execution version of the 1987 Agreement

the parties deleted and removed the single quality control provision by crossing it out

and initialing their deletions[.]” Id. “In a memorandum dated December 22, 1987, Ken

Blanchard explained the 1987 Agreement to Blanchard Training’s associates, stating

that ‘we have agreed...without inspection rights. For us the inspection rights was a deal

killer. We didn’t want Hersey looking over our shoulder.’” Id. at 48.

“The only surviving reference to ‘quality’ in the 1987 Agreement is a reference

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to use of ‘the mark “SITUATIONAL LEADERSHIP” only in association with goods

and services that meet or exceed a level of quality exemplified by the goods and

services presently offered under the mark “SITUATIONAL LEADERSHIP.”’ 

However, this reference to ‘quality’ provided Leadership Studies with no ability to

control the level of quality on an ongoing basis, by virtue of inspections or otherwise.” 

Id. “Blanchard Training was permitted under the 1987 Agreement to sublicense the

SITUATIONAL LEADERSHIP mark, as the license extended ‘to all materials and

services produced by or under the direction of BLANCHARD and products sold or

service delivered by persons/entities authorized by BLANCHARD.’ Blanchard

Training authorized other ‘persons/entities’ to sell such products and deliver such

services.” Id. “In failing to include a quality control provision, the 1987 Agreement

lacked the most basic and essential provision of a trademark license.” Id.

“In the decades following the execution of 1987 Agreement, Leadership Studies

and Blanchard Training openly competed with each other and both companies were

aware that the other company was independently producing materials to teach, deliver,

and train its own version of Situational Leadership, which Blanchard Training sought

to distinguish by use of the names ‘Situational Leadership II’ and/or ‘SLII.’” Id. at 49. 

“Leadership Studies did not control or supervise Blanchard Training’s use of the

SITUATIONAL LEADERSHIP mark at any time after the execution of 1987

Agreement. . . . Leadership Studies has failed to prevent or control the widespread

uncontrolled use of the SITUATIONAL LEADERSHIP mark by third parties.” Id. at

50. “For example, a current Google search reveals numerous unauthorized third party

uses of ‘situational leadership,’ in a generic manner to refer to a theory regarding leader

training and development, as well as to identify related goods or services apparently not

controlled by Leadership Studies.” Id. Blanchard alleges a counterclaim for

Cancellation of Trademark against Leadership pursuant to 15 U.S.C. § 1119.

IV. Analysis

A. Motion to Dismiss the Counterclaim for Cancellation of Trademark

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i. Contentions of the Parties

Leadership contends that the licensee estoppel doctrine bars Blanchard from

challenging the validity of the trademark because of Blanchard’s status as a licensee. 

Leadership asserts that it agreed to license the use of the “Situational Leadership”

trademark to Blanchard in 1987. Leadership contends that the Court must assume, for

the purpose of this Motion, that the 1987 Agreement was not terminated. (ECF No. 56

at 5). Leadership contends that “the licensee estoppel doctrine forbids a continuing

licensee like Blanchard to challenge the validity of the ‘SITUATIONAL

LEADERSHIP®’” trademark. Id. at 5-6. Leadership contends, “Because the

Counterclaim relies entirely on alleged facts and events during the term of the License,

it should be dismissed without leave to amend.” (ECF No. 54-1 at 20).

Blanchard contends that the licensee estoppel doctrine is not applied rigidly

against all licensees to bar adverse claims by a licensee against its licensor. Blanchard

contends that “it would be premature to apply the licensee estoppel doctrine on a

motion to dismiss, as the parties dispute whether the 1987 Agreement has been

terminated, and various courts have held that termination would make licensee estoppel

not applicable[.]” (ECF No. 55 at 7). Blanchard asserts that Leadership has taken the

position that the 1987 Agreement has been terminated, while Leadership also contends

that the Agreement requires the Court to apply the licensee estoppel doctrine. 

Blanchard contends that, “While Leadership Studies is entitled to plead inconsistent

theories in the alternative, the fact that Leadership Studies pleads a theory of liability

that various courts have found inconsistent with licensee estoppel weighs against

applying licensee estoppel at the pleading stage in this case.” Id. at 20.

ii. Applicable Law

A motion to dismiss a counterclaim brought pursuant to Federal Rule of Civil

Procedure 12(b)(6) is analyzed under the same standard as a Rule 12(b)(6) motion to

dismiss a plaintiff’s complaint. See Oracle Am., Inc. v. CedarCrestone, Inc., 938 F.

Supp.2d 895, 900 (N.D. Cal. 2013). Federal Rule of Civil Procedure 12(b)(6) permits

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dismissal of a claim for relief for “failure to state a claim upon which relief can be

granted[.]” Fed. R. Civ. P. 12(b)(6). 

“A district court’s dismissal for failure to state a claim under Federal Rule of

Civil Procedure 12(b)(6) is proper if there is a ‘lack of a cognizable legal theory or the

absence of sufficient facts alleged under a cognizable legal theory.’” Conservation

Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balistreri v. Pacifica

Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988)). “To survive a motion to dismiss, a

plaintiff’s complaint must have sufficient facts ‘to state a facially plausible claim to

relief.’” Id. (quoting Shroyer v. New Cindular Wireless Servs., Inc., 622 F.3d 1035,

1041 (9th Cir. 2010)). “A claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable

for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “In sum, for a complaint to survive

a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences

from that content, must be plausibly suggestive of a claim entitling the plaintiff to

relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Ashcroft,

556 U.S. at 678).

In Pac. Supply Co-op v. Farmers Union Cent. Exch. Inc., 318 F.2d 894 (9th Cir.

1963), the Court of Appeals identified “the long settled principle of law that a

licensee . . . of a trademark or trade name may not set up any adverse claim in it as

against its licensor.” Id. at 908. The Court of Appeals stated that “a recognized

licensee[’s]” use of a trademark pursuant to a license agreement “sets up no rights in

that licensee adverse to the terms of the license and the actual circumstances of the use.” 

Id. at 908-09. This principle has been referred to by courts as the “licensee estoppel

doctrine.” See Robanda Intern., Inc. v. Parkinson, No. 13cv490 BTM(BLM), 2013 WL

4039835, at *3 (S.D. Cal. Aug. 6, 2013) (Moskowitz, C.J.) (concluding that the doctrine

of licensee estoppel articulated by the Court of Appeals in Pac. Supply may apply to

prevent the plaintiff/licensee of a licensing agreement still in effect from challenging

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the validity of the defendant/licensor’s trademark); Monster, Inc. v. Dolby Labs.

Licensing Corp., 920 F. Supp.2d 1066, 1076-77 (N.D. Cal. 2013) (“The licensee

estoppel doctrine precludes a licensee from challenging the validity of the licensor’s

trademark based upon conduct that occurred during the life of its license, particularly

with respect to the licensee itself.”) (citing Pac. Supply, 318 F.2d at 908); Gold ClubSF, LLC v. Platinum SJ Enter., Case No. 13–cv–03797–WHO, 2013 WL 5273070, at

*10 (N.D. Cal. Sept. 18, 2013) (stating that “the doctrine of licensee estoppel” may

prevent the licensee from challenging the validity of a trademark).

However, courts have generally applied the doctrine to prevent adverse claims

by a licensee against its licensor while the license agreement between the parties is in

effect. See Robanda, 2013 WL 4039835, at *3 (“Because the license agreement is still

in effect, Plaintiff may be barred by the doctrine of licensee estoppel from challenging

the validity of Defendant’s ownership or potential abandonment of the trademark until

the license expires.”); Monster, Inc., 920 F. Supp.2d at 1077 (stating that the doctrine

only applies to preclude a licensee’s challenge to a licensor “based upon conduct that

occurred during the life of [the licensor’s] license”).

iii. Analysis

In the TAC, Leadership alleges that on September 30, 2015, it “sent a letter to

Blanchard terminating the License Agreement on the grounds that Blanchard had

materially breached its terms and conditions.” (ECF No. 49 at 11). In its answer to the

TAC, Blanchard 

admits that it received a letter dated September 30, 2015 from Leadership Studies purporting to terminate the perpetual, royalty-free 1987

Agreement. Blanchard Training denies that Leadership Studies had the right to terminate the 1987 Agreement, and Blanchard Training denies that the termination was effective.

(ECF No. 52 at 10). Blanchard contends that the Court should not apply the doctrine

of licensee estoppel because the parties dispute whether the 1987 Agreement has been

effectively terminated. (ECF No. 55 at 19-20). Leadership contends that “the Court

must assume that the 1987 License Agreement was not terminated for purposes of this

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Motion.” (ECF No. 56 at 5).

Once a court determines the existence of a license agreement, the licensee

estoppel doctrine may apply to prevent a licensee from “set[ting] up any adverse claim

in it as against its licensor.” Pac. Supply, 318 F.2d at 908. The parties have identified

cases in which the licensee estoppel doctrine has been applied to preclude a licensee

from asserting an adverse claim against its licensor – both when the underlying license

agreement remains valid during the pendency of the action, and when the underlying

license agreement has been terminated by the licensee after the action has been filed. 

Compare Robanda, 2013 WL 4039835, at *3, with Edwin K. Williams & Co., Inc. v.

Edwin K. Williams & Co.-East, 542 F.2d 1053, 1058-60 (9th Cir. 1976) (applying

doctrine to prevent licensee from asserting counterclaim that underlying license was

invalid after the agreement had been purportedly repudiated by the licensee after the

action had been filed) (emphasis added).

However, the Court does not conclude at the motion to dismiss phase that

Leadership, as a licensor, may terminate the 1987 Agreement and subsequently rely

upon the existence of the Agreement to estop its licensee Blanchard from asserting a

counterclaim challenging the validity of the trademark. Further, in the event that

Leadership prevails on its claim that the 1987 Agreement was terminated by the

September 30, 2015 letter to Blanchard, estoppel may not apply to prevent Blanchard

from challenging the validity of the trademark based upon conduct that took place while

the Agreement was not in effect. The Court cannot conclude at this stage of the

proceedings that the licensee estoppel doctrine applies as a matter of law to preclude

Blanchard from challenging the validity of the trademark. Accordingly, Defendant’s

Motion to Dismiss the counterclaim is DENIED.

B. Motion to Strike the Third Affirmative Defense of Estoppel by Naked

Licensing

i. Contentions of the Parties

Leadership contends that the licensee estoppel doctrine bars the defense of naked

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licensing “if it is based upon facts occurring during the license term.” (ECF No. 54-1

at 26). Leadership contends that the third affirmative defense should be stricken

because it “challenges [Leadership’s] ability to enforce its trademark for the same

reasons as those alleged in the Counterclaim.” Id. at 27.

Blanchard contends that its third affirmative defense for estoppel by naked

licensing differs from its counterclaim for cancellation of trademark. Blanchard asserts

that the defense of naked licensing relies upon facts pertaining to estoppel of licensor

Leadership, while its counterclaim pertains to licensee estoppel. Blanchard contends

that “[t]he Third Affirmative Defense and Counterclaim seek entirely different forms

of relief and are underpinned by a variety of facts, only some of which overlap.” (ECF

No. 55 at 24). 

ii. Applicable Law

Federal Rule of Civil Procedure 12(f) states that a “court may strike from a

pleading an insufficient defense or any redundant, immaterial, impertinent, or

scandalous matter.” Fed. R. Civ. P. 12(f). The purpose of Rule 12(f) “ is to avoid the

expenditure of time and money that must arise from litigating spurious issues by

dispensing with those issues prior to trial[.]” Sidney-Vinstein v. A.H. Robins Co., 697

F.2d 880, 885 (9th Cir. 1983). “Affirmative defenses are insufficient as a matter of law

where there are no questions of fact, [ ] any questions of law are clear and not in

dispute, and [ ] under no set of circumstances could the defense succeed.” Hernandez

v. Cty. of Monterey, 306 F.R.D. 279, 284-85 (N.D. Cal. 2015) (citations and quotation

marks omitted).

iii. Analysis

In its third affirmative defense for estoppel by naked licensing, Blanchard asserts

that Leadership “is estopped from enforcing the terms of any trademark license

conveyed to Blanchard Training in the 1987 Agreement.” (ECF No. 52 at 37). 

Construing the facts in the light most favorable to the non-moving party Blanchard, the

Court cannot conclude that Leadership is entitled to prevail on its claim that

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Blanchard’s naked licensing affirmative defense is inapplicable to this case as a matter

of law. Therefore, the Court concludes that the Motion to Strike the third affirmative

defense is DENIED.

V. Conclusion

IT IS HEREBY ORDERED that the Motion to Dismiss the Counterclaim and

Strike the Third Affirmative Defense filed by Plaintiff and Counterclaim-Defendant

Leadership (ECF No. 54) is DENIED.

DATED: August 2, 2017

WILLIAM Q. HAYES

United States District Judge

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