Background
Vaughn Boyd founded Deadwood Tobacco Company (DTC), a cigar manufacturer known for boutique, shop-exclusive blends. Boyd developed a long-term partnership with SWI-De LLC, doing business as Drew Estate, a premium cigar distributor, under an exclusive licensing and distribution agreement. The collaboration produced three distinctive shop-exclusive cigar lines, each carrying federally registered trademarks: DEADWOOD TOBACCO CO. SWEET JANE, DEADWOOD TOBACCO CO. FAT BOTTOM BETTY, and DEADWOOD TOBACCO CO. CRAZY ALICE.
In 2018–2019, Boyd sold DTC to new owners. The stock purchase agreement included an important carve-out: Boyd and Drew Estate expressly reserved the three trademark marks listed above, retaining ownership of those brand identities. After the sale, the new DTC owners allegedly launched competing products using similar branding, which Boyd and Drew Estate claimed infringed their reserved trademark rights in violation of the Lanham Act.
Boyd and Drew Estate filed suit in federal court. DTC moved to dismiss, pointing to a forum selection clause in the stock purchase agreement that required any disputes arising from that agreement to be litigated in state court in Lawrence County, South Dakota. The district court granted the motion and dismissed the federal action. Boyd and Drew Estate appealed.
The Court’s Holding
The Eighth Circuit affirmed the dismissal, holding that the federal trademark claims fell within the scope of the forum selection clause and that South Dakota state court was the contractually required forum.
The key legal question was whether Lanham Act claims arising out of a stock purchase agreement’s allocation of trademark rights “arose out of” the agreement for purposes of the forum selection clause. The court said yes. The parties’ trademark dispute could not be adjudicated without first interpreting the contractual carve-out that determined which marks Boyd and Drew Estate had retained. The trademark claim and the contract dispute were inextricably linked.
Boyd and Drew Estate argued that federal courts have exclusive jurisdiction over Lanham Act claims, which would override any forum selection clause pointing to state court. The Eighth Circuit rejected this argument: while the Lanham Act grants federal courts jurisdiction over trademark claims, it does not deprive state courts of concurrent jurisdiction. Because state courts can hear Lanham Act cases, a forum selection clause directing litigation to state court is enforceable.
Key Takeaways
- Forum selection clauses can reach federal trademark claims: The Eighth Circuit confirms that a contractual forum selection clause directing parties to state court covers Lanham Act claims when those claims are intertwined with the contract’s allocation of trademark rights.
- State courts have concurrent jurisdiction over the Lanham Act: Federal courts are not the exclusive forum for trademark infringement claims under the Lanham Act; state courts can hear those cases, making forum selection clauses pointing to state court enforceable.
- Drafting matters: When a sale agreement carves out certain trademark rights for the seller, including a forum selection clause creates a real risk that future trademark disputes will be channeled to state court — even if the buyer would prefer federal court. Parties should carefully consider their forum preferences when negotiating IP-related carve-outs.
Why It Matters
Trademark owners who license or sell their brands often retain certain marks or carve out rights for themselves. This case illustrates that those carve-out provisions exist within a contractual framework that includes dispute resolution terms — terms that follow the dispute into court, regardless of the statutory basis of the claim. Any business that buys or sells trademark-bearing assets and expects to resolve disputes in federal court should scrutinize forum selection clauses carefully.
The holding also has broader implications for IP practitioners advising on M&A transactions: contractual forum selection clauses in stock purchase agreements can effectively override the default preference for federal court jurisdiction that trademark owners often assume they have under the Lanham Act.