phoenix entertainment's appellate brief

No. 15-2844

In the

United States Court of Appeals for the Seventh Circuit

PHOENIX ENTERTAINMENT PARTNERS, LLC and SLEP-TONE ENTERTAINMENT

CORPORATION,

Plaintiffs-Appellants,

v.

DANNETTE RUMSEY and BASKET CASE PUB, INCORPORATED,

Defendants-Appellees.

_______________________________________

Appeal from the United States District Court for the Central District of Illinois, No. 1:15-cv-01009-JBM-JEH.

The Honorable Joe Billy McDade, Judge Presiding.

BRIEF AND APPENDIX OF PLAINTIFFS-APPELLANTS

VIVEK JAYARAM JAYARAM LAW GROUP, LTD. 33 North LaSalle Street Suite 2900 Chicago, IL 60602 (312) 454-2859

JAMES M. HARRINGTON (Counsel of Record) HARRINGTON LAW, P.C. 12245 Nations Ford Road Suite 506 Pineville, NC 28134-8444 (704) 635-6300

Attorneys for Plaintiffs-Appellants Phoenix Entertainment Partners, LLC and Slep-Tone Entertainment Corporation

COUNSEL PRESS · (866) 703-9373

PRINTED ON RECYCLED PAPER

Case: 15-2844 Document: 12 Filed: 10/22/2015 Pages: 64

CIRCUIT RULE 26. DISCLOSURE STATEMENT

Appellate Court No:

Short Caption:

To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party oramicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing thefollowing information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1.

The Court prefers that the disclosure statement be filed immediately following docketing; but, the disclosure statement mustbe filed within 21 days of docketing or upon the filing of a motion, response, petition, or answer in this court, whichever occursfirst. Attorneys are required to file an amended statement to reflect any material changes in the required information. The textof the statement must also be included in front of the table of contents of the party's main brief. Counsel is required tocomplete the entire statement and to use N/A for any information that is not applicable if this form is used.

[ ] PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.

(1) The full name of every party that the attorney represents in the case (if the party is a corporation, you must provide thecorporate disclosure information required by Fed. R. App. P 26.1 by completing item #3):

(2) The names of all law firms whose partners or associates have appeared for the party in the case (including proceedingsin the district court or before an administrative agency) or are expected to appear for the party in this court:

(3) If the party or amicus is a corporation:

i) Identify all its parent corporations, if any; and

ii) list any publicly held company that owns 10% or more of the party’s or amicus’ stock:

Attorney's Signature: Date:

Attorney's Printed Name:

Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Yes No

Address:

Phone Number: Fax Number:

E-Mail Address:

rev. 01/

15-2844

Phoenix Entertainment Partners, LLC et al. v. Rumsey et al.

Phoenix Entertainment Partners, LLC, Plaintiff-Appellant

Slep-Tone Entertainment Corporation, Plaintiff-Appellant

Harrington Law, P.C. and Jayaram Law Group, Ltd. (new) - Will appear in this Court

Keith A. Vogt, Esq. - District court only

The Law Offices of Konrad Sherinian, LLC - District court only

None (either party)

None (either party)

s/ James M. Harrington 10/22/2015James M. Harrington

12245 Nations Ford Road, Suite 506

Pineville, NC 28134-8444

(704) 635-6300 (none)

[email protected]


CIRCUIT RULE 26. DISCLOSURE STATEMENT

Appellate Court No:

Short Caption:

To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party oramicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing thefollowing information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1.

The Court prefers that the disclosure statement be filed immediately following docketing; but, the disclosure statement mustbe filed within 21 days of docketing or upon the filing of a motion, response, petition, or answer in this court, whichever occursfirst. Attorneys are required to file an amended statement to reflect any material changes in the required information. The textof the statement must also be included in front of the table of contents of the party's main brief. Counsel is required tocomplete the entire statement and to use N/A for any information that is not applicable if this form is used.

[ ] PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.

(1) The full name of every party that the attorney represents in the case (if the party is a corporation, you must provide thecorporate disclosure information required by Fed. R. App. P 26.1 by completing item #3):

(2) The names of all law firms whose partners or associates have appeared for the party in the case (including proceedingsin the district court or before an administrative agency) or are expected to appear for the party in this court:

(3) If the party or amicus is a corporation:

i) Identify all its parent corporations, if any; and

ii) list any publicly held company that owns 10% or more of the party’s or amicus’ stock:

Attorney's Signature: Date:

Attorney's Printed Name:

Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Yes No

Address:

Phone Number: Fax Number:

E-Mail Address:

rev. 01/

15-2844

Phoenix Entertainment Partners, LLC et al. v. Rumsey et al.

Phoenix Entertainment Partners, LLC, Plaintiff-Appellant

Slep-Tone Entertainment Corporation, Plaintiff-Appellant

Harrington Law, P.C. and Jayaram Law Group, Ltd. (new) - Will appear in this Court

Keith A. Vogt, Esq. - District court only

The Law Offices of Konrad Sherinian, LLC - District court only

None (either party)

None (either party)

s/ Vivek Jayaram 10/22/2015

Vivek Jayaram

33 N. LaSalle Street Suite 2900

Chicago, IL 60602

312-454-2859 312-551-0322

[email protected]


‐ iii ‐

TABLE OF CONTENTS

CIRCUIT RULE 26.1 DISCLOSURE STATEMENTS ............................................................... i

TABLE OF AUTHORITIES ......................................................................................................... v

JURISDICTIONAL STATEMENT ..............................................................................................1

STATEMENT OF ISSUES PRESENTED ....................................................................................2

STATEMENT OF THE CASE ......................................................................................................3

SUMMARY OF ARGUMENT .....................................................................................................6

ARGUMENT ..................................................................................................................................8

I. Basket Case, not Slep‐Tone as the district court concluded,

is the “origin” of the karaoke tracks Basket Case used. .................................8

A. Standard of review ....................................................................................8

B. One important purpose of trademarks is to enable

consumers to identify the source or “origin” of goods

and services. ..............................................................................................9

C. A determination of the “origin” of goods and services is

essential to the resolution of trademark infringement claims. ........10

D. Basket Case is the legal origin of the goods it made and

was using in its establishment to provide karaoke

entertainment services. ..........................................................................12

E. The district court’s determination that Slep‐Tone is the

“origin” of Basket Case’s goods was an error of law and

should be reversed. ................................................................................14

II. Basket Case’s unauthorized creation, offering, and use of goods

marked with the SOUND CHOICE marks, even if used free of

charge, is sufficient to support claims for trademark infringement. ..........15


‐ iv ‐

A. Standard of Review .................................................................................15

B. The district court’s determination that “use” requires “sale”

was based on an overreading of case law. .........................................15

C. The Trademark Act envisions acts other than “sales”

that are predicate acts of infringement. ..............................................16

D. The statutory definition of “use in commerce” applies

only to acquisition of rights, not to infringement. ............................17

III. Because its decision was founded on incorrect statements

and application of the law, the district court erred in

dismissing Slep‐Tone’s claims. ........................................................................21

A. Standard of Review .................................................................................21

B. Elements of a valid trademark infringement claim. ..........................21

C. “Likelihood of confusion” analysis is the most important

aspect of the trademark infringement calculus. ................................22

D. Application of the standard test for likelihood of

confusion shows that Slep‐Tone has stated a claim. .........................26

E. This district court stands alone among the courts of this

district in determining that Slep‐Tone failed to state a claim. .........29

IV. CONCLUSION ....................................................................................................30

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

REQUIRED SHORT APPENDIX ........................................................................................... post


‐ v ‐

TABLE OF AUTHORITIES

Cases

Active Disposal, Inc. v. City of Darien, 635 F.3d 883 (7th Cir. 2011) ........................................21

Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) ..............................21

Bell Atl. Corp. v. Twombly,

550 U.S. 544, 127 S.Ct. 1955, 167 L. Ed. 2d 929 (2007) .......................................... 21‐22

Bd. of Regents of Univ. of Wis. Sys. v. Phx. Intʹl Software, Inc.,

653 F.3d 448 (7th Cir. 2011) .................................................................................... 22‐23

Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672 (9th Cir. 2005) .......................................... 19‐20

Brookfield Comms., Inc. v. West Coast Entm’t Corp.,

174 F.3d 1036 (9th Cir. 1999) ................................................................................... 20‐21

Chevron Chem. Co. v. Voluntary Purchasing Groups, Inc.,

659 F.2d 695 (5th Cir. 1981) .............................................................................................8

Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003) ................. 10, 12‐14, 15

Dorr–Oliver, Inc. v. Fluid–Quip, Inc., 94 F.3d 376 (7th Cir. 1996) ..........................................10

Eastland Music Grp., LLC v. Lionsgate Entm’t, Inc.,

707 F.3d 869 (7th Cir. 2013) ..................................................................................... 15‐16

Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456 (7th Cir. 2000) ....................................22

Fortres Grand Corp. v. Warner Bros. Entmʹt Inc.,

763 F.3d 696 (7th Cir. 2014) ...........................................................................................21

Forum Corp. of N. Am. v. Forum, Ltd., 903 F.2d 434 (7th Cir. 1990) .........................................8

James Burrough, Ltd. v. Sign of Beefeater, Inc., 572 F.2d 574 (7th Cir. 1978) ............................8

Justice v. Town of Cicero, 577 F.3d 768 (7th Cir. 2009) .............................................................21


‐ vi ‐

Kentucky Fried Chicken Corp. v. Diversified Packaging Corp.,

549 F.2d 368 (5th Cir. 1977) ...........................................................................................12

Merck & Co., Inc. v. Mediplan Health Consulting, Inc.,

425 F.Supp.2d 402 (S.D.N.Y. 2006) ...............................................................................23

N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211 (11th Cir. 2008) .......................20

Packman v. Chicago Tribune Co., 267 F.3d 628 (7th Cir. 2001) ................................................22

Playboy Enters., Inc. v. Netscape Comms. Corp., 354 F.3d 1020 (9th Cir. 2004) .....................20

Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808 (7th Cir. 2002) .....................................19

Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947 (7th Cir. 1992) .....................9, 22

Schwinn Bicycle Co. v. Ross Bicycles, Inc., 870 F.2d 1176 (7th Cir. 1989) .................................8

Slep‐Tone Entm’t Corp. v. America’s Bar & Grill, LLC,

2014 WL 4057442 (N.D. Ill. Aug. 15, 2014) ..................................................................29

Slep‐Tone Entmʹt Corp. v. Coyne, 41 F.Supp.3d 707 (N.D. Ill. 2014) ................................23, 29

Slep‐Tone Entm’t Corp. v. Elwood Ents., Inc.,

2014 WL 1612891 (N.D. Ill. Apr. 21, 2014) ..................................................................29

Slep‐Tone Entm’t Corp. v. Roberto, 2013 WL 5748896 (N.D. Ill. Oct. 22, 2013) .....................29

Slep‐Tone Entm’t Corp. v. Sellis Ents., Inc., 87 F.Supp.3d 897 (N.D.Ill. 2015) .......................29

Slep‐Tone Entm’t Corp. v. Teddy O’Brian’s, Inc.,

2015 WL 249368 (N.D. Ill. Jan. 20, 2015) ......................................................................29

Smith Fiberglass Prods., Inc. v. Ameron, Inc., 7 F.3d 1327 (7th Cir. 1993) ..............................22

TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876 (7th Cir. 1997) ...........................10, 12

Ty, Inc. v. Jones Grp., Inc., 237 F.3d 891 (7th Cir. 2001) ..........................................................23

Ty Inc. v. Perryman, 306 F.3d 509 (7th Cir. 2002) ......................................................................9


‐ vii ‐

United We Stand Am., Inc. v. United We Stand, Am. New York, Inc.,

128 F.3d 86 (2d Cir. 1997) ..............................................................................................20

Vulcan Golf, LLC v. Google Inc., 552 F.Supp.2d 752 (N.D.Ill. 2008) .......................................23

Walt–West Enterprises, Inc. v. Gannett Co., 695 F.2d 1050 (7th Cir. 1982) ............................10

Statutes and Rules

15 U.S.C. § 1051 .............................................................................................................................2

15 U.S.C. § 1114 .....................................................................................................1, 11, 17, 19, 22

15 U.S.C. § 1115 ....................................................................................................................... 9‐10

15 U.S.C. § 1125 .....................................................................................................1, 11, 17, 19, 22

15 U.S.C. § 1127 ............................................................................................................... 17‐19, 22

28 U.S.C. § 1291 .............................................................................................................................1

28 U.S.C. § 1331 .............................................................................................................................1

28 U.S.C. § 1338 .............................................................................................................................1

28 U.S.C. § 1367 .............................................................................................................................1

Fed. R. Civ. P. 12(b)(6) ...........................................................................................................2, 29


‐ 1 ‐

JURISDICTIONAL STATEMENT

(1) Jurisdiction of the District Court.

Jurisdiction of the district court over the subject matter of this action was based

on 28 U.S.C. §§ 1331 and 1338(a), in that the action arises under §§ 32 and 43 of the

Lanham (Trademark) Act of 1946, an Act of Congress relating to trademarks, 15 U.S.C.

§§ 1114 and 1125 (“the Trademark Act”). Supplemental jurisdiction as to the claim

under the laws of the State of Illinois was founded on 28 U.S.C. § 1367(a), in that the

state‐law claim was so related to the federal claims as to form part of the same case or

controversy.

(2) Jurisdiction of the Appellate Court.

Jurisdiction of the Appellate Court is based upon 28 U.S.C. § 1291, in that this is

an appeal from a judgment founded on the final decision of a district judge of the

Central District of Illinois, a district embraced by this Court, adjudicating all

outstanding claims. Judgment was entered in the district court on August 4, 2015. No

post‐judgment motions that would toll the time in which to appeal were

filed. The Notice of Appeal was filed on August 26, 2015.


‐ 2 ‐

STATEMENT OF ISSUES PRESENTED

The issues presented on appeal are:

(1) When a defendant creates goods consisting of digital copies of the expressive

content of goods bearing a plaintiff’s trademark and trade dress, for purposes of

the Trademark Act of 1946, 15 U.S.C. § 1051 et seq., who is the “origin” of the

goods the defendant created?

(2) Does a defendant’s unauthorized creation of goods bearing a plaintiff’s

trademark and trade dress and subsequent offering and use of those goods in

connection with the defendant’s commercial business, unaccompanied by an

actual sale of the goods, constitute use of the plaintiff’s trademark and trade

dress sufficient to support a claim for trademark infringement or unfair

competition under the Trademark Act of 1946, 15 U.S.C. § 1051 et seq.?

(3) Did the district court err in dismissing this action under Federal Rule of Civil

Procedure 12(b)(6) on the basis that the Second Amended Complaint failed to

state justiciable claims for trademark infringement and related torts based upon

its determinations (a) that no consumer confusion because the legal origin of the

goods was correctly identified by the SOUND CHOICE marks as Slep‐Tone, and

(b) that trademark infringement requires a “sale” of the goods in use?


‐ 3 ‐

STATEMENT OF THE CASE

This is an appeal from the dismissal of all claims by the Plaintiff, Slep‐Tone

Entertainment Corporation (“Slep‐Tone”)1, against Defendants Dannette Rumsey and

her corporation, Basket Case Pub, Incorporated (together, “Basket Case”). The district

court action was for trademark infringement and related torts involving the alleged use

of karaoke accompaniment tracks bearing Slep‐Tone’s trademarks and trade dress

without authorization. (Second Amended Complaint, May 1, 2015, R.20:¶¶ 1, 7, 52‐74.)2

Slep‐Tone is a leading producer of karaoke accompaniment tracks. (R.20:¶¶ 16‐

17.) Karaoke accompaniment tracks consist of re‐recorded versions of popular songs

without the lead vocals in a specialized format that includes a graphical component

containing a lyric display, cueing information, and other information useful to a person

who sings along. (R.20:¶ 11.) Slep‐Tone produces its karaoke tracks under its well‐

known trademark SOUND CHOICE, which it has federally registered in both words‐

only and logo formats. (R.20:¶¶ 14, 42‐43.) Slep‐Tone also claims protection of certain

distinctive and protectable trade dress consisting of the typeface, style, and visual

1 After the filing of this lawsuit, Slep‐Tone’s assets, including the trademarks and trade dress in

suit, were acquired by Phoenix Entertainment Partners, LLC (“Phoenix”), which then joined in

this action as a co‐plaintiff. For simplicity, this brief will refer to both Slep‐Tone and Phoenix as

Slep‐Tone.

2 References to “R.__:__” indicate the docket number and page number (or paragraph number,

as applicable) of items filed as part of the district court record; e.g., “R.20:¶1” refers to Docket

No. 20, paragraph 1. References to “A‐__” indicate the location of the referenced material in the

Short Appendix.


‐ 4 ‐

arrangement in displaying the lyrics, the style of displaying entry cues, and other

elements. (R.20:¶ 46.) Slep‐Tone’s karaoke tracks are currently sold and/or distributed

only on compact discs. (R.20:¶ 20.)

Basket Case operates an eating and drinking establishment of the same name

located in Peoria, Illinois. (R.20:¶ 7.) Basket Case provides karaoke entertainment for

patrons at its establishment as a free service with the commercial purpose of enticing

patrons to visit the establishment and purchase food and beverages. (R.20:¶¶ 7, 12, 52.)

The purchase and consumption of alcoholic beverages in connection with karaoke

shows is particularly encouraged to enable patrons to overcome inhibitions against

singing in public. (R.20:¶ 13.)

Rather than offering karaoke entertainment as an occasional service, Basket Case

offers karaoke shows seven days per week at its establishment. (R.20:¶ 53.)

Basket Case provides its karaoke entertainment services using equipment that it

owns, including a sound system with microphones, displays for the graphical

component of the karaoke tracks it uses, and related equipment. (R.20:¶ 54.) Basket

Case uses karaoke tracks that are marked with duplicates of Slep‐Tone’s trademarks

and trade dress. (R.20:¶¶ 64‐65.) Rather than using original SOUND CHOICE discs—

which Basket Case may or may not even own—Basket Case has stored copies of

karaoke tracks on one or more computer hard drives, and it uses the tracks on the hard

drives to produce audio and video as part of its karaoke shows. (R.20:¶¶ 56‐57, 64‐65.)


‐ 5 ‐

In other words, Slep‐Tone alleges that Basket Case has created new goods, duplicated

from original discs or from an illicit source, that have been marked with Slep‐Tone’s

trademarks and trade dress. (R.20:¶ 56‐57, 63‐65.)

Basket Case’s activities with respect to SOUND CHOICE‐branded are known in

the industry as “media‐shifting,” because they involve using content from one medium

(be it original or an illicit copy) as a template for a new copy of the content on a

different medium. (R.20:¶¶ 21‐23.) Prior to 2007, Slep‐Tone prohibited commercial

media‐shifting entirely. (R.20:¶ 27.) Beginning in 2009, Slep‐Tone established a policy

that would permit media‐shifting for commercial purposes under controlled

circumstances. (R.20:¶ 28.) Slep‐Tone alleges that Basket Case did not follow Slep‐

Tone’s original policy (summed up as “Don’t Copy”), nor did it follow Slep‐Tone’s

media‐shifting policy, when it created and used the karaoke accompaniment tracks

from its computer hard drive. (R.20:¶¶ 58, 61.)

Slep‐Tone commenced this suit on January 10, 2015, asserting claims for

trademark and trade dress infringement and unfair competition under the Trademark

Act and related state‐law claims. (Complaint, R.1:1.) After some procedural matters

were attended to, Slep‐Tone filed the Second Amended Complaint on May 1, 2015.

(R.20:1.) In response to the Second Amended Complaint, Basket Case counterclaimed

for cancellation of the trademark registrations and for certain declaratory relief and

moved to dismiss the trademark claims under Federal Rule of Civil Procedure 12(b)(6).


‐ 6 ‐

(Counterclaims, May 26, 2015, R.21:1‐11; Defendants’ Motion to Dismiss, May 26, 2015,

R.22:1‐3.) On August 4, 2015, the district court granted the motion to dismiss as to the

federal claims, declined to exercise supplemental jurisdiction over the state claims, and

dismissed the counterclaims as moot on its own motion. (Order and Opinion, August 4,

2015, R.36; A‐01 et seq.) Judgment was entered on the same day in favor of the

defendants. (Judgment, August 4, 2015, R.37; A‐22.)

Slep‐Tone now appeals from the district court’s dismissal of its trademark

claims.

SUMMARY OF ARGUMENT

The purpose of a trademark is to prevent consumer confusion by providing

consumers with a ready and reliable means of determining the origin and quality of

goods and services. For its karaoke shows, Basket Case used copied karaoke

accompaniment tracks that were marked with Slep‐Tone’s trademarks and stored on

computer hard drives—physical media and tracks that Slep‐Tone did not create. The

district court determined that Slep‐Tone is the “origin” of the copied tracks for purposes

of the Trademark Act. This determination, a conclusion of law, was erroneous because

binding precedent establishes that the “origin” of goods is the party that makes them,

not the author of the underlying expressive content.


‐ 7 ‐

The district court also determined that because Basket Case was not accused of

selling the copied tracks, but rather of allowing their free use by patrons as

entertainment, Basket Case did not “use” the trademarks for purposes of infringement

analysis. This, too, was erroneous. Basket Case’s use of the trademarks and the copied

tracks was intimately tied to its commercial activities, the sale of food and beverages.

The Trademark Act envisions an expansive list of predicate acts of trademark

infringement, including selling, offering to sell, distributing, or advertising of any goods

or services, as long as the use of the mark is likely to cause confusion. The acts of which

Basket Case stands accused are well within the ambit of the infringement statute.

Because the district court reached erroneous conclusions of law on the

aforementioned points, it improperly eschewed the traditional analysis of likelihood of

confusion. If it had properly analyzed the likelihood of confusion arising from Basket

Case’s use of Slep‐Tone’s marks, the district court would have concluded that Slep‐Tone

had stated a plausible claim for relief, because the Second Amended Complaint contains

ample well‐pleaded factual allegations in support of all of the factors in the traditional

analysis. As such, the granting of the motion to dismiss was improper and should be

reversed.


‐ 8 ‐

ARGUMENT

I. Basket Case, not Slep‐Tone as the district court concluded, is the “origin” of

the karaoke tracks Basket Case used.

A. Standard of review

Determinations and statements of the law by the district court are reviewed de

novo for legal error, and the district court’s conclusions are reviewed “for signs that the

court’s application of the law was infected with legal error, i.e., an erroneous general

principle about the way the test should be applied.” Forum Corp. of N. Am. v. Forum,

Ltd., 903 F.2d 434, 438 (7th Cir. 1990); see also Schwinn Bicycle Co. v. Ross Bicycles, Inc., 870

F.2d 1176, 1187–88 (7th Cir. 1989) (district court’s erroneous statement of law and

further errors of law prevented the court from exerting its sound discretion); James

Burrough, Ltd. v. Sign of Beefeater, Inc., 572 F.2d 574, 577 (7th Cir. 1978) (court’s

application of likelihood of confusion test was infected with legal error); Chevron Chem.

Co. v. Voluntary Purchasing Groups, Inc., 659 F.2d 695, 696 (5th Cir. 1981), cert. denied, 457

U.S. 1126, 102 S.Ct. 2947, 73 L.Ed.2d 1342 (1982) (district court’s application of erroneous

legal standard stripped factual determinations and conclusions of their entitlement to

deference).


‐ 9 ‐

B. One important purpose of trademarks is to enable consumers to identify

the source or “origin” of goods and services.

“A word or phrase functions as a trademark when it is used by a source of a

product to identify itself to the public as the source of its product and to create in the

public consciousness an awareness of the uniqueness of the source and of its products.”

Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 953 (7th Cir. 1992) (internal

quotation marks omitted).

This Court has previously articulated the purpose of the protection of

trademarks:

The fundamental purpose of a trademark is to reduce consumer

search costs by providing a concise and unequivocal identifier of

the particular source of particular goods. The consumer who knows

at a glance whose brand he is being asked to buy knows whom to

hold responsible if the brand disappoints and whose product to

buy in the future if the brand pleases. This in turn gives producers

an incentive to maintain high and uniform quality, since otherwise

the investment in their trademark may be lost as customers turn

away in disappointment from the brand. A successful brand,

however, creates an incentive in unsuccessful competitors to pass

off their inferior brand as the successful brand by adopting a

confusingly similar trademark, in effect appropriating the goodwill

created by the producer of the successful brand. The traditional and

still central concern of trademark law is to provide remedies

against this practice.

Ty Inc. v. Perryman, 306 F.3d 509, 510 (7th Cir. 2002). This policy is embodied in the

protections afforded by the Trademark Act itself:

Any registration … of a mark registered on the principal register

provided by this chapter and owned by a party to an action shall be

admissible in evidence and shall be prima facie evidence of the


‐ 10 ‐

validity of the registered mark and of the registration of the mark,

of the registrant’s ownership of the mark, and of the registrant’s

exclusive right to use the registered mark in commerce on or in

connection with the goods or services specified in the registration

subject to any conditions or limitations stated therein … .

15 U.S.C. § 1115(a). “A trademark is an identifier rather than a property right, and

trademarks are thus protected only to the extent that they give consumers information

about the origin or quality of products.” TMT N. Am., Inc. v. Magic Touch GmbH, 124

F.3d 876, 882 (7th Cir. 1997) (internal quotations omitted) (citing Dorr–Oliver, Inc. v.

Fluid–Quip, Inc., 94 F.3d 376, 380 (7th Cir. 1996) and Walt–West Enterprises, Inc. v. Gannett

Co., 695 F.2d 1050, 1057 (7th Cir. 1982)).

C. A determination of the “origin” of goods and services is essential to the

resolution of trademark infringement claims.

For that reason, particularly in the context of direct copying or counterfeiting, a

proper identification of the “origin” of trademarked goods is essential to a proper

resolution of the case. Indeed, the “origin” or provenance of goods or services is the

very heart of a trademark claim. See Dastar Corp. v. Twentieth Century Fox Film Corp., 539

U.S. 23, 34‐35 (2003).

In the present case, Slep‐Tone alleges that Basket Case (or any third party who

created the files for Basket Case) is the origin of the karaoke tracks it used (R.20:¶ 63);

that those tracks are marked with the SOUND CHOICE marks and related trade dress

(R.20:¶¶ 64, 67), which as a matter of law are supposed to indicate Slep‐Tone as the


‐ 11 ‐

origin of goods; and that as a result, Basket Case’s use of karaoke tracks marked with

the SOUND CHOICE marks and related trade dress constitutes a “false designation of

origin” (R.20:¶ 67), which is proscribed by § 43(a) of the Trademark Act (15 U.S.C. §

1125(a)).

Similarly, the origin of goods plays a role, albeit more subtly, in the proper

application of that part of the Trademark Act which deals with infringement of

registered marks:

Any person who shall, without the consent of the registrant—

(a) use in commerce any reproduction, counterfeit, copy, or

colorable imitation of a registered mark in connection with

the sale, offering for sale, distribution, or advertising of any

goods or services on or in connection with which such use is

likely to cause confusion, or to cause mistake, or to deceive;

or

(b) reproduce, counterfeit, copy, or colorably imitate a

registered mark and apply such reproduction, counterfeit,

copy, or colorable imitation to labels, signs, prints, packages,

wrappers, receptacles or advertisements intended to be used

in commerce upon or in connection with the sale, offering

for sale, distribution, or advertising of goods or services on

or in connection with which such use is likely to cause

confusion, or to cause mistake, or to deceive,

shall be liable in a civil action by the registrant for the remedies

hereinafter provided.

15 U.S.C. § 1114(1). The words “without the consent of the registrant” are key to an

understanding of the interplay between the origin of goods and the likelihood of

confusion that the Trademark Act is intended to present. When the registrant makes


‐ 12 ‐

and marks its own goods, it is the origin of those goods. When the registrant authorizes

someone else to make and/or mark their goods with the registered trademark, the

registrant is standing with its own reputation behind the quality and attributes of those

goods. That is why valid trademark licenses—the method by which “consent of the

registrant” is given—must provide for quality control. See TMT N. Am., supra, 124 F.3d

at 885 (quoting Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368,

387 (5th Cir. 1977) (“If a trademark owner allows licensees to depart from its quality

standards, the public will be misled, and the trademark will cease to have utility as an

informational device”)).

Use of a trademark without the consent of the trademark owner is use without

the quality control that consent would entail, because a trademark owner cannot control

that which he did not authorize. When an infringer uses a mark that is supposed to

convey to consumers a certain origin and a certain level of quality, the potential for

consumers to be deceived is therefore quite high.

D. Basket Case is the legal origin of the goods it made and was using in its

establishment to provide karaoke entertainment services.

In Dastar Corp., the Supreme Court established, or perhaps confirmed, a bright‐

line rule that for purposes of the Trademark Act, the “origin” of goods is the maker of

the physical goods at issue, not the author of the underlying content of those goods. In

that case, the plaintiff, Fox, argued that because it was the owner of copyright in the


‐ 13 ‐

television series “Crusade in Europe,” it was legally the “origin” of the goods the

defendant, Dastar Corp., sold under Dastar’s own trademarks. See Dastar Corp., 523

U.S. at 28, 31. As such, under Fox’s theory, Dastar’s crediting itself as the “producer” of

the series amounted to a false designation of origin. See id. at 31.

The Supreme Court disagreed. In its central holding, the Court stated:

In sum, reading the phrase “origin of goods” in the Lanham Act in

accordance with the Actʹs common‐law foundations (which were

not designed to protect originality or creativity), and in light of the

copyright and patent laws (which were), we conclude that the

phrase refers to the producer of the tangible goods that are offered

for sale, and not to the author of any idea, concept, or

communication embodied in those goods.

Dastar Corp., 539 U.S. at 37.

The accused goods at issue in this litigation are the media‐shifted karaoke tracks

stored on hard drives, which Basket Case uses to provide karaoke‐related services.

These goods are goods that Basket Case, not Slep‐Tone, made.3

As a matter of law, Basket Case, not Slep‐Tone, is the origin of Basket Case’s

computer hard drive or of the content stored on it, even though Slep‐Tone is the author

3 Moreover, the karaoke tracks are not even unaltered—much to the contrary, even if the

content is substantially the same, the tracks exist on a different medium and in a different,

inferior format, as noted in the Second Amended Complaint:

22. In most cases, the creation of such non‐original tracks results in an

imitation of a SOUND CHOICE track, which imitation is inferior to the

original because of digital compression of the data as the format is

converted from native CD+G audio and graphics to compressed audio

and graphics.

(R.20:¶ 22.)


‐ 14 ‐

of the content that appears on the drive. The Dastar Corp. Court determined that the

meaning of “origin” does not vary even when the goods at issue are of a kind that

might be described, in the Court’s words, as a “communicative product”—“one that is

valued … for the intellectual content that it conveys.”4 Id. at 33.

E. The district court’s determination that Slep‐Tone is the “origin” of Basket

Case’s goods was an error of law and should be reversed.

In reaching its conclusion of law that Slep‐Tone is the origin of the karaoke tracks

stored on Basket Case’s drive and used by Basket Case to provide its karaoke

entertainment services, the district court noted that “if anything, [Basket Case’s] display

of Plaintiffs’ marks has the salutary effect of clearly identifying the origin of tracks to

the end using Basket Case Pub patron.” (R.36:14, A‐14.)

The district court’s conclusion is plainly in error.

4 Cf. R.36:16, A‐16 (“the object of value desired by the bar patrons and karaoke operators alike is

not the particular medium upon which the track is presented for consumption; rather, it is the

underlying tracks themselves”).


‐ 15 ‐

II. Basket Case’s unauthorized creation, offering, and use of goods marked with

the SOUND CHOICE marks, even if used free of charge, is sufficient to

support claims for trademark infringement.

A. Standard of Review

The district court’s determination that a “sale” of infringing goods is required for

trademark infringement is a legal conclusion, subject to review de novo by this Court,

because it requires the interpretation and application of legal authority. See supra § I,

part A, and cases cited therein.

B. The district court’s determination that “use” requires “sale” was based on

an overreading of case law.

The district court based a substantial portion of its decision on the conclusion

that Basket Case has not “used” the SOUND CHOICE marks in commerce because it

does not sell karaoke tracks to anyone:

There are no allegations in the Second Amended Complaint that

Defendants sell or otherwise distribute their stored media‐shifted/

format shifted copies of the karaoke tracks to the public at large or

even their own customers who visit their pub. The allegations in

the Second Amended Complaint are that these tracks are played or

made available to be played at the Defendants’ venue; not sold.

(Doc. 20 at ¶ 12 (“Venues that offer karaoke entertainment do so

primarily as a free service . . . .”)). Thus, there are no plausible

allegations that Defendants are “producers of the tangible product

sold in the marketplace,” which are necessary elements of Lanham

Act claims under Eastland Music Grp., LLC, 707 F.3d 869, and Dastar,

539 U.S. 23.

(R.36:12, A‐12.)


‐ 16 ‐

The district court’s reliance on Eastland Music in support of its point is misplaced.

Nowhere in that case was there an issue about whether the allegedly infringing product

had been sold; the product was a film with a title similar to the registered trademark.

See Eastland Music Grp., LLC v. Lionsgate Entm’t, Inc., 707 F.3d 869, 870 (7th Cir. 2013)

(noting that film had been released, and thus sold, in 2011).

C. The Trademark Act envisions acts other than “sales” that are predicate

acts of infringement.

The district court’s mistake highlights the problems associated with presuming

that shorthand that fits the facts of a particular case excludes matter that does not fit the

shorthand. Because most commercial acts involve the sales of products (goods or

services) rather than a free giveaway, a court opining about such a transaction might

omit, and probably should omit, that other acts might qualify. That does not mean that

Eastland Music stands for the proposition that a sale of trademarked goods is required.

The question, then, is this: Is the use of a mark on goods that are given away in

connection with other commercial transactions, rather than directly sold, sufficient to

qualify as the predicate act of a trademark infringement? Basket Case stands accused of

making counterfeit tracks, or tracks that are marked with the SOUND CHOICE marks

and trade dress without Slep‐Tone’s authorization, available for the free use of their

patrons as entertainment while those patrons purchase and consume food and

beverages. (R.20:¶ 12.)


‐ 17 ‐

The Trademark Act specifies that trademark infringement exists when “any

reproduction, counterfeit, copy, or colorable imitation of a registered mark” is used in

commerce in connection with predicate acts including “the sale, offering for sale,

distribution, or advertising of any goods or services,” provided that confusion is likely.

15 U.S.C. § 1114(1). Similarly, unfair competition occurs when “any word, term, name,

symbol, or device, or any combination thereof, or any false designation of origin, false

or misleading description of fact, or false or misleading representation of fact” is used in

commerce “in connection with any goods or services,” provided that confusion is likely.

15 U.S.C. § 1125(a). These provisions specify that the regulatory intent of the

Trademark Act is very broad and intended to encompass many types of commercial

transactions, not merely sales.

D. The statutory definition of “use in commerce” applies only to acquisition

of rights, not to infringement.

A potential limiting factor can be found in the definition of “use in commerce”:

In the construction of this chapter, unless the contrary is plainly

apparent from the context:

[…]

The term “use in commerce” means the bona fide use of a mark in

the ordinary course of trade, and not made merely to reserve a

right in a mark. For purposes of this chapter, a mark shall be

deemed to be in use in commerce—

(1) on goods when—


‐ 18 ‐

(A) it is placed in any manner on the goods or their containers or

the displays associated therewith or on the tags or labels affixed

thereto, or if the nature of the goods makes such placement

impracticable, then on documents associated with the goods or

their sale, and

(B) the goods are sold or transported in commerce, and

(2) on services when it is used or displayed in the sale or

advertising of services and the services are rendered in commerce,

or the services are rendered in more than one State or in the United

States and a foreign country and the person rendering the services

is engaged in commerce in connection with the services.

15 U.S.C. § 1127. It should be noted, first, that the statutory definition of “use in

commerce” is, on its face, principally directed to the types of activities that can result in

the acquisition of trademark rights—“the bona fide use of a mark in the ordinary course

of trade, and not made merely to reserve a right in a mark.” Id. As such, the

requirement that goods be sold or transported in commerce is principally designed to

ensure that those who claim trademark rights are actually engaged in trade involving

marked goods.

It should also be noted that the definition of “use in commerce” in § 1127 need

not be read to restrict “use in commerce” solely to the enumerated acts; the definition

omits the term “only” and should not be read to exclude other mechanisms that bring

the conduct within the ambit of commerce that Congress may regulate. See id. (defining

“commerce” as “all commerce which may lawfully be regulated by Congress”).


‐ 19 ‐

Finally, and perhaps most importantly, the prefatory clause of the definitions

section states that the given definitions are to be used “unless the contrary is plainly

apparent from the context.” Id.

As to infringement, as opposed to the acquisition of rights, the use of the term

“use in commerce” in § 1114(1) and § 1125(a) is, in context, intended to be jurisdictional

(in the sense of providing the Constitutional authority for Congress to regulate

infringement) and, when read with the list of predicate acts of infringement, a great

deal more expansive than the more limited definition given in § 1127.

The leading treatise on trademarks notes that § 1127 “defines the kind of ‘use’

needed to acquire registerable trademark rights—not to infringe them.” J. Thomas

McCarthy, McCarthy on Trademarks and Unfair Competition § 23:11.50 (4th ed. 2003).

Professor McCarthy explains that the definition in § 1127 originated with the common

law “affixation” requirement, a formal prerequisite to achieving technical ownership of

a trademark and the right to sue for infringement. See id. By contrast, § 1114(1) merely

requires that a plaintiffʹs proof of infringement establish a use in commerce “in

connection with the sale ... or advertising of any goods,” etc., and cases that interpret

that section generally ignore the “affixation” part of the definition. See id.; see also

Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812 (7th Cir. 2002) (plaintiff likely to

succeed on merits when alleged infringement was use of plaintiff’s trademark as

metatag on defendant’s website); Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672 (9th Cir.


‐ 20 ‐

2005) (question of infringement requires that use of mark be “in connection with a sale

of goods or services”); N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1220

(11th Cir. 2008) (use of trademarks in website metatags is a “use in commerce … in

connection with the sale … or advertising of any goods”); Playboy Enters., Inc. v.

Netscape Comms. Corp., 354 F.3d 1020, 1024 n. 11 (9th Cir. 2004) (§ 1127 definition of “use

in commerce” applies only to acquisition of rights, not infringement, and “does not

enter into our analysis” of infringement claims); United We Stand Am., Inc. v. United We

Stand, Am. New York, Inc., 128 F.3d 86, 92‐93 (2d Cir. 1997) (“use in commerce” does not

require the sale of goods or services; use of the phrase invokes the Commerce Clause

rather than limiting the Act to profitmaking activity).

Slep‐Tone has pled facts that show that Basket Case used Basket Case’s tracks,

marked with the SOUND CHOICE marks, in a manner that is intimately connected

with the commerce in which Basket Case was principally engaged: As an entertainment

offered to encourage patrons to visit the establishment and purchase food and

beverages. (R.20:¶ 12.) The fact that Basket Case did not charge money for patrons to

participate is not, and should not be, dispositive of the essential commercial nature of

the transaction, particularly when it is so directly connected to Basket Case’s

commercial activity—the equivalent of “posting a sign with [Slep‐Tone]’s trademarks in

front of [Basket Case]’s store.” Brookfield Comms., Inc. v. West Coast Entm’t Corp., 174 F.3d


‐ 21 ‐

1036, 1064 (9th Cir. 1999). As such, the district court based its ruling in part on an

erroneous conclusion of law.

III. Because its decision was founded on incorrect statements and application of

the law, the district court erred in dismissing Slep‐Tone’s claims.

A. Standard of Review

The Court reviews the granting of a motion to dismiss de novo. See Fortres Grand

Corp. v. Warner Bros. Entmʹt Inc., 763 F.3d 696, 700 (7th Cir. 2014) cert. denied, 135 S. Ct.

981, 190 L. Ed. 2d 890 (2015). “Our analysis rests on the complaint, and we construe it in

the light most favorable to the plaintiffs, accepting as true all well‐pleaded facts alleged

and drawing all permissible inferences in their favor.” Active Disposal, Inc. v. City of

Darien, 635 F.3d 883, 886 (7th Cir. 2011) (citing Justice v. Town of Cicero, 577 F.3d 768, 771

(7th Cir. 2009)).

B. Elements of a valid trademark infringement claim

To survive a Rule 12(b)(6) motion, the complaint must not only provide the

defendant with fair notice of a claim’s basis but also provide sufficient factual detail to

establish that the right to the requested relief is plausible on its face. See Ashcroft v. Iqbal,

556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009); Bell Atl. Corp. v. Twombly, 550

U.S. 544, 555, 127 S.Ct. 1955, 167 L. Ed. 2d 929 (2007). The allegations in the complaint


‐ 22 ‐

must be “enough to raise a right of relief above the speculative level.” Twombly, 550 U.S.

at 555.

The Trademark Act protects registered marks, prevents unfair competition, and

protects against fraud “by the use of reproductions, copies, counterfeits, or colorable

imitations of registered marks.” 15 U.S.C. § 1127; Eli Lilly & Co. v. Natural Answers, Inc.,

233 F.3d 456, 461 (7th Cir. 2000). To state a valid claim under the Trademark Act,

regardless of the particular claim in question, a plaintiff must allege facts sufficient that

(1) the mark in suit is protectable, and (2) the defendantʹs use of the mark is likely to

cause confusion among consumers. See Eli Lilly, 233 F.3d at 461; Packman v. Chicago

Tribune Co., 267 F.3d 628, 638 (7th Cir. 2001); Smith Fiberglass Prods., Inc. v. Ameron, Inc., 7

F.3d 1327, 1329 (7th Cir. 1993) (tests are the same for infringement under 15 U.S.C. §

1114(1) and unfair competition under 15 U.S.C. § 1125(a)). As such, all of the claims at

issue rise or fall together.

C. “Likelihood of confusion” analysis is the most important aspect of the

trademark infringement calculus.

“The ‘keystone’ of trademark infringement is ‘likelihood of confusion’ as to

source, affiliation, connection or sponsorship of goods or services among the relevant

class of customers and potential customers.” Sands, Taylor & Wood Co., 978 F.2d at 957.

“To decide whether there is a likelihood of confusion ... a court must ask whether

consumers, and specifically consumers who would use either product, would be likely


‐ 23 ‐

to attribute them to a single source.” Bd. of Regents of Univ. of Wis. Sys. v. Phx. Intʹl

Software, Inc., 653 F.3d 448, 455 (7th Cir. 2011).

Seven factors are relevant to the determination of whether confusion is likely: (1)

the similarity between the marks in appearance and suggestion; (2) the similarity of the

products; (3) the area and manner of concurrent use; (4) the degree of care likely to be

exercised by consumers; (5) the strength of the plaintiffʹs mark; (6) any evidence of

actual confusion; and (7) the intent of the defendant to “palm off” his product as that of

another. Id. at 454. No single factor is dispositive, but three are especially important,

when present: the similarity of the marks, the intent of the defendant, and evidence of

actual confusion. See Ty, Inc. v. Jones Grp., Inc., 237 F.3d 891, 898 (7th Cir. 2001).

“Because the ‘likelihood of confusion test is a fact‐intensive analysis,’ it

‘ordinarily does not lend itself to a motion to dismiss.’” Slep‐Tone Entmʹt Corp. v. Coyne,

41 F.Supp.3d 707, 715 (N.D. Ill. 2014) (quoting Merck & Co., Inc. v. Mediplan Health

Consulting, Inc., 425 F.Supp.2d 402, 412 (S.D.N.Y. 2006)); see also Vulcan Golf, LLC v.

Google Inc., 552 F.Supp.2d 752, 769 (N.D.Ill. 2008) (noting that the likelihood of

confusion test “is a fact‐specific inquiry best left for decision after discovery”).

As noted in sections I and II above, the district court reached erroneous legal

conclusions concerning the “origin” of the accused tracks and the commercial nature of

Basket Case’s allegedly infringing activities. These erroneous legal conclusions led the


‐ 24 ‐

district court to eschew the application of the standard test for likelihood of confusion;

after reciting the factors, the district court expressly disavowed their use:

These factors do not apply in this case.

For example, there are no allegations in the Second Amended

Complaint that Defendants are displaying competing marks of

their own, so only Plaintiffs’ marks are at issue here. Similarly,

there is only one product at issue—the karaoke tracks—and there

are no allegations that Defendants are selling, marketing or

otherwise distributing their media/format shifted copies of

Plaintiffs’ tracks to the public. Furthermore, the allegations of the

Second Amended Complaint affirm that Defendants have not taken

any steps to try to “palm off” Plaintiffs’ tracks as their own; if

anything, their display of Plaintiffs’ marks has the salutary effect of

clearly identifying the origin of tracks to the end using Basket Case

Pub patron.

(R.36:14, A‐14.) The district court’s decision not to apply the standard test is rooted in

its misunderstanding of the precise nature of the claim. Because the district court

incorrectly sees Slep‐Tone as the origin of the tracks Basket Case created, it was unable

to see that there are indeed two sets of marks at issue in this case: (1) Slep‐Tone’s own

legitimate SOUND CHOICE marks, and (2) Basket Case’s application of spurious copies

of the SOUND CHOICE marks to Basket Case’s own product. It was likewise unable to

see that there are two products to be compared: (1) Slep‐Tone’s legitimate compact

discs containing karaoke tracks, and (2) Basket Case’s computer hard drive containing

karaoke tracks.

This case is not substantively different from one in which a counterfeiter copies a

luxury watch, down to the ROLEX trademark that appears on it. Under the district


‐ 25 ‐

court’s flawed reasoning, the more scrupulously detailed the copying is, the less likely

the confusion. After all, if the copy is good and the mark is identical, the display of

ROLEX on the fake has the “salutary effect of clearly identifying” the company whose

intellectual property was copied, which the district has improperly deemed the “origin”

of the goods. But the making and selling of counterfeit watches is still an act of

trademark infringement, even if they are very good fakes, and even if they are marked

ROLEX instead of POLEX.

The fact that the content Basket Case copied is electronic, rather than a physical

object5 like a watch, does not make the copies Basket Case created any less fake than the

counterfeit ROLEX‐branded watch. The fact that Basket Case duplicated the SOUND

CHOICE marks instead of applying a different mark to the tracks does not mean that it

is not spuriously applying the SOUND CHOICE marks to its own goods.

Instead, the district court should have applied the standard test. If it had

correctly done so, it would have concluded that the Second Amended Complaint does,

indeed, contain the recitation of sufficient factual details to support, plausibly, that

there is a likelihood of confusion arising from Basket Case’s commercial acts.

5 In actuality, even the content Basket Case copied is a physical object that consists of the

arrangement of physical items on a compact disc, and the copy is a physical object that consists

of the arrangement of physical items on a computer hard drive. Both technically oriented and

non‐technically oriented people can have difficulty understanding this concept, of course.


‐ 26 ‐

D. Application of the standard test for likelihood of confusion shows that

Slep‐Tone has stated a claim.

Slep‐Tone alleges that the marks on the Basket Case tracks are identical to the

SOUND CHOICE marks:

64. On information and belief, many of the files stored on the

Defendants’ computer hard drives are representative of karaoke

tracks originally created by Plaintiffs and are marked with the

Sound Choice Marks.

65. When played as intended using appropriate software, those

files cause the Sound Choice Marks and the Trade Dress to be

displayed as part of the associated video component of the karaoke

tracks they represent.

(R.20:¶¶ 64‐65.) Slep‐Tone alleges that the products are similar:

56. On information and belief, in order to provide services, rather

than using original karaoke discs that it possesses (if it indeed

possesses such discs), Defendants rely upon one or more computer

hard drives that store files representing karaoke accompaniment

tracks.

[…]

58. On information and belief, Defendants create, or direct another

to create, or otherwise acquired from a third party the files that are

stored on its computer hard drive(s).

[…]

69. Defendants’ files, which function as karaoke accompaniment

tracks, are also counterfeits of genuine SOUND CHOICE‐branded

tracks.

(R.20:¶¶ 56, 58, 69.) In other words, Basket Case’s tracks are so similar in form and

function to Slep‐Tone’s legitimate tracks that they constitute counterfeits.


‐ 27 ‐

Slep‐Tone alleges that its tracks and marks are well known and highly used

throughout the United States, including in Peoria, Illinois, where Basket Case operates:

7. […] Defendant The Basket Case Pub Inc. operates an eating and

drinking establishment known as “The Basket Case” in Peoria,

Illinois. Defendant The Basket Case Pub Inc., provides karaoke

entertainment at the venue.

[…]

17. SOUND CHOICE‐branded karaoke tracks are wildly popular

among karaoke entertainment providers, patrons, and home

consumers. According to some estimates, more than half of all

accompaniment tracks played at karaoke shows in the United

States originated from Slep‐Tone’s recordings.

(R.20:¶¶ 7, 17.)

Slep‐Tone alleges that consumers of karaoke services and the goods that enable

them value the high quality the SOUND CHOICE brand signals:

18. The popularity of SOUND CHOICE karaoke tracks derives

from the market’s perception that the recordings are usually the

most faithful to the sound of the original recording artist, a

characteristic highly valued by karaoke singers.

(R.20:¶ 18.)

Slep‐Tone alleges that its marks and trade dress are strong. The marks have been

federally registered for 20 and 19 years, respectively. (R.20:¶¶ 42‐43.) The trade dress

has been in continuous and substantially exclusive use for “a period of decades” and

has acquired secondary meaning. (R.20:¶¶ 47‐49.)


‐ 28 ‐

Slep‐Tone also alleges the existence of actual confusion on the part of patrons

with respect to copied tracks—specifically, the inability to distinguish Slep‐Tone’s

product from Basket Case’s product:

23. In a typical bar or restaurant environment, patrons are often

unable to distinguish the imitation from an original, provided that

the compression is not too aggressive, because the goal is to

produce an acceptable digital substitute.

(R.20:¶ 23.) Indeed, even the district court was conceptually unable to distinguish Slep‐

Tone’s product from Basket Case’s product:

[T]he object of value desired by the bar patrons and karaoke

operators alike is not the particular medium upon which the track

is presented for consumption; rather, it is the underlying tracks

themselves. The particular medium upon which the tracks are

stored is meaningless.

(R.36:16, A‐16.)

Slep‐Tone alleges, additionally, that Basket Case undertook its infringing

activities intentionally, knowing that it was not authorized to create or use files bearing

the SOUND CHOICE marks and the trade dress:

68. At all times relevant to the causes of action stated herein, the

Defendants have known that the creation and use of karaoke

accompaniment tracks or computer files representative of karaoke

accompaniment tracks that bear the Sound Choice Marks and/or

the Trade Dress is not authorized.

[…]

86. On information and belief, the acts of Defendants were willful,

knowing, and intentional.


‐ 29 ‐

(R.20:¶¶ 68, 86.)

As noted previously, in the context of a motion to dismiss, it is not required that

Slep‐Tone prove these elements or even show that a likelihood of confusion is probable.

Rather, what is required is that Slep‐Tone have alleged sufficient facts to render it

plausible that there is a likelihood of confusion arising from Basket Case’s activities. The

Second Amended Complaint amply meets that test, and the district court erred by

dismissing the action under Rule 12(b)(6).

E. This district court stands alone among the courts of this district in

determining that Slep‐Tone failed to state a claim.

While the proper result in this action is not the subject of a majority vote of

district court decisions, the fact that this district court stands alone among district courts

of the Seventh Circuit in its determination to dismiss similar claims should be

considered. See Slep‐Tone Entm’t Corp. v. Sellis Ents., Inc., 87 F.Supp.3d 897 (N.D.Ill.

2015) (denying motion to dismiss); Slep‐Tone Entm’t Corp. v. Teddy O’Brian’s, Inc., 2015

WL 249368 (N.D. Ill. Jan. 20, 2015) (denying motion to dismiss); Slep‐Tone Entm’t Corp. v.

America’s Bar & Grill, LLC, 2014 WL 4057442 (N.D. Ill. Aug. 15, 2014) (denying motion to

dismiss); Coyne, supra, 41 F.Supp.3d at 707 (N.D.Ill. 2014) (denying motion to dismiss);

Slep‐Tone Entm’t Corp. v. Elwood Ents., Inc., 2014 WL 1612891 (N.D. Ill. Apr. 21, 2014)

(denying motion to dismiss); Slep‐Tone Entm’t Corp. v. Roberto, 2013 WL 5748896 (N.D.

Ill. Oct. 22, 2013) (denying motion to dismiss).


‐ 30 ‐

IV. CONCLUSION

In view of all of the foregoing, Slep‐Tone respectfully urges the Court to reverse

the judgment of the district court and remand this matter for further proceedings.

Respectfully submitted this the 22nd day of October, 2015.

/s/ James M. Harrington

James M. Harrington

HARRINGTON LAW, P.C.


Pineville, NC 28134‐8444

(704) 635‐6300

Vivek Jayaram

JAYARAM LAW GROUP, LTD.

33 North Lasalle Street, Suite 2900

Chicago, IL 60602

(312) 454‐2859

Attorneys for Plaintiffs‐Appellants Phoenix

Entertainment Partners, LLC and Slep‐Tone

Entertainment Corporation


‐ 31 ‐

CERTIFICATE OF COMPLIANCE

The undersigned certifies that the foregoing Brief of Plaintiffs‐Appellants

Phoenix Entertainment Partners, LLC and Slep‐Tone Entertainment Corporation

complies with the type‐volume limitation of Fed. R. App. P. 32(a)(7)(B) because it

contains 7,157 words, excluding the parts of the brief exempted by Fed. R. App. P.

32(a)(7)(B)(iii). The undersigned further certifies that this brief complies with the

typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of

Fed. R. App. P. 32(a)(6) because this brief has been prepared in a proportionally spaced

typeface using Microsoft Word Version 2010 in 12 point Palatino Linotype font.



‐ 32 ‐

CERTIFICATE OF SERVICE

I hereby certify that on October 22, 2015, the Brief and Appendix of Plaintiffs‐

Appellants Phoenix Entertainment Partners, LLC and Slep‐Tone Entertainment

Corporation was filed with the Clerk of the Court for the United States Court of

Appeals for the Seventh Circuit by using the appellate CM/ECF system.

The following participants in the case are registered CM/ECF users and will be

served by the appellate CM/ECF system:

John T.D. Bathke

Jonathan L.A. Phillips

SHAY PHILLIPS, LTD.

456 Fulton St., Suite 255

Peoria, IL 61602



APPENDIX


APPENDIX TABLE OF CONTENTS

Order and Opinion (Docket No. 36, August 4, 2015) .........................................A‐01

Judgment (Docket No. 37, August 4, 2015) ..........................................................A‐22

CIRCUIT RULE 30(d) COMPLIANCE STATEMENT

Pursuant to Circuit Rule 30(d), Plaintiffs‐Appellants Phoenix Entertainment

Partners, LLC and Slep‐Tone Entertainment Corporation state that all of the materials

required by Circuit Rule 30(a) are included in the Appendix bound with Appellants’

brief herewith.

Dated: October 22, 2015 HARRINGTON LAW, P.C.

By: _/s/James M. Harrington___

James M. Harrington


Pineville, NC 28134‐8444

Phone: (704) 635‐6300

[email protected]

Attorney for Plaintiffs‐Appellants

Phoenix Entertainment Partners,

LLC and Slep‐Tone Entertainment

Corporation


UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF ILLINOIS

PEORIA DIVISION SLEP-TONE ENTERTAINMENT CORPORATION, a North Carolina Corporation, Plaintiff, v. THE BASKET CASE PUB, INC., an Illinois Corporation, and DANNETTE RUMSEY, Defendants.

) ) ) ) ) ) ) ) ) ) ) ) )

Case No. 15-cv-1009

O R D E R AND O P I N I O N

This matter is before the Court on Defendants’ Motion to Dismiss. (Doc. 22).

For the reasons stated below, the motion is GRANTED in part. Also pending is

Plaintiff’s Motion For An Extension Of Time To Have Their Response To

Defendants’ Motion To Dismiss Accepted (Doc. 30). That motion is also GRANTED.

Also pending before this Court is Defendants/Counter-Plaintiffs’ Motion To Strike

Plaintiffs/Counterdefendants’ Affirmative Defenses (Doc. 32). For the reasons that

will be discussed herein, that motion is DENIED as moot.

FACTUAL BACKGROUND1

Slep-Tone Entertainment Corporation (“Slep-Tone”) was the manufacturer

and distributor of karaoke accompaniment tracks sold under the trademark “Sound

1 Unless otherwise noted, the Court draws the facts in this section from the Second Amended Complaint (Doc. 20), treating the Plaintiffs’ allegations as true and drawing all reasonable inferences in their favor, in accordance with the motion to dismiss standard described infra at p. 6.

E-FILED Tuesday, 04 August, 2015 12:23:39 PM

Clerk, U.S. District Court, ILCD

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Choice”. Phoenix Entertainment Partners, LLC (“Phoenix”) is the corporate

successor to Slep-Tone. Together they will be referred to as the “Plaintiffs”.2 A

“karaoke accompaniment track” is a re-recorded version of a popular song without

the lead vocals in a specialized format that includes a graphical component

containing a lyric display, cueing information, and other information. The graphical

component is synchronized to the music and is displayed to the patron who is

performing, and typically, to the crowd as well. Plaintiffs sell their products

primarily on CD+G discs but more recently, also on MP3+G media. The “+G” refers

to the fact that these media are enhanced with graphics. The CD+G discs require

special players that are capable of decoding the CD+G format. Technology has

advanced such that the karaoke tracks stored on the CD+G and MP3+G formats

can be decoded and copied to computer hard drives or other storage devices. These

“media-shifted copies” have been duplicated from the original media and written to

non-original media. Karaoke operators now have the ability to store a large number

of karaoke accompaniment tracks on hard drives for convenient transport to their

karaoke shows, without also carrying large numbers of compact discs. Karaoke

operators have also used the available technology to copy one purchased disc to two

or more computer systems for simultaneous use;; to copy their patrons’ discs to the

operator’s computer hard drive at a show;; to “swap” song files with other operators;;

2 Although Plaintiffs allege that Phoenix is the owner of the marks and has succeeded Slep-Tone as to all rights in the Sound Choice ® brand, they nonetheless maintain Slep-Tone as a separate and distinct entity in this lawsuit. If the Court were disallowing the motion to dismiss and allowing this suit to proceed, it would inquiry further into whether Slep-Tone is a real party-in-interest to this suit. But since the motion to dismiss will be granted and this action dismissed with prejudice, the point is moot.

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to obtain and share karaoke tracks via file-sharing sites and torrents (files sent

through what is called the BitTorrent protocol, which allows multiple computers to

transfer a single file); to purchase computer hard drives that were pre-loaded with

copies of karaoke tracks; and to sell3 off their original media in a secondary market

once they have copied tracks to a hard drive.

Plaintiffs permit karaoke operators, such as Defendants, to use purchased

CD+G discs to provide karaoke services to patrons under certain conditions.

However, Plaintiffs have a media-shifting policy (“MSP”) that imposes mandatory

rules for karaoke operators who use media-shifted copies of Sound Choice® karaoke

tracks to provide commercial karaoke services. The MSP requires compliance with

four conditions: (1) 1:1 (“one-to-one”) correspondence, meaning that for every media-

shifted Sound Choice® karaoke track on a given medium such as a computer hard

drive, the operator owns and maintains possession of a lawful original Sound

Choice® karaoke track on its original medium, on a one-copy-for-one-original basis;

(2) that the original media that form the basis for 1:1 correspondence are placed “on

the shelf,” i.e., not used for any purpose at all;; (3) that the operator notify Plaintiffs

that he or she has media-shifted karaoke tracks; and (4) that the operator submit to

and be certified as having passed an audit of the operator’s systems to verify

complete compliance with the MSP. Nevertheless, karaoke operators have used the

available technology to copy one purchased disc to two or more computer systems

for simultaneous use and other similarly unauthorized uses disallowed by the MSP.

3 Plaintiffs do not allege these particular Defendants have sold any CD+G discs, MP3+G media or media-shifted copies of Plaintiffs’ discs in a secondary market.

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Plaintiffs pay statutory and negotiated royalties to the owners of copyright in

the underlying musical works for its legitimate creation, copying, distribution, and

sales of compact discs containing karaoke accompaniment tracks. Unfortunately,

Plaintiffs have become victimized by the widespread creation, distribution, and

commercial use of counterfeit copies of Plaintiffs’ karaoke discs. For each of the

several recent releases of new karaoke tracks by Plaintiffs, dozens of illegitimate

copies of the contents of the disc have been created. Plaintiffs have lost a

considerable amount of money due to this widespread piracy.

Phoenix is the owner of U.S. Trademark Registration No. 1,923,448, issued

October 3, 1995, and renewed once, for the trademark Sound Choice®, for “pre-

recorded magnetic audio cassette tapes and compact discs containing musical

compositions and compact discs containing video related to musical compositions.”

Phoenix is the owner of U.S. Trademark Registration No. 2,000,725, issued

September 17, 1996, and renewed once, for a display trademark as follows: for “pre-

recorded magnetic audio cassette tapes and compact discs containing musical

compositions and compact discs containing video related to musical compositions.”

Plaintiffs have, for the entire time its marks identified above have been

federally registered, provided the public with notice of those federal registrations

through the consistent display of the symbol ® with its marks as used. Principally,

the Sound Choice® Marks are indicators of Plaintiffs as the origin of karaoke

accompaniment tracks, which means that those marks indicate that the tracks to

which they are applied were made and distributed by Plaintiffs or at their direction

and under their control. Plaintiffs are the owner of their trade dress. This

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distinctive and protectable trade dress includes, at a minimum, (1) the use of a

particular typeface, style, and visual arrangement in displaying the lyrics; (2) the

Sound Choice® Marks; and (3) the use of particular styles in displaying entry cues

for singers, namely a series of vanishing rectangles to indicate the cue. Plaintiffs

have used their trade dress continuously and substantially exclusively for a period

of decades. The aforementioned trade dress serves to distinguish Plaintiffs’ tracks

from the tracks of their competitors, such that persons who are even minimally

frequent consumers of karaoke entertainment services such as those provided by

these Defendants are capable of identifying a particular karaoke track as

originating with Plaintiffs simply by examining the trade dress or any significant

portion thereof, whether or not the Sound Choice® Marks are also displayed.

Defendants provide karaoke entertainment at their venue, The Basket Case,

in Peoria, Illinois. In order to provide these services, rather than using original

karaoke CD+G discs or MP3+G media, Defendants rely upon one or more computer

hard drives that store files containing karaoke accompaniment tracks. Defendants

did not pay royalties or fees to Plaintiffs or to the owners of copyright in the

underlying musical works for the privilege of using these materials. Defendants did

not pay any royalties or fees to Plaintiffs for the privilege of displaying the Sound

Choice® Marks during their karaoke shows.

Moreover, Defendants do not comply with the MSP. The karaoke tracks used

by Defendants at their venue were created by or at the behest of the Defendants, or

by a third party unknown to Plaintiff. The files stored on the Defendants’ computer

hard drives are representative of karaoke tracks originally created by Plaintiffs and

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are marked with the Sound Choice® Marks. When played as intended using

appropriate software, those files cause the Sound Choice® Marks and the

distinctive and protectable trade dress associated with marks to be displayed as

part of the associated video component of the karaoke tracks they represent. Slep-

Tone did not authorize the Defendants to create or use karaoke accompaniment

tracks or computer files representative of karaoke accompaniment tracks that bear

the Sound Choice® Marks or the trade dress. The Defendants know that the

creation and use of karaoke accompaniment tracks or computer files representative

of karaoke accompaniment tracks that bear the Sound Choice® Marks and/or the

trade dress was not authorized by Slep-Tone. A patron or unwitting customer of the

Defendants, when confronted with the display of the Sound Choice® Marks and the

trade dress at one of the Defendants’ shows, is likely to believe that Plaintiffs

created the tracks in use or authorized their creation.

LEGAL STANDARDS

In ruling on a motion to dismiss for failure to state a claim pursuant to Rule

12(b)(6), “the court must treat all well-pleaded allegations as true and draw all

inferences in favor of the non-moving party.” In re marchFIRST Inc., 589 F.3d 901,

904 (7th Cir. 2009). The pleading must contain “a short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To

survive a motion to dismiss, the challenged pleading must contain sufficient detail

to give notice of the claim, and the allegations must “plausibly suggest that the

[non-movant] has a right to relief, raising that possibility above a ‘speculative

level.’” EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007)

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(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The plausibility

standard requires enough facts “to present a story that holds together,” but does not

require a determination of probability. Swanson v. Citibank, N.A., 614 F.3d 400,

404 (7th Cir. 2010). Though detailed factual allegations are not needed, a “formulaic

recitation of a cause of action’s elements will not do.” Twombly, 550 U.S. at 545.

DISCUSSION

As an initial matter, Plaintiffs state they are willing to dismiss all charges

against Dannette Rumsey without prejudice to their ability to refile an amended

complaint against her in the event discovery should warrant her being returned to

the case. Such concession is unnecessary because the federal claims against the

Defendants are not cognizable under the law and the Court declines to exercise its

supplemental jurisdiction over the remaining state law claims.

I. Plaintiffs’ Federal Claims Are Not Barred By Dastar Corporation v. Twentieth Century Fox Film Corporation.

As described by the Supreme Court in Dastar Corporation v. Twentieth

Century Fox Film Corporation, the Lanham Act “was intended to make actionable

the deceptive and misleading use of marks, and to protect persons engaged in ...

commerce against unfair competition.” 539 U.S. 23, 28 (2003) (internal quotations

and citations omitted). The Lanham Act, as codified in the United States Code,

provides in relevant part that

(1) Any person who shall, without the consent of the registrant--

(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or

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services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or

(b) reproduce, counterfeit, copy, or colorably imitate a registered mark and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive,

shall be liable in a civil action by the registrant for the remedies hereinafter provided.

15 U.S.C. § 1114. Moreover, the statute also provides

(a) Civil action

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which--

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125.

In Dastar, the court was concerned with 15 U.S.C. § 1125(a). 539 U.S. at 25.

The relevant facts are as follows: Fox owned the television rights of a television

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series but allowed the copyright in the television series to lapse. Id. at 26. Dastar

bought videotapes of the television series years later, copied them, edited the series

and marketed and sold the videos, which utilized much, if not all, of the video

footage originally contained in the Fox videos. Id. The question presented in Dastar

was whether Dastar violated the trademark rights of Fox under the Lanham Act by

“marketing and selling its own product without acknowledging its nearly wholesale

reliance on Fox’s product.” Id. at 31. In other words, Dastar was selling videos that

largely incorporated Fox’s intellectual property under Dastar’s marks without

giving the public any indication that its videos were making use of Fox’s intellectual

property. Fox’s theory of liability was that Dastar’s video contained a “false

designation of origin, false or misleading description of fact, or false or misleading

representation of fact, which ... [was] likely to cause confusion ... as to the origin ...

of [Dastar’s] goods” because the video footage came from Fox’s videos but was being

sold by Dastar under Dastar’s trademarks. Id.

The Supreme Court rejected Fox’s arguments and explained that Dastar had

merely taken “a creative work in the public domain . . . copied it, made

modifications (arguably minor), and produced its very own series of videotapes.” Id.

The Court held that the phrase “origin of goods” as used in the Lanham Act “refers

to the producer of the tangible goods that are offered for sale, and not to the author

of any idea, concept, or communication embodied in those goods.” 539 U.S. at 37

(emphasis added). As “the phrase refers to the producer of the tangible goods that

are offered for sale, and not to the author of any idea, concept, or communication

embodied in those goods,” id., Dastar was held to be the origin of its own videos and

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the holder of its own marks and so Fox could not maintain a Lanham Act claim

under § 1125(a). Id. at 38. The Seventh Circuit interprets Dastar to instruct that

litigants are “not to use trademark law to achieve what copyright law forbids. Only

a confusion about origin supports a trademark claim, and ‘origin’ for this purpose

means the ‘producer of the tangible product sold in the marketplace.’” Eastland

Music Grp., LLC v. Lionsgate Entm't, Inc., 707 F.3d 869, 872 (7th Cir. 2013)

(emphasis added), quoting 539 U.S. at 31.4

Plaintiffs argue that they are alleging Defendants copied and used the Sound

Choice® trademarks without Plaintiffs’ permission in violation of the Lanham Act.

Plaintiffs’ specific claims here are that Defendants are making unauthorized uses of

their trademarks, not that Defendants have failed to attribute Plaintiffs for the

materials on the karaoke tracks. Given those specific allegations, the Court agrees

with Plaintiffs that Dastar and its progeny do not directly foreclose their claims

against Defendants because Plaintiffs are not seeking to enforce copyright rights via

the Lanham Act. Nevertheless, the Court is left to determine whether Plaintiffs

have pled the requisite elements of actionable Lanham Act claims.

II. Plaintiffs Have Not Pled Allegations That Demonstrate Defendants’ Use Of Media Shifted or Format Shifted Copies Of Plaintiffs’ Karaoke Tracks Will Lead To A Likelihood Of Confusion.

As stated earlier, the Lanham Act “was intended to make actionable the

deceptive and misleading use of marks, and to protect persons engaged in ...

4 As will be explained in more detail later in this Order and Opinion, there are no allegations in the Second Amended Complaint that make it plausible a consumer would view the karaoke tracks at issue and conclude that anyone other than Plaintiff created them and was being credited for creating them.

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commerce against unfair competition.” 539 U.S. at 28 (internal quotations and

citations omitted). The hallmark of trademark protection is to “prevent consumer

deception and confusion.” Platinum Home Mortgage Corp. v. Platinum Fin. Grp.,

Inc., 149 F.3d 722, 726 (7th Cir. 1998). Thus, in both claims under sections 1114

and 1125, a plaintiff must plead facts that make it plausible the defendant’s use of

the trademark is likely to cause confusion among consumers. Smith Fiberglass

Products, Inc. v. Ameron, Inc., 7 F.3d 1327, 1329 (7th Cir. 1993) (“the central issue

is the likelihood of consumers in the relevant market confusing the infringer’s mark

with that of the complainant.” (emphasis added)).

This case does touch upon consumer confusion through the unfair use of a

trademark at all. Instead, this is really a case about piracy, theft, and Defendants

dishonoring Plaintiffs’ MSP. Plaintiffs allege it produces karaoke tracks that it sells

on discs and mp3s to karaoke operators. (Doc. 20 at ¶ 20). Defendants are karaoke

operators who are in the business of providing a venue where karaoke tracks are

played as a service to entice patrons to patronize their establishment and buy their

liquor and ancillary pub fare. (Doc. 20 at ¶¶7, 12-13). There is no basis to conclude

that Plaintiffs and Defendants are engaged in the same business or even in

competition with one another.5

5 While it is true that companies need not be in direct competition in order to find that an infringer’s unfair competition has harmed the Lanham Act plaintiff;; there still must be some showing that the plaintiff has suffered an injury to its commercial interests “proximately caused” by the would-be infringer’s deceptions. See Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1395 (U.S. 2014). In the Second Amended Complaint, Plaintiffs allege “Defendants’ use of the false designations of origin . . . damages Plaintiffs by enabling Defendants to provide or obtain karaoke services at a lower cost than persons who acquire those materials legitimately, including Plaintiffs’ legitimate customers, can provide or

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There are no allegations in the Second Amended Complaint that Defendants

sell or otherwise distribute their stored media-shifted/ format shifted copies of the

karaoke tracks to the public at large or even their own customers who visit their

pub. The allegations in the Second Amended Complaint are that these tracks are

played or made available to be played at the Defendants’ venue;; not sold. (Doc. 20 at

¶ 12 (“Venues that offer karaoke entertainment do so primarily as a free service. . .

.”)). Thus, there are no plausible allegations that Defendants are “producers of the

tangible product sold in the marketplace”, which are necessary elements of Lanham

Act claims under Eastland Music Grp., LLC, 707 F.3d 869, and Dastar, 539 U.S. 23.

In short, the allegations of the Second Amended Complaint merely suffice to

establish that Defendants used or are using Plaintiffs’ product without

authorization under the MSP; not selling Plaintiffs’ karaoke tracks as their own in a

marketplace. The Lanham Act is concerned with the latter conduct, not the former.

Moreover, the Second Amended Complaint makes clear that Plaintiffs are the

unquestionable origin of the karaoke tracks at issue here and Defendants’ alleged

activities are not capable of diminishing or otherwise confusing a consumer’s

perception of the origin of the tracks. Slep-Tone itself states “the Sound Choice

Marks are indicators of Plaintiffs as the origin of karaoke accompaniment tracks,

meaning that those marks indicate that the tracks to which they are applied were

obtain them.” This in turn is alleged to have caused “[t]he consequential denial of revenue from a legitimate market for Plaintiffs’ customers’ services” and prevent “Plaintiffs’ customers from making purchases of material from Plaintiffs and is thus a denial of revenue to Plaintiffs.” (Doc. 20 at ¶¶ 99-100). This pathway of causation from the alleged activities of the Defendants (and others like them) to Plaintiffs’ damages can hardly be characterized as proximate, which means the cause of something is close or immediate.

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made and distributed by Plaintiffs or at its direction and under its control.” (Doc. 20

at ¶ 45). “Patrons are often unable to distinguish the imitation from an

original.” (Doc. 1 at ¶ 32 (emphasis added)). Thus, Plaintiffs’ allegations make it

abundantly clear that the Defendants’ patrons are viewing a screen that displays

Plaintiffs’ marks when the karaoke tracks at issue are played. If, as Plaintiffs

allege, the counterfeit tracks are virtually indistinguishable to the bar patrons from

the original tracks and display of Plaintiffs’ marks indicate to the viewer Plaintiffs’

ownership of the tracks, then there can be no confusion. This is because the viewers

would see Plaintiffs’ marks and associate Plaintiffs as the tracks’ origin. The Second

Amended Complaint provides no basis for this Court to conclude customers would

credit the bar owner with creating the tracks. Nor is there any basis to conclude

that anyone other than Plaintiffs created the tracks. In short, these allegations

undermine any notion that the Defendants are trying to pass off the karaoke tracks

as originating from anyone other than Plaintiffs.

The parties both attempt to discuss whether the traditional factors involved

in a likelihood-of-confusion analysis are satisfied here, yet such factors do not fit the

facts of this case. The Seventh Circuit has outlined the following several factors for

use in determining the likelihood of consumer confusion: “(1) the similarity between

the marks in appearance and suggestion, (2) the similarity of the products, (3) the

area and manner of concurrent use of the products, (4) the degree of care likely to be

exercised by consumers, (5) the strength of the complainant’s mark, (6) any evidence

of actual confusion, and (7) the defendant’s intent (or lack thereof) to palm off its

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product as that of another.” Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456,

461-62 (7th Cir. 2000). These factors do not apply in this case.

For example, there are no allegations in the Second Amended Complaint that

Defendants are displaying competing marks of their own, so only Plaintiffs’ marks

are at issue here. Similarly, there is only one product at issue—the karaoke

tracks—and there are no allegations that Defendants are selling, marketing or

otherwise distributing their media/format shifted copies of Plaintiffs’ tracks to the

public. Furthermore, the allegations of the Second Amended Complaint affirm that

Defendants have not taken any steps to try to “palm off” Plaintiffs’ tracks as their

own; if anything, their display of Plaintiffs’ marks has the salutary effect of clearly

identifying the origin of tracks to the end using Basket Case Pub patron. Slep-Tone

Entm't Corp. v. Canton Phoenix Inc., No. 3:14-CV-764-PK, 2014 WL 5824787, at *10

(D. Or. Sept. 4, 2014) report and recommendation adopted as modified, No. 3:14-CV-

00764-PK, 2014 WL 5817903 (D. Or. Nov. 7, 2014). In short, there can be no

likelihood of confusion at issue in this case because there are no issues of confusion,

competing marks or competing products.

III. Dastar’s Hypothetical Does Not Sanction Plaintiffs’ Trademark Claims Against Defendants.

In support of its opposition to the motion to dismiss, Plaintiffs cite a few

Northern District of Illinois opinions in which the courts found Dastar did not

foreclose its Lanham Act claims against other karaoke bar owners/operators. To be

clear, this Court agrees with those courts on that discrete issue. Given Dastar’s

limited holding—claims arising under 15 U.S.C. § 1125(a) do not extend to claims of

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unaccredited copying of uncopyrighted work—the Court does not find that

Plaintiffs’ Lanham Act claims are foreclosed by Dastar.

Nevertheless, the Court is aware that those district courts have also allowed

Plaintiffs to proceed with similar claims against other karaoke venue owners with

reference to Dastar. See, e.g., Slep-Tone Entm't Corp. v. Sellis Enterprises, Inc., No.

13 C 08070, 2015 WL 1593498 (N.D. Ill. Apr. 3, 2015); Slep-Tone Entm't Corp. v.

Coyne, 41 F. Supp. 3d 707, 711 (N.D. Ill. 2014); Slep-Tone Entm't Corp. v. Elwood

Enterprises, Inc., No. 13 C 7346, 2014 WL 1612891 (N.D. Ill. Apr. 21, 2014); Slep-

Tone Entm't Corp. v. America's Bar & Grill, LLC, No. 13 C 8526, 2014 WL 4057442,

at *3 (N.D. Ill. Aug. 15, 2014).

Having read those cases, it is evident that those courts are operating under

the impression that defendants are creating a new good in the marketplace by

shifting the karaoke tracks from one medium to another. E.g., Sellis Enters., 2015

WL 1593498 at *5 (“The media and format shifting operates as an independent

creation event, placing a new ‘good’ in the marketplace.”). In coming to that

conclusion, those courts rely on obiter dictum expressed in the Dastar opinion that

“had defendant bought some of plaintiff's videotapes and ‘merely repackaged them

as its own,” “this would have been a proper false designation of origin claim.” 539

U.S. at 31. The Court does not conclude that this statement can be construed to

allow Plaintiffs’ claims here to proceed for the following two reasons.

First, what the Court did not state in its hypothetical, but should

nevertheless be apparent from its context, is that the hypothetical repackaged

videos would necessarily have to be sold in a marketplace or otherwise distributed

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to consumers in a marketplace in order for there to be an actionable Lanham Act

infringement violation. This is the crucial point that distinguishes Defendants’

actions from the hypothetical infringement discussed in Dastar—Defendants are

not alleged to be selling or advertising or otherwise distributing their media shifted

copies of Plaintiffs’ karaoke tracks to anyone, whereas the hypothetical seller in

Dastar was understood to be selling the repackaged videos.6

Second, the idea that a new good has been created merely by shifting the

tracks from a disk to a hard drive is deeply flawed. In Sellis Enters., for example,

the court wrote:

if an individual were to take a Slep–Tone CD and copy the tracks onto another CD, it is difficult to dispute that a new good has been made, a good that Slep–Tone did not create. . . . [M]edia- and format-shifting creates a new tangible good of which Slep-Tone is not the original producer. Because the producer of the new good (karaoke jockeys) and the mark-holder of the mark on the goods (Slep-Tone) do not match, the alleged use of Slep-Tone's mark on the copied tracks is a false designation of origin covered by the Lanham Act.

Sellis Enters., 2015 WL 1593498 at *5. This argument ignores that the object of

value desired by the bar patrons and karaoke operators alike is not the particular

medium upon which the track is presented for consumption; rather, it is the

underlying tracks themselves. The particular medium upon which the tracks are

stored is meaningless. Canton Phoenix Inc., 2014 WL 5817903, at *2 (“The relevant

“good” in this case are the karaoke tracks themselves, and not the means by which

those goods are stored (e.g. CD vs. hard drive)”). Plaintiffs have not alleged that

6 McCarthy on Trademarks and Unfair Competition regards the hypothetical to be nothing more than an affirmation of the familiar use of 1125(a) claims to reach instances where one party “buys a product of another and falsely claims to have ‘produced’ or ‘manufactured’ the goods.” § 27:78 (4th ed.).

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karaoke bar patrons give any concern whatsoever to how the tracks are stored or to

who created the tracks with which the patrons are singing along.7

Furthermore, the argument that Defendants have created some new product

in the marketplace also ignores the clear import of Dastar’s holding, which is that

“[o]nly a confusion about origin supports a trademark claim, and ‘origin’ for this

purpose means the ‘producer of the tangible product sold in the marketplace.’”

Eastland Music Grp., LLC v. Lionsgate Entm't, Inc., 707 F.3d 869, 872 (7th Cir.)

(emphasis added), quoting 539 U.S. at 31. Again, this Second Amended Complaint

does not allege that Defendants are selling the media shifted copies of the karaoke

tracks in a marketplace.

Consequently, the Court finds that the Second Amended Complaint does not

allege a likelihood-of-confusion and does not state a cognizable claim of trademark

or trade dress infringement or unfair competition against the Defendants under §§

32 and 43 of the Trademark Act of 1946 codified at 15 U.S.C. §§ 1114 and 1125.

Counts I and II are dismissed.

7 To be clear, Plaintiffs do not allege that Defendants’ piracy has caused the quality of the tracks to be degraded such that consumers are viewing Plaintiffs’ marks displayed by the media shifted copies and are left with the impression that Plaintiffs produce inferior karaoke tracks. (See Doc. 20 at ¶¶22-23). Such allegations would not be logical anyway in light of Plaintiff’s allegations that the popularity of SOUND CHOICE karaoke tracks derives from the market’s perception that the recordings are usually the most faithful to the sound of the original recording artist and provide highly accurate singing cues as part of the video display; characteristics Plaintiffs allege are highly valued by karaoke singers. (Doc. 20 at ¶¶ 18-19). If karaoke operators such as Defendants were offering inferior quality tracks, then karaoke singers would ultimately abandon such operators over time in favor of operators who chose to provide the tracks by way of the high quality CD+G discs.

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When a court dismisses a claim pursuant to a Rule 12(b)(6) motion, the

dismissal must be with prejudice because the claim is not one upon which relief can

be granted. Remijas v. Neiman Marcus Grp., LLC, No. 14-3122, 2015 WL 4394814,

at *8 (7th Cir. July 20, 2015) (“A dismissal under Rule 12(b)(6), in contrast, is a

dismissal with prejudice.”); Kamelgard v. Macura, 585 F.3d 334, 339 (7th Cir. 2009).

Therefore, the Plaintiffs’ Counts I and II are dismissed with prejudice. The Court

expresses no judgment as to the propriety of Counts III and IV, Illinois state law

claims, because the Court declines to exercise its supplemental jurisdiction under

28 U.S.C. § 1367(c).

IV. Defendants/Counter-Plaintiffs’ Counterclaims Are Dismissed With Prejudice.

Having dismissed the federal claims and declined to exercise supplemental

jurisdiction over the Illinois state law claims, the Court is left to determine what to

do with the Defendants/Counter-plaintiffs’ counterclaims (Doc. 21). Generally, the

dismissal of a complaint does not necessarily require dismissal of counterclaims.

However, jurisdiction under Article III of the Constitution must always be satisfied,

and such jurisdiction requires an actual case or controversy between the parties.

Flast v. Cohen, 392 U.S. 83, 94 (1968). This requirement extends to claims brought

under the Declaratory Judgment Act, 28 U.S.C. § 2201, Aetna Life Ins. Co. of

Hartford, Conn. v. Haworth, 300 U.S. 227, 239-40 (1937), which

Defendants/Counter-plaintiffs cite as the source of their counterclaims. (Doc. 21 at

2). The counterclaims are as follows: In Count I, Defendants/Counter-plaintiffs seek

a judgment that Plaintiffs’ marks are invalid and unenforceable and should be

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cancelled pursuant to 15 U.S.C. § 1119. (Doc. 21 at 5). In Count II, they seek the

same relief under a theory that Plaintiffs have failed to supervise the licensing of

their product. (Doc. 21 at 6). In Count III, Defendants/Counter-plaintiffs seek the

same relief under a theory that Plaintiffs have abandoned the marks. (Doc. 21 at 6).

Finally, in Count IV, they seek a judgment that Plaintiffs’ purported trade dress

features are not protectable.

These counterclaims must be dismissed at this point because there is no

longer an actual controversy between the parties. Plaintiffs’ suit alleged

infringement of trademarks and trade dress. (Doc. 20 at 14-15).

Defendants/Counter-plaintiffs’ counterclaims are all really nothing more than

affirmative defenses to Plaintiffs’ claims in that their purpose is to avoid liability for

the trademark and trade dress liability and unequivocally seek cancellation of the

marks under the Lanham Act. The Court has ruled that Plaintiffs cannot enforce

the marks sub judice against these Defendants for the complained conduct under

the Lanham Act. Thus, Defendants need not fear any further litigation (save

appellate litigation) based upon Lanham Act claims from the Plaintiffs for their use

of media shifted copies of the karaoke tracks.

In a particularly instructive case from the Northern District of Illinois, the

district court dismissed a counterclaim with prejudice requesting cancellation of a

trademark pursuant to 15 U.S.C. § 1119 after the plaintiff voluntarily dismissed its

infringement and unfair competition claims based upon on the same mark. CIBER,

Inc. v. CIBER Consulting, Inc., 326 F. Supp. 2d 886 (N.D. Ill. 2004). The CIBER

court found that the dismissal of the plaintiff's claims with prejudice barred any

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suit based on the defendants’ current or past use of the mark at issue and that in

the absence of such an infringement suit, or the threat of such a suit, there was no

justiciable case or controversy. Id. at 889.

Similar circumstances exist here. The Court’s dismissal of the federal claims

is with prejudice, which has the effect of barring any suit based on the Defendants’

current or past alleged use of the mark at issue. See Kamelgard, 585 F.3d at 339 (“A

dismissal for failure to state a claim is a dismissal on the merits, Fed.R.Civ.P. 41(b),

unless the dismissal order states otherwise; and a dismissal on the merits is

normally with prejudice and thus a bar to relitigation.”). Therefore, there is no

justiciable case or controversy left here because there is no longer a real threat of an

infringement suit based upon the conduct at issue in this lawsuit and the Court

may properly dismiss the counterclaims with prejudice.

CONCLUSION

Defendant’s Motion to Dismiss (Doc. 22) is GRANTED as to Counts I and II

of the Second Amended Complaint ONLY. The Court expresses no judgment as to

the propriety of Counts III and IV, Illinois state law claims. The Court declines to

exercise supplemental jurisdiction under 28 U.S.C. § 1367(c). Defendants/Counter-

plaintiffs’ counterclaims are also DISMISSED with prejudice and

Defendants/Counter-Plaintiffs’ Motion To Strike Plaintiffs/Counterdefendants’

Affirmative Defenses (Doc. 32) is DENIED as moot.

CASE TERMINATED

IT IS SO ORDERED.

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Entered this 4th day of August, 2015.

s/ Joe B. McDade JOE BILLY McDADE United States Senior District Judge

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E-FILED Tuesday, 04 August, 2015 04:30:14 PM

Clerk, U.S. District Court, ILCD

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