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Slep-Tone Entertainment Corporation v. Elwood Enterprises, Inc.

United States District Court, N.D. Illinois, Eastern District

April 21, 2014

SLEP-TONE ENTERTAINMENT CORPORATION, Plaintiff,
v.
ELWOOD ENTERPRISES, INC., Defendant.

OPINION AND ORDER

JOAN HUMPHREY LEFKOW, District Judge.

Plaintiff Slep-Tone Entertainment Corporation ("Slep-Tone") filed a two-count complaint (dkt. 1) against defendant Elwood Enterprises, Inc. ("Elwood"), asserting claims for trademark infringement and unfair competition. Elwood has moved to dismiss the complaint for failure to state a claim and failure to join an indispensable party under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(7). ( See dkt. 16 ("Mot.").) For the following reasons, the motion is denied.[1]

BACKGROUND[2]

Slep-Tone, a North Carolina corporation, owns two United States Trademarks[3] for the mark "SOUND CHOICE, " along with two trademarks[4] for the display mark (together, the "Sound Choice marks"). Slep-Tone places these marks on the karaoke accompaniment tracks that it creates and then sells or licenses the tracks to professional karaoke operators, venues that operate their own karaoke systems, and home users to sing karaoke.

Elwood operates the Mecca Supper Club ("Mecca") in Chicago. One draw of Mecca is its karaoke entertainment service. Elwood contracts with a third party to provide this service for its clients "as an inducement for their patronage and purchase of food, drink, and other concessions." (Compl. ¶ 10.) The third party "karaoke operators, " or karaoke disc jockeys ("KJs"), with whom Elwood contracts play "karaoke accompaniment tracks" with which Mecca's patrons sing along. ( Id. ¶ 17.) Much of the content played at Elwood was originally created by Slep-Tone and is branded with Slep-Tone's marks. But the actual tracks played are not Slep-Tone's tracks. They are tracks that the KJs duplicated from an original or non-original source, or acquired from another person who did so, without Slep-Tone's authorization. As a result, Slep-Tone does not realize any royalty fees on these "counterfeit karaoke accompaniment tracks." ( Id. ¶ 26.) Elwood, on the other hand, "realized substantial revenues and profits from the sale of concessions to patrons during the performance of karaoke shows at which counterfeit karaoke accompaniment tracks were used and counterfeits of the Sound Choice Marks were displayed." ( Id. ¶ 29.) Moreover, Slep-Tone alleges that this practice has caused confusion among Elwood's customers, who believe that because the Sound Choice marks appear on the karaoke tracks, they were in fact produced by Slep-Tone. By permitting its KJs to play accompaniment tracks pirated from another manufacturer, Elwood "permitted the display of the words, names, and symbols of the other manufacturer in connection with the Defendant's karaoke services." ( Id. ¶ 69.)

Elwood has the right and ability to control whether its contractors use authentic or counterfeit karaoke materials. Slep-Tone and its affiliates have informed Elwood of the infringing and counterfeit character of its contractors' accompaniment tracks and offered Elwood the opportunity to enter into its Verified Compliance Safe Harbor program or other certification programs. But Elwood has refused to participate. As a result of these communications, however, Elwood has actual knowledge of the infringing and counterfeit nature of its contractors' karaoke materials. By contracting with these "pirate karaoke operator(s), " Slep-Tone alleges, Elwood reduces its own costs while depriving Slep-Tone of its royalty payments. ( Id. ¶ 45.) Pirate karaoke operators also have reduced Slep-Tone's sales generally, "as would-be purchasers of the Plaintiff's legal products eschew those products in favor of obtaining counterfeit product at a greatly reduced cost." ( Id. ¶ 49.) Slep-Tone asserts that the counterfeiting has caused it damages in excess of $100, 000.

Slep-Tone asserts two counts in its complaint, trademark infringement and unfair competition in violation of the Trademark Act of 1946 ("the Lanham Act"), 15 U.S.C. § 1051 et seq. Slep-Tone seeks injunctive and monetary relief.

ANALYSIS

I. Motion to Dismiss Under Rule 12(b)(6)

A. Legal Standard

In ruling on a Rule 12(b)(6) motion, the court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. Dixon v. Page, 291 F.3d 485, 486 (7th Cir. 2002). 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 must also establish that 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. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The allegations in the complaint must be "enough to raise a right of relief above the speculative level." Twombly, 550 U.S. at 555. At the same time, the plaintiff need not plead legal theories. Hatmaker v. Mem'l Med. Ctr., 619 F.3d 741, 743 (7th Cir. 2010). Rather, it is the facts that count.

B. Trademark Infringement

Elwood's first argument is that the complaint fails to allege any claims for direct, contributory, or ...


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