United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
JAMES B. ZAGEL, District Judge.
Plaintiff Slep-Tone Entertainment Corporation ("Plaintiff") filed a complaint against Defendants America's Bar & Grill, LLC and Richard Garcia ("Defendants") under §§ 32 and 43 of the Lanham (Trademark) Act, 15 U.S.C. §§ 1114 and 1125. Defendants now move to dismiss both claims of the complaint under Fed.R.Civ.P. 12(b)(6).
Plaintiff Slep-Tone is a manufacturer and distributor of karaoke accompaniment tracks sold under the trademark "SOUND CHOICE." Plaintiff owns U.S. Trademark Registration Nos. 1, 923, 448 and 4, 099, 045 for the trademark "SOUND CHOICE" and U.S. Trademark Registration Nos. 2, 000, 725 and 4, 099, 052 for the Sound Choice display mark (together, the "Sound Choice marks"). The Sound Choice marks are indicators that a karaoke accompaniment track originates from Slep-Tone. Plaintiff also owns and exclusively uses its distinctive and protectable trade dress, which includes (a) the use of a particular typeface, style, and visual arrangement in displaying lyrics; (b) the Sound Choice marks; and (c) the use of particular styles in displaying entry cues for singers, namely a series of vanishing rectangles to indicate the cue. These individual and collected elements of the trade dress, functioning as a visual trademark, have acquired secondary meaning as an indicator of Slep-Tone.
Originally, Plaintiff released compact discs containing karaoke tracks encoded in a special format known as "CD" ("compact disc [audio] plus graphics") that allow for synchronized playback of audio and video suitable for prompting singers with lyrics cues. Computer technology is now widely available that allows the karaoke tracks stored on compact discs in CD format to be decoded and "ripped" (copied) to a computer hard drive. These "media-shifted copies, " copies of karaoke tracks stored on media other than the original compact discs, are frequently shifted to another format (such as MP3 or WAV) and stored on a hard drive. To prevent unauthorized copying of original karaoke tracks, Plaintiffs have established a media-shifting policy ("MSP") that imposes mandatory rules on karaoke operators using media-shifting copies.
Defendant America's Bar & Grill, owned by Defendant Richard Garcia and located in Hoffman Estates, Illinois, provides karaoke services through karaoke accompaniment tracks. Defendants store the karaoke accompaniment tracks on two computer hard drives, containing content that is substantially identical. Plaintiff contends that Defendants use "counterfeit" tracks, that they created, directed another to create, or otherwise acquired from a third party. Plaintiff contends that these "counterfeit" tracks display the Sound Choice marks and the trade dress without authorization. Plaintiff further alleges that these computer files are likely to confuse users into believing that Slep-Tone created the tracks, presenting a false designation of the origin of the karaoke tracks.
Plaintiff filed a two-count complaint against Defendants, alleging trademark and trade dress infringement and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114 and 1125(a). In support of its infringement claim, Plaintiff alleges that Defendants manufactured or acquired the reproduction, copy, or counterfeit of the Sound Choice marks and trade dress and displayed the marks and trade dress during the provision of commercial karaoke services for its financial benefit. Plaintiffs allege that Defendants' display of Sound Choice marks is likely to cause confusion or mistake, or to deceive their customers into believing that their services are being provided with the authorization of Slep-Tone and are bona fide Sound Choice accompaniment tracks. Plaintiff further alleges that by using these copied tracks, rather than bona fide original discs, Defendants have been able to obtain and provide karaoke services at a lower cost than persons who acquire those materials legitimately and, consequently, have denied Slep-Tone revenue.
II. LEGAL STANDARD
When considering a motion to dismiss for failure to state a claim, the court treats all well-pleaded allegations as true, and draws all reasonable inferences in the plaintiff's favor. Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir. 2009). A complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A court need not accept as true any legal conclusion in a complaint, and "a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Iqbal, 556 U.S. at 678-79. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id.
A. Trademark Infringement and Unfair Competition Claims
Plaintiff alleges that Defendants' use of unauthorized, media-shifted Slep-Tone tracks bearing the Sound Choice mark constitutes trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114, 1125. To survive dismissal of a claim for trademark or trade dress infringement under the Lanham Act, a plaintiff must allege: (a) that the marks are protectable; (b) that the defendant used the marks in commerce; and (c) that the defendants' use of the marks is likely to cause confusion. Segal v. Geisha NYC LLC, 517 F.3d 501, 506 (7th Cir. 2008); Ty, Inc. v. Jones Grp., 237 F.3d 891, 897 (7th Cir. 2001). As a general rule, the same facts which would support an action for trademark infringement under § 32(1) would also support an action for unfair competition under § 43(a) of the Lanham Act. 7-Eleven, Inc. v. Spear, No. 10 C 6697, 2011 WL 830069, at *5 n.3 (N.D. Ill. Mar. 3, 2011) (quoting Boston Prof'l Hockey Ass'n v. Dallas Cap & Emblem Mfg., Inc., 510 F.2d 1004, 1010 (5th Cir. 1975) (brackets in original); see also James Burrough, Ltd. v. Sign of Beefeater, Inc., 540 F.2d 266, 274 n.16 (th Cir. 1976).
Plaintiff alleges that it has registered U.S Trademarks over the Sound Choice marks and that Defendants have been using and displaying these marks, without authorization, in rendering commercial karaoke services. Plaintiff alleges that the Defendant allegedly acquired or made unauthorized media-shifted copies of Plaintiff's karaoke accompaniment tracks. Plaintiff alleges that Defendants are, thus, originators of a new media-shifted product that is not Plaintiff's product, but that displays Plaintiff's trademark and trade dress. Plaintiff also alleges that Defendants' use and display of the Sound Choice marks or trade dress, or both, is likely to cause confusion, mistake, or deceive the Defendants' customers and patrons into believing that Defendants' services are being provided with the authorization of the Plaintiff and that Defendants' music libraries contain bona fide Sound Choice accompaniment tracks. Likewise, Plaintiff has alleged that Defendants have been able to provide services at a cost lower than providers who acquire tracks legitimately, resulting in harm to Plaintiff and Plaintiff's legitimate customers. Construing all inferences in Plaintiff's favor, as is required on a motion to dismiss, these allegations, taken in context with the other allegations in Plaintiff's Complaint, plausibly state a claim for trademark infringement and unfair competition.
Defendants do not dispute that Plaintiff has sufficiently alleged the elements of its infringement and unfair competition claims under the Lanham Act, but move to dismiss both claims under Fed.R.Civ.P. 12(b)(6) on the grounds that they are entitled to use Plaintiff's trademark for two reasons. First, Defendants argue that allowing Plaintiff's trademark and trade dress claims to proceed would impermissibly create an expansive, "mutant" copyright protection. Second, Defendants argue that resale of ...