United States District Court, N.D. Illinois, Eastern Division
SLEP-TONE ENTERTAINMENT CORPORATION, Plaintiff/Counter-Defendant,
JOHN COYNE d/b/a EXTREME KARAOKE and ABSOLUTE DISC JOCKEYS, ALLEN MONDO, RACHEL YACKLEY, PETER GARCIA, and KENNY SEIDMAN d/b/a DJ KENNY B, Defendants/Counter-Plaintiffs.
MEMORANDUM OPINION AND ORDER
GARY FEINERMAN, District Judge.
Slep-Tone Entertainment Corporation brought this suit against John Coyne, Allen Mondo, Rachel Yackley, Peter Garcia, and Kenny Seidman, alleging that they engaged in the unauthorized use and display of Slep-Tone's product bearing its Sound Choice trademark, in violation of §§ 32 and 43 of the Lanham Act, 15 U.S.C. §§ 1114, 1125, and the Illinois Deceptive Trade Practices Act, 815 ILCS 510/1 et seq. Doc. 1. The court denied Defendants' motion under Federal Rule of Civil Procedure 12(b)(6) to dismiss the complaint; familiarity with that opinion is assumed. Docs. 51-52 (reported at ___ F.Supp.2d ___, 2014 WL 1848735 (N.D. Ill. May 8, 2014)). Defendants answered and asserted ten counterclaims. Doc. 53. Slep-Tone has moved to dismiss nine of the counterclaims under Rule 12(b)(6). Docs. 57, 61. The motion is granted, though Defendants will be given an opportunity to replead.
In considering Slep-Tone's motion to dismiss, the court assumes the truth of the counterclaims' factual allegations, though not their legal conclusions. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012). The court must also consider "documents attached to the [counterclaims], documents that are critical to the [counterclaims] and referred to in [them], and information that is subject to proper judicial notice, " along with additional facts set forth in Defendants' brief opposing dismissal, so long as those additional facts "are consistent with the pleadings." Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). The facts are stated as favorably to Defendants, the non-movants, as these materials allow. See Gomez v. Randle, 680 F.3d 859, 864 (7th Cir. 2012).
Slep-Tone manufactures karaoke accompaniment tracks, which guide participants as they sing along to songs. Doc. 53 at p. 33, ¶ 7. Slep-Tone sells the tracks to entertainers, known as karaoke jockeys, who are hired by bars and restaurants to provide karaoke music and equipment, warm up the crowd, set the order of karaoke performances, and operate the karaoke equipment. Id. at p. 7, ¶ 22. Karaoke jockeys usually provide participants with a catalog of songs available for performance. Id. at p. 8, ¶ 23.
Since its founding twenty-eight years ago, Slep-Tone has sold its accompaniment tracks under the name "Sound Choice, " which is presented in slanted font against the backdrop of the five lines of a music staff. Id. at p. 15, ¶¶ 50-51. In 2011, Slep-Tone filed for U.S. Trademark Registration Nos. 4, 099, 045 and 4, 099, 052 for the Sound Choice name and mark; the United States Patent and Trademark Office ("USPTO") approved the application in early 2010. Id. at p. 34, ¶¶ 12-15.
The following year, Slep-Tone sent letters to Defendants, who are affiliated with a karaoke entertainment company owned by Coyne, and to venues where Defendants provide karaoke services. Id. at p. 35, ¶¶ 20-21. The letters claimed that Defendants were infringing Slep-Tone's trademark by using unauthorized tracks that displayed the Sound Choice mark during their performances, and threatened to sue unless Defendants purchased a new set of authorized tracks and allowed Slep-Tone to audit their digital media at any time. Id. at p. 35, ¶¶ 20-22. The letters also threatened to sue the karaoke venues unless they hired Slep-Tone-approved karaoke jockeys or required their existing jockeys to submit to audits. Id. at p. 35, ¶¶ 23-24. As noted above, Slep-Tone ultimately did sue Defendants for infringement. Doc. 1.
Defendants' ten counterclaims fall into two broad categories. Doc. 53 at pp. 35-45. Counts I through V attack the scope and validity of the Sound Choice mark. Counts VI through X are premised to varying degrees on the charge that this lawsuit is part of an "orchestrated litigation plan [by Slep-Tone] to defraud and otherwise extort money from legitimate karaoke operators." Id. at p. 34, ¶ 19.
I. Trademark Counterclaims
Count I seeks a declaratory judgment that the Sound Choice mark is invalid and unenforceable. Doc. 53 at pp. 35-36, ¶¶ 26-30. Counts III and IV seek to cancel the mark pursuant to 15 U.S.C. § 1064. Id. at pp. 38-40, ¶¶ 39-54. Count V seeks damages under 15 U.S.C. § 1120 for fraudulent procurement of registration. Id. at pp. 40-41, ¶¶ 55-58. (Slep-Tone does not move to dismiss Count II, which seeks a declaratory judgment that Defendants did not infringe the mark, and which is a mirror image of Slep-Tone's infringement claim. Id. at pp. 36-37, ¶¶ 31-38.)
At bottom, Counts I and III-V are premised on Defendants' charge that Slep-Tone 2011 application defrauded the USPTO by falsely claiming that the Sound Choice mark had been used in commerce. See generally Resorts of Pinehurst, Inc. v. Pinehurst Nat'l Corp., 148 F.3d 417, 420 (4th Cir. 1998) ("A mark shall be canceled if its registration was fraudulently obtained."); 15 U.S.C. § 1120 ("Any person who shall procure registration in the Patent and Trademark Office of a mark by a false or fraudulent declaration or representation, oral or in writing, or by any false means, shall be liable in a civil action by any person injured thereby for any damages sustained in consequence thereof."); 15 U.S.C. § 1064(3) (allowing for cancellation of a mark due to, among other things, fraudulent registration). "Use in commerce" is one of requirements for trademark registration. See 15 U.S.C. § 1051(a)(3)(C); 37 C.F.R. § 2.34(a). "Use in commerce" means "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"; a mark is used in commerce on goods when 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, " and 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.
In its trademark application, which Slep-Tone attached to its brief, Slep-Tone represented that the Sound Choice mark had been "first use[d] in commerce... as early as 07/21/2010." Doc. 61-1 at 2. The application is a matter of public record, see Rockland Expo., Inc. v. Alliance of Auto. Serv. Providers of N.J., 894 F.Supp.2d 288, 301 n.6 (S.D.N.Y 2012); Tecumseh Poultry LLC v. Perdue Holdings, Inc., 2012 WL 3018255, at *6 n.4 (D. Neb. July 24, 2012), and therefore is an appropriate subject for judicial notice, see Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). In addition, the application is critical to the counterclaims and referred to in them, and thus may be considered on a Rule 12(b)(6) motion for that reason as well. See Geinosky, 675 F.3d at 745 n.1.
The counterclaims allege that Slep-Tone's representation regarding the use in commerce of the mark "was false because [neither] Slep nor any of its agents were using the mark for the purpose of conducting karaoke shows nor have they ever been in the business of conducting entertainment karaoke shows." Doc. 53 at pp. 38, 39, ¶¶ 42, 50. The premise of this allegation-that use in commerce means use only by the applicant-is incorrect, as use in commerce also encompasses use by a "related company." See 15 U.S.C. § 1055 ("Where a... mark sought to be registered is or may be used legitimately by related companies, such use shall inure to the benefit of the registrant or applicant for registration."); 37 C.F.R. § 2.38(a) ("If the first use of the mark was by a predecessor in title or by a related company..., and the use inures to the benefit of the applicant, the dates of first use... may be asserted with a statement that first use was by the predecessor in title or by the related company, as appropriate."). "Related company" means "any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods or services on or in connection with ...