Sybersound Records, Inc. v. Uav Corp.

• Decision Date: 27 February 2008
• Docket Number: No. 06-55221.,06-55221.
• Citation: 517 F.3d 1137
• Parties: SYBERSOUND RECORDS, INC., Plaintiff-Appellant, v. UAV CORPORATION, doing business as Karaoke Bay doing business as Sterling Entertainment; Madacy Entertainment LP, doing business as Karaoke Party; Audio Stream, Inc., doing business as Keynote Karaoke; Top Tunes, Inc.; Singing Machine Company, Inc.; BCI Eclipse Company, LLC; Amos Alter; David Alter; Edward Goetz; Dennis Norden; Frank Robertson; Douglas Vogt; Richard Vogt, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

517 F.3d 1137

SYBERSOUND RECORDS, INC., Plaintiff-Appellant, v. UAV CORPORATION, doing business as Karaoke Bay doing business as Sterling Entertainment; Madacy Entertainment LP, doing business as Karaoke Party; Audio Stream, Inc., doing business as Keynote Karaoke; Top Tunes, Inc.; Singing Machine Company, Inc.; BCI Eclipse Company, LLC; Amos Alter; David Alter; Edward Goetz; Dennis Norden; Frank Robertson; Douglas Vogt; Richard Vogt, Defendants-Appellees.

No. 06-55221.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 18, 2007.

Filed February 27, 2008.

Peter L. Haviland and Julian Brew, Kaye Scholer LLP, Los Angeles, CA, for the plaintiff-appellant.

Paul N. Sorrell and Henry L. Self, III, Lavely & Singer Professional Corporation, Los Angeles, CA; Daniel A. Johnson, Sullivan Johnson LLP, Los Angeles, CA; Robert A. Aronson, Beverly Hills, CA, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California; John F. Walter, District Judge, Presiding. D.C. No. CV-05-05861-JFW.

Before: DIARMUID F. O'SCANNLAIN and MILAN D. SMITH, JR., Circuit Judges, and MICHAEL W. MOSMAN,^* District Judge.

MILAN D. SMITH, JR., Circuit Judge:

Sybersound Records (Sybersound), a karaoke record producer, appeals the district court's judgment dismissing the first amended complaint (FAC) it filed against its competitors (collectively, Corporation Defendants), and their officers and employees (collectively, Individual Defendants). We affirm the judgment of the district court.

In this appeal, we determine whether a party lacking standing to bring a copyright infringement suit under the Copyright Act, but who complains of competitive injury stemming from acts of alleged infringement, may bring a Lanham Act claim, Racketeer Influenced and Corrupt Organizations Act (RICO) claim, or related state law unfair competition claims, whose successful prosecution would require the litigation of the underlying infringement claim. We hold that it cannot.

We also consider whether the transfer of an interest in a divisible copyright interest from a copyright co-owner to Sybersound, unaccompanied by a like transfer from the other copyright co-owners, can be an assignment or exclusive license that gives the transferee a co-ownership interest in the copyright. We hold that it cannot.

I. Factual Background

A. Copyright Compliance Statements

Sybersound and the Corporation Defendants are competitors that produce and sell karaoke records. They primarily sell to a group of distributors and retailers that resell these records to the public. This purchasing group (collectively, Customers) includes Anderson Merchandising, Handleman Entertainment Resources, Alliance Entertainment Corporation, Wal*Mart, KMart, Best Buy, Toys "R" Us, and Fry's Electronics.

According to Sybersound, to reproduce and distribute karaoke records, karaoke record producers must obtain karaoke synchronization licenses from each copyright holder with an interest in each song included on the record. The Customers require that the karaoke records they buy be 100% licensed. To comply with the Customers' policies, sellers of karaoke records must obtain copyright licenses from and pay fees and full royalties to each of the copyright owners. Some Customers have instituted measures to ensure compliance with their licensing requirements. For example, in 2003, Handleman required its vendors to sign an indemnification agreement in which each vendor "represents that it has all the appropriate and necessary licenses in order for Handleman to sell Vendor's merchandise to Handleman's customers." The following year, Handleman began requiring that each karaoke vendor annually provide a written certification that it has acquired karaoke licenses from each copyright holder and that "each such license is current, valid and paid in full to the date of the opinion letter." Similarly, Anderson requires its vendors to provide written documentation that its karaoke recordings are fully licensed and that vendors are accurately reporting sales and accounting for royalties.

Sybersound alleges that the Corporation Defendants misrepresent to the Customers that their karaoke records are 100% licensed and that all applicable royalties have been paid. Specifically, Sybersound alleges that its competitors claim to have all necessary licenses when they hold only compulsory licenses, licenses from less than 100% of the copyright holders, or no licenses at all. It further alleges that the Individual Defendants have, on various occasions, admitted that they intentionally failed to acquire the appropriate licenses for their karaoke recordings.

Sybersound also alleges that Madacy and Singing Machine use misleading labeling on their karaoke records which state, for example, that all songs are "used with permission" or that "The Singing Machine, The Leader in Home Karaoke, strictly adheres to all applicable music copyright and licensing laws."

Finally, Sybersound alleges that UAV and Madacy's licensing agent sent a letter to the Customers and publishers falsely claiming that Sybersound did not have karaoke-use licenses for many songs included in its recordings.

B. Sybersound's Copyright Infringement Claim

Sybersound also claims that UAV, Madacy, Audio Stream, Top Tunes, and BCI are infringing Sybersound's copyrights in several songs by producing karaoke records of these songs without obtaining a license from Sybersound or its copyright assignor, TVT Music Publishing (TVT). Sybersound claims to have acquired an ownership interest in these songs by entering into a written agreement with TVT, an original co-claimant¹ to the copyright of these songs. This written agreement allegedly made Sybersound an "exclusive assignee and licensee of TVT's copyrighted interests for purposes of karaoke use, and also the exclusive assignee of the right to sue to enforce the assigned copyright interest." According to Sybersound, the copyright holders of these songs had an understanding that each could license only his or her respective shares and that a duly authorized karaoke recording would require a written license from each.

II. Procedural Background

Sybersound, along with six music publishing companies, filed a complaint against the Corporation Defendants, alleging copyright infringement, violation of the Lanham Act, intentional interference with prospective economic relations, unfair competition under California Business and Professions Code § 17200 et seq., common law unfair competition, unfair trade practices under California Business and Professions Code § 17000 et seq., and seeking rescission and an accounting. The district court severed the music publishing plaintiffs from the suit and dismissed the claims for rescission of licenses and an accounting without prejudice. The Corporation Defendants then filed motions to dismiss for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court granted these motions, dismissing the remaining claims with leave to amend.

Sybersound then filed a FAC that included most of the alleged causes of action pled in the original complaint, but also added claims against the Individual Defendants for violations of RICO, 18 U.S.C. § 1962(a), (c). The Corporation Defendants and the Individual Defendants (collectively, Defendants) filed motions to dismiss the FAC for failure to state a claim. The district court granted these motions, dismissing all claims with prejudice, and entered final judgment for the Defendants.² Sybersound timely appealed.

III. Standard of Review and Jurisdiction

Dismissals for failure to state a claim are reviewed de novo. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir.2005). Generally, the review is limited to the consideration of the complaint, and all allegations of material fact are construed in the light most favorable to the nonmoving party. Id. Dismissal is appropriate only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim entitling plaintiff to relief." Id. (citations omitted). "This court can affirm the district court's dismissal on any ground supported by the record, even if the district court did not rely on the ground." Id. at 950 (citations omitted).

We have jurisdiction under 28 U.S.C. § 1291.

IV. Discussion

A. Lanham Act Claim

The Lanham Act § 43(a)(1) states in pertinent part:

Any person who, on or in connection with any goods or services, ... 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 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.

Lanham Act § 43(a)(1), 15 U.S.C. § 1125(a)(1).

The Lanham Act was intended to protect against the "deceptive and misleading use of marks" and to "protect persons engaged in ... [interstate] commerce against unfair competition." 15 U.S.C. § 1127; Dastar v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003). Section 43(a), 15 U.S.C. § 1125(a), "is one of the few provisions[of the Act] that goes beyond trademark protection" and addresses unfair competition. Dastar, 539 U.S. at 29, 123 S.Ct. 2041. This provision, however, "does not have boundless application as a remedy for unfair trade practices" and is not a "federal `codification' of the overall law of `unfair...