Phx. Entm't Partners, LLC v. Rumsey

• Citation: 829 F.3d 817,119 U.S.P.Q.2d 1457
• Decision Date: 21 July 2016
• Docket Number: No. 15–2844,15–2844
• Parties: Phoenix Entertainment Partners, LLC and Slep–Tone Entertainment Corporation, Plaintiffs–Appellants, v. Dannette Rumsey and Basket Case Pub, Incorporated, Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

829 F.3d 817

119 U.S.P.Q.2d 1457

Phoenix Entertainment Partners, LLC and Slep–Tone Entertainment Corporation, Plaintiffs–Appellants

v.Dannette Rumsey and Basket Case Pub, Incorporated, Defendants–Appellees.

No. 15–2844

United States Court of Appeals, Seventh Circuit.

Argued February 12, 2016

Decided July 21, 2016

Rehearing En Banc Denied Aug. 30, 2016.

James Michael Harrington, Attorney, Harrington Law, P.C., Pinesville, NC, Vivek Jayaram, Attorney, Jayaram Law Group, Ltd., Chicago, IL, for Plaintiffs–Appellants.

Jonathan L.A. Phillips, Attorney, John T.D. Bathke, Attorney, Shay Phillips Ltd, Peoria, IL, for Defendants–Appellees.

Before Wood, Chief Judge, Rovner, Circuit Judge, and Blakey, District Judge.^*

Rovner, Circuit Judge.

Slep–Tone Entertainment Corporation and its successor in interest, Phoenix Entertainment Partners, LLC¹ (collectively, “Slep–Tone”) contend in this litigation that the defendants, a pub and its owner, committed trademark infringement by passing off unauthorized digital copies of Slep–Tone karaoke files as genuine Slep–Tone tracks. See Bretford Mfg., Inc. v. Smith Sys. Mfg. Corp. , 419 F.3d 576, 580 (7th Cir. 2005) (describing passing off and reverse passing off cases). Because we agree with the district court that Slep–Tone has not plausibly alleged that the defendants' conduct results in consumer confusion as to the source of any tangible good sold in the marketplace, we affirm the dismissal of its complaint.

I.

This suit is one of more than 150 that Slep–Tone has filed throughout the country invoking the Lanham Act, 15 U.S.C. § 1051 et seq. , to challenge the unauthorized copying and performance of its commercial karaoke files as a form of trademark infringement. For the better part of three decades, Slep–Tone has produced and distributed karaoke accompaniment tracks under the trademark “Sound Choice.” These tracks are designed for professional karaoke systems and include both audio and graphic (visual) components. The audio component is a re-recorded version of a popular song that omits the lead vocals, as those will be performed by the karaoke singer or singers. The graphic component displays the lyrics to the song as well as a variety of visual cues (including color coding and various icons) that are synchronized with the music in order to aid the singers. Slep–Tone has released over 16,500 karaoke versions of popular songs.

In addition to the Sound Choice trademark (which was registered in 1995 and thereafter renewed), Slep–Tone also claims ownership of a distinctive trade dress that distinguishes its tracks from those of its competitors. This trade dress includes the typeface, style, and visual arrangement of the song lyrics displayed in the graphic component of the accompaniment tracks; a display version of the Sound Choice mark (which has been separately registered since 1996) that is itself typically shown with the song lyrics; and the style of entry cues that are displayed for karaoke singers (including a series of vanishing rectangles) to signal when they should begin to sing. Slep–Tone alleges that it has used this trade dress for decades, and that it is sufficiently recognizable to karaoke customers to enable them to distinguish a track produced by Slep–Tone and a track produced by a competitor even if the Sound Choice mark itself were not displayed.

Slep–Tone sells its karaoke accompaniment tracks to customers on both CD+G compact discs (with the +G referring to the graphic component) and MP3+G media. Technology now enables these tracks to be copied onto the hard drives of karaoke equipment, such that one karaoke machine may host hundreds or thousands of accompaniment tracks. Karaoke singers and “jockeys”² thus have many songs from which to make their selections, and the accompaniment track for the chosen song is immediately available without someone having to physically insert a disc into the karaoke machine and wait for the appropriate track to be “loaded” onto the system. The process of copying the purchased CD+G or MP3+G version of a track onto the hard drive of a karaoke system is known as “media-shifting,” because the content is being shifted from one medium to another, or “format-shifting,” because in the copying process the content is being converted into a different electronic format. Needless to say, the same technology that enables a karaoke operator to make an authorized copy of a track also makes possible the creation of unauthorized copies. An operator may copy a legitimately-purchased track from its original medium onto any number of hard drives; it may copy a patron's tracks onto its own hard drive; it may “swap” tracks with other operators through file-sharing websites; it may purchase a hard drive that someone else has preloaded with tracks; and it may re-sell its original media to other operators after it has copied the tracks onto its own hard drives.

In 2009, Slep–Tone adopted a media-shifting policy that permits its customers to copy the tracks they have purchased, so long as they comply with four conditions. First, there must be a 1:1 correspondence between the tracks purchased and copies made. In other words, for every track copied onto a customer's hard drive, the customer must own and maintain the track on its original medium. So, if an operator wants to have copies of a particular track on two different hard drives, it must purchase two discs with the original content. Second, once a copy has been made, the purchased track on its original medium must be kept “on the shelf” and not used for any purpose. Third, upon making a copy, the operator must notify Slep–Tone that it has media-shifted the track. And fourth, the operator must submit to an audit to certify its compliance with the media-shifting policy.

It should come as no surprise that not all operators comply with Slep–Tone's media-shifting policy. Slep–Tone alleges that karaoke operators have engaged in widespread and unauthorized copying of its tracks. Whereas Slep–Tone pays royalties to the copyright owners of the original musical works incorporated into its derivative karaoke accompaniment tracks, it is repeatedly deprived of revenue when karaoke operators make multiple, unauthorized copies of Slep–Tone's Sound Choice tracks.

The Basket Case Pub, Inc., one of the two defendants in this case, is an Illinois corporation that operates an eating and drinking establishing in Peoria, Illinois known as The Basket Case. Dannette Rumsey, the other defendant, is the president and sole owner of that corporation. Like most venues offering karaoke entertainment, The Basket Case provides karaoke services free of charge in order to attract patrons and encourage them to buy food and drinks. The defendants own one or more hard drives containing copies of Sound Choice tracks. However, those copies allegedly were made by or at the behest of the defendants in violation of Slep–Tone's media-shifting policy. In other words, the defendants are allegedly playing illegitimate “bootleg” copies instead of authorized copies properly made from legitimately-acquired Slep–Tone media.

Slep–Tone's second amended complaint asserts claims for both trademark infringement and unfair competition under the Lanham Act. Its theory, as we discuss in greater detail below, is that when the defendants play unauthorized copies of Slep–Tone karaoke tracks at the pub, customers see Slep–Tone's Sound Choice mark and trade dress and believe they are seeing and hearing a legitimate, authentic Slep–Tone track, when in fact they are seeing an unauthorized copy. Slep–Tone characterizes the unauthorized copy of its track as a distinct good which the defendants are improperly “passing off” as a genuine Slep–Tone track. In addition to the two federal claims, Slep–Tone's complaint includes two pendent state law claims for violation of the Illinois Uniform Deceptive Trade Practices Act, 815 ILCS 510/1 et seq ., and for common law unfair competition. For their part, the defendants have filed three counterclaims seeking a declaration that the plaintiffs' mark and trade dress are invalid and unenforceable. After finding that Slep–Tone's two Lanham Act claims failed to state a claim on which relief could be granted, the district court relinquished jurisdiction over the state claims and dismissed the defendants' counterclaims as moot. For purposes of this appeal, the relevant portion of the district court's decision is its analysis of the Lanham Act claims.

Key to the district court's decision to dismiss Slep–Tone's claims of trademark infringement was its conclusion that the factual allegations of the complaint did not plausibly suggest that the defendants' unauthorized use of Slep–Tone's trademark and trade dress is likely to cause confusion among customers of The Basket Case as to the source of any tangible good containing the karaoke tracks they are seeing and hearing. Such confusion, the court noted, is a prerequisite to relief under either of the two sections of the Lanham Act on which Slep–Tone's claims were based. And as is clear from the Supreme Court's decision in Dastar Corp. v. Twentieth Century Fox Film Corp. , 539 U.S. 23, 37, 123 S.Ct. 2041, 2050, 156 L.Ed.2d 18 (2003), it is consumer confusion about the source of a tangible good that a defendant sells in the marketplace that matters for purposes of trademark infringement. The defendants do not sell any such tangible good. According to the complaint, the defendants simply play unauthorized copies of Slep–Tone's karaoke tracks for their patrons. What pub patrons see and hear is the intangible content of the karaoke tracks. They will see Slep–Tone's trademark and trade dress and believe, rightly, that Slep–Tone is the source of that intangible content. But patrons will neither see nor care about the physical medium from which the karaoke tracks are played; consequently, any confusion is not about the source of the tangible good containing the karaoke tracks. Slep–Tone's real complaint, then, is...