Slep-Tone Entm't Corp. v. Kalamata, Inc.

• Decision Date: 18 December 2014
• Docket Number: No. 14 C 3577,14 C 3577
• Citation: 75 F.Supp.3d 898
• Parties: Slep–Tone Entertainment Corporation, Plaintiff, v. Kalamata, Inc., Defendant.
• Court: U.S. District Court — Northern District of Illinois

75 F.Supp.3d 898

Slep–Tone Entertainment Corporation, Plaintiff

v.Kalamata, Inc., Defendant.

No. 14 C 3577

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

Signed December 18, 2014

Vivek Jayaram, Jayaram Law Group, Chicago, IL, for Plaintiff.

Matthew M. Saffar, Law Offices of Matthew M. Saffar, Palatine, IL, for Defendant.

Memorandum Opinion and Order

Honorable THOMAS M. DURKIN, United States District Judge

Plaintiff Slep–Tone Entertainment Corp. (“Slep–Tone”) brings an action against Kalamata, Inc. (“Kalamata”) for trademark infringement of four of Slep–Tone's trademarks and for unfair competition. R. 1. Kalamata brings a number of counterclaims, principally alleging that Slep–Tone fraudulently procured two of its trademarks. R. 10. In Count I of its counterclaims, Kalamata seeks a declaration of invalidity of the two trademarks it alleges Slep–Tone fraudulently procured; in Counts III and IV, Kalamata asks for the cancellation of the same two trademarks; in Count V, Kalamata seeks damages for the injuries it suffered as a result of the fraudulent procurement of the two trademarks; and in Count VIII, Kalamata brings a common law fraud claim for Slep–Tone's alleged false representations of valid trademark ownership to Kalamata. In addition, Kalamata asserts violations of the Sherman and Clayton Acts in Counts VI and abuse of process in Count VII. Slep–Tone asks the Court to dismiss all but one of the counterclaims¹ pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. R. 13. For the reasons set forth below, the Court grants Slep–Tone's motion to dismiss in part and denies it in part.

I. Background

Kalamata owns and operates a commercial establishment called “Where Else Bar and Grill,” R. 1 at 2 ¶ 9, which offers karaoke shows. R. 10 at 4 ¶¶ 9–10. Karaoke shows are a form of “participatory entertainment, in which individual patrons or groups of patrons,” (“karaoke participants”), “sing popular songs while accompanied by recorded accompaniment music.” R. 1 at 3 ¶ 15. To provide karaoke shows, Kalamata hires karaoke operators, who play karaoke accompaniment tracks (“karaoke tracks”) to guide the karaoke participants to sing along with the music. Id. at 3–4 ¶¶ 14–16; R. 10 at 4 ¶ 10. The karaoke tracks are recorded songs with the vocals faded or omitted and “with graphical displays of the lyrics” of the songs and “other material synchronized to the music.” R. 1 at 4 ¶ 17. Slep–Tone is a manufacturer of karaoke tracks. Id. at 6 ¶ 39. According to Slep–Tone, it has spent “tens of millions of dollars ... to build a world-class recording studio, to hire musicians, to acquire appropriate licenses, ... to pay ongoing royalties, and to advertise” its karaoke products, among them the karaoke tracks. Id. at 6–7 ¶ 40.

In its complaint, Slep–Tone alleges that it owns Trademark Registration Nos. 1,923,448 and 4,099,045, for the trademark SOUND CHOICE, which consists of the words “Sound Choice” written across the backdrop of five lines of a music staff:

Tabular or graphic material set at this point is not displayable.

and Trademark Registration Nos. 2,000,725 and 4,099,052, for the display of the trademark. R. 1 at 3 ¶¶ 11–13. A trademark is “a distinctive mark of authenticity, through which the products of particular manufacturers ... may be distinguished from those of others.” Hoopla Sports & Entm't, Inc. v. Nike, Inc., 947 F.Supp. 347, 353 (N.D.Ill.1996) (internal quotation marks omitted) (citations omitted). A trademark may consist of any symbol or words. Blau Plumbing, Inc. v. S.O.S. Fix–It, Inc., 781 F.2d 604, 609 (7th Cir.1986). According to Slep–Tone, Kalamata hires karaoke operators who use pirated copies of Slep–Tone's karaoke tracks to produce karaoke shows at Kalamata's venue. Id. at 1 ¶ 2, 3–5 ¶¶ 14–26. Slep–Tone alleges that it never authorized these operators, or any individual from whom they may have obtained copies, to make or obtain copies of the karaoke tracks or apply the trademark to any product. Id. at 4 ¶¶ 21–23. Slep–Tone also alleges that it did not receive any royalties or fees from the karaoke operators for the duplication of the karaoke tracks and the use and display of the trademark. Id. at 4–5 ¶¶ 24–25. Slep–Tone alleges that Kalamata derived significant financial gain from contracting with the karaoke operators, id. at 5 ¶¶ 29–31, and is vicariously liable for trademark infringement and unfair competition. Id. at 9–12 ¶¶ 57–76.

In its counterclaims, Kalamata alleges that Slep–Tone fraudulently procured Trademark Registration Nos. 4,099,045 and 4,099,052 for the trademark SOUND CHOICE and the display of the trademark.² R. 10 at 26–27 ¶¶ 11–18. A trademark may be registered with the United States Patent and Trademark Office (“PTO”) if it distinguishes a manufacturer's goods or services from those of others, see 15 U.S.C. § 1052, and if it has been “used in commerce.” See 15 U.S.C. §§ 1051(a)(1), 1127. A person seeking to register a trademark must file an application with the PTO, stating, inter alia, the date that the applicant first used the mark in commerce and the goods in connection with which the mark is used. 15 U.S.C. § 1051(a)(2). Kalamata alleges that Slep–Tone stated in its application³ to the PTO that it had used the trademark SOUND CHOICE in commerce to conduct entertainment exhibitions in the nature of karaoke shows beginning on July 21, 2010. R. 10 at 26–27 ¶¶ 12–16. According to Kalamata, however, Slep–Tone has never been in the entertainment karaoke business and thus, it has never used the trademark in commerce to conduct karaoke shows. Id. at 27 ¶¶ 16–18. Kalamata further alleges that Slep–Tone is engaged in a nationwide litigation scheme to force venue owners, including Kalamata, to buy Slep–Tone's products or contract exclusively with karaoke operators who are licensed through Slep–Tone. Id. at 25–28 ¶¶ 6–25. Kalamata alleges that since obtaining the trademarks, Slep–Tone has threatened and filed numerous lawsuits against karaoke operators and venue owners who refuse to buy its products or hire its licensed karaoke operators. Id. at 26 ¶¶ 9–10, 27–28 ¶¶ 20–23.

II. Legal Standard

A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g., Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir.2009). A complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This standard “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While “detailed factual allegations” are not required, “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. The complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ). “ ‘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.’ ” Mann v. Vogel, 707 F.3d 872, 877 (7th Cir.2013) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.

III. Analysis

A. The Fraud–Based Counterclaims.

1. The Counterclaims for Fraudulent Procurement of the Trademarks

Kalamata alleges in its counterclaims that Slep–Tone fraudulently procured Trademark Registration Nos. 4,099,052 and 4,099,045 with the PTO. R. 10 at 26–27 ¶¶ 11–16. In Counts I, III, and IV, Kalamata asks the Court to invalidate and cancel these marks. Id. at 28–29 ¶¶ 26–30, 30–32 ¶¶ 39–54. In Count V, Kalamata seeks damages for injuries it suffered as a result of the alleged fraudulent procurement. Id. at 32–33 ¶¶ 55–58. Slep–Tone has moved to dismiss these Counts.

A claim for fraudulent procurement requires the party challenging the validity of a trademark to demonstrate that the trademark applicant “deliberately attempted to mislead the PTO by presenting materially false and misleading information when ... appl[ying] for the[ ] trademark registration.” Box Acquisitions, LLC v. Box Packaging Prods., LLC, No. 12 C 4021, 32 F.Supp.3d 927, 939, 2014 WL 1245264, at *8 (N.D.Ill. Mar. 26, 2014) (citing to Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 670 (7th Cir.1982) ); see also Thomas Indus., Inc. v. L.E. Mason Co., No. 90 C 4099, 1991 WL 83821, at *2 (N.D.Ill. May 12, 1991) (A claim for fraudulent procurement of a trademark requires “ ‘(1) [a] false representation regarding a material fact; (2) the registrant's knowledge or belief that the representation is false (scienter); (3) the intention to induce action or refraining from action in reliance on the misrepresentation; (4) reasonable reliance on the misrepresentation; and (5) damages proximately resulting from such reliance.’ ”) (quoting San Juan Prods., Inc. v. San Juan Pools of Kan., Inc., 849 F.2d 468, 473 (10th Cir.1988) ). Kalamata alleges that Slep–Tone obtained Trademark Nos. 4,099,052 and 4,099,045 by stating in its November 29, 2011 application to the PTO that it had used the SOUND CHOICE trademark in commerce to “conduct[ ] entertainment exhibitions in the nature of karaoke shows” beginning on July 21, 2010. R. 10 at 26–27 ¶¶ 12–15. Kalamata alleges that these representations were false because Slep–Tone has never participated in or otherwise conducted a karaoke entertainment exhibition and thus, it has never used the trademark in commerce to conduct karaoke shows. Id. at 27 ¶¶ 15–18. Kalamata...