PHOENIX ENTERTAINMENT PARTNERS, LLC аnd 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.
Decided July 21, 2016
Rehearing En Banc Denied Aug. 30, 2016.
817 F.3d 817
Before WOOD, Chief Judge, ROVNER, Circuit Judge, and BLAKEY, District Judge.*
Argued February 12, 2016
After contentious discovery, extensive briefing, and protracted hearings, the judge found Fenkell in contempt. The proceedings were interrupted by Fenkell‘s premature appeals of several intermediate orders, which we dismissed for lack of jurisdiction. The contempt order is now final, so the issue is properly before us.
Based on abundаnt evidence, the judge found that Fenkell had substantial assets and “was actually taking affirmative steps to put his assets (at least technically) outside the reach of the [p]lan and other creditors.” The evasive steps consisted mainly of transferring ownership of various accounts to his wife. But Fenkell maintained full control over these assets via power of attorney, and his wife testified that she was almost entirely ignorant of their financial affairs. Because Fenkell was fully capable of making the ordered restitution and persisted in failing to do so, the judge found him in contempt, gave him a deadline to comply, and backed up his order with a fine of $500 per day, doubling every seven days. The parties then negotiated the terms of a supersedeas bond, and Fenkell appealed the contempt order.
Fenkell does not challenge the judge‘s factual findings. Rather, he lodges a host of procedural objeсtions to the contempt proceedings. He argues, for example, that Alliance and the Alliance ESOP lacked standing to pursue contempt sanctions. This argument is frivolous. The judgment requires Fenkell to restore money to the Alliance ESOP, and Alliance is the administrator of the plan. He also argues that it was error for the court to proceed under
Fenkell‘s remaining arguments have been considered, are likewise frivolous, and do not require comment. The contempt order was procedurally and substantively sound.
AFFIRMED.
James Michael Harrington, Attorney, Harrington Law, P.C., Pinesville, NC, Vivek Jayaram, Attorney, Jayaram Law Group, Ltd., Chicаgo, IL, for Plaintiffs-Appellants.
Jonathan L.A. Phillips, Attorney, John T.D. Bathke, Attorney, Shay Phillips Ltd, Peoria, IL, for Defendants-Appellees.
* The Honorable John Robert Blakey, of the Northern District of Illinois, sitting by designation.
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
In addition to the Sound Choice trademark (whiсh 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, thеre 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
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 widesprеad 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 contаining 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
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
II.
Phoenix‘s two federal claims for trademark infringement are brought under sections 32 and 43 of the Lanham Act.
Slep-Tone is the owner of the Sound Choice trademark for “pre-recorded magnetic audio cassette tapes and compact discs containing musical compositions and compact discs containing video related to musical compositions” along with the display version of that mark. R. 20 at 7-8 ¶¶ 42, 43. It is also the owner of distinctive and protectable trade dress associated with its graphical displays. This trade dress includes (1) the use of a particular typeface, style, and visual arrangement in displaying the lyrics to a song, (2) the Sound Choice marks themselves, and (3) the use of particular styles in displaying entry cues for karaoke performers, specifically a series of vanishing rectangles to indicate the cue. R. 20 at 8 ¶ 46. Slep-Tone has used this trade dress continually and exclusively for a period of decades, so much so that, as noted earlier, karaoke performers can readily recognize a graphical display as one produced by Slep-Tone wholly apart from the display of the Sound Choice mark itself.
The pathway between the defendants’ alleged trademark infringement and Slep-Tone‘s claimed injuries is indirect. Note that the defendants do not compete with Slep-Tone in the market for karaoke tracks, in that they do not sell karaoke products or services to karaoke jockeys or other establishments like The Basket Case. But Slep-Tone alleges that the defendants, by not paying for genuine Sound Choice tracks and instead using unauthorized copies, artificially lower their own costs of doing business and thereby exert illegitimate and unfair pressure on legitimate operators in the same region who incur higher expenses for authorized karaoke tracks and therefore must charge more to their customers in order to recoup their expenses. For a comprehensive library of Slep-Tone tracks, for example, a legitimate karaoke jockey or other karaoke operator can expect to spend up to $40,000 on top of the $25,000 cost of the karaoke system itself. To the extent the unfair competition discourages legitimate operators from paying for genuine Slep-Tone tracks, Slep-Tone is ultimately deprived of sales.
Apart from that pecuniary injury, Slep-Tone suggests that unauthorized copying may result in inferior knock-offs that will injure its reputation for quality karaoke tracks. Typically, the complaint alleges, а karaoke singer or observer will be unable to discern whether the track being played resides on an original disc or a copy, despite the inevitable step-down in quality that occurs when a track is copied from its original medium. Nonetheless, if the data is compressed excessively in the duplication process, a bad copy may result, such that when the copy is played, the sound and/or the graphics may be inferior.3 A
We may assume for purposes of our analysis that the injuries as described are sufficiently connected with the defendants’ alleged violations of the Lanham Act to support Slep-Tone‘s claims, notwithstanding the defendants’ arguments to the contrary. See Lexmark Int‘l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 134 S. Ct. 1377, 1390, 188 L.Ed.2d 392 (2014) (“we generally presume that a statutory cause of action is limited to plaintiffs whose injuries are proximately caused by violations of the statute“). Although the connection between the defendants’ actions and Slep-Tone‘s pocketbook is, as we have said, indirect, we may assume without deciding that it is not “too remote” from the [defendants‘] unlawful conduct” to support relief. Id.
It is significant, however, that what lies at the heart of the defendants’ alleged wrongdoing is the unauthorized copying of Slep-Tone‘s karaoke tracks. It is undisputed that those tracks, thе audio and visual components of which were arranged specifically for karaoke accompaniment, constitute derivative works that enjoy protection under the
There are important distinctions between the two claims. The aim of copyright is to foster creative works of authorship, including literary, musical, cinematic, and аrchitectural works. It achieves that end by granting to the author a legal monopoly over the performance and copying of the work for a substantial, but nonetheless finite, period of time. See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429, 104 S.Ct. 774, 782, 78 L.Ed.2d 574 (1984).4 Once the copyright expires, the work enters the public domain and is freely subject to copying and performance without the owner‘s permission. See Dastar, 539 U.S. at 33, 123 S.Ct. at 2048; TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29, 121 S.Ct. 1255, 1260, 149 L.Ed.2d 164 (2001). Patent law strikes a similar bargain in the field of scientific and mechanical invention: The inventor is given exclusive rights over his creation for a specified period of time, after which the public is free to use and copy the invention at will. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 480-81, 94 S.Ct. 1879, 1885-86, 40 L.Ed.2d 315 (1974).
Trademark, by contrast, is aimed not at promoting creativity and invention but rather at fostering fair competition. By protecting source-identifying marks, and proscribing “the deceptive and misleading use of [such] marks,”
Although the rights protected by trademark and copyright laws are distinct, it can in some cases be challenging to identify which right is truly at issue when a claim of infringement is asserted. Not infrequently, the owner of the trademark for a particular good may not own the copyright on the expressive content of that good, just as the owner of the mark on a good subject to patents may not own the patent rights. That is true of Slep-Tone, which controls the Sound Choice marks but does not control the copyright on the creative elements of the karaoke tracks. And where, as here, the protected mark
The Supreme Court‘s decision in Dastar nonetheless makes clear that the law of trademark cannot be invoked to assert what in fact is really a claim of copyright infringement, so our endeavor to decide into which camp Slep-Tone‘s claim falls must begin with that decision. The facts of Dastar are sufficiently different from those at issue here that we do not regard its holding as controlling the result in this case. Nonetheless, Dastar informs our analysis and ultimately guides us to the conclusion that Slep-Tone‘s claimed injuries are not the result of trademark infringement.
The plaintiff in Dastar was Twentieth Century Fox Film Corporation (“Fox“), which in the late 1940s acquired the television rights to then-General Eisenhower‘s book, Crusade in Europe—an account of the Allied Powers’ World War II campaign in Europe—and produced a 26-part television series by the same name. When the copyright on the series expired in 1977, Fox failed to renew it, and the series thus entered the public domain. Although Fox had allowed the copyright on the Crusade series to expire, it later re-acquired the television rights to the Eisenhower book along with the exclusive right to distribute the Crusade series on video and to license others to do so. In 1995, with the 50th anniversary of the war‘s end approaching, defendant Dastar Corporation purchased a copy of the original Crusade television series, condensed it, made other relatively minor modifications, gave the revised series a new title (World War II Campaigns in Europe), designed new packaging, and marketed the revised Campaigns series on videotape as its own product, with no credit to Fox. Fox in turn sued for trademark infringement under section 43(a) of the Lanham Act, charging Dastar with “reverse passing off,” i.e., holding out to the public what was really Fox‘s рroduct as Dastar‘s own product, and thereby falsely designating the product‘s origin.
The Supreme Court concluded that Dastar‘s copying and repackaging of the series was not actionable as trademark infringement under section 43(a). The Court noted at the outset that:
[T]he gravamen of [Fox‘s] claim is that, in marketing and selling Campaigns as its own product without acknowledging its nearly wholesale reliance on the Crusade television series, Dastar has made a “false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which ... is likely to cause confusion ... as to the origin ... of his or her goods.”
§ 43(a) .
539 U.S. at 31, 123 S.Ct. at 2046 (italics ours). Given the nature of Fox‘s claim, the Court viewed the essential question as what the Lanham Act means by “origin” of “goods.” If “origin” as used in the statute refers only to the producer of the physical goods (here, the videotapes), Dastar was the origin of those goods (and had not misrepresented itself as such), but if “origin” includes the creator of the underlying work, then Fox might be the origin of the good, and Dastar might be culpable for leading purchasers of its videotapes to believe otherwise. In the Court‘s view, “the most natural understanding of the ‘origin’ of ‘goods‘—the source of wares—is the producer of the tangible product sold in the marketplace, in this case the physical Campaigns videotape sold by Dastar.” Id. at 31, 123 S.Ct. at 2047 (italics ours).
But the Court saw that argument as creating a “conflict with the law of copyright, which addresses that subjeсt specifically.” Id., 123 S.Ct. at 2048. The Court noted that the copyright holder‘s rights “are part of ‘a carefully crafted bargain,‘” id., 123 S.Ct. at 2048. (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 150-51, 109 S.Ct. 971, 977, 103 L.Ed.2d 118 (1989)), balancing an author‘s interest in exclusive control over his creative work during the copyright period with the public‘s interest in having unfettered access to that work once the copyright has expired. Trademark law was meant to protect a different set of interests and, in contrast to copyright, does not impose a sunset date on the rights it protects. Extending the “origin of goods” to include the producer of creative content conveyed by a book, video, or other physical good, so that a false representation of the origin of the creative content supports a claim of trademark infringement, would result in “a species of mutant copyright law that limits the public‘s federal right to copy and use expired copyrights.” Id. at 34, 123 S.Ct. at 2048 (internal quotation marks and citation omitted). See Eastland Music Grp., LLC v. Lionsgate Entm‘t, Inc., 707 F.3d 869, 872 (7th Cir. 2013) (”Dastar held that trademark law cannot be used to obtain rights оver the content of an artistic work; that would amount to an indefinite extension of a copyright.“).
In short, considering the different scopes and ends of trademark and copyright law, the Court read the “origin of goods” as used in the Lanham Act to refer solely to “the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods.” Dastar, 539 U.S. at 37, 123 S.Ct. at 2050. As the producer of the tangible goods it offered for sale—the videotapes themselves—Dastar, and not Fox, was the “origin” of those goods and had made no false representations in that regard. Dastar therefore bore no liability under the Lanham Act. Id. at 38, 123 S.Ct. at 2050.
Dastar, as we have acknowledged, is not directly controlling of the result in this case. The defendants are not accused of putting their own mark on Slep-Tone‘s product and presenting it to the public as their own product, as was thе charge in Dastar. Instead, as we have discussed, the defendants are accused of passing off their own “good“—the unauthorized copy of Slep-Tone‘s karaoke track—as Slep-Tone‘s good. Rather than removing the Sound Choice display mark from the copied track, the defendants have allowed it to remain, so that when the copy is played, customers will see the mark and (erroneously) attribute the copy to Slep-Tone.
Despite the factual differences between Dastar and this case, Dastar‘s rationale informs our analysis in two important respects. First, Dastar emphasizes the important distinctions between copyright and trademark law, and cautions against allowing a trademark claim to substitute for what in real terms is a claim for copyright infringement. See Eastland Music Grp., 707 F.3d at 872 (”Dastar tells us not to use trademark law to achieve what copyright law forbids.“); see also EMI Catalogue P‘ship v. Hill, Holliday, Connors Cosmopulos Inc., 228 F.3d 56, 64 (2d Cir. 2000)
In evaluating Slep-Tone‘s claims of trademark infringement, we must therefore ask ourselves what the tangible good at issue is, and whether the unauthorized use of the plaintiffs’ marks (including trade dress) might cause consumers to be confused about who produced that good. Or is the real confusion, if any, about the source of the creative conduct contained within that good? If the latter, the confusion is not actionable under the Lanham Act.
Here, the good that Slep-Tone alleges the defendants are improperly passing off as a Slep-Tone product is the unauthorized digital copy of the Sound Choice karaoke track (duplicated from the original CD+G compact disc or MP3+G media supplied by Slep-Tone) made (or obtained from others) by the defendants. We shall assume, perhaps counter-intuitively, that a digital file counts as a tangible good for purposes of the trademark analysis. See Slep-Tone Entm‘t Corp. v. Sellis Enters., Inc., 87 F.Supp.3d 897, 905 n. 4 (N.D. Ill. 2015) (citing Cvent, Inc. v. Eventbrite, Inc., 739 F.Supp.2d 927, 936 (E.D. Va. 2010), and
Recall that the defendants are not alleged to be in the business of selling copies of karaoke tracks, as they might be if their customers were other karaoke operators looking to assemble their own libraries of karaoke tracks, for example. The defendants instead are alleged to play the unauthorized copies for their bar patrons to encourage alcohol and food sales. So what the pub patrons see is the performance of the creative work contained on the copies: they hear the musical accompaniment and they see the corresponding lyrics and graphics.
It is not alleged, nor does the briefing suggest, that the patrons see the physical good in question—the digital file that presumably resides on the hard drive of the bar‘s karaoke system. Even if a patron might be aware that there is such a file, she does not see that file or the medium on which it resides, as she might if she were purchasing a karaoke track on a compact disc from a dealer or as a download from an internet website, for example. The patron sees only the performance of the creative content of the digital file. So far as the patron is concerned, the content could be played from a compact disc, the pub‘s ka-
It is true that the pub patron will see the Sound Choice mark and trade dress whenever the graphical component of the karaoke tracks is displayed. This, according to the plaintiffs, is what gives rise to confusion as to the source of the good containing those tracks: Patrons may assume it is a genuine, authorized Slep-Tone product when in fact it is a bootleg copy. But about what exactly is the patron confused? On seeing the Sound Choice mark, a patron may believe that she is seeing and hearing content that was created by Slep-Tone. And she is. Compare Harbour v. Farquhar, 245 Fed.Appx. 582 (9th Cir. 2007) (nonprecedential decision) (individual defendant and his production company falsely represented himself as author of digitalized musical compositions licensed to television and film producers). But what Dastar makes clear is that a consumer‘s confusion must be confusion as to the source of the tangible good sold in the marketplace. Fortress Grand Corp. v. Warner Bros. Entm‘t Inc., 763 F.3d 696, 701 (7th Cir. 2014), cert. denied, --- U.S. ----, 135 S.Ct. 981, 190 L.Ed.2d 890 (2015); Eastland Music Grp., 707 F.3d at 872; Bretford Mfg., Inc. v. Smith Sys. Mfg. Corp., supra, 419 F.3d at 580; cf. Harbour, 245 Fed.Appx. 582 (for purposes of section 43(a) false-designation-of-origin claim, completed films and television programs were relevant goods as opposed to musical compositions embodied within those goods).
A consumer of karaoke services like a patron of The Basket Case never sees a disc that is wrapped in Slep-Tone or Sound Choice packaging. He never sees a website offering downloads of Sound Choice tracks. As we have said, the defendants’ patrons are not direct purchasers of karaoke tracks. They simply see and hear the karaoke tracks that The Basket Case plays for them. They have no interaction with the medium from which the tracks are played, in the way that a karaoke jockey might. Any confusion, in short, is not about the source of the tangible goоd sold in the marketplace, as Dastar requires.
That the Sound Choice mark is embedded in the creative content of the karaoke track and is visible to the public whenever the track is played does not falsely suggest that Slep-Tone is endorsing the performance, as the plaintiffs have alleged. The producers of communicative goods often embed their marks not only on the packaging of the good but in its content. Cinematic films, for example, typically display the mark of the studio that made the film in the opening and/or closing credits—think of Metro-Goldwyn-Mayer Studios’ roaring lion. When the copyright on such a creative work expires, enabling any member of the public to copy and use the work without license, it is not a trademark violation simply to display the work without first deleting the mark that was inserted into its content. Thus, as the district court pointed out in Slep-Tone Entm‘t Corp. v. Canton-Phoenix Inc., 2014 WL 5824787, at *11 (D. Ore. Sep. 4, 2014) (report & recommendation), adopted as modified, 2014 WL 5817903 (D. Ore. Nov. 7, 2014), appeal pending (9th Cir.) (No. 14-36018), a movie theater may freely exhibit a copy of Universal Studios’ 1925 silent film, The Phantom of the Opera, which is now in the public domain, without fear of committing trademark infringement simply because Universal‘s registered trademark will be displayed
Here, there is no allegation nor suggestion in the briefing that The Basket Case promotes itself as offering Sound Choice karaoke products—in its advertising or in its karaoke menus, for example. There is, consequently, no reason to believe that its patrons will think that Slep-Tone is sponsoring the performance of the copied karaoke tracks. And because patrons see only the creative content of the tracks rather than the particular medium from which the tracks are played, there is no reason to think that they believe that the digital file, wherever it resides, was itself produced or approved by Slep-Tone.6
We have considered Slep-Tone‘s concern that if the data contained on one of its
III.
For all of the reasons we have discussed, we AFFIRM the dismissal of Slep-Tone‘s complaint.