Don't send a TM to do a (c)'s job: 7th Circuit rules in Slep-Tone case

Mark McKenna organized an amicus brief in this case, which was not cited by the court but advocated a position similar to that adopted by the panel.

Phoenix Entertainment Partners, LLC v. Rumsey, No. 15-2844 (7th Cir. July 21, 2016)

Slep-Tone and its successor in interest Phoenix argued that defendants, a pub and its owner, infringed Slep-Tone’s trademarks by passing off unauthorized digital copies of Slep-Tone karaoke files as genuine Slep-Tone tracks. The court of appeals concluded that Slep-Tone hadn’t “plausibly alleged that the defendants’ conduct results in consumer confusion as to the source of any tangible good sold in the marketplace.”

Slep-Tone is a serial litigant that distributed karaoke accompaniment tracks under the trademark “Sound Choice.” The audio component of the track is a re-recorded version of a popular song that omits the lead vocals, while 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. Slep-Tone alleged that it had a distinctive trade dress in the typeface, style, and visual arrangement of Slep-Tone tracks, along with the entry cues for singers (a series of vanishing rectangles) and the Sound Choice mark is typically shown with the song lyrics.  According to Slep-Tone, its trade dress was “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.”  However, Slep-Tone didn’t own any relevant copyrights.

Slep-Tone sold physical media such as disks to customers, but karaoke customers now prefer to use hard drives with hundreds or thousands of accompaniment tracks to cut down on the time and effort of loading a new disk.  Media-shifting is necessary to accomplish this for Slep-Tone tracks.  In 2009, Slep-Tone adopted a media-shifting policy that permitted customers to copy tracks, under specific conditions including paying for each copy and providing notice to Slep-Tone. “It should come as no surprise that not all operators comply with Slep-Tone’s media-shifting policy,” allegedly depriving it of revenue.  The Basket Case, and its principal Rumsey, allegedly had one or more hard drives containing copies of Sound Choice tracks made in violation of Slep-Tone’s media shifting policy.

Slep-Tone’s theory of confusion was that, when unauthorized copies were played at the pub, pub customers would 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.”  This was fundamentally flawed because Slep-Tone’s allegations didn’t plausibly suggest that confusion was likely among Basket Case customers “as to the source of any tangible good containing the karaoke tracks they are seeing and hearing.” Dastar makes clear that it’s “consumer confusion about the source of a tangible good that a defendant sells in the marketplace” that matters for purposes of trademark infringement.  But defendants don’t sell any relevant tangible good; they just play unauthorized copies:

What pub patrons see and hear is the intangible content of the karaoke tracks. They will see SlepTone’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 argued that an unauthorized copy of a Sound Choice track was a new good that would look and sound like a genuine Sound Choice track; in addition, customers might mistakenly believed that Slep-Tone “sponsored or otherwise approved the defendants’ services and commercial activities.”  

The parties don’t compete in the market for karaoke tracks, but Slep-Tone argued that Basket Case’s failure to pay gave it a competitive advantage as against compliant karaoke establishments.  If legitimate operators were discouraged from paying for genuine Slep-Tone tracks, Slep-Tone could lose sales.  Plus, Slep-Tone argued that “unauthorized copying may result in inferior knock-offs that will injure its reputation for quality karaoke tracks.” 

This chain of causation was indirect, but the court accepted it, noting however that it was important that unauthorized copying of the karaoke tracks (not the trademark or trade dress as such) was the core of the injury-producing conduct.  These tracks were copyrightable works, and copying a creative work is ordinarily a matter of copyright law.

There was therefore a mismatch between Slep-Tone’s problem (unauthorized copying) and the legal right it invoked.  The court noted that one oddity of Slep-Tone’s theory is that a legitimate customer would also make a “new good” according to Slep-Tone’s theory when it loaded a Slep-Tone track onto a hard drive, as it was allowed to do.  The only thing distinguishing the legitimate from the illegitimate copy was authorization to make the copy—and that’s really about copyright.  Copyright’s limited term is one reason it’s important to distinguish copyright and trademark; trademark could allow a perpetual monopoly if applied to creative works.

But how to draw the line?  The court noted that, “where, as here, the protected mark (including the trade dress) is embedded in the good’s creative content, such that the mark is invariably displayed along with the content, it can be particularly difficult to decide whether the unauthorized copying of the good presents a claim of trademark infringement or one of copyright infringement.”  However, Dastar made clear that trademark couldn’t be used to assert what’s “really” a copyright claim.  Dastar wasn’t directly controlling, because this case didn’t involve reverse passing off, but it was helpful.  Dastar specifically rejected a broader understanding of the “origin of goods” “for communicative products that consumers will value more for the intellectual and creative content they convey than for their physical form.” Karaoke tracks were such a product. 

Thus, the court’s job was, first, to identify the “tangible product sold in the marketplace” at issue here, and second, to ask whether the confusion alleged would be about who produced the good, or whether it would really be about the source of the creative content in the good.  Only the former would be actionable under the Lanham Act.

The court accepted that a digital file could count as a tangible good for these purposes.  However, defendants didn’t sell these files.  They allegedly played unauthorized copies to patrons, encouraging alcohol and food sales.  “[W]hat 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.”  They didn’t encounter the physical good in question, even if they might be aware that such a file exists; from their perspectives, it wouldn’t matter whether the track came from a disk, a hard drive, or from streaming video.

True, the Sound Choice mark and trade dress would be displayed, and patrons might assume that they were seeing “a genuine, authorized Slep-Tone product when in fact it is a bootleg copy.”  But here’s the relevance of the second part of the inquiry: what (if anything) is the patron confused about at that point? 

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. 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. 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.… Any confusion, in short, is not about the source of the tangible good sold in the marketplace, as Dastar requires.

Nor did the embedding of the Sound Choice mark in the creative content of the track allow Slep-Tone to plausibly allege that consumers would likely be confused about its endorsement of the pub.  “The producers of communicative goods often embed their marks not only on the packaging of the good but in its content.”  Films have studio marks in their credits, and yet, when the copyright expires, “it is not a trademark violation simply to display the work without first deleting the mark that was inserted into its content.” For example, when a Universal film enters the public domain, “[s]o long as Universal’s mark is not overtly used to market the performance, there is no risk that a theater patron might think that Universal is sponsoring or endorsing the performance.”  Others are free to make and sell copies of the film without permission and without deleting Universal’s mark from the credits.  The court of appeals then cited nominative fair use cases—which actually supports a broader point, which is that Universal’s mark could be “overtly used” to market the performance as long as it was a truthful description of the original source of the creative content.

In the case at bar, there was no allegation that Basket Case promoted itself as offering Sound Choice karaoke products, so there was “no reason to believe that its patrons will think that Slep-Tone is sponsoring the performance of the copied karaoke tracks.” Likewise, because patrons saw only the creative content of the tracks rather than the particular medium from which the tracks are played, there was no reason to think that they believed that the digital file was itself produced or approved by Slep-Tone.

The court then addressed Slep-Tone’s concern about degraded quality. Not only did Slep-Tone fail to allege that defendants’ copies were noticeably inferior in the perception of patrons (something that’s presumably against defendants’ own interests), but that concern still didn’t involve a tangible good in the marketplace.  Defendants—or the people from whom they got their hard drives—might have committed a wrongful act, but not one that was actionable as trademark infringement.