There has never been a story like this in the more than eighteen years Las Vegas has been going wild over karaoke.  A crisis is facing the local karaoke entertainment industry as never before, and in the next year we may see half of Clark County’s karaoke venues shut down by a lawsuit filed February 15, 2012 in the United States District Court for the District of Nevada entitled Slep-Tone Entertainment Corporation v. Ellis Island Casino & Brewery, et al.

Disks v. hard drives

Karaoke use to be a bunch of disks.  Things changed for the better when karaoke jockeys (“ KJs”) started reformatting and downloading the information stored on their karaoke disks to their laptop computers.  KJs no longer had to cart around cases containing a thousand disks, and the laptop computer made it easier to look up and play any song.

Some customers came to the show with their own karaoke disks.  KJs could load a customer’s disk into their computer, copy and reformat it and add its songs to the KJ’s library advantaging both the KJ and the customer.  The KJ could add the name of the customer beside his favorite version of a song.  Some KJs exchanged disks among themselves, copied, reformatted and added the information from the borrowed disks to their   libraries.  Some KJs assembled huge libraries and copied those libraries to whomever had a laptop computer or portable hard drive.   Suddenly, even the most modest KJ had thousands more tunes to play, and it has gotten to the point that some KJs are advertising having in excess of 200,000 karaoke accompaniment song tracks.

Slep-Tone Entertainment Corporation is the maker of Sound Choice karaoke disks.  Slep-Tone alleges each KJ needs to have an original karaoke accompaniment track on an original Sound Choice karaoke disk for every track on the KJ’s computer or the KJ is liable for trademark infringement when the Sound Choice trademark logo comes up on the television screen at the beginning of each song copied from a Sound Choice karaoke disk.  More than that, Slep-Tone claims its trademark is infringed if the KJ does not notify Slep-Tone of the KJ’s intention to make the media and format shift. 

The allegations

The paragraphs of the complaint name 52 defendants if one counts the corporations, limited liability companies and true owners of the fictitious business names and the KJs.  Forty-two different venues are involved.

Slep-Tone alleges it is being run out of business because KJs and karaoke entertainment venues in Las Vegas and across the nation have saved money at its expense by format-shifting its disks to MP3G or WAV+G formats and media-shifting the tracks from the compact disks on which they are sold to computer hard drives.  The format shifting, media shifting and computer copying has allowed for sharing of karaoke accompaniment tracks over the Internet and has led to some counterfeiters selling portable hard drives containing more than 10,000 pre-loaded tracks for less than a tenth of the price it would cost to buy all the tracks on the original karaoke disks.

Slep-Tone alleges the selling of counterfeit copies has allowed people to get into the KJ business with only a nominal investment in their library without Sound Choice being paid anything for its product.

Slep-Tone alleges trademark infringement instead of copyright  infringement because Slep-Tone would need the cooperation of the music publishers and other multiple original holders of the copyrighted material to pursue such litigation and, in the words of Kurt Slep, the Chief Executive Officer of Slep-Tone, “it was simply easier” and “made [its] case easier to prove.”  Slep-Tone also alleges a cause of action for unfair competition because KJs with copied libraries purchased at a lower cost operate at an economic advantage over KJs who purchased original Sound Choice karaoke disk libraries at a higher cost.

The background

The copying of musical tracks through computer technology has been a problem throughout the music industry for more than a decade, but Slep-Tone claims it could not adapt because it could not receive from the music publishers license to transfer its karaoke disk data to an MP3G or WAV+G format and then sell its musical accompaniments and graphics through digital transmission to computer hard drives over the Internet.  Thus, whereas one can go to the Internet and download just about any song in MP3 format for 99 cents a song, one cannot go to the Internet and download any Sound Choice karaoke disk track in MP3G format for any price, and any karaoke disk track being copied via Internet transmission is likely being done illegally if it is then being used in a commercial setting.  Karaoke tracks can be downloaded from the Internet for a price but only for home and personal use.

If Slep-Tone were able to sell its product by marketing directly to its customers’ hard drives, then maybe Slep-Tone would still be making money, just as the record companies adapted to piracy by offering individual song tracks at such a competitive price that songs are legitimately purchased and downloaded rather than pirated thus allowing the record companies to partially make up for piracy loses by volume sales.

Unfortunately, the demand for karaoke song tracks is mainly from KJs and entertainment venues who want to use them in a commercial setting, and KJs tend to know each other, want to increase the number of songs in their karaoke libraries and are, therefore, more likely to share computer data with one another.  The temptation among KJs to share pirated karaoke tracks is alleged by Slep-Tone to be “extraordinarily high.”  Most home systems still rely on using disks rather than computer hard drives because the computer programs are not openly marketed to the general public by any makers of karaoke accompaniment tracks, but there are not enough karaoke singers who are not professional KJs but who have home systems to create enough additional demand for legitimate disks.

With that said, Sound Choice manufactures and markets for $500 the PCK-350DR, a piece of equipment which plays karaoke disks, allows hard drives to be accessed, and has “digital recording capabilities to record your own songs” and advertises that you can “email them to share with friends and family.”  It is not clear from the advertisement whether the PCK-350DR can directly copy a karaoke disk to a hard drive. 

Slep-Tone says it is just beginning to distribute its karaoke tracks in MP3G format, which brings it about ten years behind the rest of the music industry, and then only under “tight contractual controls that require user registration and audits, confine possession to professional karaoke operators, include serialization of licensed disks, and prohibit file sharing under pain of forfeiture of license rights.”

The history

The Slep-Tone Complaint states a history which is hard to deny.  Slep-Tone alleges that twenty-five years ago it was founded by the Slep brothers, Kurt and Derik, “to nurture the development of karaoke in America as a participatory entertainment phenomenon.”  Karaoke singers everywhere owe the Slep brothers a lot in that regard.  Slep-Tone claims it is “recognized as one of the leading producers of high quality karaoke accompaniment tracks.”  Many of Sound Choices’ musical accompaniments are superior to the musical accompaniments offered by its competitors.

Slep-Tone also makes the claim that its “dedication to producing music of the highest quality and the most authentic character (whatever that means) led to its music becoming the staple of almost every karaoke show in the country” and that “Sound Choice became the brand that nearly every karaoke fan wanted to sing and that nearly every…KJ…wanted in his or her library.”  Sound Choice got in on the ground floor and had the most tunes and the most desired tunes which led nearly every KJ to have a large number of Sound Choice disks in his or her library.  Sound Choice also had a good marketing strategy selling large numbers of disks in what it would call a “brick” at a discount, and buying the entire brick was the only way to get some of the songs.  

The trademark infringement theory

Karaoke disks are much like record albums in that there might only be a few songs on each disk for which one really cares to pay.  The remaining songs simply fill out the disk. Sooner or later some karaoke singer may want to sing one of less popular songs so it’s nice to have it, and the KJ can always advertise that he or she has 10,000 songs although some songs may be duplicated half a dozen times.  Some of the standards appear on many disks by many makers.  Some karaoke disks have as few as seven songs which are repeated with a singer demonstrating how each song is sung.  It takes quite an investment to truly build a karaoke library containing 10,000 different songs.

While Sound Choice may be a staple, singers do not flock to a bar because its KJ plays a lot of Sound Choice disks.  People do not swoon when the Sound Choice trademark appears on screen.  The Sound Choice trademark is not what draws the crowd.

This is one of the weaknesses in Sound Choice’s trademark infringement theory of liability. Every karaoke disk maker has their trademark displayed on the screen before the song starts, but no one cares about that, they only wonder whether the person standing behind the microphone can sing.  Thus, it would be hard for Slep-Tone to prove that any KJ or entertainment venue benefited or earned additional revenue from the display of the Sound Choice trademark.  The brief display of the Sound Choice trademark is not helping fill up the bar.  The venue is not selling a counterfeit copy carrying the Sound Choice trademark to fool anyone into thinking they are receiving the real Sound Choice product instead of an unauthorized copy.  It is not as if one is taking a Hyundai and swapping out its hood ornament for one with a three point star and then trying to pass it off  as a Mercedes Benz.

If the pirates were selling karaoke disks by another maker and marketing them as Sound Choice disks, then Slep-Tone would have a true trademark infringement case.  Here, Slep-Tone is stretching legal reasoning with its claim that playing its sound track which incidentally shows the Sound Choice logo from an MP3G program has caused the user to directly benefit from the use of the trademark when the benefit does not come from the display of the trademark but from the playing of the musical accompaniment and the displaying of the word graphics, and that is copyright infringement for which Slep-Tone has not sued.

The trademark infringement is incidental and collateral to the copyright infringement and is of little to no economic consequence.  Is there trademark infringement when the display of the trademark is incidental and collateral to the service provided by the KJ in putting on the karaoke show?  An argument can be made that trademark infringment does not apply to the provision of a service but only to the selling of a product and on that ground, the defendants have argued that Slep-Tone’s lawsuit should be dismissed for failure to state a legal claim.

Misrepresenting the characteristics of geographic origin can provide a cause of action under Title 15 of the United States Code, Section 1125 (B).  The question becomes whether displaying the trademark logo on the television screen prior to the beginning of the song actually misrepresents the characteristics of origin or, as Slep-Tone would allege, that Slep-Tone approved of the display of its Sound Choice trademark indicating that the track came from a genuine Sound Choice disc and not an unauthorized copy of a Sound Choice disk.

If the tracks are originally produced by Sound Choice, then how can the display of the Sound Choice trademark on the television screen at the beginning of the song be said to falsify the designation of origin?  Slep-Tone’s better argument is that the display of the Sound Choice trademark conveys the impression that Sound Choice has approved the copy of the track being played through the KJ’s television and sound system, but then again, nothing in the beginning of the graphics on the track from the original Sound Choice disk ever said that Sound Choice approved the playing of the song track for commercial entertainment purposes, and yet that is why Sound Choice began marketing its karaoke disks in the first place as stated in the Complaint, “to nurture the development of karaoke in America as a participatory entertainment phenomenon.”

1:1 correspondence is okay

Slep-Tone doesn’t have any qualms over a KJ buying its disc and downloading it to his or her computer hard drive for ease of use during a show just so long as the KJ has an original Sound Choice karaoke disc to backup every song track on his or her computer and just so long as the original of the Sound Choice karaoke disc is not being used across town by another KJ in another show.  So long as Sound Choice can sell a disc for each  copy of a disc in use, then Sound Choice is happy, but when Sound Choice ends up selling less discs because each disc it sells is copied a dozen times for use in a dozen shows, then Sound Choice sells less product, so much so that Slep-Tone claims, “Widespread pirating of songs has contributed to the loss of more than sixty jobs at [Sound Choice’s] location in Charlotte, North Carolina, as well as several consecutive years of operating losses, as revenues do not cover fixed costs.”

It should also be noted that Slep-Tone also claims that it has a problem with any format or media shift occuring without Slep-Tone’s prior permission.

Slep-Tone claims that the mass copying of Sound Choices’ product without paying for it is putting Sound Choice out of business and, worse yet, Sound Choice has stopped producing and selling karaoke disks which can only negatively affect all karaoke singers.

Others claim Slep-Tone’s financial problems can be equally blamed on it needing to pay out large settlements for producing tracks without the permission of the owners of the copyrights, the production of a disc containing songs by Eagles being cited as one example, and because it was slow producing new tracks.

Slep-Tone fights back

Slep-Tone is literally battling for its life and is on a campaign to sue everyone it suspects of coping its discs, using copies of its discs, or offering a venue where unauthorized copies of its discs are being used.  If Slep-Tone is successful in its litigation strategy, the question remains whether it will continue making and selling product.  Slep-Tone’s lawsuit may be more about seeking revenge than staying in business.  What is really needed for Slep-Tone to stay in business is securing the necessary licensing to market a MP3G or WAV+G formatted product for commercial use, lower the price, allowing KJs and karaoke fans to buy individual songs over the Internet and try to make up with volume sales what it is losing to piracy.  Only by Slep-Tone combining its litigation strategy with a new marketing strategy will Slep-Tone survive and prosper.  In addition to litigation, Slep-Tone needs to fight piracy by making it attractively inexpensive and more convenient to legitimately buy Sound Choice’s  product from an authorized source.  Slep-Tone needs to make it easier to purchase from Sound Choice than it is to buy from a pirate and then needing suspect being ripped off or buying an inferior product or being subjected to the risk of illegally purchasing copied tracks.  Slep-Tone needs to make it easier to purchase legitimately than suffer the hassle of borrowing discs and downloads from friends.

Information received relative to the Phoenix lawsuit was that Slep-Tone was willing to settle for $6,000 prior to the KJ or venue filing an answer.  In the present Las Vegas lawsuit, Slep-Tone is allegedly asking various venues to pay more.  It is unclear whether as a condition of settlement Slep-Tone requires the KJ and/or venue to promise never to play unauthorized copyies again, agree to routine audits, play only legitimate tracks and erase all counterfeit tracks (as those tracks are defined by Slep-Tone as anything not backed up by a legitimate acquired physical disk) .  Slep-Tone has announced that it is prepared to offer 6,000 tracks for $4,500 which would be a bargain.  If a KJ must erase everything he has, is Slep-Tone willing to help the KJ can stay in business with this deal?  Slep-Tone’s counsels have failed to return a request for comment asking for confirmation of these settlement proposals.  News out of the Northwest is that Slep-Tone is asking the Court to award it $25,000 from any entity which fails to answer its Complaint.

In an attempt to raise the guilt factor, various organizations representing the owners of copyrighted materials or trademarked materials, such as the Recording Industry Association of America which represents several karaoke disk manufacturers, including Sound Choice, have from time to time run television commercials reminding the public that copying videos, discs and music deprives the person who produced the product of any compensation and that copying is the same as stealing, and that buying counterfeit videos, discs and music is acting as an accessory to the counterfeiter and receiving stolen property.  If an electrical shock emitted from ones mouse every time an illegal download was attempted, the crime would not occur, but the difficulty of tracking down and prosecuting the millions of potential defendants is overwhelming.  Slep-Tone has the advantage that its Sound Choice product is being used in public shows, over 125 venues in the Las Vegas valley alone, and some of those venues make susceptible targets for Slep-Tone’s litigation, or so it thought.

The venues

The venues were sued under the theory that they authorized and benefited from the display of the Sound Choice trademark and from the unfair trade advantage resulting from the KJ’s lower operating costs.  Slep-Tone has to prove the venue knew the KJ they hired as an independent contractor was using pirated music, which in some cases is easier to prove than in others.  All venue defendants who have made an argument for dismissal in the Las Vegas case claim they were not notified by Slep-Tone that their Independent contractor KJ was possibly using infringing materials.

Slep-Tone’s Complaint alleges, “The services provided by KJs typically include providing the karaoke music and equipment for playback… organizing the karaoke show…and operating the karaoke equipment.”  The Complaint goes on to state, “Upon information and belief, and based upon investigation of their activities, the present Defendants are in possession of, and/or have used, authorized, or benefitted from the use and display of unauthorized… copies of karaoke accompaniment tracks…”

Using the term, “on information and belief,” is legalize for saying, “we cannot allege this as a fact, but we hope to prove…”  The Complaint further states, “Slep-Tone’s investigators observed each of the Defendants possessing, using, or authorizing or benefiting from unauthorized counterfeit copies of at least one work bearing the Sound Choice Marks.”  The Complaint then goes into specifics as against each of the named defendants.  In many cases, the Complaint merely alleges that the venue operates a karaoke system to produce a karaoke show in which counterfeit copies of Sound Choice’s accompaniment tracks were observed being used.  In that regard, the strength of Slep-Tone’s case against the individual venues varies.

Any number of small bars and large venues alike try to boost their businesses by hiring a KJ to come in and produce a show.  Sometimes the KJ is paid up to $300 a night. Sometimes the KJ only receives a portion of the increased revenue from drink sales. Occasionally a KJ may book a private gig such as a high school reunion for which they can charge more than $500.00 for the evening.  All KJs rely on tips to supplement their incomes since few KJs have enough gigs to work five or more days a week.  The gig may last six years, six months or six hours.  Some KJs have been good enough to keep the same gig for twelve years or more.  When hired to work a venue, the KJ generally works as an independent contractor, and the owner or manager of the venue has no real control and no real idea whether the KJ has a copy on disc, stored elsewhere, of every song he or she plays from data stored to their computer laptop.

In at least one federal district court case out of the Middle District of Florida, the president of the corporation owning the venue tried to get his corporation out of the lawsuit by swearing that it contracted with one or more karaoke providers on numerous occasions, that it hired KJs without any written contract, that the KJ provided everything for putting on the show, that the venue exercised no control over the KJ, that no one working for the venue would have been able to recognize infringing material even if they had looked for it and that the KJ was hired as an independent contractor.

Slep-Tone argued that the venue did nothing to prohibit its KJs from showing the Sound Choice trademarks after being placed on notice by Slep-Tone of infringement of its trademark by the venue’s karaoke providers.

Federal District Court Judge James S. Moody, Jr., found that Sound Choice needed to show,

1.      That the defendant “intentionally induces another to infringe a trademark,” or,

2.      That the defendant “continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.”

Judge Moody then held, “regardless of whether the karaoke jockeys are independent contractors, a finder of fact could determine that [the venue] had the ability to control whether their karaoke providers were performing using lawful, properly licensed accompaniment tracks.  Notably, Slep-Tone’s declaration presents evidence that [the venue] was aware of the infringing activity on the part of its karaoke jockeys and choose to continue to allow the infringement to occur in its establishment.

Judge Moody then denied the venue’s motion for summary judgment and ordered it to file an answer because there were issues of material fact to be decided.

In Las Vegas, it is not know whether any of the defendant venues received any notice that their KJs were using infringing materials.  As previously stated, several venue defendants have reported that they received no notice of such kind before being served with Slep-Tone’s Complaint and are claiming they were “blind-sided.”  Why did Slep-Tone not increase the strength of its Complaint by first placing all karaoke venues in Las Vegas on notice that its KJs were suspected of using infringing materials?  One reason is that without proof, such a claim could cause the KJ to be fired and have a claim against Slep-Tone for libel.  Slep-Tone does not explain in its Complaint how it really knows a song track played by a KJ off his or her computer was not backed up by a Sound Choice karaoke disc under the KJ’s control.  If Slep-Tone is only guessing, then is it merely trolling for cheap settlements?

Some venue owners and managers have attempted to protect themselves from liability by making the KJ sign a document stating that no unauthorized copies or pirated material is being used in their show.  This is a wise thing to do and may protect the venue owner from liability.  Venue owners could further protect themselves by spot checking the KJ’s library and by asking the KJ to provide the supporting disk for the MP3G copy on the KJ’s laptop computer for 30 to 50 songs selected at random.  At some point, the venue operator has performed enough due diligence to escape liability so long as the KJ is an independent contractor.  However, can an honest venue as easily escape the cost and expense of litigation and get out early rather than need suffer through the discovery process which will cost more money than an early settlement.

The number of tracks

The defendants with the biggest problem are those who advertise a library containing more than 100,000 karaoke accompaniment tracks.  That would represent about a $100,000 investment in original karaoke discs if no computerized copies are purchased from unauthorized sellers.  One KJ is alleged to advertise he has 36,000 tracks, one venue is alleged to advertise it has 50,000 tracks.  A total of thirteen venues and/or KJs are alleged to have advertised they have anywhere between 100,000 and 200,000 tracks, and in one paragraph, Slep-Tone alleges some venue somewhere has a library of 365,000 tracks, but that number is not linked to any particular defendant, and that statement is probably drawn from some prior complaint Slep-Tone used in another state as Slep-Tone has filed multiple suits nationwide.  The two individual KJs and the one two-person KJ team which advertise that their libraries contain 200,000 tracks may be the most easily prosecuted, but they may also be the hardest from whom to collect.  With respect to the venues, what Slep-Tone does not fully appreciate is that the advertisements are usually designed and placed by the KJ, so one month at one venue, that venue appears to advertise that it has a 200,000 track library, and the next month another venue appears to advertise that it has a 200,000 track library, when in fact the KJ merely lost one gig and moved on to another gig taking with them their laptop computer and portable hard drive.

Slep-Tone alleges in a conclusionary paragraph that each of the defendants has “possessed, used, or authorized or benefitted from the use and display of unauthorized counterfeit goods…or has provided, advertised, or authorized or benefitted from the provision of services in connection with the Sound Choice Marks” and that “Upon information and belief (again Sound Choice apparently does not really know), each of those karaoke systems has a library containing a minimum of 8,500 tracks stored thereon, to facilitate their use simultaneously at separate venues or event.”

Without question a number of KJs have legitimately purchased over the years a library containing more than 8,500 tracks.  No KJ has probably legitimately purchased a library containing more than 35,000 tracks on original karaoke discs unless he or she has been in the business from its inception.   The KJ business is simply not profitable enough for most KJs to support investing in a library that big, and without it being on the computer, no KJ wants to lug around that many discs.

However, the size of the library is not that big of a selling point.  The successful venues are where the KJ is organized, has some personality, has a following, draws good singers, does not play favorites and keeps the show moving at a rapid pace.  The number of tracks is not all that important in drawing in a crowd.

Further, the number of tracks does not reflect the actual size of the selection since very large libraries contain thousands of tunes with a half dozen duplicates, including duplicates on different Sound Choice disks.   Because of the duplication of songs on different disks, no KJ knows exactly how many different songs he or she offers having never made an exact count once they exceeded a few thousand tracks.

Slep-Tone’s investigation

Slep-Tone claims it first sends to the venue an investigator, and if the investigator sees the KJ operating from a computer without being surrounded by discs, and there is only one old timer in Las Vegas known to this host who still operates that way, then Slep-Tone appears to merely assume the KJ is using pirated material and names the KJ and/or the venue as defendants.  In that regard, Slep-Tone has probably sued some defendants who are entirely innocent and have been some of its best customers, and the anti Slep-Tone/Sound Choice lawsuit websites have made some hay out of Slep-Tone’s tactics by seeking out such innocent parties and presenting their side of the story, usually with them surrounded by their legitimate discs.

Slep-Tone’s Complaint states that it has a good-faith belief (merely figures) that discovery will show (in that they intend to get the proof only after being allowed to depose the KJ, audit his computer and make him produce his original discs for inspection) that each of the Defendants is in possession of unauthorized counterfeit goods bearing the Sound Choice Marks or knowingly benefit from the infringing conduct and/or has the capacity to control the infringing conduct.

Thus, the venue is made a defendant by the allegation that the venue knowingly benefited from the KJ’s use of pirated material, in which case the venue knew the material used by its KJ was pirated, or with being able to control the KJ to keep the KJ from using pirated materials, in which case Slep-Tone has alleged that the venue must be proactive in keeping the KJ from using pirated material.  Slep-Tone also claims the venue is liable if it “should have known.”  Should a venue have known a KJ was using pirated Sound Choice tracks if the KJ advertised having 200,000 different tracks?  Slep-Tone’s case in Las Vegas is different and weaker than its case in Tampa, Florida if Slep-Tone gave no venue in Las Vegas notice that its independent contractor KJ was suspected of using infringing materials.

Further, suppose every venue owner went through a hundred random songs on a KJ’s computer and made the KJ show that he or she was in possession of an original disk for every one of the hundred tracks on his or her computer’s hard drive.  Even then, the venue operator could not be sure the KJ was not responsible for hosting three shows the same night with his surrogates also in possession of laptops with the exact same songs on their hard drives?  Slep-Tone wants to perform an audit whereby it places an indelible mark on each disk so after the audit the KJ is not then able to transfer those same disks to the next person being audited without Slep-Tone becoming wise to the scam.  The indelible mark does not hamper the play of the disk.

Incidental legal copying and the audit

There is a disk copying activity which some would consider pirating and some would not.  Suppose Bob the Crooner likes to sing My Funny Valentine from a track on a disc which is not in most KJ’s libraries.  Bob brings his original karaoke disc to the show.  The KJ then downloads Bob’s disc onto the KJ’s laptop to accommodate Bob by playing Bob’s favorite karaoke arrangement.  During the play of the song the original disc and the copy on the KJ’s laptop have a 1:1 correspondence as the original disc is present, under the control of the KJ and available to be played on a standard karaoke disc player.  For future reference, the KJ may label the copy of Bob’s favorite version of My Funny Valentine by song name plus the name of the singer, i.e., “My Funny Valentine for Bob the Crooner.”

If the KJ keeps Bob’s version of My Funny Valentine on the KJ’s laptop, then the KJ becomes open to the allegation of being an infringer of trademark if the KJ ever plays any track which was on Bob’s disc once Bob’s disc is no longer under the KJ’s control.  Even if the KJ erases Bob’s disc from his or her laptop as soon as Bob finishes singing his song, Slep-Tone may consider evidence that Bob’s disc was first copied and then erased without the KJ being able to produce Bob’s original disc at the time of the audit as an audit failure.

As stated in the Sound Choice audit agreement, “Sound Choice may employ software designed to examine any hard drives in your possession to determine whether songs have been deleted from the system…”  A deleted track file may indicate an attempt at spoliation and constitute evidence of willful infringement, as well as an audit failure.”  Although Slep-Tone claims to only search for tracks deleted from the time the KJ is put on notice that Slep-Tone is examining the KJ’s library, in this case mostly by simply suing the KJ without warning, proving notice by service of the Summons and Complaint, the assumptions made as part of the audit criteria fail to satisfy the objection that the track was a one time download, as in Bob the Crooner’s case, or that the KJ once had the disc but the dog chewed it, or that the disc cracked or that it was copied before it simply wore out and was thrown away.  New KJ lesson:  Never throw away a disc, damaged or not.  You might need it for a Slep-Tone audit.

From Slep-Tone’s perspective, if no copies were allowed of unusable or lost discs, then the KJ would have to buy a replacement disc netting Slep-Tone a profit, especially if the replacement disc is buried in a brick forcing the KJ to buy eight discs just to replace the one disc which was damaged.

A lot of KJ’s keep receipts for each  disc they buy so they can claim the deduction on their tax return, but for KJs who have been in operation more than seven years, those receipts may be thrown out.  Sound Choice is satisfied with the KJ bringing to the audit receipts from the last five years.  Long time KJs may have several hundred tracks legitimately copied for which they have no receipts and no longer have the original disc.  KJs should not rely on Slep-Tone/Sound Choice having any record of their purchases.  KJ’s advertising hundreds of thousands of tracks for which they have no receipts or original discs will have a difficult problem defending their library.

Slep-Tone has offered its audit to any wrongfully accused KJ who only plays karaoke discs with a 1:1 correspondence.  The incentive is to have Slep-Tone dismiss them as a defendant before the KJ need get an attorney involved.  Some KJs see this offer as a trap and fear Slep-Tone will simply try to assemble incriminating evidence against them.  As part of the litigation process, Slep-Tone can seek a court order to force an audit, force examination of the KJ’s computer, receipts and disks and require the KJ to answer questions under oath, so Slep-Tone may gets its incriminating evidence voluntarily or not.

Slep-Tone claims it iis not trying to put anyone out of business.  Slep-Tone says that upon request it will send someone to do a full audit “under specified conditions.”  An innocent defendant need only prove to Slep-Tone that they are in possession of a full set of legitimate discs for each and every track the KJ has format and media shifted for saving on his or her computer.  Upon such proof being presented, Slep-Tone claims it will drop any innocent defendant from its lawsuit.  No information has been found with respect to how much Slep-Tone is then willing to pay the wrongly accused KJ who was forced to prove their innocence to compensate the KJ for their cost, inconvenience and decreased reputation from being named as a defendant, and this author does not expect to come across that information anytime soon.

The defendant is suppose to bring to the audit all computers and hard drives on which any karaoke accompaniment tracks are stored, all the defendant’s karaoke discs, everything needed to play the discs and recordings, all song lists and all karaoke disc receipts from the last five years which Slep-Tone may verify against seller records “to prevent falsification.”  Slep-Tone claims to represent other karaoke disc manufacturers, so Slep-Tone demands it be able to check all the songs on all the defendant’s karaoke discs against all the songs saved on the defendant’s computer(s) hard drives.  Any indication that a karaoke accompaniment track was purchased after it was loaded into the computer “will be considered an indication of infringement and will constitute failure of the audit.”

Finally, Slep-Tone wants the KJ being audited to prove they or their employee were the ones who copied the original Sound Choice accompaniment tracks to their computer hard drive by showing the auditor that they can perform the operation.  This really gets to the meat of the inquiry.  If the KJ merely bought all the karaoke accompaniment tracks preloaded into a laptop or hard drive, then that is considered by Slep-Tone to be a failure of its audit and opens the KJ up to questioning by the FBI.  Slep-Tone admits that it has been working with the FBI to go after the professional pirates who copy Slep-Tone’s product in bulk solely for the purpose of resale.

The Slep-Tone audit agreement

In the Phoenix area, Slep-Tone brought suit and reportedly tried to settle for $6,000 per KJ no questions asked.  If the KJ claimed innocence, then the lawsuit would continue unless the KJ either settled or submitted to an audit by Slep-Tone and proved their innocence.

The audit agreement Slep-Tone had provided for the defendants’ signatures is onerous.  A KJ or venue operator signing the audit agreement would by their signature agreed to the following:

1.      That the KJ requested the audit (instead of it being offered by Slep-Tone);

2.      That the existing evidence reflects a high probability that the KJ committed acts of infringement (and once that is admitted, the KJ can forget about suing Slep-Tone for malicious prosecution if he is further dragged through expensive litigation and wins since the KJ would be admitting that Sound Choice brought its suit supported by probable cause);

3.      That the KJ has been sued for trademark infringement involving counterfeiting (using the criminal term to invoke some fear);

4.      That the KJ is accused of playing copies of karaoke accompaniment tracks displaying Sound Choice’s trademark without owning one legal CD+G disk containing an accompaniment track for each system on which the KJ stores a copy of that same accompaniment track (the basis for Slep-Tone’s litigation);

5.      That the KJ rejects prior settlement offers (which means that the KJ can no longer accept Slep-Tone’s previous offer);

6.      That Slep-Tone’s policy is to increase its settlement demand if it determines the KJ infringed its intellectual property (warning the KJ to settle now if he or she is not perfectly innocent or will otherwise fail the audit);

7.      That Slep-Tone will conduct an audit of the KJ’s karaoke library (which is all the audit agreement need say);

8.      That a Slep-Tone accompaniment track in the memory of the KJ’s computer is “deemed to have been legitimately acquired” only if the KJ owns an original CD+G disc containing every track in the memory of the KJ’s computer and one disk track for every one memory track in any other computer karaoke system (thus creating a “1:1″ correspondence, but this definition is overly broad because it neglects disks legitimately acquired which have been lost or discarded after they were format and media shifted and copied to the KJ’s computer hard drive);

9.      That Slep-Tone has been authorized by Chartbuster, Stellar, Pocket Songs, Priddis Music and others to perform a simultaneous audit on their behalf (so the KJ better be sure that his or her entire library is legitimate);

10.     That Slep-Tone will provide the results of its audit to other karaoke disk manufacturers (and get the KJ into even more trouble, settle or not);

11.     That the KJ can stop the audit at any time (further demonstrating its voluntarily nature); and,

12.     That Slep-Tone may “use all available legal process, including obtaining a court order, to obtain the information it is collecting” through the audit (thereby suggesting that Slep-Tone’s discovery motions should all be granted by the court).

Signing such a audit agreement is admitting too much.  It would be advisable to simply agree to an audit without signing any documents written up by Slep-Tone.  An attorney may be able to negotiate that concession.

No innocent KJ should admit that the existing evidence reflects a high probability that he or she had committed acts of infringement or should agree to Slep-Tone’s definition of “legitimately acquired” karaoke accompaniment tracks to not include copies of disks which were in the KJ’s legitimate possession at the time the copy was made and which are not available for use in another show.

One portion of the Slep-Tone audit agreement states,

If you successfully complete the audit, Slep-Tone will be willing to dismiss the suit against you provided that you agree to adhere to all applicable copyright and trademark laws with regard to the use of Slep-Tone accompaniment tracks and to submit to future audits at Slep-Tone’s reasonable request.  An innocent KJ should not be willing to submit to an audit anymore than an innocent homeowner should be willing to submit to a search of his house.  By what right does Slep-Tone intimidate perfectly legitimate KJs who have spent tens of thousands of dollars on their libraries and karaoke systems and whose purchases have profited Slep-Tone to the hassle of future audits just to keep from being wrongfully dragged into expensive and stressful litigation?

The unfair competition theory

Slep-Tone brings a second cause of action for unfair competition and claims the display of the Sound Choice trade mark is likely to deceive those present into falsely believing Sound Choice “sponsored or approved the Defendants’ services and commercial activities.”  Show attendees are claimed to have been deceived into believing that the defendants were playing Sound Choice karaoke accompaniment tracks which had been legitimately acquired.

A singer’s primary concern is staying on key.  Singers express little if any interest in the origin of the music.  Slep-Tone wishes they did.

Slep-Tone is a little more on point when it claims in its Complaint that KJs who acquire counterfeit tracks in their libraries have an unfair business advantage over “legitimate” KJs because the “illegitimate” KJs are able to operate with considerably lower overhead.”  If that allegation provides a cause of action, that cause of action is more possessed by the legitimate KJ against the illegitimate KJ than it is by Slep-Tone against the illegitimate KJ.  Without a doubt, a KJ who buys the laptop and hard drive from the counterfeiter can get into the business much cheaper than a KJ who had built up his or her library through the purchase of genuine discs, but in the long run, it is the quality of the show which determines whether the KJ will be a success.

What are the defendants to do

A defendant has twenty days to file an answer or responsive pleading, such as a motion to dismiss, unless other arrangements are made, such as Slep-Tone granting the defendant an extension of time to answer or respond (preferably in writing) or the defendant may retain an attorney who will notify Slep-Tone of his or her retention.  Before defaulting a defendant represented by an attorney, Slep-Tone has to first give the attorney notice of its intent to default.

The best reason for seeking an extension of time to answer or to file a responsive pleading is to explore the possibility of settlement before incurring additional costs and fees.  Some defendants did just that by filing stipulations to enlarge time to answer or respond so settlement negotiations can be pursued.

If a defendant is served and does not timely file an answer or responsive pleading without other arrangements being made, Slep-Tone may win by default and receive an order enjoining the defendant from presenting his or her show.  Slep-Tone also claims entitlement to damages which may also be awarded by default.

If one timely answers and denies the allegations made in the Complaint, Slep-Tone has to prove that the acts of the KJ or venue have been committed “with knowledge that such imitation [of the Sound Choice trademark] is intended to be used to cause confusion, or to cause mistake, or to deceive.”  Slep-Tone is only entitled to injunctive relieve against an innocent violator, such as a venue which simply hired the KJ and is otherwise innocent.  However, if the venue defaults by not answering the Complaint and by not denying the allegations, then its conduct will be held to be intentional since that is what Slep-Tone has alleged in its Complaint.

Other defenses and legal maneuvers

Short of settlement, there are several legal arguments to be made.  First, a motion to sever may be brought upon the argument that the lawsuit names multiple defendants with no connection with one another and that Slep-Tone’s claims arise out of separate sets of circumstances.  The argument continues that Slep-Tone has improperly named all defendants in the same lawsuit for the improper purpose of harassing and needlessly increasing each defendant’s individual cost of litigation and that Slep-Tone should have sued the defendants separately.

The increase in cost to defend a civil suit increases with the number of defendants.  If two-thirds of the 52 defendants answer the Complaint, there could be 34 defense attorneys meaning that each defense attorney would need serve 33 other defense attorneys and would need check on the discovery requests, letters and filings of 33 other defense attorneys instead of just dealing with Slep-Tone’s attorneys.  Dealing with Slep-Tone’s attorneys should be difficult enough because Slep-Tone has already brought nearly identical suits in several other states and has probably already made and defended the same motions time and again each time learning from its mistakes.

The defendants may also want to file a motion for a more specific statement arguing that Slep-Tone should be made to amend its Complaint to state in more detail what each defendant did and how and in how much Slep-Tone was damaged by their actions.  Defendants would argue that Slep-Tone’s factual contentions are not identified with enough specificity to be likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.

A question may arise whether playing a counterfeit track in a bar constitutes an “electronic transmission” which is defined as “any transfer of…images…transmitted in whole or in part by a wire…that affects interstate or foreign commerce.”  Services at a gas station or a hotel or a bar have been held to affect interstate commerce if the gas station or hotel or bar accepts credit cards or can expect some of its customers to be from out of state.  KJs do not accept credit cards, but venues do.  The wire from the computer to the sound board to the television screen does transfer the Sound Choice trademark image from the an MP3G copy, maybe supported by a disk in the KJ’s possession or maybe not, from his or her laptop to the television over a wire, but that wire does not cross state lines.  Downloading pirated MP3Gs over the Internet clearly crosses state lines.

Some venues have had a laptop hooked up to the Internet and play the karaoke music and graphics from the Internet download or from tunes already stored on the computer’s hard drive.  Slep-Tone’s Complaint does not specifically allege that any of the defendants have down loaded their music from the Internet, or have purchased their copies from any particular source.  The transactions resulting in KJs building large karaoke MP3G libraries are allegedly from four sources:

Copying one’s own disks;

Copying a singer’s personal disk used during a show;

Swapping song files among other KJs; and,

Downloading from illegal file sharing sites.

The “illegal fire sharing sites” suggests the downloading of copied karaoke tracks from over the Internet, but it is not alleged to have been done for a price.  Slep-Tone has alleged that many KJs or operators starting in the business simply buy computer drives pre-loaded with thousands of songs, but Slep-Tone’s Complaint is silent with respect to the exact means by which any of the named defendants acquired their alleged counterfeit MP3G copies.  Defendants may argue they are entitled to a more specific statement with respect to all these allegations.

Settling versus the consequence of damages

Slep-Tone’s Chief Executive Officer Kurt Slep posted a blog explaining Slep-Tone’s position.  Slep claims Slep-Tone has more evidence than stated in its complaints and that Slep-Tone does “not need to have all details on an individual before filing.”

Slep-Tone’s Complaint is detailed and complete with respect to alleging the changes which have been forced upon the karaoke industry by the copying of original karaoke tracks through format shifting and media shifting to a computer hard drive and in a format easily copied and shared.

Slep-Tone’s Complaint is vague and bare with respect to alleging specific conduct engaged in by each defendant.  Slep-Tone hopes the Judge will let its case proceed requiring the defendants to answer and Slep-Tone then being able to engage in extensive discovery.

Once Slep-Tone’s case reaches the discovery stage, the defendant can then try to settle, probably for more than before with Slep-Tone likely to up the settlement amount with each dollar of costs and attorney time it incurs, or the defendant can comply with the Court’s discovery rules.

Regardless of whether the defendant settles or whether the defendant is forced under the threat of losing their case to engage in discovery, Slep-Tone will inevitably seek and may will be allowed to examine the defendant’s laptops and hard drives, and all the KJ’s karaoke disks and receipts.  At a deposition before trial, the defendants can be forced to testify under oath about how they came to have each song in their computer library.

The legal discovery process could be burdensome to each defendant, and the evidence gathered against each defendant will vary as multiple fact patterns emerge which is a reason to sever the cases and litigate them separately.  If Slep-Tone has its way, the defendants will have to prove their innocence by showing they had a genuine Sound Choice disc supporting each song track for each occasion the song track was played, but in reality, it is Slep-Tone which willl have to prove that when each sound track was played, the KJ was not in control of the original disk, and Slep-Tone will have to prove that during its play, the Sound Choice trademark was displayed.  Defendants who do not settle with Slep-Tone will likely argue that Slep-Tone is seeking to subject them to too onerous of a task and is seeking to invade the privacy of their computer  during the discovery process, and the court will hear those arguments.

Damages and settlements

If Slep-Tone is entitled to damages each time its trade mark is displayed, then it will need prove how often its trademark was, in fact, displayed, and Slep-Tone will need prove that at the time of display, the venue or KJ did not have in their possession a copy of the Sound Choice disc which was being played.  This is a formidable task, and Slep-Tone may be barred from admitting speculative evidence.

Slep-Tone claims it merely needs prove that a format and/or media shift was made without its permission.

It need not be in issue whether customers are drawn to the show because Sound Choice tracks are among these being played because Slep-Tone can exercise its option to receive not less than $1,000 per counterfeit mark per good or service distributed, and to throw terror into any defendant, as the Court considers just, the Court may award up to $200,000 per violation.  Carrying Slep-Tone’s damages argument out to the extreme yields extreme damages which no one could pay.

Suppose Slep-Tone could prove that 35 percent of the songs played on any given karaoke night were from illegal copies of Sound Choice discs which displayed a counterfeit Sound Choice trademark.  (Slep-Tone is likely to claim that figure should be at least 60 percent of all songs played.)  Suppose Slep-Tone could prove that the average show lasts four hours in which forty songs are sung.  Suppose Slep-Tone could prove the gig has been going on four nights a week for the last two years.  Slep-Tone could then claim statutory damages of between $5,824,000 and $1,164,800,000, the later of over a trillion dollars being rivaled only by the annual federal deficit of the United States.

If the Slep-Tone private investigator can only personally attest to having seen five Sound Choice logos, and the KJ could prove that he had a disk back up three of the five times, Slep-Tone could receive as little as $2,000 plus costs.  At the minimum, Slep-Tone would seek to examine each KJ’s laptop and perform an audit of the disks incurring expenses it would inevitably claim as costs of litigation.  There are also filing fees, copy costs, postage, court reporter fees and other more usual costs.  Costs are generally awarded the prevailing party.  The court may in “exceptional cases” award reasonable attorneys fees to the prevailing party which means that Slep-Tone would not necessarily be entitled to be awarded its attorneys fees even if it proved its case.  It should be noted that for those same proven two unauthorized displays of the Sound Choice trademark, the Court could award $800,000 plus costs of about $10,000 plus attorneys fees of $40,000.

Slep-Tone wants people to buy its product to receive the value of its use.  After accomplishing that goal, Slep-Tone wants to put an end to the illegal copying, illegal distribution of copies and illegal receipt and use of copies.  Once that is accomplished, Slep-Tone appears satisfied to settle for nominal compensation so long as it covers the money it is needing to spend on investigator fees, attorneys fees and court costs to accomplish its first task of forcing people to actually buy its product.

In that regard, Slep-Tone may be trying to settle claims before the defendants need answer the lawsuit.  Slep-Tone has 120 days from the date it filed its lawsuit on February 15, 2012 in which to serve it.  Therefore, Sound Choice has until June 14, 2012, to serve its Complaint unless granted more time by the Court.  In the past, Slep-tone has encouraging defendants to contact them before they beginning to spend money hiring an attorney so that the amount of the settlement can be kept as low as possible.  Once represented by counsel, Slep-Tone’s counsel can only communicate to the defendant’s counsel, and all that counsel to counsel communication costs money, something clients tend to forget.  Slep-Tone may be acting with the goal of keeping  costs down, but there are those defendants who will want to retain an attorney out of caution and their fear that anything said to Slep-Tone will be used against them later at trial.

Slep-Tone says it has offered settlements averaging under $1.00 per song which is roughly the same amount previously suggested as a selling price for Slep-Tone to market its songs in MP3G format over the Internet.  However, it is unclear whether after paying the money, the defendant can continue to play the copies for which there is no original disk backup.  Settlements are said to average $6,000.  However, for a larger venue which may have 40,000 copies of Sound Choice tracks, the settlement amount could be substantially higher, and at $1.00 a song, the settlement would be for $40,000.  To defend and not settle there is no guarantee of outcome, and it probably means incurring $40,000 in costs and attorneys fees plus running the risk of having the jury render a judgment against the defendant for an unknown amount.

An innocent party may want to press the issue in the hope of being found innocent and then turning around and suing Slep-Tone for malicious prosecution or abuse of process.  (Abuse of process should be raised as a counterclaim.  Malicious prosecution requires the case first be decided in the defendant’s favor.)  Such a plan takes a lot of principled belief over monetary sense, and chances are standing up for principle will not break even much less make one rich.

It was no ones lucky day the day this suit was filed.

The author has practiced law in Nevada federal and state courts for 25 years and has sung on the karaoke circuit for 14 years.

MORE TO COME

Since the time the preceding article was written various defendants have been served and have answered or filed motions to dismiss.  Stay tuned to this website for all the most recent news.

UPDATE

Since the filing of the lawsuit, Slep-Tone’s attorneys have missed every deadline with the exception to filing a response to PT’s motion to dismiss.  Slep-Tone has done nothing to notice or hold an early meet and confer conference or start the discovery process.  Fourteen defendants have already been dismissed due to the tardiness of Slep-Tone’s attorneys.  Allegations that Slep-Tone has brought its lawsuit merely to scare as many defendants as it can and is trolling for settlements appear to be point on. 

RJK