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Cavs Usa, Inc v. Slep-Tone Entertainment Corporation D/B/A Sound Choice

January 17, 2012

CAVS USA, INC., PLAINTIFF,
v.
SLEP-TONE ENTERTAINMENT CORPORATION D/B/A SOUND CHOICE, A NORTH CAROLINA CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Dean D. Pregerson United States District Judge

ORDER DENYING DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT [Docket No. 8]

Presently before the court is Defendant Slep-Tone Entertainment Corporation's Motion to Dismiss Plaintiff's Complaint under FRCP 12(b)(2) ("Motion"). Having reviewed the parties' moving papers and heard oral argument, the court denies the Motion and adopts the following Order.

I. BACKGROUND

Plaintiff CAVS USA, Inc. ("CAVS") and Defendant Slep-Tone Entertainment Corporation ("Slep-Tone") are both companies in the karaoke industry. Slep-Tone is a North Carolina corporation with its principal place of business in North Carolina. Slep-Tone produces and distributes karaoke products and music content. CAVS is a California corporation with its principal place of business in California. CAVS also sells karaoke products and content, principally karaoke players. (First Am. Compl. ¶¶ 2-8.)

According to Slep-Tone, it is currently involved in trademark infringement litigation against a third, Ohio karaoke company. Slep-Tone claims that the Ohio company sells computer hard drives and CAVS karaoke machines preloaded with unauthorized Slep-Tone karaoke content. Therefore, in June 2011, Slep-Tone sent an email to approximately one-thousand people - including at least seventy California residents - who it believed were involved in the karaoke industry and may have purchased such equipment. (Decl. of Kurt J. Slep in Supp. of Mot. at 5-6.) In the email, Slep-Tone offered amnesty from a lawsuit for the unauthorized use of Slep-Tone's karaoke content "on an illegal karaoke hard drive or CAVS unit." Slep-Tone also asked the email recipients to forward the email to anyone else meeting the conditions set forth therein. (Id., Ex. 1; see also id. ("You may be aware that [Slep-Tone] is bringing lawsuits against the users of illegal karaoke CAVS and computer hard drive units . . . .").)

In response, CAVS filed this action against Slep-Tone, alleging trade libel and unfair competition. CAVS filed a First Amended Complaint on July 12, 2011. On September 28, 2011, Slep-Tone filed this Motion to Dismiss Plaintiff's Complaint for lack of personal jurisdiction.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(2) provides that a court may dismiss a suit for lack of personal jurisdiction. The plaintiff has the burden of establishing that jurisdiction exists, but need only make "a prima facie showing of jurisdictional facts to withstand the motion to dismiss." Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). "[U]ncontroverted allegations in [the plaintiff's] complaint must be taken as true, and conflicts between the facts contained in the parties' affidavits must be resolved in [the plaintiff's] favor." Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002).

District courts have the power to exercise personal jurisdiction to the extent authorized by the law of the state in which they sit. Fed. R. Civ. P. 4(k)(1)(A); Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). Because California's long-arm statute authorizes personal jurisdiction coextensive with the Due Process Clause of the United States Constitution, see Cal. Civ. Code § 410.10, this Court may exercise personal jurisdiction over a nonresident defendant when that defendant has "at least 'minimum contacts' with the relevant forum such that the exercise of jurisdiction 'does not offend traditional notions of fair play and substantial justice.'" Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800-01 (9th Cir. 2004) (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The contacts must be of such a quality and nature that the defendants could reasonably expect "being haled into court there." World-Wide Volkswagen v. Woodson, 444 U.S. 286, 297 (1980).

III. DISCUSSION

Personal jurisdiction may be asserted on the basis of either general jurisdiction or specific jurisdiction. General jurisdiction exists over a nonresident defendant when "the defendant engages in 'continuous and systematic general business contacts' that 'approximate physical presence' in the forum state." Schwarzenegger, 374 F.3d at 801. Where a defendant is subject to a state's general jurisdiction, he "can be haled into court in that state in any action, even if the action is unrelated to those contacts." Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 415 (1984). "It is the nature and extent of the contacts that determines whether they are 'substantial' or 'continuous and systematic.' Longevity, continuity, volume, economic impact, physical presence, and integration into the state's regulatory or economic markets are among the indicia of such a presence." Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1172 (9th Cir. 2006); see also Bancroft & Masters, Inc. v. Augusta Nat'l, Inc., 223 F.3d 1082, 1086 (9th Cir. 2000) ("Factors to be taken into consideration are whether the defendant makes sales, solicits or engages in business in the state, serves the state's markets, designates an agent for service of process, holds a license, or is incorporated there.").

Because the court finds Slep-Tone subject to general jurisdiction in California, it is not necessary to discuss specific jurisdiction. Slep-Tone has had substantial, continuous, and systematic business contacts with California for a number of years. First, from 2008 to 2011, Slep-Tone's product sales to California have accounted for 17 to 25 percent of their total sales each year, in amounts ranging from $120,000 to $350,000. This amount is both substantial and significantly higher than would be expected on a per capita basis. Slep-Tone makes some of its product sales through distributors, including its primary distributor located in California. In 2007, Slep-Tone used six distributors, including two in California. As of February 2010, Slep-Tone uses only two distributors, including its primary distributor in California and a "very small" distributor in Illinois. Slep-Tone also sells products to and interacts directly with California residents through a website, which incorporates online accounts, product ordering, a moderated message board, and website "affiliates" -including some websites located in California - who earn commissions for sale referrals. (Opp'n at 2-3, 5-6.*fn1

In addition to sales, Slep-Tone now derives the majority of its profits from licensing and litigation settlements, also substantially connected to California. To provide its karaoke content, Slep-Tone initially obtains rights from thousands of music licensors, many of whom are located in California given the state's "large share of the operations of the music industry." Based on these rights, Slep-Tone has targeted California for licensing and litigation settlements. In particular, Slep-Tone has authorized a company to act as its agent, investigating infringement in California. Similarly, Slep-Tone sends its own field investigators to investigate potentially infringing karaoke venues in California. Slep-Tone also certifies California karaoke venues and hosts as legal product users, and places advertisements in magazines distributed throughout California to encourage hosts to obtain proper licenses. (Id. at 1-5.)

As a result of these efforts, Slep-Tone has entered into karaoke content licensing agreements with at least twenty-four California companies, and recently filed a lawsuit in this District. See Slep-Tone Entm't Corp. v. Backstage Bar & Grill, No. CV 11-08305 (C.D. Cal. filed Oct. 6, 2011). The lawsuit names approximately 70 California defendants and has so far resulted in more than $180,000 in settlement payments from these defendants. Thus, Slep-Tone has not only continuously and systematically availed itself of the privilege of doing private ...


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