Cavs USA Inc v. Slep-Tone Entertainment Corporation

Filing 30

ORDER Denying Defendant's Motion to Dismiss Plaintiff's Complaint 8 by Judge Dean D. Pregerson. The court therefore finds general personal jurisdiction and denies Defendants Motion to Dismiss. (See Order for Details). (sch)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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CAVS USA, INC.,

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Plaintiff,

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v.
SLEP-TONE ENTERTAINMENT
CORPORATION d/b/a SOUND
CHOICE, a North Carolina
corporation,

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Defendants.
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___________________________

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Case No. CV 11-05574 DDP (JEMx)
ORDER DENYING DEFENDANT’S MOTION
TO DISMISS PLAINTIFF’S COMPLAINT
[Docket No. 8]

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Presently before the court is Defendant Slep-Tone

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Entertainment Corporation’s Motion to Dismiss Plaintiff’s Complaint

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under FRCP 12(b)(2) (“Motion”).

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moving papers and heard oral argument, the court denies the Motion

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and adopts the following Order.

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I.

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Having reviewed the parties’

BACKGROUND
Plaintiff CAVS USA, Inc. (“CAVS”) and Defendant Slep-Tone

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Entertainment Corporation (“Slep-Tone”) are both companies in the

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karaoke industry.

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its principal place of business in North Carolina.

Slep-Tone is a North Carolina corporation with
Slep-Tone

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produces and distributes karaoke products and music content.

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is a California corporation with its principal place of business in

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California.

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principally karaoke players.

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CAVS

CAVS also sells karaoke products and content,
(First Am. Compl. ¶¶ 2-8.)

According to Slep-Tone, it is currently involved in trademark

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infringement litigation against a third, Ohio karaoke company.

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Slep-Tone claims that the Ohio company sells computer hard drives

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and CAVS karaoke machines preloaded with unauthorized Slep-Tone

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karaoke content.

Therefore, in June 2011, Slep-Tone sent an email

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to approximately one-thousand people - including at least seventy

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California residents - who it believed were involved in the karaoke

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industry and may have purchased such equipment.

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Slep in Supp. of Mot. at 5-6.)

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amnesty from a lawsuit for the unauthorized use of Slep-Tone’s

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karaoke content “on an illegal karaoke hard drive or CAVS unit.”

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Slep-Tone also asked the email recipients to forward the email to

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anyone else meeting the conditions set forth therein.

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see also id. (“You may be aware that [Slep-Tone] is bringing

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lawsuits against the users of illegal karaoke CAVS and computer

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hard drive units . . . .”).)

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(Decl. of Kurt J.

In the email, Slep-Tone offered

(Id., Ex. 1;

In response, CAVS filed this action against Slep-Tone,

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alleging trade libel and unfair competition.

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Amended Complaint on July 12, 2011.

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Tone filed this Motion to Dismiss Plaintiff’s Complaint for lack of

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personal jurisdiction.

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II.

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CAVS filed a First

On September 28, 2011, Slep-

LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(2) provides that a court

may dismiss a suit for lack of personal jurisdiction.
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The

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plaintiff has the burden of establishing that jurisdiction exists,

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but need only make “a prima facie showing of jurisdictional facts

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to withstand the motion to dismiss.”

Pebble Beach Co. v. Caddy,

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453 F.3d 1151, 1154 (9th Cir. 2006).

“[U]ncontroverted allegations

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in [the plaintiff’s] complaint must be taken as true, and conflicts

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between the facts contained in the parties’ affidavits must be

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resolved in [the plaintiff’s] favor.”

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Int’l Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002).

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Rio Props., Inc. v. Rio

District courts have the power to exercise personal

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jurisdiction to the extent authorized by the law of the state in

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which they sit.

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v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998).

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California’s long-arm statute authorizes personal jurisdiction

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coextensive with the Due Process Clause of the United States

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Constitution, see Cal. Civ. Code § 410.10, this Court may exercise

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personal jurisdiction over a nonresident defendant when that

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defendant has “at least ‘minimum contacts’ with the relevant forum

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such that the exercise of jurisdiction ‘does not offend traditional

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notions of fair play and substantial justice.’”

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Fred Martin Motor Co., 374 F.3d 797, 800-01 (9th Cir. 2004) (citing

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Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

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contacts must be of such a quality and nature that the defendants

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could reasonably expect “being haled into court there.”

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Volkswagen v. Woodson, 444 U.S. 286, 297 (1980).

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III. DISCUSSION

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Fed. R. Civ. P. 4(k)(1)(A); Panavision Int’l, L.P.
Because

Schwarzenegger v.

The

World-Wide

Personal jurisdiction may be asserted on the basis of either

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general jurisdiction or specific jurisdiction.

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jurisdiction exists over a nonresident defendant when “the
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General

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defendant engages in ‘continuous and systematic general business

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contacts’ that ‘approximate physical presence’ in the forum state.”

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Schwarzenegger, 374 F.3d at 801.

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state’s general jurisdiction, he “can be haled into court in that

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state in any action, even if the action is unrelated to those

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contacts.”

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U.S. 408, 415 (1984).

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that determines whether they are ‘substantial’ or ‘continuous and

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systematic.’

Where a defendant is subject to a

Helicopteros Nacionales de Colombia, S.A. v. Hall, 466
“It is the nature and extent of the contacts

Longevity, continuity, volume, economic impact,

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physical presence, and integration into the state’s regulatory or

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economic markets are among the indicia of such a presence.”

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v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1172 (9th Cir. 2006);

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see also Bancroft & Masters, Inc. v. Augusta Nat’l, Inc., 223 F.3d

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1082, 1086 (9th Cir. 2000) (“Factors to be taken into consideration

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are whether the defendant makes sales, solicits or engages in

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business in the state, serves the state’s markets, designates an

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agent for service of process, holds a license, or is incorporated

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there.”).

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Tuazon

Because the court finds Slep-Tone subject to general

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jurisdiction in California, it is not necessary to discuss specific

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jurisdiction.

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systematic business contacts with California for a number of years.

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First, from 2008 to 2011, Slep-Tone’s product sales to California

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have accounted for 17 to 25 percent of their total sales each year,

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in amounts ranging from $120,000 to $350,000.

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substantial and significantly higher than would be expected on a

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per capita basis.

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through distributors, including its primary distributor located in

Slep-Tone has had substantial, continuous, and

This amount is both

Slep-Tone makes some of its product sales

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California.

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two in California.

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distributors, including its primary distributor in California and a

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“very small” distributor in Illinois.

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products to and interacts directly with California residents

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through a website, which incorporates online accounts, product

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ordering, a moderated message board, and website “affiliates” -

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including some websites located in California - who earn

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commissions for sale referrals.

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In 2007, Slep-Tone used six distributors, including
As of February 2010, Slep-Tone uses only two

Slep-Tone also sells

(Opp’n at 2-3, 5-6.1)

In addition to sales, Slep-Tone now derives the majority of

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its profits from licensing and litigation settlements, also

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substantially connected to California.

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content, Slep-Tone initially obtains rights from thousands of music

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licensors, many of whom are located in California given the state’s

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“large share of the operations of the music industry.”

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these rights, Slep-Tone has targeted California for licensing and

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litigation settlements.

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company to act as its agent, investigating infringement in

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California.

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to investigate potentially infringing karaoke venues in California.

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Slep-Tone also certifies California karaoke venues and hosts as

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legal product users, and places advertisements in magazines

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distributed throughout California to encourage hosts to obtain

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proper licenses.

To provide its karaoke

Based on

In particular, Slep-Tone has authorized a

Similarly, Slep-Tone sends its own field investigators

(Id. at 1-5.)

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Slep-Tone does not dispute any of these facts, which are
set forth in declarations and exhibits attached to CAVS Opposition.
As required, the court therefore takes these allegations as true
for purposes of this Motion.
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As a result of these efforts, Slep-Tone has entered into

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karaoke content licensing agreements with at least twenty-four

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California companies, and recently filed a lawsuit in this

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District.

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CV 11-08305 (C.D. Cal. filed Oct. 6, 2011).

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approximately 70 California defendants and has so far resulted in

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more than $180,000 in settlement payments from these defendants.

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Thus, Slep-Tone has not only continuously and systematically

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availed itself of the privilege of doing private business in

See Slep-Tone Entm’t Corp. v. Backstage Bar & Grill, No.
The lawsuit names

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California, but has made substantial use of this District Court to

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engage in California-based business litigation.2

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(Id. at 5.)

On the other hand, as Slep-Tone argues, it does not meet some

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of the more traditional, physical factors for general jurisdiction.

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Slep-Tone does not have employees, offices, or other property in

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California.

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or agent for service of process, or pay state taxes.

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5.)

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Nor does Slep-Tone have a California business license
(Reply at 4-

The court finds, however, that Slep-Tone’s continuous,

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substantial, and targeted contacts with California approximate and

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substitute for such a physical presence.

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explained, “determining whether a corporate defendant’s contacts in

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a particular case are substantial and continuous turns on the

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‘economic reality of the defendants’ activities rather than a

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mechanical checklist.’”

As the Ninth Circuit has

Tuazon, 433 F.3d at 1173 (quoting Gates

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Less significant but still worth noting, Slep-Tone also
sent the June 2011 email that is the subject of this action to at
least 70 California residents. Since the late 1980s, Slep-Tone has
regularly attended an annual industry trade show in California as
well. (Id.)
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Learjet Corp. v. Jensen, 743 F.2d 1325, 1331 (9th Cir. 1984)).

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Indeed, despite being physically located in North Carolina, Slep-

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Tone’s business model and revenues suggest that it may even conduct

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a majority of its business in California.

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Further, a three-judge Ninth Circuit panel has found general

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jurisdiction on similar facts.

See Gator.com Corp v. L.L. Bean,

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Inc., 341 F.3d 1072 (9th Cir. 2003), vacated as moot on reh’g en

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banc on basis of settlement, 398 F.3d 1125 (9th Cir. 2005).

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Although the decision is not controlling, this court, like many

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other district courts, finds its reasoning persuasive.

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the Defendant had “few of the factors traditionally associated with

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physical presence, such as an official agent or incorporation.”

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Id. at 1078.

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There too,

But as the panel noted:

It is increasingly clear that modern businesses no longer
require an actual physical presence in a state in order to
engage in commercial activity there. With the advent of
‘e-commerce,’ businesses may set up shop, so to speak,
without ever actually setting foot in the state where they
intend to sell their wares.
Our conceptions of
jurisdiction must be flexible enough to respond to the
realities of the modern marketplace.

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Id. at 1081.

Thus, the panel found sufficient for general

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jurisdiction: “L.L. Bean’s extensive marketing and sales in
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California, its extensive contacts with California vendors, and the
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fact that, as alleged by Gator, its website is clearly and
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deliberately structured to operate as a sophisticated virtual store
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in California.”

Id. at 1078.

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The same can largely be said of Slep-Tone here.

It is true

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that L.L. Bean is a bigger company.

As a result, L.L. Bean “sold

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millions of dollars worth of products in California,” id. at 1074,
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and Slep-Tone’s website is presumably not so elaborate.
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However,

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as alleged by CAVS, Slep-Tone’s website also operates as an

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interactive virtual store, with online accounts, communication, and

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affiliates.

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of its profits from sales to California than did L.L. Bean -

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approximately 17 to 25 percent, versus 6 percent.

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Slep-Tone’s primary distributor, and now one of only two

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distributors, is located in California.

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California sales are still substantial beyond their own relative

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importance to Slep-Tone, amounting to hundreds of thousands of

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And Slep-Tone in fact derives a much greater portion

Id.

Likewise,

Also, Slep-Tone’s

dollars each year.
Moreover, in other ways, Slep-Tone’s California contacts are

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more significant and targeted than L.L. Bean’s were in Gator.

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discussed, Step-Tone’s primary business involves licensing music

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rights, often from California parties, then pursuing licensing and

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litigation settlements.

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targets California for these settlements, as evidence by its: (1)

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authorizing an agent to investigate California infringement; (2)

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sending its own field investigators to investigate California

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venues; (3) certifying California venues and hosts as legal product

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users; (4) advertising in magazines distributed throughout

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California to encourage such licensing; (5) entering into licensing

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agreement with dozens of California companies; and, finally (6)

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litigating in this District against numerous California defendants,

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leading to substantial settlement payments.

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As

According to CAVS, Step-Tone particularly

For these reasons, the relevant facts here are similar to

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those in Gator, and notably distinct from those in the Ninth

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Circuit and Supreme Court decisions cited by Slep-Tone, where the

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courts declined to find general jurisdiction.
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In particular,

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although the Ninth Circuit has found occasional licensing and

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product sales, as well as interactive websites, insufficient on

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their own, Slep-Tone has also allegedly targeted California for

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systematic advertising and infringement-claim investigation and

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settlement.

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1218, 1225-27 (9th Cir. 2011) (discussing relevant Ninth Circuit

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decisions).

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“has not made a single ‘package’ purchase from a forum vendor or

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cashed a check on a forum bank; instead, it ships very large

Cf. Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d

Also, unlike the defendant in Helicopteros, Slep-Tone

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numbers of products to California and maintains ongoing contacts

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with [its California distributor].

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contacts occasional or infrequent.”

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Nor are any of [Slep-Tone’s]
Gator, 341 F.3d at 1078.

In sum, where a corporation not only makes continuous and

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substantial sales to a forum through its interactive website and

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primary distributor, but also targets that forum through systematic

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licensing and claims investigation and settlement - as well as

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significant affirmative litigation - the corporation can fairly

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expect to be haled into court there.

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general personal jurisdiction and denies Defendant’s Motion to

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Dismiss.

The court therefore finds

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IT IS SO ORDERED.

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Dated: January 17, 2012
DEAN D. PREGERSON
United States District Judge

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