Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Ill.: Antitrust counterclaims brought by bar owner against karaoke song maker Slep-Tone fail, (Dec 19, 2014)

By Peter Reap, J.D., LL.M.

Antitrust counterclaims brought by Karaoke bar owner Kalamata, Inc. against Slep-Tone Entertainment Corporation, a manufacturer of karaoke tracks, based on attempts to coerce venue owners to use Slep-Tone’s tracks and hire Slep-Tone licensed karaoke operators were without merit, the federal district court in Chicago has decided (Slep-Tone Entertainment Corporation v. Kalamata, Inc., December 18, 2014, Durkin, T.). Thus, Count VI of Kalamata’s counterclaims, which contained the alleged antitrust violations, was dismissed.

Background. Slep–Tone is a manufacturer of karaoke tracks. In its complaint, Slep-Tone alleges that Kalamata hires karaoke operators who use pirated copies of Slep-Tone’s karaoke tracks to produce karaoke shows at Kalamata’s venue. Among its counterclaims, Kalamata alleged that Slep-Tone fraudulently procured its asserted trademark registrations and further alleges that Slep-Tone is engaged in a nationwide litigation scheme to force venue owners, including Kalamata, to buy Slep-Tone’s products or contract exclusively with karaoke operators who are licensed through Slep-Tone. Before the court was Slep-Tone’s motion to dismiss most of Kalamata’s counterclaims, including the antitrust counterclaims in Count VI.

Analysis

Slep-Tone sought to dismiss Count VI, which alleged that Slep-Tone was liable for antitrust violations under the Sherman Act and the Clayton Act. Kalamata alleged that the antitrust violations arose from Slep-Tone’s attempts to coerce venue owners to exclusively buy Slep-Tone’s products or hire Slep-Tone-licensed karaoke operators by threatening and instituting legal action against venue owners if they refused. Kalamata alleged that these actions “drive up the price of services allowing [Slep-Tone] to charge additional costs for [its] products and otherwise eliminate the ability of other companies to enter into the karaoke track market.” Kalamata contended that these actions establish a per se violation or, at the very least, an unreasonable restraint on trade under the Sherman Act as well as price discrimination under the Clayton Act.

Sherman Act. As a threshold matter, Kalamata did not explain nor was it apparent how Kalamata’s allegations gave rise to antitrust violations under Sections Two through Seven of the Sherman Act, the court noted. Section One of the Sherman Act, the only section Kalamata explained as a ground for its antitrust claims, prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.” Under this Section, per se liability is reserved for those agreements that “facially appear to be [the type of practice] that would always or almost always tend to restrict competition and decrease output,” namely price-fixing agreements. Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, at 1108 (7th Cir. 1984). Kalamata failed to allege that Slep-Tone was liable for a per se violation as it failed to allege that Slep-Tone participated in any agreement, including a conspiracy or other concerted action to, for example, fix prices, the court held.

Anticompetitive conduct proscribed by the Sherman Act can also be examined under the rule of reason, the court noted. The analysis requires a showing that the alleged antitrust violator has “market power” in the relevant market. To satisfy the “market power” requirement, the claimant must establish that an alleged agreement has produced adverse, anticompetitive effects within a specifically defined and relevant geographic market. However, Kalamata failed to allege the existence of an agreement to restrain trade nor did it identify a relevant market and therefore failed to state a claim under the rule of reason analysis as well.

Clayton Act. Kalamata’s allegations were equally insufficient to establish a claim for price discrimination under the Clayton Act, the court ruled. Section 13(a) appeared to be the only section of the Act relevant to its claims.

Under Section 13(a), price discrimination is merely a price difference. Price discrimination falls into three different categories: primary line, secondary line, and tertiary line. Each of these categories has specific elements and involves different conduct and injuries, the court explained.

Kalamata did not allege any price difference or any conduct on the part of Slep-Tone that fell under any of the three categories of price discrimination. While the court must make all reasonable inferences in favor of the non-moving party in resolving a motion to dismiss, the inferences must be drawn from alleged facts. Kalamata alleged no facts from which the court could discern any type of price discrimination.

Count VI, therefore, was dismissed for failure to state a claim for antitrust violations.

The case is No. 14 C 3577.

Attorneys: Vivek Jayaram (Jayaram Law Group) for Slep-Tone Entertainment Corp. Matthew M. Saffar (Law Offices of Matthew M. Saffar) for Kalamata, Inc. Companies: Slep-Tone Entertainment Corp.; Kalamata, Inc.

Cases: Antitrust IllinoisNews