Friday, March 25, 2011

NY CT of Appeals To Second Circuit: Copyright Owners Suffered Injury in New York For Long Arm Jurisdiction

Penguin Group (USA) Inc. v. American Buddha (N.Y. Ct. Appeals March 24, 2010), the New York State Court of Appeals decided an issue of extraordinary importance:  whether someone offering copyrighted works in another state could be sued in New York if the copyright owner is located in New York, even if no sale took place in New York?

You can read my earlier post Copyright and the Story of the Long-Armed Buddhist Penguin here.

My post on the question being certified to the New York Court of AppealsThe Long Arm of New York Copyright Holders: Can New York Copyright Lawyers Sue America Without Leaving Manhattan? is here.

As readers of the Copyright Litigation Blog know, copyright cases overwhelmingly take place in federal court.  That is because copyright law presents "federal questions" and the doctrine of complete preemption applies in copyright law.  "Preemption" means that states cannot make laws inconsistent with copyright laws or that govern rights that are equivalent to copyright. It's not an easy test.  More on preemption here.

So how did a copyright case get to the New York State Court of Appeals?   Well, when legal questions at the appellate level arise that require a federal circuit court of appeals to determine an unsettled area of state law, the circuit court might "certify" or ask the state's highest appeals court to answer the question.

So the Second Circuit Court of Appeals heard an appeal from a district court ruling that denied "long arm jurisdiction" over American Buddha, a Washington State based online service that uploads Penguin books and claims that it is permitted by the fair use doctrine to give away free copies online to its members.

Instead of determining the question of whether New York's long-arm statute applied to American Buddha, the Second Circuit "certified" the question to the New York Court of Appeals.   The question certified was:

In copyright infringement cases involving the uploading of a copyrighted printed literary work onto the Internet, is the situs of injury for purposes of determining long-arm jurisdiction under N.Y. C.P.L.R. § 302 (a) (3) (ii) the location of the infringing action or the residence or location of the principal place of the copyright holder?
To understand why this matters, we need to understand that federal courts are courts of limited jurisdiction.  They can only exercise jurisdiction over matters when a statute says so.  Usually over matters in their judicial district.   For a court to answer a legal question, it must have 1. subject matter jurisdiction and 2. personal jurisdiction over the person whose rights are being decided.

In American Buddha, the "subject matter" is copyright, which is governed by the Copyright Act thus satisfying the test for subject matter jurisdiction (more on subject matter jurisdiction here).

But how can a federal court decide a matter outside the confines of its judicial district?  When does a non-resident of New York acting outside New York state subject herself to jurisdiction in New York?  The answer is that the federal court may exercise "long arm" jurisdiction to the extent that the state in which it sits permits.

CPLR 302 provides in part:

§ 302. Personal jurisdiction by acts of non-domiciliaries. (a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who in person or through an agent:

1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or

2. commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act; or

3. commits a tortious act without the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if he

(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or

(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce; or

So the question answered by the New York Court of Appeals was whether copyright infringement by using the internet is an "act without the state causing injury to person or property within the state."

They said "yes".   This case is of extraordinary importance to the New York copyright bar specifically and to intellectual property practitioners in general.   But both the Second Circuit and the New York Court of Appeals specifically punted in a tantalizing footnote as follows:

The Second Circuit also stated that "[t]here is a possible question at the threshold that neither the district court nor the parties have addressed and which we do not here decide: whether a copyright -- in and of itself an intangible thing -- has a physical location for jurisdictional purposes and, if so, what that location is" (609 F3d at 36 n 4). The Second Circuit resolved to "accept for the purposes of this appeal the district court's implicit conclusion that copyrights have a location and that their location in this case is in New York State" (id.). We, too, accept this characterization in answering the certified question.

Now a New York lawyer can sue anyone in the world who infringes on the web by buying a subway token?  Not so fast, says the NYS Court of Appeals:

Finally, contrary to American Buddha's assertion, our decision today does not open a Pandora's box allowing any nondomiciliary accused of digital copyright infringement to be haled into a New York court when the plaintiff is a New York copyright owner of a printed literary work. Rather, CPLR 302 (a)(3) (ii) incorporates built-in safeguards against such exposure by requiring a plaintiff to show that the nondomiciliary both "expects or should reasonably expect the act to have consequences in the state" and, importantly, "derives substantial revenue from interstate or international commerce." There must also be proof that the out-of-state defendant has the requisite "minimum contacts" with the forum state and that the prospect of defending a suit here comports with "traditional notions of fair play and substantial justice," as required by the Federal Due Process Clause (International Shoe Co. v Washington, 326 US 310, 316 [1945] [internal quotation marks and citation omitted]; see also World-Wide Volkswagen Corp. v Woodson, 444 US 286, 291-292 [1980]). These issues are beyond the scope of this certified question and their resolution awaits further briefing before the federal courts.
This case is an extraordinary victory for Penguin and Richard Dannay, who has a string of extraordinary victories behind him.

Full decision below:
 Penguin Group v American Buddha
 Purchase Copyright Litigation Handbook 2010 by Raymond J. Dowd from West here  

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