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Mar 30 2011

NY’s Highest Court Allows Suit in NY For Copyright Infringement Occurring Outside of State

New York’s “long-arm statute” permits a Manhattan-based publisher to sue an out-of-state online corporation in NY for copyright infringement, the state Court of Appeals ruled last week. Early in law school, law students learn about “long-arm” jurisdiction; then they try to forget about it as soon as they pass the bar. “Long-Arm” jurisdiction refers to when someone can be sued in  a state with which they have little or no contact.  Can the proverbial “long arm of the law” reach out across state lines and haul someone into court?  But this esoteric legal concept has gotten very important with the advent of the internet and e-commerce.  Where does a harmful act occur when the act is done electronically?Last week’s decision provides great protection to NY companies who find their intellectual property infringed upon in other states. It could lead to similar decisions in other states across the country.

In Penguin Group v. American Buddha the Court of Appeals (NY’s highest court)  was asked to determine if a New York corporation (Penguin Books) could bring a copyright infringement lawsuit in NY against an online library which was based in Oregon but had its primary offices in Arizona (American Buddha).  Seems American Buddha uploaded and made available for download four titles in which Penguin held the copyright.  American Buddha argued that as an online library it was entitled to do so under the “fair use” doctrine. Update: Please see comment below where American Buddha’s lawyer states that the material was not available for download.

Before that issue could even be resolved, Judge Gerald Lynch of the Federal District Court for the Eastern District of NY said the case does not belong in NY because the harmful acts occurred in either Oregon or Arizona and American Buddha had no connection to NY whatsoever.  Penguin appealed to the Second Circuit, the federal appellate court, who asked for an advisory opinion from the Court of Appeals since it was dealing with an interpretation of the State’s procedural statute. (This really is like a law school problem)

“The location of the infringement in online cases is of little import inasmuch as the primary aim of the infringers is to make the works available to anyone with access to an Internet connection, including computer users in New York,”  the Court stated (Justice Victoria Graffeo wrote the unanimous opinion for those of you keeping score). “In addition,” she added,  “the injury to a New York copyright holder, while difficult to quantify, is not as remote as a purely indirect financial loss due to the broad spectrum of rights accorded by copyright law.” Let me explain what she means by that because that convoluted sentence is really whats important for intellectual property law.

American Buddha had argued that the four books it used were marginal sellers, not big hits for Penguin, so that the financial impact in NY was minor and that such a minor impact should not dictate where a case ends up being litigated.  But Judge Graffeo basically said that there’s more to it than just money. Taking someone’s intellectual property has other impacts on the community besides the fiscal loss of revenue. “The harm to a plaintiff’s property interest in copyright infringement cases ‘has often been characterized as irreparable in light of possible market confusion,'” Judge Graffeo wrote.  Penguin has  a right to assert that it owns the rights to these books and to decide how to market them to readers. Taking that decision out of its hands harms it even if it doesn’t cost it a penny. It also sends a message to the world that these books are not protected by copyright so that someone else may infringe in a manner that does deprive Penguin of revenue.  This fact makes internet cases different than the standard commercial case, which previously required there be a “direct injury in NY”  before a case could be brought in  NY.

I think this decision will  have tremendous impact on intellectual property litigation.  Previously it was assumed the infringing defendant had to be sued in its home state.  This could be a grim prospect for companies trying to go after minor infringements.  They would have to retain an out-of-state law firm, they would not be near the court should appearances be necessary, they would feel disconnected to the litigation. This case, however, now allows NY companies to bring the case in NY regardless of where the infringer is located  or where the infringement occurred.  NOTE:  the defendant would still have to meet the long-arm statute’s other requirements – (1) that it had minimal contacts with NY (here Buddha did on occasion have folks download from NY) (2) that it could reasonably expect its actions to have consequences in NY and (3) that it derives substantial revenue from interstate or international commerce.  In language that shows how the digital age is effecting litigation, Judge Graffeo summed the case up as follows:

In sum, the role of the Internet in cases alleging the uploading of copyrighted books distinguishes them from traditional commercial tort cases where courts have generally linked the injury to the place where sales or customers are lost. The location of the infringement in online cases is of little import inasmuch as the primary aim of the infringer is to make the works available to anyone with access to an Internet connection, including computer users in New York.

2 comments

  1. Charles Carreon

    Oscar,

    American Buddha’s lawyer here to focus on (1) some facts that need correcting, and (2) some legal notions that might go unquestioned.

    On the facts — First, there was no showing anyone ever “downloaded” a book from the library. Go to the website. You can’t download anything. You can read webpages. Sure you can save a webpage, but that’s not downloading. Second, American Buddha has no income whatsoever, and no sources of revenue were identified by Judge Lynch, by the Second Circuit, or by the NYCA. Nor will any income ever be shown on remand.

    On the law —

    First, the NYCA was literally asked by the 2nd Circuit to identify some interest beyond a pecuniary interest that was injured in New York, and it never did. Why? Because corporations have only pecuniary interests, and to incorporate a doctrine of “presumed irreparable harm” into a copyright case is a notion that clashes with the Supreme Court’s holding in Winter v. NRDC, that irreparable harm must always be proven. http://scholar.google.com/scholar_case?case=9442569952589125047&q=winter+irreparable+harm&hl=en&as_sdt=4,60

    Second, the opinion is deeply flawed in that it specifically applies only to printed copyrights. Seriously? What about picture books? No application to sound recordings, motion pictures? But the NYCA was aware that Mel Nimmer’s 12 Volume Copyright Treatise is twelve volumes long for good reason — because “copyrights” are so absolutely complex in their scope and application, that without this transparently-contrived limitation, the opinion would explode with embarassing rapidity.

    Third, just watch what happens now. It will be a mess that ultimately Justice Scalia will straighten out. Takin’ odds.

    Regards,
    Charles

  2. Oscar Michelen

    Dear Charles:

    Thanks for the update and information. While I took no sides in my post, I do think the decision overextends the reach of long-arm jurisdiction and as somenoe who represents many small and midsize businesses in copyright infringement cases, I think it could have a devastating impact on them if they could be dragged across the country to fight claims in states they did no real business in. On the issue of irreparable harm, yes all fed cts including SCOTUS require irreparable harm before an injunction is granted, but here Justice Graffeo said that the infringement itself was irreparable harm:

    “The harm to a plaintiff’s property interest in copyright infringement cases ‘has often been characterized as irreparable in light of possible market confusion,’”

    There are a number of cases that follow that trend so I think that may be an issue for your client. Please keep us posted!

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