Plaintiffs have long chosen to litigate copyright and trademark cases in the federal courts in New York because that is where much of the content and distribution industries are based. But those plaintiffs who seek to litigate in New York for infringing conduct that took place outside that state may lose their chosen forum depending on how the New York Court of Appeals decides a novel issue referred to it last week by the Second Circuit Court of Appeals in Penguin Group. v. American Buddha.
The Split Regarding the Location of Injury Resulting from Infringement
The issue concerns the location (or “situs”) of the injury suffered by a copyright holder from infringement. The federal courts in New York are divided on this issue. One line of cases holds the location of injury is the jurisdiction where the infringing conduct took place. These courts reason that the copyright owner suffers injury in that jurisdiction because that is where the sales related to the intellectual property are lost. The other line holds that the situs of injury is the location of the copyright holder or of its intellectual property because that is where the holder experiences the harm caused by the infringement.
The Significance of the Issue before the New York Court
This issue impacts on personal jurisdiction. A plaintiff suing a non-resident infringer in New York for infringing conduct that took place outside that state must satisfy CPLR §302 (a)(3) (ii) of New York’s long-arm statute. That statute requires plaintiff demonstrate it was injured by the infringing conduct in New York.
If the New York Court of Appeals follows the line of cases holding that the situs of injury is the location of the copyright holder or its intellectual property, New York-based copyright holders will be able to continue to litigate against non-resident infringers in that state.
But if the New York Court of Appeals follows the other line of cases, then New York-based copyright holders will be forced to bring their infringement actions in the jurisdiction where the infringing activity occurred. Determining that jurisdiction may not be easy. Infringement may result from unauthorized uploading of copyrighted material on one or more inter-connected servers operating throughout the world. Further, if the server sits in a foreign jurisdiction with little respect for intellectual property, the plaintiff will be effectively without a remedy.
The Internet Complicates the Analysis
Personal jurisdiction has traditionally been based on “presence” or “transacting business” in the state where the litigation was commenced. But these notions have little relevance in the virtual world. Where is an interactive web site present if it may be accessed globally? Where is an online retailer transacting business if it targets , advertises and ships to consumers in all 50 states? Is a geographical nexus with the forum required where the harm occurs anywhere the Internet is accessible? There are some of the questions that may be implicated by the jurisdictional issue the New York Court of Appeals has been asked to decide in Penguin. Here is its background.
The District Court Decision
The district court in Penguin followed the line of cases holding that the situs of injury is where the infringing activity took place. In Penguin that activity occurred either in Oregon or Arizona where defendant American Buddha without authorization, uploaded to its online libraries four of Penguin’s works and made them available free of charge on its servers housed in those states.
Because the district court determined that defendant’s infringing conduct had injured Penguin outside New York, the court dismissed the action for lack of personal jurisdiction. The district court found Penguin’s “purely derivative economic injury” was insufficient. The court added the Internet played no role in the court’s resolution because Penguin alleged only a single incident of infringement that occurred in Oregon or Arizona.
The Second Circuit Decision
On appeal, Penguin aptly argued that the “restrictive reading of the long-arm statute under the line of cases followed by the District Court would substantially—and unnecessarily– stack the deck against [New York plaintiffs] … in the accelerating struggle against Internet piracy, allowing pirates with the entire 21st-century arsenal of digital infringement tools to shelter behind a 19th-century personal jurisdiction model.”
But the Second Circuit declined to follow either line of cases, finding “insufficient guidance” from the language of the long-arm statute, its legislative history or New York case law. Instead, the Second Circuit asked the New York Court of Appeals to decide:
In copyright infringement cases is the situs of injury for purposes of determining long-arm jurisdiction under CPLR §302 (a)(3) (ii) the location of the infringing action or the residence or location of the principal place of business of the copyright holder?
The Second Circuit added its thoughts to the expected debate on this issue that will take place in the New York Court of Appeals. Judge Sack, writing for the circuit court, stated that simply suffering economic damages in New York does not create a ‘direct injury” which satisfies the long-arm statute. But Judge Sack added that when “something more is alleged, as in Sybron Corp. v. Wetzel, some New York courts have determined the situs of injury to be the place where plaintiff is located and conducts business.” In Sybron, plaintiff was not only domiciled in New York but “had additional ties to the State, such as the presence of the trade secrets and the threatened loss” “of a New York-specific customer base.” The Second Circuit noted:
Sybron does raise a reasonable likelihood that the New York Court of Appeals may interpret the alleged wrong here—which is analogous to a commercial tort and involves both the presumptive presence of … [Penguin’s] intellectual property rights in the State, and the likely ability of the plaintiff to foresee that the distribution of the copyrighted material in issue will cause loss beyond that caused by the initial unauthorized uploading of the copyrighted works—to involve more than derivative economic harm with the State.
The Second Circuit also suggested that the “speed and ease with which the Internet may allow out of state actions to cause injury to copyright holders in New York” “may be relevant to the definition of the situs of injury.”
Will, the New York Court of Appeals interpret the long-arm statute to permit its residents continued access to the New York courts without offending due process?
Interested in learning more about the application of a companion long-arm statute, CPLR §302 (a)(1), in a trademark counterfeiting case. Please see my posts discussing the Second Circuit’s opinion in Chloé v. Queen Bee and the unresolved questions the case raises here and here.
Updated as of March 25, The Court of Appeals rules for Penguin; see my latest post on this case here