v23 #4 Cases of Note — Copyright

by | Oct 5, 2011 | 0 comments

Situs of Injury for Intellectual Property Infringement — Who the Heck Knows?

by Bruce Strauch  (The Citadel)  <[email protected]>

Penguin Group (USA) Inc. v. American Buddha, UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT, 609 F.3d 30; 2010 U.S. App. LEXIS 1269.

Penguin Group USA is the American arm of Penguin Group and a huge book trade publisher with its principal place of business  in New York City.  American Buddha is an Oregon nonprofit that runs a “passive Website” called the Ralph Nader Library, even though it has nothing whatsoever to do with wily political spoiler Ralph “Unsafe At Any Speed” Nader himself.  Buddha operates an online library that provides access to literature.  And Buddha electronically scoffed four Penguin books.

Buddha’s principal place of business is Arizona, and their online library is hosted on servers located in Oregon and Arizona.  Its 50,000 members can access free of charge the books which Buddha promised them are not infringing copyright due to fair use.  Penguin disagreed and sued in New York under 17 U.S.C. § 501.

Yes, you’re dying to know the four titles in question.  They were Oil! by Upton Sinclair; It Can’t Happen Here by Sinclair LewisThe Golden Ass by Apuleius;  and On the Nature of the Universe by Lucretius.  Very serious Penguiny kinds of books.

Other than folks in NY being able to access the site, Buddha had no other contact with the state.  Buddha moved to dismiss under FRCP 12(b)(2) for lack of personal jurisdiction. Penguin argued they had personal jurisdiction under New York’s Long-Arm Statute, N.Y.C.P.L.R. § 302(a).  This grants jurisdiction over a party that “commits a tortious act within the state.”

Think car wreck in NYC.  Arizona driver goes home.  Says come sue me in Tucson.  If he drives in NY, he should have the expectation of litigating in NY.

Penguin said copyright infringement is a tortious act and Buddha did it in NYC.

But did the injury occur in NY?

Small point (or big point?), but Penguin did not allege injury due to New Yorkers reading the books in question.  Rather the sole tortious act was Buddha’s uploading in NYC.

District Court found the injury occurred in Arizona where the downloading took place.  It felt that Penguin merely residing in NYC was not enough.  There must be a more direct injury within the state.  And it went to appeal.

So Penguin should have alleged lost sales in NY?  And what were they paying their lawyers to overlook that?

The Appeal

The Second Circuit took a closer look at N.Y.C.P.L.R. and focused on an amendment found in § 302(a)(3)(ii) which gives personal jurisdiction over someone who commits a tortious act outside the state, but injures someone in New York.

This amendment was the result of a gap found in Feathers v. McLucas, 209 N.E.2d 68 (1965) in which the NY Court of Appeals declined to apply section 302(a)(2) to a manufacturer who built a gas tank in Kansas that blew up in NY.

But it was still unclear what the situs of injury is in an intellectual property case.

Two lines of authority compete on this issue.  Some courts have held the location to be the residence of its owner.  See, e.g. Horne v. Adolph Coors Co., 684 F.2d 255, 259 (3d Cir. 1982) (“[I]nsofar as the situs of the property damaged by the alleged wrongdoing is a concern, both a state trade secret and a patent should be deemed to have their fictional situs at the residence of the owner.”).  “The theory [of these cases] is that since intellectual property rights relate to intangible property, no particular physical situs exists.  If a legal situs must be chosen, it is not illogical to pick the residence of the owner.” Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1570 (Fed. Cir. 1994).

Indeed.  How could one disagree?  But some do.

Other courts feel intellectual property is located at the place of the infringement, as that is where sales are lost.  Am. Eutectic Welding Alloys Sales Co., Inc. v. Dytron Alloys Corp., 439 F.2d 428 (2d. Cir. 1971).

But that doesn’t deal with the upload v. download question.  And the sales might have been lost in Wisconsin, Alabama, and Florida.  Does Penguin have to sue Buddha in each state for the piddly lost sales?

What Did the Legislature Intend?

The Second Circuit looked at the legislative history of N.Y.C.P.L.R. and didn’t find squat for guidance.  The Long-Arm Statute was intended to be “broad enough to protect New York residents yet not so broad … as to burden unfairly non-residents whose connection with the state is remote and who could not reasonably be expected to foresee that their acts outside of NY could have harmful consequences in NY.”  Reyes v. Sanchez-Pena, 742 N.Y.S.2d 513, 520  (N.Y. Sup. Ct. 2002).

Thanks a bunch legislature.  Go back to squandering money.  You’re good at that.

So the Second Circuit threw up their hands and certified it to the New York Court of Appeals.

Since law schools are producing way too many lawyers, prospective students should be forced to read and brief cases on jurisdiction before admission.  That would send a pack of them to business school.


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