Penguin Group v. American Buddha

Citation: Penguin Group, Inc. v. American Buddha, 609 F.3d 30, 95 U.S.P.Q.2d (BNA) 1217 (2d Cir. 2010).

Factual Background
Defendant American Buddha, an Oregon nonprofit corporation, with its principle place of business in Arizona, operates a website known as the Ralph Nader Library, which is hosted on servers in Arizona and Oregon. The website provides access to classical literature and other works.

Plaintiff Penguin Group, the U.S. arm of the international Penguin Group, is a trade book publisher with its principle place of business in New York.

Plaintiff brought a copyright infringement action against the defendant, alleging that the defendant infringed on the copyrights in four works by publishing complete copies of them on its websites.

Trial Court Proceedings
The district court granted defendant’s motion to dismiss (Fed. Rules of Civ. Proc. 12(b)(2)) for lack of personal jurisdiction. The court recognized that there it is a split in authority as to the situs of injury for purposes of the New York's long-arm statute in intellectual property infringement cases. The first views the situs of the injury as the location of the infringing conduct while the second views the situs of injury as the location of the plaintiff and, in some cases, the location of its intellectual property.

The district court relied on the first line of authority, concluding that the situs of the alleged infringement took place where the book was electronically copied, which is presumably in Arizona or Oregon where the defendant's servers are located. The district court reasoned that since plaintiff pleaded copyright infringement by the defendant and not by any individual who downloaded the material from the website, that business was lost through the copying of the copyrighted works by the defendant and not through their placement on the Internet.

Furthermore, although the plaintiff alleged infringement of its copyrighted work not only because of copying but reproduction and distribution of the works on the Internet, the plaintiff did not allege the foreseeable loss of customers in New York. Accordingly, the district court dismissed the case for failure to adequately plead injury in New York.

Appellate Court Proceedings
On appeal, the court deemed that the sole issue was whether, for the purposes of New York’s Long Arm Statute, the situs of injury in copyright infringement cases is the location of the infringing conduct or the location of the plaintiff, and perhaps the copyright. The court held that there was not enough guidance and certified the question to the New York Court of Appeals.

In reaching its conclusion, the court first established that the standard of review for the district court’s dismissal of an action for want of personal jurisdiction would be de novo, construing all pleading and affidavits in the light most favorable to the plaintiff and resolving all doubt’s in the plaintiff’s favor. DiStefano v Carozzi N. Am., Inc. 286 F.3d 81, 84 (2d Cir. 2001).

The court then outlined the approach for establishing personal jurisdiction under New York’s Long Arm Statute. The court stated that a plaintiff bears the burden of demonstrating personal jurisdiction over a person or entity against whom it seeks to bring suit. In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 206 (2d Cir.2003) (per curiam). “In order to survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima *35 facie showing that jurisdiction exists.” Thomas v. Ashcroft, 470 F.3d 491, 495 (2d Cir.2006). Such a showing entails making “legally sufficient allegations of jurisdiction,” including “an averment of facts that, if credited[,] would suffice to establish jurisdiction over the defendant.” In re Magnetic Audiotape, 334 F.3d at 206 (internal quotation marks and ellipsis omitted).

The court went on to note that in litigation arising under federal statutes that do not contain their own jurisdictional provisions, such as the Copyright Act under which suit is brought in the case at bar, federal courts are to apply the personal jurisdiction rules of the forum state, see Fort Knox Music, Inc. v. Baptiste, 203 F.3d 193, 196 (2d. Cir.2000), provided that those rules are consistent with the requirements of Due Process, see Metro. Life Ins. Co. v. Roberston-Ceco Corp., 84 F.3d 560, 567 (2d Cir.1996). Except where the long-arm statute permits jurisdiction to the extent permitted by principles of Due Process-as it commonly does in states other than New York-analysis under Due Process principles is not necessary unless there is long-arm jurisdiction under the applicable state statute. See Best Van Lines, Inc. v. Walker, 490 F.3d 239, 242 (2d Cir.2007); Savin v. Ranier, 898 F.2d 304, 306 (2d Cir.1990).

The court determined that in New York, the question of long-arm personal jurisdiction over an out-of-state defendant is governed by N.Y. C.P.L.R. § 302. The only basis for personal jurisdiction over the defendant in New York that is asserted by the plaintiff is provided by section 302(a)(3)(ii). It provides for jurisdiction over an out-of-state defendant who “commits a tortious act without the state causing injury to person or property within the state, ... if he ... expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce....”

Section 302 permits a court to exercise personal jurisdiction over an out-of-state party that: (1) transacts business or contracts to supply goods or services within the state; (2) commits a tortious act within the state; (3) commits a tortious act outside of the state that causes an injury to a person or property within the state, provided that the party (i) engages in a persistent course of conduct with the state or (ii) expects or reasonably should expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce; or (4) owns, uses or possesses real property in the state. N.Y. C.P.L.R. § 302.

In order to establish jurisdiction under that subsection of the law, a plaintiff is thus required to demonstrate that (1) the defendant's tortious act was committed outside New York, (2) the cause of action arose from that act, (3) the tortious act caused an injury to a person or property in New York, (4) the defendant expected or should reasonably have expected that his or her action would have consequences in New York, and (5) the defendant derives substantial revenue from interstate or international commerce. LaMarca v. Pak-Mor Mfg. Co., 95 N.Y.2d 210, 214, 735 N.E.2d 883, 886, 713 N.Y.S.2d 304, 307 (2000).

The court found that only the third requirement of section 302(a)(3)(ii) is in dispute on appeal: Whether the defendant's allegedly copyright-infringing conduct in Oregon or Arizona caused the requisite injury in New York.

In order for this requirement to be satisfied the court must determine the situs of the injury under the New York Long-Arm Statute. It found that neither the court of appeals nor this court has ever decided where the situs of the injury in an intellectual property case.

For guidance on this analysis, the court looked to the district court’s holding and reasoning. After determining that the district court has found that the situs of the injury to not be in New York, the court looked to the legislative history of New York’s Long-Arm Statute. The court found the legislative history of little assistance because there was no guidance as to how to strike a balance in a commercial tort case between the protection of New York residents and unfairly burdening nonresidents.

Afterwards, the court looked to the New York Court’s interpretation of the Long-Arm Statute in which it found that the New York Court of Appeals has never dealt with the issue of applying the Long-Arm Statute in the intellectual property context. The court pointed out that “it is well settled New York law that the suffering of economic damages in New York is insufficient, alone, to establish a “direct” injury in New York for N.Y. C.P.L.R. §302(a)(3) purposes.” Fantis Foods, Inc., v Standard Importing Co., Inc. 49 N.Y.2d 317, 326. From this premise, some New York Courts have concluded that the situs of injury is the locations where the actions or events associated with the injury took place. See, e.g. Hermann v Sharon Hosp. Inc., 135 A.D.2d 682, 683. But in some cases in which something more than economical injury is alleged, some New York Courts have determined the situs of injury to be the place where the plaintiff is located and conducts business. The most notable case is Sybron Corp v. Wetzel, 46 N.Y.2d 197, where it applied §302(a)(3) to commercial torts and held that domicile or incorporation in New York, alone, was insufficient for personal jurisdiction and required showings of additional ties to the state or loss of customers within the state. The Court distinguished this case from Sybron because the ties in Sybron were stronger than in this case.

The court went on to present legal arguments for and against a finding of New York to be the situs of the injury. The argument for New York being the situs of the injury relies heavily on DiStefano, which held that “where there is an injury in New York sufficient to warrant §302(a)(3) jurisdiction[, courts] must generally apply a situs-of-injury test, which asks them to locate the original event which caused the injury.” DiStenfano v Carozzi, Inc., 286 F.3d 81, 84. “The original event occurs where the first effect of the tort that ultimately produced the final economic injury is located.” Id at 84-85. The plaintiff, claiming the district court relied on the wrong line of cases, asks on appeal that the court follow the reasoning in DiStefano. The court noted that it has never extended the logic of DiStefano to conclude that there was jurisdiction in New York courts over a defendant in an intellectual property dispute but districts court’s in the circuit have. McGraw-Hill Cos., Inc., v Ingenium Techs. Corp., 375 F.Supp.2d 252. If this logic is extended, the plaintiff may argue that although the copying did not take place in New York, the effect of the infringing conduct was experienced in New York, constituting the “original event.”

The arguments for New York not being the situs of injury, the court looked to lost business at the site of the alleged infringing conduct rather than domicile or residence. Some courts have held that the injuries resulting from intellectual property torts occur where the infringing action took place. See e.g. Art Leather Mfg. Co., Inc., v. Albumx Corp., 888 F.Supp. 565, 568 (S.D.N.Y. 1995); Freeplay Music, Inc. V. Cox Radio Inc., No. 04 Civ. 5238, 2005 W.L. 1500896. This is the line of cases relied on by the district court which determine that the situs of injury would not be in New York because the infringement did not take place there.

The court determined that since they have not reached a conclusion as to the situs of injury, the question of violating defendant’s Due Process rights is beyond the scope of this appeal.

Lastly, the court went through the certification process for the New York Court of Appeals which has four factors. Certification may be appropriate if: (1) the New York Court of Appeals has not squarely addressed an issue and other decisions by New York courts are insufficient to predict how the Court of Appeals would resolve it; (2) the statutes plain language does not indicate the answer; (3) a decision on the merits requires value judgment and important public policy choices that the New York Court of Appeal is better situated to make; (4) the question certified will control the outcome of the case.

The court found that all the 4 factors weigh in favor of certification. Furthermore, the court noted that in the context of certification, the allegation of distribution over the internet may a factor in the interpretation of the statute. The court certified the question to the New York Court of Appeals.

Certification of a question by the United States Court of Appeals for the Second Circuit, pursuant to §500.27 of the New York Court of Appeals Rules of Practice is accepted. 2010 W.L. 2572493.