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Penguin v. American Buddha: Whats Next?

Paul Fakler Arent Fox LLP In Penguin Group (USA) v. American Buddha, the plaintiff book publisher sued the owner/operator of a website for posting complete copies of several books on that website without Penguins authorization. The defendant, American Buddha, is an Oregon not-for-profit corporation with one employee, Tara Lyn Carreon. American Buddha operates the Ralph Nader Library (no association with the actual Ralph Nader, apparently) at a physical location in Tucson, Arizona. As noted above, American Buddha also makes certain books, motion picture screenplays (annotated with screen captures of the actual movies) and even sound recordings publicly available on the www.naderlibrary.com website. American Buddha claims that the materials made available on its website are effectively a digital library, provided for the purpose of furthering criticism and scholarship. Penguin claims that it is garden variety copyright infringement. Penguin chose to sue American Buddha in the Southern District of New York. American Buddha moved to dismiss for lack of personal jurisdiction. Penguin asserted personal jurisdiction based upon one particular provision of New Yorks long-arm jurisdiction statute, N.Y. C.P.L.R. 302(a)(3)(ii), which provides, in pertinent part: [A] court may exercise personal jurisdiction over any nondomiciliary . . . 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 . . .
NYC/618572.1

The district court granted American Buddhas motion to dismiss on the narrow ground that, in light of the fact that Penguin had not claimed any actual infringement took place within New York, the site of Penguins injury was where the alleged infringement took place, in Arizona or Oregon (the locations of American Buddhas servers). Penguin Group (USA) Inc. v. American Buddha, No. 09 Civ. 528 (GEL), 2009 WL 1069158 at *4 (S.D.N.Y. April 21, 2009). Because this ground was sufficient to deny the court of personal jurisdiction, the district court did not reach the other requirements of C.P.L.R 302(a)(3)(ii) or the independent Due Process requirements for personal jurisdiction. Id. Rather than simply sue the defendant in Arizona or Oregon or request a transfer to one of those venues, Penguin appealed the dismissal. Noting a split of authority, the Second Circuit referred the following question to the New York Court of Appeals: In copyright infringement cases, 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 actions or the residence or location of the principal place of business of the copyright holder? Penguin Group (USA) Inc. v. American Buddha, 609 F.3d 30, 42 (2d Cir. 2010). The New York Court of Appeals narrowed the referred question to the following: 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 business of the copyright holder? The court, based upon its view of the unique nature of harm from copyright infringement on the Internet (as compared to typical commercial torts), answered that the situs of injury in such cases is the location of the copyright owner. Penguin Group (USA) Inc. v. American Buddha, 16 N.Y.3d 295, 306-07 (N.Y. 2011).

Based upon the answer from the New York Court of Appeals, the Second Circuit reversed the district courts decision, and remanded the case for further consideration of the other factors required to support long-arm jurisdiction under N.Y. C.P.L.R. 302(a)(3)(ii) and the Due Process clause. Penguin Group (USA) Inc. v. American Buddha, 640 F.3d 497, 500-501 (2d Cir. 2011). So, even though Penguin won the appeal it is not out of the woods yet. The interesting question remaining is whether any of these other analyses will preclude the exercise of personal jurisdiction over American Buddha. The Remaining Section 302(a)(3)(ii) Factors Reasonable Expectation of Consequences in New York One of the requirements of N.Y. C.P.L.R. 302(a)(3)(ii) is that Penguin demonstrate that American Buddha expects or should reasonably expect their acts to have consequences in New York. American Buddha argues that the mere availability of its website throughout the world does not make it foreseeable that there would be consequences in New York, particularly where Penguin did not allege that anyone in New York (other than counsel) had actually accessed the website. Penguin, on the other hand, notes that its books each list Penguins New York address on the copyright page and argues that this put American Buddha on at least constructive notice that its unauthorized copying and display of the books would have an impact in New York. Substantial Revenue From Interstate or International Commerce Another requirement of N.Y. C.P.L.R. 302(a)(3)(ii) is that Penguin demonstrate that American Buddha has generated substantial revenue from interstate or international commerce. The New York Court of Appeals has noted that this

independent requirement is meant to preclude jurisdiction over foreign parties whose business operations are of a local character or are not economically big enough to reasonably endure litigation in a foreign forum. Ingraham v. Carroll, 90 N.Y.2d 592, 599 (N.Y. 1997). Whether the defendants revenues from interstate commerce are substantial is determined both on relative and absolute scales. That is to say, the court look at both the total amount of the defendants revenues from interstate commerce and the percentage of the defendants total revenues that come from interstate commerce. Ronar, Inc. v. Wallace, 649 F. Supp. 310, 316-17 (S.D.N.Y. 1986). According to the testimony of American Buddhas president, American Buddha has no revenues whatsoever because it does not charge any fees at its physical library or for access to its website, and does not advertise on its website. It seems to be undisputed that American Buddha has never generated any revenue from the alleged infringement at issue in the case. Penguin make various allegations about certain books written by American Buddhas counsel and links advertising that book in various emails that were sent during the litigation, and also points to several books available on Amazon.com that are listed as being published by American Buddha, but it is not at all clear that there is any relationship between these books and the allegedly infringing website at issue in the case. It seems hard to square the allegations and evidence with any substantial revenues from interstate commerce. Due Process If Penguin establishes that American Buddhas conduct satisfies the New York State long-arm requirements described above, it will still have to independently

demonstrate that the courts exercise of jurisdiction over American Buddha comports with the Due Process clause. Penguin (USA) Inc. v. American Buddha, 16 N.Y.3d 295, 307. The due process test for personal jurisdiction has two related components: the minimum contacts requirement and the reasonableness requirement. Under the first component, the Court must determine whether the defendant has sufficient contacts with the forum state to justify the courts exercise of personal jurisdiction. Intl Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). The second stage of the due process inquiry asks whether the exercise of jurisdiction comports with traditional notions of fair play and substantial justice -- that is, whether it is reasonable under the circumstances of the particular case. Id. Minimum Contacts Under the traditional purposeful availment due process test for minimum contacts, the district court can exercise specific jurisdiction over American Buddha only if (i) American Buddha committed some act by which it purposefully availed itself of the privilege of conducting activities in New York thus invoking the benefits and protections of its laws and (ii) American Buddhas contacts with New York relate to Plaintiffs cause of action for copyright infringement or have given rise to it. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). This purposeful availment formulation is the test most commonly used by courts to determine the existence of specific jurisdiction, particularly in cases where no intentional tort is involved. For intentional tort cases, the Calder effects test is sometimes applied. Under the Calder test, a defendant accused of an intentional tort that was specifically directed

towards causing harm in the forum state may be subject to specific personal jurisdiction in that forum, even if the defendant has no other contacts with the forum state Calder v. Jones, 465 U.S. 783, 788-89 (1984). In Calder, entertainer Shirley Jones brought an action in California against the author and editor of an article which had appeared in the National Enquirer, and which she claimed was defamatory. The article alleged that Jones had a problem with alcohol, which prevented her from fulfilling her professional obligations. Although the Enquirer was distributed nationally, it had its largest circulation in California. Defendant South, the reporter, did most of his research in Florida, relying on phone calls to California for information. Defendant Calder had no such contacts with California. He reviewed and approved the initial evaluation of the topic of the article and edited drafts to its final form. Id. at 785-86. Both defendants, residents of Florida, moved to dismiss Jones' suit for lack of personal jurisdiction. The Court found that the exercise of personal jurisdiction over the defendants was proper. The Court concluded: The allegedly libelous story concerned the California activities of a California resident. It impugned the professionalism of an entertainer whose television career was centered in California. The article was 261*261 drawn from California sources, and the brunt of the harm, in terms of both respondent's emotional distress and the injury to her professional reputation, was suffered in California. In sum, California is the focal point both of the story and of the harm suffered. Jurisdiction over petitioners is therefore proper in California based on the "effects" of their Florida conduct in California.... [T]heir intentional, and allegedly tortious, actions were expressly aimed at California. Petitioner South wrote and petitioner Calder edited an article that they knew would have a potentially devastating impact upon respondent. And they knew that the brunt of that injury would be felt by respondent in the State in which she lives and works and in which the National Enquirer has its largest circulation.

Id. at 788-90. (footnote omitted). In the American Buddha case, it seems undisputed that American Buddha has no contacts with the State of New York. Penguin did not allege and direct infringement by New York users, and there is no evidence that the infringing website was used by any New York residents, other than Penguins counsel. There do not seem to be any facts at all that American Buddha purposefully availed itself of the benefit of conducting activities in New York, thereby invoking the benefits and protections of its laws. Thus, it seems that the only path to personal jurisdiction would have to be the Calder effects test, which in turn depends as a threshold matter upon whether Penguins copyright infringement claim is for an intentional tort. Indeed, Penguin argues that its claim is for an intentional tort. This argument, however, conflates an allegation of willfulness, included in almost every copyright infringement complaint (whether grounded in fact or not), and the fundamental nature of the tort. It has long been established that copyright infringement is a strict liability tort, and not one that requires any specific intent. See, e.g., Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304 (2d Cir. 1963); Parker v. Dufresne, No. 09-cv-1859, 2010 WL 2671578, at *9 (W.D. La. May 18, 2010). Willfulness is irrelevant to liability in copyright law; it is only relevant to the amount of statutory damages available if statutory damages are elected. Even there, infringing conduct is only willful if the plaintiff can prove that the defendant acted with either actual or constructive knowledge that its acts were infringing. See, e.g., RCA/Ariola Intl, Inc. v. Thomas & Grayston Co., 845 F.2d 773,

779 (8th Cir. 1988). Such actual or constructive knowledge cannot be triggered merely by a plaintiff alleging infringement or filing a lawsuit. Even where the conduct is eventually found to be infringing and the defendant refused to cease the conduct during the dispute, a defendants good faith belief that its conduct was not infringing is sufficient to prevent a finding of willfulness. Id. In the context of personal jurisdiction, courts have routinely held that a copyright infringement claim requires no particular state of mind and thus should not be treated by itself as a basis for asserting jurisdiction without an additional specific showing that the alleged infringement was specifically directed at the forum state. CoStar Group, Inc. v. LoopNet, Inc., 106 F. Supp. 2d 780, 787 (D. Md. 2000) (Effects test not satisfied where plaintiff did not make prima facie showing of intentional direction of infringing conduct toward the forum); Figi Graphics, Inc. v. Dollar Gen. Corp., 33 F. Supp. 2d 1263, 1267 (S.D. Cal. 1998) (Effects test not satisfied where plaintiff failed to present any evidence demonstrating that [defendant] intentionally infringed upon [plaintiffs] copyrights); Richter v. INSTAR Enters. Intl., Inc., 594 F. Supp. 2d 1000, 1011-12 (N.D. Ill. 2009); Parker, 2010 WL 2671578, at *9 (quoting 5 Patry on Copyright 17:167 criticizing courts for bootstrapping specific jurisdiction based upon mere allegations of intentional infringement). If the mere allegation of willful infringement in a complaint were sufficient to provide minimum contacts, such a rule would effectively graft a nationwide jurisdiction provision onto the Copyright Act. Even if the district court does hold that copyright infringement is an intentional tort, Penguin will also have to prove that American Buddhas intentional misconduct

(1) was directly aimed at the forum and (2) caused injury within the forum that Spiderwebart should have reasonably anticipated. Calder v. Jones, 465 U.S. at 788-89. For both of these requirements, Penguin focuses on the fact that each of the infringed books bears the address of Penguins New York headquarters on the copyright page. It seems that it would be difficult to prove, from this fact alone, that American Buddha had actual knowledge of Penguins New York location. Although constructive knowledge is often sufficient to show reasonable anticipation, it does not seem likely that constructive knowledge should be sufficient to show that the conduct was directly and expressly aimed at New York.

Fair Play and Substantial Justice The final stage of the due process analysis requires a determination of whether the exercise [of] personal jurisdiction . . . would offend traditional notions of fair play and substantial justice. Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113 (1987) (quoting Intl Shoe, 326 U.S. at 316). The factors considered in this analysis are the burden on the defendant, the forum States interest in adjudicating the dispute, the plaintiffs interest in obtaining convenient and effective relief, the interstate judicial systems interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies. World-Wide Volkswagen, 444 U.S. at 292. Even where sufficient minimum contacts have been found, due process requirements will defeat the exercise of personal

jurisdiction if that exercise will not meet the requirements of fair play and substantial justice. In the American Buddha case, the defendant is a tiny, not-for-profit corporation with one employee, located in Arizona. It seems unlikely that Penguin, a large publishing company, will succeed in arguing that litigation in New York will not be unduly burdensome of American Buddha. With respect to New Yorks local interest in the dispute, New York clearly has such an interest. Penguins interest in obtaining convenient and effective relief seems almost neutral, because it can certainly obtain effective relief in Arizona federal court, and is better suited to bear the inherent inconvenience of litigating in a foreign forum than is American Buddha. With respect to the interstate judicial systems efficiency interest, there is no reason to think that one venue or the other will be more efficient. And finally, both New York and Arizona have similar interests in the copyright issues raised by the case. Balancing these factors, the only one weighing strongly in favor of jurisdiction is New Yorks interest in adjudicating a dispute concerning harm to one of its citizens. This factor always weighs in favor of a plaintiffs home jurisdiction, however. Weighing strongly against jurisdiction is the extreme burden that will be placed on American Buddha if it is forced to litigation in New York. The remaining factors appear to be relatively neutral. Penguin does not appear to have a compelling position with respect to fair play and substantial justice. On the other hand, the district court has considerable discretion in evaluating and weighing these factors. Conclusion

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It is always interesting to consider why litigants take the positions that they do. In the American Buddha case, I have to admit I find Penguins strategic decision puzzling. It seem that on the merits, which are beyond the scope of this paper, Penguin has an airtight case that American Buddha is infringing its copyrights. Why didnt Penguin simply sue in Arizona? Did it really believe it would save that much money by avoiding the need to hire local counsel there? Certainly the cost of litigating and appealing the personal jurisdiction issue has far eclipsed any additional expense associated with litigating in Arizona. Even if Penguin perceived that a judge in the Southern District of New York would be more likely to be familiar with copyright law, does this case present such difficult or complex issues that strong copyright expertise is necessary? Of course, we will never know the answers to these questions, but thinking about them may help us advise our own clients when faced with a distant, but small, infringer.

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