March of the Penguins: The New York Court of Appeals Expands Long-Arm Jurisdiction over Digital Pirates in Copyright Infringement Cases in Penguin v. American Buddha

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The New York Court of Appeals (“Court of Appeals”) delighted the copyright industry on March 24 in the case of Penguin v. American Buddha by allowing New York-based copyright holders to assert digital piracy copyright infringement claims in this state even if the copyright holders suffered no quantifiable injury in N.Y. and even if no infringing activity took place in N.Y. The Court of Appeals’ uncorrected and subject to revision opinion is here.

Here are the facts. Penguin sued American Buddha for copyright infringement in the Southern District of New York when defendant copied 4 of Penguin’s books, placed them on two websites and made them available free of charge to defendant’s 50,000 members and anyone else with an internet connection. American Buddha uploaded the works either in Oregon or Arizona.

The Southern District dismissed the case for lack of personal jurisdiction finding that New York-based Penguin suffered only a “purely derivative economic injury” in N.Y. which was insufficient to trigger CPLR 302 (a)(3)(ii). That section provides for jurisdiction over nondomiciliaries who commit tortious act outside the state that result in injuries in N.Y.

On appeal, the Second Circuit recognized a split of authority regarding the application of CPLR 302 (a)(3)(ii) to copyright infringement cases against out-of state defendants. As I mentioned in my earlier post about this case, 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 or place 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 Second Circuit decided the Court of Appeals should resolve this split and certified to it this question:

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 opinion is here.)

The Court of Appeals opted (as was its right) to narrow the question. The certified question sought guidance regarding any copyright case. The Court of Appeals was comfortable responding only with respect to “copyright infringement cases involving the uploading of a copyrighted printed literary work onto the Internet.” But I suspect that plaintiffs dealing with other types of Internet infringement will successfully be able to apply the guidance the Court of Appeals gave in this case.

Had the Court of Appeals found that the situs of injury is the location of the infringing action that result would have scuttled many, if not most, digital piracy cases. That is because pirates prefer to do their copying and uploading using multiple servers often located outside N.Y. including in overseas jurisdictions with little respect for copyright.

Instead, Penguin, in an undisguised effort to aid copyright enforcement in the federal courts, held that the situs of injury for a copyright infringement claim involving the digital piracy of a printed literary work onto the Internet was the residence or location of the principal place of business of the copyright holder.

The Court stated the “convergence of two factors” prompted its decision. The first factor is “the Internet.” The Court recognized that the “‘digital environment poses a unique threat to the rights of copyright holders.’” The Court explained the threat arises because “unlawful electronic uploading” makes copyrighted works “instantaneously availab[e]” for anyone, in New York or elsewhere with an Internet connection to read and download … free of charge.” Therefore, the injury resulting from “online infringement … is dispersed throughout the country and perhaps the world.”

The Court noted it made sense “in traditional commercial tort cases” to fix the situs of injury where the infringement took place because that was where the “business is lost or threatened.” But the Court concluded “it is illogical to extend that concept to online copyright infringement cases where the place of uploading is inconsequential and it is difficult, if not impossible, to correlate lost sales to a particular geographical area.” Accordingly, the “out-of-state location of the infringing conduct” “is not dispositive” when determining jurisdiction over digital piracy.

The second factor that compelled the Court to find the situs of injury in N.Y. are the bundle of rights a copyright holder enjoys under §106 of the Copyright Act (including the right to reproduce, prepare derivative works, distribute and publicly perform the works). The Court stated that, as a result of the “multifaceted nature of these rights, a N.Y. copyright holder whose copyright is infringed suffers more than the indirect financial loss.” The copyright holder also suffers a loss of “incentive to publish.” The loss of an element that was “something more” than simply money enabled the Court to align this case with its earlier decision in Sybron Corp. v. Wetzel, a commercial tort case where jurisdiction was also found.

The court added that it was irrelevant that none of the Penguin works at issue were downloaded “by users in New York” or that Penguin was unable to quantify its injury from the infringing conduct.

The Court of Appeals, mindful of avoiding a wave of federal copyright litigation, stated its holding did not extend beyond nondomiciliaries accused of digital piracy and that even digital pirates continued to enjoy due process safeguards the resolution of which “awaits further briefing” in the federal courts where this case will now return.

The ease of Internet infringement has now altered the jurisdictional analysis, as it should. As a result, digital pirates are now more firmly within the reach of a lengthened long-arm statue. Defendants may still invoke due process consideration. But those considerations are likely to be given less weight in a jurisdictional analysis in view of the Internet’s unique threat to copyright caused that Penguin has now recognized.

Reactions positive or negative to this result are welcome.

Appellate briefs in the Court of Appeals are in an earlier post  here.

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