Tag Archives: Personal Jurisdiction

Satellite Wars

It’s been a tough few weeks for satellite radio service Sirius XM. On August 1, former Frank Zappa bandmates Mark Volman and Howard Kaylan (a/k/a Flo & Eddie), who performed together as The Turtles since 1965 and are most known for the song “Happy Together,” sued Sirius XM in California state court over the alleged unauthorized reproduction, distribution and public performance of The Turtles sound recordings. Then, on August 15, Flo & Eddie sued Sirius XM in New York federal court over the same allegations. In both cases, Flo & Eddie seek to represent a class of similarly situated plaintiffs. In the California case, Flo & Eddie allege damages exceed $100,000,000.00. Finally, on August 26, SoundExchange sued Sirius XM in the federal district court for the District of Columbia over alleged underpayments of sound recording performance royalties. SoundExchange alleges that Sirius XM owes tens of millions of dollars in underpaid royalties.

At issue in each case is an anomaly of the protection of sound recordings in the Copyright Act. While musical works have been protected by federal copyright since 1831, sound recordings did not enjoy any federal copyright protection until 1972. In 1971, as technology advances made it easier for people to make unauthorized copies of records (think peer-to-peer file sharing in the physical world), Congress extended copyright protection to sound recordings, but only with respect to the exclusive right to reproduce and distribute and only for sound recordings “fixed” on or after February 15, 1972 (sound recordings fixed prior to that date are typically referred to as “pre-72”). There are a variety of reasons why Congress decided not to grant copyright protection to all sound recordings (e.g., apply the right retroactively), but one reason was the lobbying of the record industry, which claimed that applying federal copyright protection to pre-72 recordings would cause havoc on music industry agreements written before federal protection existed.

State law protection for pre-1972 sound recordings is a complicated subject. State protection of pre-1972 sound recordings is a patchwork of criminal laws, civil statutes and common law. Early cases relied principally on unfair competition to protect sound recordings from unauthorized duplication and sale. By the 1950s, record piracy had become a serious problem, with pirates openly competing with record companies. For that reason, in the 1960s, states began to pass laws making it a criminal offense to duplicate and distribute sound recordings, without authorization, for commercial purposes. New York was the first such state in 1967; California was the second, in 1968.

In addition to the criminal penalties, some states have statutes that provide civil remedies. Section 980(a)(2) of the California statute is a good example:

The author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047, as against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior sound recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording.

The most notable case in recent years involving pre-1972 sound recordings was Capitol Records, Inc. v. Naxos of America, Inc. At issue were recordings of classical music performances originally made in the 1930s. Capitol, with a license from EMI, the successor of the original recording company, remastered the recordings, and was distributing them in the United States. Naxos obtained the original lacquer masters and restored the recordings in the UK, where they were in the public domain, and began marketing them in the United States in competition with Capitol. Capitol sued in federal court for unfair competition, misappropriation and common law copyright infringement. The district court granted summary judgment to Naxos because the recordings were in the public domain in the UK, where they were originally recorded.

When that decision was appealed, the U.S. Court of Appeals for the Second Circuit concluded that New York law was unclear in some important respects and certified the question of state law to the New York Court of Appeals. The New York Court of Appeals accepted the case, and held that foreign sound recordings remain protected under “common law copyright” in New York until 2067, even though they may be in the public domain in their home country. The court explained that a common law copyright claim in New York “consists of two elements: (1) the existence of a valid copyright; and (2) unauthorized reproduction of the work protected by copyright.” It went on to state that “[c]opyright infringement is distinguishable from unfair competition, which in addition to unauthorized copying and distribution requires competition in the marketplace or similar actions designed for commercial benefit.”

In 2009 Congress asked the Copyright Office to investigate the appropriateness of extending federal copyright protection to pre-72 recordings. In December 2011, the Copyright Office released its report, entitled Federal Copyright Protection for Pre-1972 Sound Recordings, in which it recommended that federal copyright extended to pre-72 recordings. As the Copyright Office noted in that report,

“Until 1995 there was no public performance right in sound recordings under federal law, and it does not appear that, in practice, pre-1972 sound recordings had such protection. The current right provided by federal law applies only to digital audio transmissions (not to broadcasts) of copyrighted sound recordings. It is possible that a state court would entertain a claim for unfair competition or common law copyright infringement if, for example, it were faced with a claim that pre-1972 sound recordings were being made available through internet streaming, particularly if it were persuaded that the use was substituting for purchases of the plaintiff’s recording. But no such case has yet arisen.”

Well, now such case has arisen. There are significant issues yet to be resolved, not the least of which is how you certify a class of potential plaintiffs whose sound recordings were fixed over several decades under different recording contracts. More importantly, Sirius XM will have a host of available defenses (affirmative or otherwise) that courts—including the Supreme Court—have recently suggested need to be considered as part of the class certification process.

For example, in the on-going dispute over Google’s digitization of books, the Second Circuit recently delayed class certification to consider Google’s alleged fair use defense.

Putting aside the merits of Google’s claim that plaintiffs are not representative of the certified class—an argument which, in our view, may carry some force—we believe that the resolution of Google’s fair use defense in the first instance will necessarily inform and perhaps moot our analysis of many class certification issues, including those regarding the commonality of plaintiffs’ injuries, the typicality of their claims, and the predominance of common questions of law or fact, see Fed. R. Civ. P. 23(a)(2), (3), (b)(3). See, e.g., FPX, LLC v. Google, Inc., 276 F.R.D. 543, 551 (E.D. Tex. 2011) (denying plaintiffs’ request for class certification “because of the fact-specific inquiries the court would have to evaluate to address [defendants’] affirmative defenses [including fair use of trademarks]”); Vulcan Golf, LLC v. Google Inc., 254 F.R.D. 521, 531 (N.D. Ill. 2008) (“The existence of affirmative defenses [such as fair use of trademarks] which require individual resolution can be considered as part of the court’s analysis to determine whether individual issues predominate under Rule 23(b)(3).”); see also Coopers & Lybrand v. Livesay, 437 U.S. 463, 469 n.12 (1978) (“Evaluation of many of the questions entering into determination of class action questions is intimately involved with the merits of the claims. The typicality of the representative’s claims or defenses . . . and the presence of common questions of law or fact are obvious examples.” (quotation marks omitted)); Castano v. Am. Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996) (“[A] court must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.”); cf. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2561 (2011) (holding that “a class cannot be certified on the premise that [a defendant] will not be entitled to litigate its statutory defenses to individual claims”). Moreover, we are persuaded that holding the issue of class certification in abeyance until Google’s fair use defense has been resolved will not prejudice the interests of either party during the projected proceedings before the District Court following remand. Accordingly, we vacate the District Court’s order of June 11, 2012 certifying plaintiffs’ proposed class, and we remand the cause to the District Court, for consideration of the fair use issues.

Even assuming a class can get certified, there are still significant issues facing the plaintiff, including, but not limited to, whether a public performance right exists in state common law, how to measure damages in the absence of the statutory remedy available under federal copyright, and the scope of individual state courts over out-of-state “infringements.”

Tough Sledding for the Porn Litigator

Porn litigator John Steele is getting a LOT of push back from Judge Baker in the Central District of Illinois.  Unlike Judge Howell in the D.C. District who recently denied Time Warner Cable’s motion to quash a subpoena issued in a similar John Doe copyright infringement case (see post here for details), Judge Baker is having none of Steele’s attempts to get discovery prior to a Rule 26(f) conference.  This puts Steele between the proverbial rock and hard place.  Steele can’t get a 26(f) conference until he has a named adversary.  He can’t get a named adversary until he gets responses to his subpoenas from the ISPs identifying the names associated with the IP addresses he has.  And he can’t get responses to his subpoenas until Judge Baker grants his motion for expedited discovery.

Judge Baker notes that IP addresses are bad proxies for identifying actual infringers, citing a recent MSNBC news story about someone who was caught up in a federal anti-child porn case based on the IP address associated with the downloading of child porn.  It turned out that this person’s neighbor had used an unsecured WiFi network to download the offending porn, which should be good enough reason to lock down your home network.

His Honor’s order is below:
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The (very) Long Arm of the Law

In case that may have far-reaching implications (pun intended), the New York Court of Appeals has interpreted New York’s long-arm statute as extending to out-of-state defendants who upload copyrighted works controlled by New York plaintiffs.

The procedural history is as follows.  Penguin Group, the book publisher, sued an Oregon non-profit American Buddha based on Arizona, which uploaded full copies of several of Penguin’s books to American Buddha’s online “library.”  American Buddha claimed its copies were not infringing under either Section 107 (fair use) or 108 (library copies).  Penguin disagreed and brought suit in the Southern District of New York.  American Buddha moved to dismiss for lack of personal jurisdiction.  Because Penguin did not allege that copies of its books had been downloaded in New York, the only basis for personal jurisdiction would lie under New York’s long-arm statute.  The district court found that American Buddha’s contacts with New York were insufficient to warrant the exercise of personal jurisdiction and granted its motion to dismiss.  Penguin appealed to the Second Circuit.

The Second Circuit, finding that resolution of this issue rested on an interpretation of New York’s long-arm statute, certified 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 action or the residence or location of the principal place of business of the copyright holder?”

The New York Court of Appeals found that the Internet plays a significant role in this case and narrowed and reformulated the certified question to read:

“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?”

Because the plaintiff has the burden of proving the personal jurisdiction of the federal court over the defendant, under New York’s long-arm statute, Penguin had to show (1) the defendant committed a tortious act 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 the act to have consequences in New York; and (5) the defendant derived substantial revenue from interstate or international commerce.  Only the third element (did American Buddha’s action cause injury in New York) was at issue.

In finding that Penguin’s injury did occur in New York, the court noted that “the digital environment poses a unique threat to the rights of copyright owners” and that “digital technology enables pirates to reproduce and distribute perfect copies of works — at virtually no cost at all to the pirate” (House Commerce Comm Rep on the DMCA, HR Rep 551, 105th Cong, 2d Sess, at 25).  The court also noted that copyright holders such as Penguin enjoy a wide range of rights and that Buddha’s alleged infringement, if proven, would affect Penguin’s incentive to publish additional works.  These additional harms were found by the court to elevate Penguin’s injury to something more than mere “indirect financial loss.”

While the New York Court of Appeals answered a narrow question, the implications of its answer are far-reaching.  Under this logic, record labels headquartered in New York could make similar arguments against illegal file-sharers who upload allegedly infringing copies outside the state of New York, but the effects of which–including, potentially, a decrease in the incentive to create more music–would be felt in New York.

The Second Circuit decision is below.
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The New York Court of Appeals decision is below.
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