A Win In The Battle Against Online Digital Piracy

04.12.2011

We recently obtained on behalf of our client Penguin Group (USA) Inc. a court ruling on a novel issue of personal jurisdiction that will significantly help book publishers, authors and others combat the proliferating problem of online digital piracy. Penguin Group (USA) Inc. v. American Buddha, 2011 WL 1044581 (N.Y.), 2011 N.Y. Slip Op. 02079.

This federal copyright infringement case began in January 2009, after New York-based publisher Penguin discovered that American Buddha, an Oregon not-for-profit corporation, had uploaded complete digital copies of four Penguin books onto its websites, making them available for distribution over the Internet and free of charge to its 50,000 members and anyone else with an Internet connection. The books are Oil! by Upton Sinclair, It Can’t Happen Here by Sinclair Lewis, and translations of The Golden Ass by Apuleius and On the Nature of the Universe by Lucretius. American Buddha, a self-described “online library,” is headquartered in Arizona and its websites are hosted on servers in Arizona and Oregon.

Penguin sued American Buddha under the federal copyright law in U.S. District Court for the Southern District of New York (in Manhattan). American Buddha moved to dismiss the complaint, arguing the court lacked personal jurisdiction over it because it owns no property and conducts no business in New York and because Penguin did not allege that the electronic copying or actual downloading of books occurred in New York. Penguin asserted personal jurisdiction under New York’s long-arm statute, namely, CPLR § 302(a)(3)(ii), which provides for jurisdiction over an out-of-state resident 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…” The only disputed issue at this stage was whether American Buddha’s alleged infringement caused “injury” in New York.

The district court, acknowledging conflicting authority, concluded the “situs of injury” in copyright cases is where the infringing conduct occurred (in Arizona or Oregon, where the copying and uploading of the books took place), not where the plaintiff is located (New York), and dismissed the suit for failure to adequately plead injury in New York, i.e., actual downloading or infringement. The court determined that Penguin suffered only a “purely derivative economic injury” in New York based on its domicile there, which was insufficient to support jurisdiction. Penguin appealed to the U.S. Court of Appeals for the Second Circuit.

The Second Circuit, agreeing there was a split of authority, asked the New York Court of Appeals to resolve the issue in a certified 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 acknowledged New York’s interest in the scope of its own statute and that “the allegation of distribution over the Internet may be a factor in the Court’s interpretation of the statute in question,” especially considering “the speed and ease with which the Internet may allow out of state behavior to cause injury to copyright holders resident in New York.”

Because the Internet plays a significant role in this case, the New York Court of Appeals 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 [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?”

That is, the Court limited the certified question to copyright infringement cases alleging online digital piracy. In answer to this reformulated question, the Court concluded it is the location of the copyright holder --and thus upheld Penguin’s position that the alleged injury in this case occurred in New York for purposes of applying the long-arm statute.

The Court noted (as Penguin argued) “the convergence of two factors” persuading it “that a New York copyright owner alleging infringement sustains an in-state injury pursuant to CPLR 302(a)(3(ii) when its printed literary work is uploaded without permission onto the Internet for public access.”

The first critical factor turns on the nature of the Internet as “intangible and ubiquitous.” Recognizing that the digital environment poses a unique threat to the rights of copyright owners, the Court observed that “the rate of e-book piracy has risen in conjunction with the increasing popularity of electronic book devices.” “The crux of Penguin’s copyright infringement claim is not merely the unlawful electronic copying or uploading of the four copyrighted books. Rather, it is the intended consequence of those activities -- the instantaneous availability of those copyrighted works on American Buddha’s Web sites for anyone, in New York or elsewhere, with an Internet connection to read and download the books free of charge.” In short, the Court found that “the out-of-state location of the infringing conduct carries less weight in the jurisdictional inquiry in circumstances alleging digital piracy and is therefore not dispositive.”

The second critical factor that helps identify New York as the place of injury in this case “derives from the unique bundle of rights granted to copyright owners.” The Copyright Act gives copyright owners certain exclusive publishing, distribution, and display rights, among others. Thus a copyright holder has the right “to exclude” others from unauthorized distribution. The harm to a copyright owner’s exclusive rights is often described as “irreparable,” especially where proving lost sales or quantifiable economic harm is difficult (often the case). The Court therefore found, contrary to the district court’s ruling, that “the absence of any evidence of the actual downloading of Penguin’s four works by users in New York is not fatal to a finding that the alleged injury occurred in New York.” Even without such evidence, the irreparable harm to Penguin’s exclusive distribution rights would ordinarily justify injunctive relief “to halt impermissible uses.”

The court noted that “it is undisputed that American Buddha’s Web sites are accessible by any New Yorker with an Internet connection and…an injury allegedly inflicted by digital piracy is felt throughout the United States, which necessarily includes New York.” The Court therefore concluded that “(t)he location of the infringement in online cases is of little import inasmuch as the primary aim of the infringer is to make the works available to anyone with access to an Internet connection, including computer users in New York.”

Relying on “(t)he concurrence of these two elements -- the function and nature of the Internet and the diverse ownership rights enjoyed by copyright holders situated in New York,” the Court concluded that the injury to Penguin in this case, for long-arm jurisdiction purposes, occurred in New York.

Finally, the court noted that “our decision today does not open a Pandora’s box allowing any nondomiciliary accused of digital copyright infringement to be haled into a New York court when the plaintiff is a New York copyright owner of a printed literary work.” The plaintiff must still establish the remaining elements of New York’s long-arm statute and then meet the requirements of the Federal Due Process Clause.

The case will now return to the federal courts in Manhattan to complete the analysis of the remaining elements of personal jurisdiction other than “situs of injury.” But because of this important decision, a major obstacle to personal jurisdiction in online digital piracy cases has been removed, enhancing the opportunity of New York publishers and authors to sue in their own backyard instead of being required to litigate in the remote locations where book pirates are generally found.

For further information, please contact:

Richard Dannay
(212) 790-9256

Thomas Kjellberg
(212) 790-9202