Penguin Group (USA) Inc. (“Penguin”), a New York corporation with its principal place of business in New York City, sued American Buddha, a not-for-profit corporation with its principal place of business in Arizona, for copyright infringement in the United States District Court for the Southern District of New York.  Penguin claimed that American Buddha infringed upon copyrights owned by Penguin for four books.  American Buddha allegedly published complete copies of those books on its two web sites, making them available free of charge to its 50,000 members and to anyone else with an Internet connection.  The electronic copying and uploading of the books by American Buddha took place in either Oregon or Arizona.  American Buddha claimed its right to copy and upload the books was protected by sections 107 and 108 of the Copyright Act, 17 U.S.C. §101 et seq., which govern fair use and reproduction by libraries and archives.  Penguin disputed that any exception to the Copyright Act applied to American Buddha’s activities.  Penguin Group (USA) Inc. v. American Buddha, CITATION

American Buddha moved to dismiss Penguin’s complaint on the ground that its ties to New York were too insubstantial for it to be subject to personal jurisdiction in that state.  Penguin countered that American Buddha was subject to personal jurisdiction in New York under CPLR 302 (a) (3) (ii) as it committed a tortious act outside of New York that resulted in injuries in New York.  American Buddha countered that CPLR 302 (a) (3) (ii) did not apply since Penguin did not suffer an injury within New York State.  The District Court granted American Buddha’s motion to dismiss holding that Penguin sustained injury in either Oregon or Arizona, which was where the copying and uploading of the books occurred.  The court reasoned that Penguin “suffered only a ‘purely derivative economic injury’ in New York based on its domicile here, which was insufficient to trigger CPLR 302 (a) (3) (ii).”  Id. at p.3.  Penguin appealed the decision of the District Court to New York’s Court of Appeals, which was asked to decide the following certified question:

“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 of the residence or location of the principal place of business of the copyright holder?”

The Court of Appeals determined that the location of the infringing action for purposes of New York’s long-arm jurisdiction was the location of the principal place of business of the copyright holder.  Under N.Y. C.P.L.R. § 302 (a) (3) (ii) long-arm jurisdiction may be exercised by a New York court when, 1) the defendant commits a tortious act outside New York; 2) the plaintiff’s cause of action arose from that tortious 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 to act to have consequences in New York; and 5) the defendant derived substantial revenue from interstate or international commerce.  The only issue to be decided by the Court of Appeals was the third element – “whether an out-of-state act of copyright infringement has caused injury in New York.”  Id. at p.5-6.

While acknowledging that determining the location of the injury was more difficult when the alleged infringement involved the Internet, the court was persuaded by two factors to decide 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.”  Id. at p.9.  First, the intended consequences of American Buddha’s activities – the instantaneous availability of works copyrighted by Penguin on American Buddha’s web site for anyone, in New York or elsewhere, with an Internet connection to download and read the works free of charge.

Second, the unique bundle of rights given to copyright owners tipped the balance in favor of determining New York as the situs of injury.  These five “exclusive rights” include, the right of reproduction; the right to prepare derivative works; the right to distribute copies by sale, rental, lease or lending; the right to perform the work publicly; and the right to display the work publicly.  17 U.S.C. §106.  As a result, a copyright owner has an “overarching ‘right to exclude others from using his property.’”  Id. citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392 (2006).

Combining the aforementioned factors led the court to reason that a New York copyright holder “whose copyright is infringed suffers something more than … indirect financial loss.”  Id. at p.11.  For example, one potential harm of copyright infringement is the loss or diminishment of the incentive to publish or write.  Id. at p. 11.  A tort committed outside of New York that was likely to cause harm through the loss of business inside of New York was “sufficient to establish personal jurisdiction regardless of whether damages were likely recoverable or even ascertainable.”  Id. at p.12.

Further, there was no dispute that American Buddha’s web sites were accessible by any New Yorker with an Internet connection.  Therefore, “an injury allegedly inflicted by digital piracy is felt throughout the United States, which necessarily includes New York.”  Id. at p.12.  The court also distinguished the uploading of copyrighted books to the Internet from traditional commercial tort cases where the injury was generally linked to the place where sales or customers were lost.  The location of the infringement in such cases was unimportant since the goal was to make the copyrighted works available to anyone with an Internet connection, including those in New York.  Thus, “the 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 – leads us to … conclude that the alleged injury in this case occurred in New York.” Id. at p.13.


© 2011 Nissenbaum Law Group, LLC

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