NYC/618572.1

Penguin v. American Buddha: What’s 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 Penguin’s 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 York’s 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 non-domiciliary . . . 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 . . .

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The district court granted American Buddha’s 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 Penguin’s injury was where the alleged infringement took place, in Arizona or

Oregon (the locations of American Buddha’s 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).

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Based upon the answer from the New York Court of Appeals, the Second Circuit

reversed the district court’s 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 Penguin’s 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

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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 defendant’s 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 defendant’s revenues from interstate commerce and

the percentage of the defendant’s 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 Buddha’s 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 Buddha’s counsel and links advertising that book in various e-

mails 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 Buddha’s conduct satisfies the New York

State long-arm requirements described above, it will still have to independently

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demonstrate that the court’s 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 court’s exercise of personal jurisdiction. Int’l

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 Buddha’s contacts with New York relate to

Plaintiff’s 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

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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.

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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 Penguin’s 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 Penguin’s 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 Int’l, Inc. v. Thomas & Grayston Co., 845 F.2d 773,

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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 defendant’s 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 [plaintiff’s] copyrights”);

Richter v. INSTAR Enters. Int’l., 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 Buddha’s intentional misconduct

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(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 Penguin’s 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 Penguin’s 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 Int’l Shoe, 326 U.S. at 316). The factors considered in this analysis are “the

burden on the defendant,” “the forum State’s interest in adjudicating the dispute,” “the

plaintiff’s interest in obtaining convenient and effective relief,” “the interstate judicial

system’s 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

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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 York’s local interest in

the dispute, New York clearly has such an interest. Penguin’s 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 system’s 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 York’s interest in adjudicating a dispute concerning harm to one of its citizens.

This factor always weighs in favor of a plaintiff’s 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 Penguin’s 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 didn’t

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.