10th Circuit Addresses Personal Jurisdiction in Copyright DJ Actions Following DMCA Take Down Notices
January 28, 2008. The U.S. Court of Appeals (10thCir) issued its opinion [36 pages in PDF] in Dudnikov v. Chalk & Vermilion Fine Arts, a copyright declaratory judgment action. The Court of Appeals reversed the judgment of the District Court, which had dismissed the complaint for lack of personal jurisdiction.
Introduction. The defendants invoked eBay's DMCA take down procedure to terminate the plaintiffs' auction of fabrics with the image of the cartoon character Betty Boop. These cartoons parody copyrighted posters of the artist known as Erté. These take down demands can damage an internet based business. When the plaintiffs brought an action in their District Court seeking a declaration that they violated no copyright, the defendants asserted, and the District Court agreed, that the defendants' take down demands were insufficient to confer personal jurisdiction upon the District Court.
The Court of Appeals reversed in this case of first impression. When a copyright claimant invokes an auction site's take down procedure to terminate an auction, that is purposefully directed at the auction seller's state, and hence, supports a finding of personal jurisdiction in the seller's state.
Affirmance would have contributed to the ability of unscrupulous copyright claimants to make frivolous and disparaging take down demands for the purpose of damaging legitimate transactions and businesses. Infringing music, software, goods, and other infringing items are frequently sold through auction web sites, or otherwise published, distributed or sold through interactive computer services. However, copyright claimants also frequently make frivolous claims regarding non-infringing items. This includes attempts to suppress parodies, to block other fair uses protected by 17 U.S.C. § 107, to censor criticism, and to preclude secondary markets in items protected by the first sale doctrine.
(The first sale doctrine, which is codified at 17 U.S.C. § 109, provides that "the owner of a particular copy ... lawfully made under this title" can , "sell or otherwise dispose of the possession of that copy ...". Some copyright owners issue take down notices asserting that the terms of licensing contracts restrict secondary sales. However, such a claim sounds in contract, and the safe harbor provisions of the Copyright Act, which give copyright claimants leverage to induce service providers to terminate auctions, apply only to "infringement of copyright". See, 17 U.S.C. § 512(c). But, development of the law on that issue will have to wait for future opinions.)
The courts in the present action have not yet addressed the issue of infringement. Nevertheless, it is likely that if this case, on remand, proceeds to judgment on the merits, the District Court would find that the Betty Boop auction items are lawful parodies, rather than infringing products, and that the defendants' take down demands lacked merit.
The Court of Appeals wrote that the minimum contacts test for personal jurisdiction is "one that has long eluded a definitive legal test and proven fertile ground for debate by law students, lawyers, and judges alike", and that the standards set in judicial opinions are "more aspirational than self-defining". This opinion, combined with related opinions, demonstrate that this elusiveness persists in the context of online activity.
For example, the courts are still developing clarity as to when the online activities of a defendant who resides in one district confer jurisdiction upon a court in a distant plaintiff's district when that distant plaintiff alleges a cause of action related to the plaintiff's online activities, such as defamation or infringement. Although, that is not the subject of this case.
This case concerns whether the district court where the plaintiff resides has personal jurisdiction when it is the plaintiff who is engaged in the online activity, and the distant defendant has engaged in some allegedly actionable conduct that is directed at harming or limiting the online activities of the plaintiff.
In this case the Court of Appeals held that there is personal jurisdiction in the plaintiffs' district when the distant defendants invoked eBay's take down process to terminate plaintiffs' auction, and potentially their ability to conduct their online business.
It should be noted that the U.S. Court of Appeals (5thCir) recently held in its opinion [19 pages in PDF] in Stroman Realty v. Wercinski, that there is no personal jurisdiction where the plaintiff files an action in its district against a distant state regulator alleging tortious efforts to prevent the plaintiff from doing business online. See, story titled "5th Circuit Rules No Personal Jurisdiction Over Out of State Regulator of Online Commerce" in TLJ Daily E-Mail Alert No. 1,700, January 15, 2008. Moreover, both the present case, and the 5th Circuit case, involve application of the Calder effects test.
Even if the two opinions can be distinguished or reconciled, they leave the law in a state of uncertainty. The meaning of phrases such as "minimum contacts", "purposely directed", and "aimed at the forum state" are as unclear as ever.
Background. Chalk & Vermilion Fine Arts, Inc. (CV) is a Delaware corporation based in Connecticut. SevenArts, Ltd. is a British corporation. CV is SevenArts' agent in the U.S. They are the defendants below, and the appellees in this appeal.
Karen Dudnikov and Michael Meadors are a married couple who live in Hartsel, Colorado. They sell fabrics and handmade crafts from their home through the eBay internet auction web site. They are what eBay calls "power sellers". They have not incorporated. They are the plaintiffs below, and the appellants in this appeal.
They made and auctioned on eBay fabrics with the imprint of Betty Boop next to her pudgy little dog. Betty Boop began in the 1930s as an alluring feminine cartoon character with short curled black hair. She was a flapper, known for her tight skirts -- sometimes too short for her stockings. Her portrayal has varied over time with prevailing standards of propriety and censorship. She has also been depicted as a hoola dancer, as Rosie the Riveter, and with a blown up dress a la Marilyn Monroe. She is an American every girl.
SevenArts owns the copyrights for certain works by a costume designer and artist named Roman de Tirtoff, but known as "Erté". One is titled "Symphony in Black". Another, titled "Ebony in White", is largely identical to the first, except that it is its negative. Both depict a tall skinny elegant woman posing with a tall skinny hound dog, who matches her attire. She wears a gown with a train, an ornate three piece fur, and matching fur hat, in aristocratic style. She ostentatiously flaunts her wealth and idle elitism. See, pictures in the SevenArts' web site. SevenArts sells these as posters for $125 each.
In the plaintiffs' fabrics, Betty Boop parodies this air of elegance, standing with a three section wrap, and her pudgy dog, mimicking the pose of Erté's heiress. The Erté posters prominently display the word "Erté", while the plaintiffs' fabrics display "Betty Boop".
eBay is based in California. The defendants delivered a notice of claimed infringement (NOCI) to eBay in which they alleged that the plaintiffs were auctioning prints that violate their copyrights. As a result, eBay terminated the auction. The plaintiffs submitted a counter notice to eBay contesting the validity of SevenArts' copyright claim.
The defendants also sent an e-mail to the plaintiffs threatening to file a federal lawsuit.
The Court of Appeals noted that this action "allegedly had adverse consequences for plaintiffs' business and future dealings with the auction site".
District Court. The plaintiffs filed a complaint pro se in U.S. District Court (DColo), the district in which they reside, against the defendants seeking a declaratory judgment that their prints do not infringe defendants' copyrights.
Neither the plaintiffs nor the defendants have named eBay as a defendant. Hence, the issues of whether eBay has infringed copyrights, and whether it falls within the safe harbor of 17 U.S.C. § 512, are not at issue. Moreover, neither the District Court, nor the Court of Appeals, have yet addressed the question of whether the plaintiffs' fabrics infringe the defendants' copyrights.
The defendants moved to dismiss for lack of personal jurisdiction. The magistrate judge ruled that specific jurisdiction exists. However, the judge rejected the magistrate's recommendation, and granted the defendants' motion to dismiss for lack of personal jurisdiction.
The plaintiffs brought the present appeal, with the assistance of counsel, Gregory Beck, of the Public Citizen Litigation Group in Washington DC.
Court of Appeals. The Court of Appeals reversed and remanded.
The Court of Appeals noted that the Copyright Act does not address personal jurisdiction or service of process, and the state of Colorado's long arm statute confers the maximum jurisdiction consistent with the due process clause of the federal Constitution. Hence, this issue is reduced to due process analysis.
The Court of Appeals began its analysis with the Supreme Court's ruling in International Shoe v. Washington, 326 U.S. 310 (1945), that the defendant must have such minimum contacts with the forum state as not to violate traditional notions of fair play and substantial justice.
It proceeded to examine whether the defendants purposely directed their activities toward the forum state. It then applied the Supreme Court's effects test announced in Calder v. Jones, 456 U.S. 783 (1984).
The Court of Appeals wrote, "Distilling Calder to its essence, we thus understand the Court to have found purposeful direction there because of the presence of (a) an intentional action (writing, editing, and publishing the article), that was (b) expressly aimed at the forum state (the article was about a California resident and her activities in California; likewise it was drawn from California sources and widely distributed in that state), with (c) knowledge that the brunt of the injury would be felt in the forum state (defendants knew Ms. Jones was in California and her career revolved around the entertainment industry there)."
The Court of Appeals found that the "plaintiffs have alleged an intentional and wrongful act by defendants on which jurisdiction may permissibly be founded. Plaintiffs do not argue, and we do not remotely hold, that jurisdiction is proper simply based on plaintiffs’ decision to hold an eBay auction of materials that allegedly infringe upon defendants’ copyrights. Rather, it is essential to our analysis that it was defendants who in this case took the intentional action of sending a NOCI specifically designed to terminate plaintiffs’ auction, and defendants who followed that act with an express threat to sue within days in order to prevent the revival of plaintiffs’ auction." (Footnotes omitted.)
The defendants argued that their NOCI was directed not to plaintiffs in Colorado but to eBay in California. The Court of Appeals responded that while the notice "formally traveled only to California, it can be fairly characterized as an intended means to the further intended end of cancelling plaintiffs’ auction in Colorado." It added that the defendants sent the notice "with the ultimate purpose of cancelling plaintiffs’ auction in Colorado. Their “express aim” thus can be said to have reached into Colorado".
The Court of Appeals concluded that the defendants' activities were purposely directed at the forum state.
Next, the Court wrote that "Having determined that defendants ``purposefully directed´´ their activities at the forum state, due process requires us next to ask whether plaintiffs’ injuries ``arise out of´´ defendants’ contacts with the forum jurisdiction." The Court added that it does not matter in this case whether a "but-for" or "proximate causation" test is applied. Either supports the finding the the injuries arise out of the defendants contacts.
As for "but-for" causation, the Court wrote that "if defendants had not claimed that plaintiffs were infringing their copyright, plaintiffs would have had no reason to seek a declaratory judgment that their actions did not run afoul of defendants' rights. The NOCI was also the cause in fact of the real world harm that plaintiffs seek to have remedied: the cancellation of their auction and the black mark on their eBay record. In the absence of the NOCI, plaintiffs would not have had to contend with either of those effects, and thus would have had no reason to attempt to hale defendants into court."
The Court of Appeals also explained why the defendants' actions where the proximate cause of the plaintiffs' claim.
Finally, the Court of Appeals wrote that to find personal jurisdiction, it must find that this would not "offend traditional notions of fair play and substantial justice", as articulated in International Shoe.
The Court wrote, quoting from several precedents, that this involves consideration of the following factors: "(1) the burden on the defendant, (2) the forum state’s interests in resolving the dispute, (3) the plaintiff’s interest in receiving convenient and effectual relief, (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states [or foreign nations] in furthering fundamental social policies." (Brackets in original.)
The Court concluded that "None of these factors, separately or in combination, seem to weigh definitively in favor of defendants." It wrote that SevenArts' status as a British corporation is not a concern because the defendants have asserted that U.S. copyright law applies, because they threatened the plaintiffs with a lawsuit in the U.S., and because the actions in the U.S. of a U.S. agent subjected SevenArts to jurisdiction in the U.S.
The Court also noted that the defendants argued that there is a "federal interest in allowing federal copyright holders to alert potential infringers of their rights and encouraging the settlement of such potential disputes", citing cases involving cease and desist letters. The Court responded that this case is distinguishable from those involving cease and desist letters. That is, the defendants "purposefully caused the cancellation of" the auction, rather than sending a simple cease and desist letter.
TLJ also spoke with the plaintiffs' counsel, Gregory Beck. He said that the plaintiffs offered to settle this case at the outset, and throughout the litigation. This included offering to cease sale of the fabrics that the defendants claim to be infringing.
The Court of Appeals offered this summation of its holding: "Defendants sent a NOCI to eBay expressly intending (and effectually acting) to suspend plaintiffs’ auction in Colorado. Plaintiffs’ suit arises from, and is indeed an effort to reverse, the intended consequences of defendants’ NOCI which they incurred in Colorado. For purposes of this motion, moreover, we must assume defendants knew plaintiffs’ business was located in Colorado. And defendants point us to no basis in traditional notions of fair play or substantial justice that would preclude suit in that forum. Accordingly, the judgment of the district court is reversed, and this case is remanded for further proceedings not inconsistent with this opinion." (Parentheses in original.)
Reaction. Beck stated that there is a problem of "frivolous claims" of copyright infringement being sent to eBay and others. He added that the Digital Millennium Copyright Act's (DMCA) take down provision changed the playing field.
Beck stated said that copyright claimants "just have to allege infringement" and they can "get the equivalent of a temporary restraining order for free".
He also said that the defendants' notice of infringement in the present case is a "frivolous claim". "I think that it is a clear parody."
This case is Karen Dudnikov and Michael Meadors v. Dudnikov v. Chalk & Vermilion Fine Arts, Inc. and Sevenarts, Ltd., U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 06-1458, an appeal from the U.S. District Court for the District of Colorado, D.C. No. 05-cv-02505-WDM-MEH.
Judge Neil Gorsuch wrote the opinion of the Court of Appeals, in which Judges McConnell and Ebel joined.
Judge Gorsuch is a recent appointee of President Bush. He was previously Principal Deputy Associate Attorney General in the Office of the Associate Attorney at the Department of Justice (DOJ). He was also a member of the DOJ's Intellectual Property Task Force. Before that, he was a partner in the Washington DC law firm of Kellogg Huber. He represented SBC and Qwest in antitrust and securities class action cases. Before that, he clerked for Judge David Sentelle of the U.S. Court of Appeals (DCCir), and for Justices Byron White and Anthony Kennedy of the Supreme Court.