New York Court of Appeals, March 24, 2011

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  • New York’s highest court, answering a certified question from the Second Circuit, holds that in a copyright infringement action where a copyrighted literary work is uploaded to the Internet, for purposes of determining jurisdiction under New York’s long-arm statute, the situs of the injury is the copyright holder’s principal place of business.

Plaintiff Penguin Group (USA) Inc. is a large publisher located in New York. Defendant American Buddha is a not-for-profit organization incorporated in Oregon and located in Arizona. American Buddha operates two web sites – the American Buddha Online Library and the Ralph Nader Library – which are hosted on servers in Arizona and Oregon. American Buddha uploads various literary works to these websites and allows users to download them. The websites state that such uploading and downloading does not constitute copyright infringement.

Penguin commenced a copyright infringement action against American Buddha in New York federal court, alleging that American Buddha infringed Penguin’s copyrights to four books -- (1) “Oil!” by Upton Sinclair; (2) “It Can’t Happen Here” by Sinclair Lewis; (3) “The Golden Ass” by Apuleius; and (4) “On the Nature of the Universe” by Lucretius -- by uploading them to the Internet and allowing users to download them. American Buddha claimed that its activities do not constitute copyright infringement under sections 107 and 108 of the Copyright Act, which govern fair use and reproductions by libraries and archives. American Buddha also moved to dismiss the case, arguing that the federal court in New York where the case was brought lacked personal jurisdiction.

In opposing American Buddha’s motion to dismiss, Penguin argued that New York courts had personal jurisdiction over the defendant under Rule 302(a)(3)(ii) of the New York Civil Practice Law and Rules (“CPLR”), which provides jurisdiction over nondomiciliaries who commit tortious acts outside New York that result in injuries within New York. The federal district court granted American Buddha’s motion to dismiss, finding that Penguin’s injury occurred in Arizona and Oregon, where the copying and uploading of the books took place, not in New York.

Penguin appealed, and after finding a split in state court decisions interpreting the CPLR, the Second Circuit Court of Appeals certified the following question to the New York Court of Appeals:

In a copyright infringement case, 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?

Observing that the Internet plays a significant role in the case, the New York Court of Appeals narrowed and reformulated the certified question as follows:

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?

Under the circumstances of this case, the Court of Appeals concluded that the situs of the injury is the location of the copyright holder.

The CPLR permits New York courts to exercise long-arm jurisdiction over out-of-state defendants where (1) the defendant committed a tortious act outside New York; (2) the act caused injury in New York; (3) the defendant expected or should have expected the out-of-state act to have consequences in New York; (4) the plaintiff’s claim arises from the out-of-state act; and (5) the defendant derived substantial revenue from interstate or international commerce. The only issue posed to the Court of Appeals concerned the third requirement – whether an out-of-state act of copyright infringement has caused injury in New York. The Court of Appeals began by recognizing that, in other circumstances, an injury does not occur in New York simply because the plaintiff happens to be located in New York and suffers indirect financial loss. However, in the circumstances of this case, involving the Internet, two factors persuaded the court that a copyright owner alleging infringement suffers an in-state injury when its printed literary work is uploaded without permission onto the Internet for public access.

First, the court observed that the Internet itself plays an important role in the jurisdictional analysis in the context of this case, as the crux of Penguin’s copyright claim is not merely the unlawful electronic copying and uploading of the four copyrighted books, but rather it is the intended consequence of those activities – the instantaneous availability of those copyrighted works on the Internet for anyone, in New York or elsewhere, to access. In cases of this nature, the Court of Appeals held, identifying the situs of injury is not as simple as turning to “the place where plaintiff lost business,” because the alleged injury involves online infringement dispersed through the country and perhaps the world.

Second, the Court of Appeals held that the unique bundle of rights granted to copyright owners tips the balance in favor of identifying New York as the situs of injury because a New York copyright holder whose copyright is infringed suffers something more than the indirect financial loss that was deemed inadequate to establish jurisdiction in other cases.