Troma Entertainment, Inc., produced and owns the distribution rights for the spoof films Citizen Toxie, Toxic Avenger Part IV and Poultrygeist: Night of the Chicken Dead. Lance Robbins and King Brett Lauter represented to Intravest Beteiligungs GMBH, a German company, that Robbins and Lauter owned the distribution rights to the films. Intravest paid Robbins and Lauter for the right to distribute the films on pay per view channels in Germany. Troma did not authorize the distribution and was not compensated for the distribution of the films.
Troma, a New York corporation, sued Robbins and Lauter for copyright infringement in the Eastern District of New York. Troma did not allege that the events giving rise to the copyright infringement occurred in New York. The district court granted Robbins’ and Lauter’s motions to dismiss for lack of personal jurisdiction. The only issue on appeal to the Second Circuit Court of Appeals was whether the district court lacked personal jurisdiction over Robbins and Lauter under the New York State long-arm statute. The Second Circuit affirmed the district court’s ruling that it lacked personal jurisdiction over the defendants. The Second Circuit’s ruling does not mean that Troma cannot sue Robbins and Lauter. It simply means that Troma cannot sue Robbins and Lauter in New York. The district court gave Troma the option of transfering the case to the Central District of California, which Troma refused.
As has been discussed in my some of my other posts, particularly Willful Copyright Infringement is Enough Contact for Personal Jurisdiction, courts look to the law of the state in which the lawsuit is filed to determine whether the federal court has personal jurisdiction over the defendants in a copyright case.
Courts located in a given state obtain personal jurisdiction over an out of state defendant through that state’s long-arm statute. The New York long-arm statute provides for personal jurisdiction over a defendant who commits a tortious act outside of the state causing injury to a person or property inside the state if she “expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” N.Y. C.P.L.R. § 302(a)(3)(ii). Troma argued that Robbins’ and Lauter’s infringing acts caused injury in New York State because Troma suffered the loss of sales and harm to its exclusive distribution rights as a result of the acts. Courts have previously held that
The suffering of economic damages in New York is insufficient, alone, to establish a direct injury in New York for N.Y. C.P.L.R. § 302(a)(3) purposes.
(Opinion pdf pages 8-9).
The reasoning is that lost sales will injure the plaintiff no matter where she lives, so that the injured party’s residence in New York, should not, by itself, extend jurisdiction to an out of state defendant.
Where is the situs (location) of the injury in an intellectual property case? The New York State Court of Appeals, New York’s highest court, previously ruled that the location of the copyright owner is the situs of the injury for copyright infringement cases involving the uploading of a copyrighted printed literary work onto the Internet.
The injury occasioned by uploading is so widely dispersed, and the place of uploading largely inconsequential, the out‐of‐state location of the infringing conduct ‐‐ the other possible situs of injury ‐‐ carries less weight in the jurisdictional inquiry.
(Opinion pdf page 11).
The New York Court of Appeals also believed that intellectual property infringement could diminish the incentive to publish or write and cause market confusion, lowering the value of the rights. The decline in the value of the intellectual property rights differs in nature from a mere economic loss suffered in New York and also supports the copyright owner’s location as the situs of the injury.
New York Court of Appeals’ decision on jurisdiction in uploading cases was too narrow to cover the issue before the Second Circuit in Troma. The Second Circuit determined that Troma’s case is more like a traditional commercial tort case, in that the places where the tortious acts occurred are significant in determining whether there is personal jurisdiction. The Second Circuit ruled that New York courts did not have personal jurisdiction over Robbins and Lauter.
Regarding the New York Court of Appeals’ theory about harming intellectual property rights, the Second Circuit indicated that intellectual property owners are not relieved from the obligation to allege facts demonstrating a non-speculative and direct New York-based injury.
The Second Circuit affirmed the district court’s ruling that it lacked personal jurisdiction over Robbins and Lauter under the New York State long-arm statute.
The Second Circuit disagreed with the New York Court of Appeals’ intellectual property analysis:
Infringement comes in many stripes. It is not the case that any infringement anywhere can be said to diminish incentives to engage in a creative enterprise, or to harm, beyond the immediate loss of profits, the continuing value of one or more of a copyright holderʹs bundle of rights. Certainly the availability of the statutory damage remedy under the copyright laws does not establish automatically that this sort of injury has occurred. And we think it entirely implausible that the infringement alleged by Troma ‐‐ discrete, geographically circumscribed theft of the opportunity to license distribution of copyrighted works ‐‐ would cause such an injury.
(Opinion pdf page 14).
This case is Troma Entertainment, Inc., v. Lance H. Robbins, No. 12-1883-cv.