A recent Ninth Circuit decision, Washington Shoe Co. v. A-Z Sporting Goods Inc., WL 6582345 (9th Cir., December 17, 2012). has changed the jurisdictional landscape to be more friendly to copyright holder plaintiffs.
Now copyright holders can file infringement lawsuits in their home state, rather than the location of the infringing company. This is excellent news for companies trading in intellectual property, including those with intangible goods where it is hard to track exactly where the item was sold. It is likely the most important personal jurisdiction case in over 50 years.
A Rocky Landscape: Personal Jurisdiction Under International Shoe
Common sense tells us that: 1) if you own a copyright or a patent and you ask someone who is using your property without permission to stop: and 2) they don’t stop, that you should be able to start a lawsuit to stop them. Well that is true to a point. Yes, you can sue the infringing party. But where will you sue them? Can you sue them in Seattle, Portland, or New York?
The answer to that question depended the seminal case of International Shoe Co. v. State of Washington, 326 U.S. 310 (1945)decided almost seventy years ago.Seventy years ago few homes had television sets, the first computer covered 1,800 feet of floor space, and cellular phones were something only seen in science fiction movies. Intellectual property existed in tangible items, such as books, paintings, photographs, and the like.
Under International Shoe, the copyright holder might need to sue the infringer in a foreign state based on what the court called “minimum contacts." “Minimum contacts" says it’s not fair to sue a company from a different state if they: 1) don’t own property; or 2) do some “minimum" amount of business in the state where the rights holder plaintiff is located. In other words, if you own a copyright and are located in Seattle and a company in Arkansas makes unauthorized use of your copyrights and you asked them to stop and they refuse, you might need to travel to Arkansas to sue them.
The fundamental rule emanating from International Shoe was that to have jurisdiction in the forum state the court’s power over the defendant could not impinge of the “fundamental notions of fair play and justice." But this consideration was in light of the rights of the defendant. Protecting fair play sounds good right? It was for the most part, at least until 1997. With the sudden growth of the Internet, we have increased commerce across state lines but a seventy-year-old analysis to “lead" us through it.
It has been a rocky and expensive road, resulting variances in jurisdictional determinations from state to state, that created expense and uncertainly for American businesses and individuals.
Looking Over The Horizon: Washington Shoe Looks To Redefine Personal Jurisdiction
Companies and individuals alike have shaped the personal jurisdiction landscape since International Shoe in cases such as World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980); Calder v. Jones, 465 U.S. 783 (1984); Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797 (9th Cir. 2004); and Brayton Purcell v. Recordon & Recordon, 606 F.3d 1124 (9th Cir. 2010). Personal jurisdiction turned on multiple factors, each broken up into its own sub-factor. Even with a map and a good pair of hiking boots, a plaintiff could get lost in determining where to file its complaint. Washington Shoe, a footwear manufacturer, encountered the same problem when attempting to cease infringing activity by an Arkansas company, A-Z Sporting Goods.
In revisiting International Shoe’s test, the Ninth Circuit Court of Appeals found that it was fair or at least made sense that a shoe company from Washington can sue in a federal court sitting in Washington state a defendant retailer in Arkansas who sells their copyrighted shoe designs after they were asked to stop and refused. This decision seems obvious right? Under International Shoe and its progeny, it was not obvious. Even one of the appeals court judges asked at oral argument why the court should not use this case to “modernize" the jurisdictional analysis? The Ninth Circuit took this opportunity to do exactly that, modernize the personal jurisdiction analysis.
In Washington Shoe Company v. A-Z Sporting Goods, Inc. the defendant, A-Z Sporting Goods (“A-Z"), knowingly sold knock-off rain boots that had been manufactured in China (see photos below). Located in Arkansas, A-Z sold its footwear in the Mid-West market, but not directly within Washington State. Washington Shoe Company’s (“Washington Shoe") sales representatives, however, had visited A-Z’s offices and provided them with catalogs of the Washington Shoe footwear. Upon discovery of infringing activity, the boot designer and valid copyright holder, Washington Shoe, notified A-Z of its rights and asked A-Z to stop selling the infringing boots because it was in violation of their copyright, known as a cease and desist request. After receiving the cease and desist request, A-Z sold their remaining knock-off rain boots to a discount store. This sale after notification of the claim is considered willful infringement of Washington Shoe’s copyrighted design.
Washington Shoe then initiated a lawsuit against A-Z in federal district court in Washington State. A-Z moved to dismiss the case claiming the court lacked personal jurisdiction because it did not do business in Washington State. Although it originally denied the motion, the district court revisited the issue after another Ninth Circuit case Brayton Purcell v. Recordon & Recordon, 606 F.3d 1124 (9th Cir. 2010) was decided and granted A-Z’s motion and dismissed the case. Washington Shoe then appealed the district court’s decision to dismiss the case.
On appeal, Washington Shoe argued that willfully infringing a copyright creates the minimum contacts needed for personal jurisdiction (i.e. that willfully infringing a copyright equates to doing business in the forum state). If Washington Shoe was wrong, copyright infringers would be completely immune from litigation in the copyright holder’s home state. The stakes couldn’t be higher for persons wishing to protect their intellectual property and not wanting to litigate in a foreign state.
The Ninth Circuit Court of Appeals agreed with Washington Shoe finding there was personal jurisdiction over A-Z and reversed the district court. The Ninth Circuit’s finding of jurisdiction hinged on whether A-Z’s actions were expressly aimed at the forum state of Washington, which in turn depended on the allegations of a willful copyright violation. The Ninth Circuit recognized that the impact of a copyright infringement can be felt outside the defendant’s state, at least in the place where the copyright is held. Since the right to control the copyright is exercised by the corporation owning the copyright, the impact of an intentional violation will be directed at the location of the copyright holder. In other words, Washington Shoe as a Washington corporation felt the impact here in Washington.
The Ninth Circuit focused on A-Z’s willful activities, specifically that the sales subsequent to the cease and desist “were expressly aimed at the copyright held by Washington Shoe because A-Z knew that its intentional acts would impact Washington Shoe’s copyright by virtue of the cease-and-desist letters it had received." A-Z knew, or should have known, that Washington Shoe was a Washington company, thereby expressly aiming its intentional acts at Washington State.
Also relevant was that A-Z caused harm known to affect the forum state of Washington based on the economic loss to the copyright holder at its principal place of business in Washington. Based on these facts, A-Z could reasonably anticipate being called to defend itself in the forum state and jurisdiction within Washington was proper.
By overruling the trial court, the Ninth Circuit has issued a groundbreaking opinion whereby intentional copyright infringers can be hauled into foreign states by virtue of willful activities if they have knowledge the effect will be felt outside their home state.