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Copyrights

Just Compensation Based on Hypothetical Negotiation

by Paul Devinsky | Jan 16, 2025 | Copyrights

In a long-standing copyright dispute on its second visit to the US Court of Appeals for the Federal Circuit, the Court affirmed the modest damages award from the US Court of Federal Claims, ruling that a hypothetical negotiation between the parties would have resulted in a license in the amount awarded by the claims court. Bitmanagement Software GmBH v. United States, Case No. 23-1506 (Fed. Cir. Jan. 7, 2025) (Dyk, Stoll, Stark, JJ.)

In 2016 Bitmanagement sued the US Navy for copyright infringement of its software. The Court of Federal Claims awarded damages based on usage of the software, rather than the number of copies made. In the first appeal, the Federal Circuit agreed with the claims court that the Navy had an implied license to make copies of the software but was limited as to simultaneous users of the software, a condition that the Navy breached. The Federal Circuit remanded the case with the following instruction:

Because Bitmanagement’s action is against the government, it is entitled only to “reasonable and entire compensation as damages . . . , including the minimum statutory damages as set forth in section 504(c) of title 17, United States Code.” 28 U.S.C. § 1498(b).

The Federal Circuit further instructed the claims court that Bitmanagement was:

. . . not entitled to recover the cost of a seat license for each installation. If Bitmanagement chooses not to pursue statutory damages, the proper measure of damages shall be determined by the Navy’s actual usage of BS Contact Geo in excess of the limited usage contemplated by the parties’ implied license. That analysis should take the form of a hypothetical negotiation. . . . As the party who breached the . . . requirement in the implied license, the Navy bears the burden of proving its actual usage of the . . . software and the extent to which any of it fell within the bounds of any existing license.

Following this mandate, the claims court denied Bitmanagement’s damages demand of almost $86 million and awarded $154,000. Bitmanagement appealed, arguing that it was entitled to damages based on each copy of the software made, rather than damages based on use exceeding the implied license.

The Federal Circuit disagreed, explaining that the law does not require that every award of copyright damages be on a per-copy basis:

. . . whenever the copyright in any work protected under the copyright laws of the United States shall be infringed by the United States . . . the exclusive action which may be brought for such infringement shall be an action by the copyright owner against the United States in the Court of Federal Claims for the recovery of his reasonable and entire compensation as damages for such infringement . . .

As the Federal Circuit noted, the methods used to determine recovery of “actual damages” under § 504 are those “appropriate for measuring the copyright owner’s loss.” Therefore, in § 504(b) cases, the copyright owner must prove “the actual [...]

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Interoperability Doesn’t Imply Derivative Work

by Jodi Benassi | Jan 9, 2025 | Copyrights

The US Court of Appeals for the Ninth Circuit explained that to be a derivative work, a program interoperative with another must actually incorporate aspects of the underlying work. The Court further ruled that licensees of a copy of a computer program are not “owners” of the copy and therefore are not entitled to make copies for the purposes permitted by 17 U.S.C. § 117(a). Oracle International Corp. v. Rimini Street, Inc., Case No. 23-16038 (9th Cir. Dec. 16, 2024) (Bybee, Bumatay, Bennett, JJ.)

Rimini provides third-party support for Oracle software and is a direct competitor with Oracle in the software support services market. For more than a decade, Oracle and Rimini have been involved in what the Ninth Circuit describes as a “pitched copyright war.” This latest battle relates to changes Rimini made to its business model after a district court determined that Rimini had infringed Oracle’s copyrights. Rimini developed a new process for servicing customers using Oracle software and sought a declaratory judgment that its revised process did not infringe Oracle’s copyrights. Oracle counterclaimed for copyright infringement and Lanham Act violations.

The district court found that Rimini created infringing derivative works because its new process interacted and was usable with Oracle software. The district court found that Rimini violated Oracle’s PeopleSoft and Database licensing agreements and made several statements violating the Lanham Act. The court struck Rimini’s affirmative defense to copyright infringement under 17 U.S.C. § 117(a), granted Oracle summary judgment that Rimini infringed Oracle’s copyrights, and issued a permanent injunction against Rimini. Rimini appealed.

Derivative Works

The Ninth Circuit disagreed with the district court’s analysis of Rimini’s new process, noting that the district court focused on an “interoperability test,” which does not exist under the text of the Copyright Act or in precedent. In effect, the district court’s test would find that if a product interoperates with a preexisting copyrighted work, then it must be derivative. The Ninth Circuit explained that while the Copyright Act uses broad language to describe derivative works, the derivative work must actually incorporate the underlying work. For Rimini’s new process to be a derivative work, it must incorporate Oracle’s copyrighted work, either literally or nonliterally. The Court found that just because Rimini’s new process interacted with Oracle’s software, that was insufficient to find it was a derivative work.

Affirmative Defense: Section 117(a)

The Copyright Act permits an owner of a copy of a computer program to make a copy or adaptation of that program for certain purposes under 17 U.S.C. § 117(a). The Ninth Circuit vacated the district court’s ruling, striking Rimini’s affirmative defense under Section 117(a), because the district court erred in determining whether Oracle’s customers “owned” a copy of Oracle’s software, PeopleSoft. The Court explained that to determine whether a party is an “owner of a copy” of a computer program, the courts look to whether the party has “sufficient incidents of ownership” over the “copy” of the software, in view of the totality of the parties’ agreement. Factors that [...]

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Focus on Funk: 40-Year-Old Copyright Claim Is Time-Barred

by Karen Gover | Dec 12, 2024 | Copyrights

In a summary order, the US Court of Appeals for the Second Circuit affirmed the district court’s orders in a case involving an ownership dispute over the copyrights to certain compositions by Parliament-Funkadelic bandleader George Clinton, finding that the claim was time-barred based on an admission that the claim was first discovered 40 years ago. Bridgeport Music Inc., et al. v. TufAmerica Inc., et al., Case No. 23-7386-cv (2d Cir. Dec. 2, 2024) (Carney, Bianco, Nardini, JJ.) (nonprecedential).

LeBaron Taylor was a Detroit-based music producer, disc jockey, and record company executive. Clinton recorded music for Taylor’s record label, Revilot Records, before it went bankrupt in the late 1960s. After Revilot’s bankruptcy, Clinton began recording music for Westbound Records, including re-recording some of the compositions that he had previously recorded with Revilot. TufAmerica Inc. (d/b/a Tuff City Records) and Kay Lovelace Taylor, LeBaron Taylor’s widow, are Clinton’s successors-in-interest.

In December 2017, TufAmerica sent a letter to Bridgeport Music and Westbound Records stating that TufAmerica was the rightful owner of the copyrights to certain Clinton compositions and that Bridgeport had infringed on those copyrights. In January 2018, Bridgeport filed a complaint seeking a declaratory judgment that it was the rightful owner of the compositions and thus had not committed copyright infringement. After the case was transferred from the Eastern District of Michigan to the Southern District of New York, TufAmerica filed an amended answer and asserted counterclaims seeking a declaratory judgment that it was the rightful owner of the compositions and alleging that Bridgeport had infringed the copyrights in those compositions.

Bridgeport moved for summary judgment on its affirmative claims and TufAmerica’s counterclaims. The district court found that genuine disputes of material fact existed regarding ownership of the compositions, but it granted partial summary judgment in favor of Bridgeport as to TufAmerica’s infringement counterclaims. Bridgeport had submitted a series of agreements in which Clinton assigned ownership in the disputed compositions to Bridgeport Music and exclusive recording rights to Westbound Records, but in his deposition testimony Clinton said that he did not sign the agreements or does not remember signing them.

In its summary judgment response and counterstatement of material facts, TufAmerica admitted that Taylor worked as a disc jockey in the 1970s and played Bridgeport’s recordings of the Clinton compositions on the air. TufAmerica received no royalties. The district court found that TufAmerica’s claims accrued at the time Taylor was put on notice of the alleged exploitation of the work without receiving royalties and that the claims were therefore time-barred by the Copyright Act’s three-year statute of limitations period. Because the ownership counterclaim was time-barred, the district court granted summary judgment to Bridgeport on the related counterclaims for infringement and damages since the infringement claim could not be properly adjudicated unless ownership was first determined. TufAmerica moved for reconsideration, which the district court denied while also granting the parties’ request to conditionally dismiss Bridgeport’s affirmative claims in the absence of any live dispute between the parties. TufAmerica appealed.

TufAmerica argued that its [...]

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Let’s Not Get It On: Battle of the Greatest Hits

by Kavya Rallabhandi | Nov 14, 2024 | Copyrights

The US Court of Appeals for the Second Circuit affirmed a district court ruling that Ed Sheeran’s 2014 hit “Thinking Out Loud” does not infringe the copyright on Marvin Gaye’s 1973 classic “Let’s Get It On.” Structured Asset Sales, LLC v. Sheeran, Case No. 23-905 (2d Cir. Nov. 1, 2024) (Calabresi, Parker, Park, JJ.)

In 1973, Ed Townsend and Marvin Gaye wrote the Motown hit “Let’s Get It On.” Townsend subsequently registered a copyright for the song’s melody, harmony, rhythm, and lyrics by sending the deposit copy of sheet music to the US Copyright Office. Townsend, Gaye, and Motown Records each held a one-third share in the copyright. Structured Asset Sales (SAS) purchases royalty interests from musical copyright holders, securitizes them, and sells the securities to other investors. SAS owns a one-ninth interest in the royalties from “Let’s Get It On.” Townsend’s remaining two-ninths share in the copyright is split between Kathryn Griffin, Helen McDonald, and the estate of Cherrigale Townsend.

In 2014 Ed Sheeran and Amy Wadge wrote the global chart-topper and Grammy-award-winning song “Thinking Out Loud.” In 2018, SAS brought a copyright infringement suit against Sheeran, Wadge, and various entities that produced, licensed, and distributed “Thinking Out Loud” (collectively, Sheeran). SAS alleged similarities in harmonies, drums, bass lines, tempos, and chord progression combined with anticipation (harmonic rhythm). SAS’s lawsuit followed the Griffin/McDonald/estate of Cherrigale Townsend’s 2017 lawsuit against Sheeran (Griffin lawsuit) alleging materially similar claims.

The district court determined that SAS’s infringement claim was limited to the scope of Townsend’s registration as reflected in the deposit copy (i.e., the sheet music) and excluded the sound recording of “Let’s Get It On.” As evidence that the songs were similar, SAS’s expert witness testified that the “Let’s Get It On” deposit copy included an inferred bass line that matched the bass line in Gaye’s sound recording of “Let’s Get It On” and the bass line in “Thinking Out Loud.” The district court rejected this testimony, concluding that “copyright law protects only that which is literally expressed, not that which might be inferred or possibly derived from what is expressed.”

The district court then denied Sheeran’s two motions for summary judgment without prejudice, determining that whether chord progression and harmonic rhythm in “Let’s Get It On” demonstrated sufficient originality and creativity to warrant copyright protection was a factual question to be determined at trial. Sheeran filed a motion for reconsideration. After the jury in the Griffin lawsuit found that Sheeran did not infringe the “Let’s Get It On” copyright, the district court granted Sheeran’s motion for reconsideration and concluded that “[t]here is no genuine issue of material fact as to whether defendants infringed the protected elements of [‘Let’s Get It On’]. The answer is that they did not.” SAS appealed.

SAS argued that the district court erred in limiting the evidence SAS could present to support its infringement claim and in granting summary judgment in favor of Sheeran. The Second Circuit rejected both arguments.

The Second Circuit explained that excluding the audio recording of “Let’s Get It On” was not error because the 1909 Copyright Act protects [...]

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Data Mining for AI Systems Training Permitted Under German Law

by Paulina Simons, LL.M. | Nov 7, 2024 | Copyrights, EU Update

In a landmark decision, a German district court recently decided that copying images to create a data set that can potentially be used for training generative artificial intelligence (AI) systems does not infringe German copyright law. Robert Kneschke v. Large Scale Artificial Intelligence Open Network, Case No. GRUR-RS 2024, 25458 (Hamburg District Court Sept. 27, 2024)

The nonprofit Large Scale Artificial Intelligence Open Network (LAION) created a data set containing 5.85 billion image-text pairs publicly available on the internet. This data set can be used to train generative AI systems. For the creation of the data set, LAION accessed a preexisting data set with uniform resource locators (URLs) referencing images and their descriptions. First, LAION extracted the URLs and downloaded the referenced images, including a copyrighted work by photographer Robert Kneschke, even though a reservation of use against web scraping was declared on a subpage of the website. LAION analyzed the image descriptions with a software application. The application excluded image-text pairs where text and image content did not match sufficiently. LAION only added validated image-text pairs to its data mining.

Robert Kneschke claimed copyright infringement based on LAION’s download of his images.

The district court explained that LAION’s mere downloading of Kneschke’s images did not encroach on his right of reproduction under German copyright law. The district court further held that LAION’s actions were justified under and in compliance with Section 60d(1) of the German Act on Copyright and Related Rights (UrhG) – a scientific research exception.

Section 60d(1) authorizes reproduction of text and data mining for scientific purposes by research organizations. The district court clarified that the creation of the data set was data mining, even if the purpose of the creation was AI training. As the district court explained, analysis of an image to compare it with a preexisting description is analysis for the purpose of obtaining information. The district court held that even the creation of the data set, which could form the basis for training AI systems, should be regarded as a scientific purpose (i.e., activity in pursuit of new knowledge irrespective of an immediate knowledge gain or subsequent research success). The creation of the data set was found to be a fundamental step for the purpose of using the data set to gain knowledge later. Of note, the data set was published free of charge and thus also made available to researchers involved in AI. According to the district court, because the training and development of AI systems (even by commercial enterprises) is still scientific research, it was irrelevant that the data set could additionally be used by commercial enterprises to train or develop their AI systems.

Although not legally relevant to the outcome, the district court considered the reservation of use declared in natural language (English) on a subpage to be machine-readable and therefore effective.

Practice Note: This judgment will have far-reaching implications for the use of copyright as a barrier to training AI systems.

Final Rule on DMCA Grants Circumvention Exemptions

by Paul Devinsky | Oct 31, 2024 | Copyrights

On October 25, 2024, the Librarian of Congress Carla Hayden adopted a final rule granting exemptions to a Digital Millennium Copyright Act (DMCA) provision that prohibits circumvention of technological measures that control access to copyrighted works. The new final rule went into effect October 28, 2024.

In 1998, as part of the DMCA, Congress added § 1201 to the Copyright Laws (Title 17) to provide greater legal protection for copyright owners in the then-emerging digital environment. Section 1201 generally made it unlawful to “circumvent a technological measure that effectively controls access to” a copyrighted work. Since then, every three years, the Librarian of Congress (US Copyright Office), upon the recommendation of the Register of Copyrights, has been authorized to adopt temporary exemptions specific to classes of copyrighted works that will be in effect for the ensuing three‐year period.

Now, pursuant to § 1201 and based upon recommendation of the Register, the Copyright Office has renewed all but one of the existing exemptions, adopted a new exemption to vehicle operational data for computer programs, and expanded the existing exemptions to text and data mining of audiovisual and literary works and exemptions regarding computer programs for repair of commercial industrial equipment.

The Copyright Office recommended adopting or expanding exemptions for the following classes:

[For] Classes 3(a) and 3(b) [exemptions]: Expansion of the exemption for audiovisual and literary works, for the purpose of text and data mining for scholarly research and teaching by allowing researchers affiliated with other nonprofit institutions of higher education to access corpora for independent research and by modifying the provisions concerning security measures and viewing the contents of copyrighted works within a corpus.
[For] Class 5 [exemptions]: New exemption for computer programs that control retail-level commercial food preparation equipment for purposes of diagnosis, maintenance, and repair.
[For] Class 7 [exemptions]: New exemption for computer programs, for purposes of accessing, storing, and sharing operational data, including diagnostic and telematics data, of motorized land vehicles, marine vessels, and commercial and agricultural vehicles or vessels.

Regarding the Classes 3(a) and 3(b) exemptions, the final rule explains that institutions can “provide outside researchers with credentials for security and authentication to use a corpus that is hosted on its servers but cannot disseminate a copy of a corpus (or copyrighted works included therein) to outside researchers or give outside researchers the ability to download, make copies of, or distribute any copyrighted works.”

Regarding the Class 5 exemptions, the Register agreed that “proponents sufficiently showed . . . adverse effects on . . . proposed noninfringing uses” of computer programs “related to retail-level commercial food preparation” but otherwise declined to extend the exemption to software-enabled industrial devices.

Regarding the Class 7 exemption, the Register determined that “the prohibition on circumvention adversely affects the ability of lawful owners and lessees, or those acting on their behalf, to access, store, and share operational and telematics data, which are likely to be noninfringing.”

The Copyright Office declined to add “an exemption for the [...]

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If Provider Knew Product Would Be Used to Infringe, It Is a Contributor

by Lois D. Mermelstein | Oct 24, 2024 | Copyrights

In a case brought by a group of record labels against an internet service provider (ISP) for contributory copyright infringement of more than 1,400 songs, the US Court of Appeals for the Fifth Circuit ruled that the provider, which knew how its product would be used by subscribers, could be contributorily liable for its subscribers’ actions, but that because the record companies registered albums – not individual songs – with the US Copyright Office, statutory copyright damages were not available for each infringed song. UMG Recordings, Inc. et al. v. Grande Communications Networks, LLC, Case No. 23-50162 (5th Cir. Oct. 9, 2024) (Higginson, Higginbotham, Stewart, JJ.)

The plaintiffs are a group of major record labels, while the defendant, Grande Communications Network, is a large ISP. To combat copyright infringement among individuals using peer-to-peer file-sharing networks such as BitTorrent, the plaintiffs used a third-party company, Rightscorp, to identify infringing conduct by engaging with BitTorrent users, documenting that conduct, and using the information to notify ISPs of its findings so that the ISPs could take appropriate action. However, for nearly seven years Grande did not terminate subscribers for copyright infringement but merely notified them of a complaint. In the district court, a jury found Grande liable for contributory copyright infringement of more than 1,400 of the plaintiffs’ sound recordings. The jury found that the infringement was willful and awarded nearly $47 million in statutory damages. Grande appealed.

The Fifth Circuit explained that to prove direct infringement by Grande’s subscribers, the plaintiffs had to show “(1) that Plaintiffs own or have exclusive control over valid copyrights and (2) that those copyrights were directly infringed by Grande’s subscribers.” To meet the elements of secondary liability for subscribers’ conduct, “Plaintiffs had to demonstrate (3) that Grande had knowledge of its subscribers’ infringing activity and (4) that Grande induced, caused, or materially contributed to that activity.”

In analyzing the fourth element, the Fifth Circuit noted that previous Supreme Court cases involving a single moment of sale (Sony Corp. of America v. Universal City Studios (1984) and Metro-Goldwyn-Mayer Studios v. Grokster (2005)) did not control because the plaintiffs’ theory of liability was “not based on Grande’s knowledge about its subscribers’ likely future activities after the moment of sale, but rather on Grande’s knowledge of its subscribers’ actual infringements based on its ongoing relationship with those subscribers.” Further, unlike Twitter v. Taamneh (2023) (a case in which family members of an ISIS terrorist attack victim alleged that US social media companies aided and abetted ISIS by permitting the group’s members to use the platforms for ISIS’s purposes), here the “direct nexus between Grande’s conduct and the tort at issue permits an inference that Grande’s knowing provision of internet services to infringing subscribers was actionable.”

The district court’s jury instructions – that Grande could be contributorily liable if Grande could have “take[n] basic measures to prevent further damages to copyrighted works, yet intentionally continue[d] to provide access to infringing sound recordings,” were not erroneous, as Grande had access to [...]

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Jurisdiction “Found”: Navigating E-Commerce Boundaries in Copyright Disputes

by Cecilia Choy, Ph.D. | Oct 24, 2024 | Copyrights

In a copyright case, the US Court of Appeals for the Tenth Circuit determined that the district court had jurisdiction over two Chinese companies that consented to jurisdiction in any judicial district in which a third-party e-commerce company could be “found.” The Tenth Circuit concluded that whether an e-commerce company is “found” in a district for purposes of jurisdiction is determined based on whether its officers or agents carry out the company’s business there, not on the manner in which it does business. DP Creations, LLC v. Adolly.com, Case No. 23-4126 (10th Cir. Oct. 15, 2024) (Tymkovich, Bacharach, Carson, JJ.)

As background, the Digital Millenium Copyright Act (DMCA) “preserve[d] strong incentives for service providers and copyright owners to cooperate and detect and deal with copyright infringements that take place in the digital networked environment.” After a copyright owner notifies a service provider of an infringement, the service provider can avoid liability for a subscriber’s copyright infringement if the service provider expeditiously moves or disables access to the allegedly infringing material and notifies the subscriber of such actions taken. Under Section 512(g)(3)(D) of the DMCA, a subscriber with an address outside the United States may have the material replaced by submitting a written counter-notification to the service provider that includes a statement that the “subscriber consents to the jurisdiction of the Federal District Court . . . for any judicial district in which the service provider may be found.”

DP Creations, d/b/a Bountiful Baby, is a copyright owner for reborn doll sculptures. Bountiful Baby notified a third-party e-commerce company (service provider) that two Chinese companies (subscribers), including Adolly, were selling counterfeit copies of reborn dolls through the e-commerce company. The e-commerce company took down the infringing materials, and Adolly submitted counter-notifications, including consent to personal jurisdiction in “any judicial district in which [the e-commerce company] may be found and agreeing to accept service of process from” Bountiful Baby. Bountiful Baby subsequently filed a copyright infringement action in the District of Utah. After the Chinese companies failed to respond, the district court denied the motion for entry of default judgment against the defendants for lack of personal jurisdiction. In construing the scope of jurisdiction under § 512(g)(3)(D), the district court used Black’s Law Dictionary to understand the plain meaning of “found” and required Bountiful Baby to show that the e-commerce company did business in Utah such that it was subject to suit and service of process there. Bountiful Baby appealed.

Because § 512(g)(3)(D)’s phrase “may be found” is not defined in the statute, the Tenth Circuit (like the district court) undertook to construe the ordinary meaning of the phrase. The Court decided against using the definition found in Black’s to construe the meaning of “found” as it relates to service of process on corporations that are not a subscriber of the involved service provider. The Court concluded that in cases where the service provider is not a resident of the forum state and potentially not “at home” in the forum state, Black’s [...]

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Creative License: Fair Use Defense Paints Over Infringement Battle

by Kyle Sorenson, PhD | Oct 3, 2024 | Copyrights, Trademarks

Affirming the application of the fair use defense to copyright infringement, the US Court of Appeals for the Fifth Circuit determined that a district court’s sua sponte invocation of a fair use defense to parallel trademark claims was harmless error. The Court also affirmed that the district court did not abuse its discretion in awarding attorneys’ fees based on the prevailing party standard for copyright claims. Keck v. Mix Creative Learning Ctr., L.L.C., Case No. 23-20188 (5th Cir. Sept. 18, 2024) (Jones, Smith, Ho, JJ.)

Michel Keck, a multimedia artist, sued Mix Creative Learning Center, a Texas-based art studio, for copyright and trademark infringement after Mix Creative sold art kits featuring Keck’s dog-themed artwork and a brief biography, intended for at-home learning during the pandemic. Keck had registered her Dog Art series (in the form of decorative works) with the US Copyright Office and her name as a trademark with the US Patent & Trademark Office. Keck claimed that Mix Creative’s art kits violated her rights. After receiving notice of the lawsuit, Mix Creative promptly ceased selling its kits.

Following discovery, both parties filed cross-motions for summary judgment. The district court granted summary judgment in favor of Mix Creative on Keck’s copyright claim, finding fair use, and also granted summary judgment on the trademark claim sua sponte, as both parties had agreed that the fair use defense applied to both claims. The district court further awarded Mix Creative more than $100,000 in attorneys’ fees and costs, although it declined to hold Keck’s attorneys jointly and severally liable.

Keck appealed, challenging the copyright fair use finding and the district court’s sua sponte application of the fair use defense to the trademark claim. Mix Creative challenged the district court’s refusal to hold Keck’s attorneys jointly and severally liable for fees.

The Fifth Circuit affirmed the district court’s application of the fair use defense to Keck’s copyright claims. The Court focused on the first and fourth factors of the fair use defense (respectively, the purpose and character of the use and the effect of the use on the potential market for or value of the original work), noting that the courts typically give these two factors special attention.

On the first factor, the Fifth Circuit found Mix Creative’s use to be transformative. Although Mix Creative is a commercial enterprise, the art kits served an educational purpose, distinct from the decorative purpose of Keck’s original works. As a result, the likelihood of Mix Creative’s kits serving as a substitute for Keck’s original works in the market was low.

The fourth factor also favored Mix Creative, as the Fifth Circuit found no evidence that Mix Creative’s kits would harm the market value of Keck’s original decorative works. In fact, the Court suggested that the kits might enhance Keck’s reputation and sales by providing her with free advertising. Furthermore, Mix Creative operated in a different market (educational rather than decorative), and Keck had not demonstrated any history of selling derivative works for children’s art lessons. The [...]

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Dolly Pardon: American Girl Can Sue Foreign Counterfeiter for Internet Sales

by Karen Gover | Sep 26, 2024 | Copyrights, Trademarks

The US Court of Appeals for the Second Circuit clarified its standards for establishing personal jurisdiction over foreign defendants that conduct business over the internet. American Girl, LLC v. Zembrka, DBA www.zembrka.com; www.daibh-idh.com, Case No. 21-1381 (2d Cir. Sept. 17, 2024) (Cabranes, Parker, Kahn, JJ.)

In 2021, American Girl, the famous doll manufacturer, filed suit against Zembrka in the US District Court for the Southern District of New York. American Girl brought multiple claims under the Lanham Act, including claims for trademark counterfeiting and trademark infringement, for advertising and sales of counterfeit American Girl dolls through Zembrka’s websites. Zembrka is located in and operates from the People’s Republic of China. American Girl was granted a temporary restraining order (TRO) that enjoined Zembrka from marketing, manufacturing, or distributing counterfeit American Girl products and from advertising counterfeit or confusingly similar American Girl marks.

Zembrka appealed and moved to dissolve the TRO and dismiss the complaint for lack of personal jurisdiction. Zembrka argued that it did not transact or do business in New York as required to establish personal jurisdiction under C.P.L.R. § 302(a)(1). American Girl asserted, with supporting evidence, that customers in New York could place orders through Zembrka’s interactive websites by inputting payment, billing, and shipping information, and that customers were sent confirmations of their orders to shipping addresses in New York. American Girl’s counsel purchased and paid for allegedly counterfeit American Girl merchandise through Zembrka’s website and received order confirmation emails. Zembrka conceded at oral argument that the allegedly counterfeit American Girl dolls were available via its website for purchase by people in New York.

The TRO was served on Zembrka. Two weeks later, Zembrka canceled the orders and refunded the payments for the purchases made by American Girl’s counsel. The district court granted the motion to dismiss for lack of personal jurisdiction, reasoning that because American Girl did not provide evidence that the allegedly counterfeit goods had shipped to New York, no business was transacted under § 302(a)(1). American Girl moved for reconsideration, providing evidence of other purchases of allegedly counterfeit merchandise by New York customers. It also produced evidence showing that New York customers purchased more than $41,000 worth of other Zembrka products over the past year via PayPal. The district court denied the motion because American Girl still did not demonstrate that any of the allegedly infringing products were actually delivered to New York, and customer payments were refunded. American Girl appealed.

The primary issue on appeal was whether American Girl sufficiently established that Zembrka transacted business in New York for the purposes of § 302(1)(a). The Second Circuit found that this requirement was easily satisfied, explaining that the district court had incorrectly interpreted the Second Circuit’s 2010 decision in Chloe v. Queen Bee of Beverly Hills as requiring a shipment to be an essential component of “transacting business.” It was enough that American Girl provided evidence that New York customers submitted orders and payments for allegedly counterfeit merchandise through Zembrka’s websites: “Section 302(a)(1) [...]

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