Monday, March 11, 2013

copyright claim presents extraterritoriality, Dastar problems

Rhapsody Solutions, LLC v. Cryogenic Vessel Alternatives, Inc., 2013 WL 820589 (S.D. Tex.)

Rhapsody alleged that defendants infringed the copyright in its business management software.  Rhapsody allegedly granted defendant CVA a nontransferable license to use its product, Exceed MRP, but that CVA and its parent company, INOX India Limited, developed an infringing work and used it to manage their businesses.  The software assists businesses in tracking orders and managing business operations, and was allegedly tailored to suit CVA’s specific needs.  Though the exact details of the contract are disputed, Rhapsody alleged that it specified that the software couldn’t be modified or reverse engineered and could be loaded onto a maximum of one computer or server.

In 2009, INOX bought a 70% interest in CVA; they make the same things and represent on their combined website that “INOX India and CVA are ONE” and refer to themselves as a “joint entity” called “INOXCVA.” After learning of the acquisition, Rhapsody sent INOX a letter, copied to CVA, reminding them that the software couldn’t be transferred to any other party or modified.  INOX hired a company called VCAN India (against which a default judgment was entered here) to develop new business management software for CVA.  Rhapsody alleged that the new software, INOVA, infringed Rhapsody’s software; that INOX regularly accesses the infringing software on CVA’s Texas server, and that INOX (in concert with VCAN and CVA) removed Rhapsody’s copyright management information embedded in Rhapsody’s software and fraudulently placed its own indicia of ownership on the infringing software, in violation of the DMCA.  (If this software isn’t sold, can the removal have aided copyright infringement in any way?  If not, does §1202 apply at all?)

Rhapsody sued for copyright infringement, violations of 17 USC §1202(a) and (b) (removal of CMI and provision of false CMI), and violations of the Lanham Act.

The court first found personal jurisdiction over INOX, though INOX argued that it didn’t transact business in Texas, had no place of business in Texas, didn’t employ Texas residents, and was merely CVA’s parent company.  But the evidence suggested that INOX hired VCAN to prepare INOVA for CVA, whose server is in Texas; it directly participated in the development of INOVA; and it regularly logged into CVA’s Texas server to use Rhapsody’s software and INOVA to view data.  Plus, it allegedly sold products made and designed with the use of INOVA.  (Not sure why that last makes any difference at all; that doesn’t even mention those products being sold into the US, but even if they were, that can’t be relevant to personal jurisdiction over copyright infringement.)

INOX argued that logging into and viewing a program on a Texas server wasn’t infringement, citing Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008), and claiming that its acts weren’t fixation.  But MAI v. Peak held that copying occurs when a program is loaded into RAM, and other courts have held that loading software into RAM can create an infringing copy.  Rhapsody’s evidence suggested that INOX accessed the two programs long enough for an INOX employee to view the copyrighted content and evaluate the data “displayed thereon” (is the work an audiovisual work or a software program?).  At this stage, Rhapsody had made out its prima facie case.  The causes of action arose out of or related to INOX’s forum contacts; there was evidence that INOX knew the software was on CVA’s Texas server and regularly logged into it to use the software.  “Numerous courts have exercised personal jurisdiction over nonresident defendants where the minimum contacts with the forum consisted of committing a tort through accessing a server located in the forum state.” Thus, the burden was INOX to show that the exercise of jurisdiction would be unfair, which it did not do, given Texas’s strong interest in protecting its citizens from copyright infringement and DMCA violations, and INOX’s past practice of sending principals and employees to Texas to manage its subsidiary.

INOX then argued that American copyright law doesn’t apply to extraterritorial acts of infringement, but the court found that at least part of an act of infringement was alleged in the US.  Logging onto the Texas server and engaging in infringing acts would suffice (though Rhapsody needed to amend its complaint to clearly allege this).

The Lanham Act claim presented a Dastar problem: Rhapsody alleged that INOX “deceived both prospective and current customers regarding the origin of the Exceed MRP Software and the derivative work, the INOVA Software,” and “[a]ny statements made regarding ownership of the INOVA software and/or Exceed MRP Software to prospective and/or current customers … are likely to cause confusion, mistake, or deception as to origin, sponsorship, or approval of their goods by Plaintiff when none exists.” The complaint was “rather vague” as to whether it alleged that INOX copied Rhapsody’s copyrighted work or that INOX took tangible copies of Rhapsody’s software, removed Rhapsody’s marks, and sold them as INOX’s own.  If only the former, then the claim might fail as a matter of law.  The pleadings were currently insufficient; if Rhapsody chose to replead a Lanham Act claim, it would need to attend to precedent.

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