possible internet, eBay sales into US insufficient for jurisdiction

Gibson Brands Inc. v. Viacom Intern. Inc., 2013 WL 5940826, No. CV 12–10870 (C.D. Cal. Nov. 5, 2013)

Gibson sued Viacom and JHS over a ukulele bearing the image of SpongeBob Squarepants formed in a V shape that allegedly infringed Gibson’s Flying V guitar body shape.  Viacom licensed the SpongeBob character to JHS, which made the ukulele; Viacom was dismissed from the case for failure to state a claim and JHS remained.

The alleged infringement principally took place on www.jhs.co.uk, www.worldwidemusic.co.uk, eBay, www.Strings.ie, www.rakuten.com, and hobgoblin.com.  JHS moved to dismiss for lack of subject matter jurisdiction, because all of the allegedly infringing activity occurred outside the US. The court agreed.

For the Lanham Act to reach infringing activity abroad, “first, there must be some effect on American foreign commerce; second, the effect must be sufficiently great to present a cognizable injury to plaintiffs under the federal statute; and third, the interests of and links to American foreign commerce must be sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.” Gibson argued that there had been infringing activity in the US, because US consumers could buy the products from various online retailers.  The court disagreed. The only evidence of sales to US consumers came from seven ukuleles sold to plaintiffs’ counsel by companies other than JHS, with no direct sales from JHS or any authorized dealers to any US consumers. 

Gibson also didn’t provide evidence of an effect on American commerce.  “Although Gibson suggests that the availability of infringing items on websites hosted overseas could impact its business in a variety of countries around the world, it has not asserted any facts or proffered any evidence to show such an impact.”  Even if JHS could be held accountable for third party retailers’ activities, that wouldn’t support the exercise of jurisdiction. The third party retailers identified were all based overseas and/or directed to overseas consumers.  Strings.ie uses the slogan “Ireland’s No. 1 String Supplier,” while Rankuten.com identifies itself as “Japan’s # 1 shopping site” and charges in yen, and each ad on eBay listed prices in British pounds. “While a U.S. consumer actively seeking a product may be able to purchase it abroad and have it shipped to the United States, the overseas location and orientation of the online retailers tend to diminish the likely effect on U.S. commerce and therefore the appropriateness of exercising jurisdiction.”

Gibson argued that it would suffer harm in the US because consumers buying the product abroad would bring it into the US, resulting in confusion among US consumers, or that online resellers would sell to American consumers.  Both theories were too attenuated to be cognizable theories of injury, and Gibson had no evidence of them.

As for the US’s interest compared to those of other nations, the court found that asserting extraterritorial authority had the potential to create conflict with UK trademark law, since Gibson’s applications for UK trademarks in its V-styled body and headstock had been withdrawn.  “Given Gibson’s apparent interest in obtaining trademarks in the United Kingdom, an order by this court concerning use of the same designs in the UK creates a risk of conflict with further UK trademark proceedings on the designs.”  Also, JHS was a UK corporation without meaningful relevant operations in the US, and without Viacom in the case this factor weighed against extraterritorial jurisdiction.

Then the court examined the extent to which an order by a U.S. court can be expected to achieve compliance with the Lanham Act. Gibson’s principal concerns related not to JHS’s conduct but to that of online retailers selling allegedly infringing products, but Gibson didn’t show that JHS controlled them.  The only evidence was a communication from one internet retailer indicating that it wouldn’t ship the product because it had been warned by its supplier, presumably JHS, to limit sales to specific countries.  “[E]ven if the these retailers are engaging in infringing behavior, the court is not in a position to induce compliance by these companies.”

The relative significance of effects on US commerce as opposed to commerce elsewhere also weighed against exercising jurisdiction, as did the lack of evidence of any intent to harm US commerce—JHS’s license from Viacom specifically excluded US sales, indicating an intent to avoid US commerce.  In terms of foreseeability, it was arguable that JHS could foresee retailers selling products within the US, since many of these companies distribute globally, and Gibson sent JHS a C&D but JHS failed to act; that did weigh in favor of exercising jurisdiction. But that wasn’t enough.

Overall, there wasn’t sufficient reason to exercise jurisdiction.

Singaporean bank finds no relief from Lanham Act

Hong Leong Finance Limited (Singapore) v. Pinnacle Performance Ltd., 2013 WL 5746126, No. 12 Civ. 6010 (S.D.N.Y. Oct. 23, 2013)

My former classmate, the Honorable Jesse Furman, got this Lanham Act extraterritoriality case.

Plaintiff HLF sued Morgan Stanley and certain affiliates related to credit-linked notes issued by Morgan Stanley.  Morgan Stanley entered into a distribution agreement with HLF, and HLF then sold the notes to Singaporean investors.  Credit-linked notes shift credit risk associated with the “reference entities” from a “protection buyer” (the bank arranging the notes) to a “protection seller” (the note investors), which uses a special purpose vehicle to stand in the middle and engage in a credit default swap.  The principal received from the investors in the notes is used to buy highly-rated securities as collateral in the event that reference entities default.  Investors get interest in the form of credit protection payments from the sponsoring bank and any interest generated by the underlying assets.  The underlying assets are typically safe and liquid, but HLF alleged that Morgan Stanley selected very risky assets here—single-tranche synthetic CDOs (in other words, clusterbombs).  They weren’t just risky; they were allegedly designed to fail, because Morgan Stanley took a short position on those very same assets.

HLF alleged that Morgan Stanley persuaded HLF to sell the notes to its customers by emphasizing that they were “conservative” and “low-risk products” suitable for HLF’s customers: middleclass and working-class Singaporeans, and small—and medium-sized enterprises. HLF eventually sold its customers $72.4 million worth of notes.  When the notes failed, Singapore’s de facto central bank stepped in and mandated that HLF pay its investors over $32 million.

The Lanham Act claim, the sole basis of federal jurisdiction, was dismissed because it failed to allege facts supporting application of the statute extraterritorially.  The Lanham Act covers conduct outside the US when necessary to prevent harm to commerce in the US.  The Second Circuit looks at three factors: “(i) whether the defendant is a United States citizen; (ii) whether there exists a conflict between the defendant’s trademark rights under foreign law and the plaintiff’s trademark rights under domestic law; and (iii) whether the defendant’s conduct has a substantial effect on United States commerce.”  The first two factors are significant, but the third is “critical and often dispositive.”

Here, HLF failed to allege facts plausibly satisfying the third factor. There was no alleged consumer confusion or harm to HLF’s goodwill in the US, because HLF doesn’t exist in the US—indeed, it alleged that it had “no expertise in foreign markets”—and the customers Morgan Stanley screwed were middle-class and working-class Singaporeans.  HLF argued that Morgan Stanley’s scheme was executed largely in New York, but mere preparation of a scheme within US borders wasn’t enough.

In any event, HLF failed to allege domestic activity “sufficiently essential” to the allegedly unlawful activity abroad.  Morgan Stanley allegedly issued and structured the notes in and around NYC.  But the gravamen of the complaint was false advertising—whether Morgan Stanley made statements that were likely to deceive or confuse investors, not statements made to HLF.  And HLF didn’t allege that Morgan Stanley directed any false ads from the US to the Singaporean investors; there wasn’t even any allegation of contact with the investors, as opposed to contact with HLF.  There was therefore no nexus between US activities and the allegedly unlawful activities abroad.

Comparative ad creates personal jurisdiction in target's home state

SKEDCO, Inc. v. ARC Prods., LLC, 2013 WL 3965314 (D. Or. July 30, 2013)

SKEDCO, an Oregon corporation, sued its competitor ARC (dba Medsled), a Missouri corporation, alleging false advertising in violation of federal and Oregon law based on ARC’s comparative claims about the parties’ emergency medical rescue equipment in brochures, films, presentations, and online.

The court first found personal jurisdiction in Oregon.  SKEDCO had the burden of establishing personal jurisdiction by making a prima facie showing of facts that support the exercise of jurisdiction over defendant. Here, specific jurisdiction was adequately shown; the elements are (1) purposeful direction, (2) a claim arising out of the defendant’s forum-related activities, and (3) that the exercise of jurisdiction was reasonable; when the first two parts are shown, the burden shifts to the defendant to show unreasonableness.  For purposeful direction, the tort-based effects test applied: “the defendant allegedly must have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.”

The first part of the effects test was clearly satisfied, since ARC intended to publish ads that targeted SKEDCO and made comparisons.  This conduct was expressly aimed at Oregon because, under the 9^th Circuit’s test, there’s express aiming “when the defendant is alleged to have engaged in wrongful conduct targeted at a plaintiff whom the defendant knows to be a resident of the forum state.” Here, ARC targeted SKEDCO with its comparisons.

ARC argued that it operated an essentially passive website, which wasn’t enough to confer jurisdiction.  But SKEDCO’s claims weren’t just based on ARC’s website, but also in brochures and YouTube videos (why YouTube isn’t “passive” for these purposes is not clear to me).  A passive website in conjunction with “something more” directly targeting the forum is sufficient, and “something more” includes “individually target[ing] a plaintiff known to be a forum resident.” And the final element of the effects test was satisfied, because any harm suffered by SKEDCO would necessarily be felt in Oregon regardless of where it lost business.

The claims also arose out of/resulted from ARC’s forum-related activities: its allegedly false ads targeting an Oregon corporation.  ARC didn’t show that the exercise of jurisdiction would be unreasonable, despite its minimal contacts in Oregon.

The court also declined to dismiss the Lanham Act claims as laches-barred based on the pleadings; laches is usually fact-intensive.  The date of the comparative YouTube video was, ARC submitted, March 16, 2011.  ARC argued that SKEDCO therefore slept on its rights for over two years.  Assuming this to be true, the earliest date that laches could attach would be March 16, 2013, and SKEDCO sued on April 24.  It should have the opportunity to explain why the five-week delay was reasonable, and ARC also didn’t show prejudice, though it was free to renew its defense after discovery.

Finally, the court held, based on state appellate court cases, that common law unfair competition in Oregon covered only misappropriation of intellectual property, not false advertising.

copyright infringement doesn't confer personal jurisdiction; other unfair trade practice issues remain

Shell v. American Family Rights Ass'n, 899 F. Supp. 2d 1035 (D. Colo. 2012)

In yet another demonstration of the fact that there is no field so small that vicious battles can’t break out within it, Shell sued defendants (including AFRA, of which she was initially a cofounder) for using or copying her proprietary information—mostly the contents of her website—and for related torts.  The parties participate in the market for services and information for families involved with child protection services; Shell operated a website at profanejustice.org and claimed copyright over every article, paper, and document published on the site.  She licensed her materials, and created a training program based on her trade secrets.  Attendees at her seminars were required to sign a noncompete/nondisclosure agreement before receiving the training or training materials.  Some of the defendants attended her training program, and, as relevant here, Shell alleged that defendant Swallow took and used the noncompete/nondisclosure form and proprietary information without permission.

The court first found that it lacked personal jurisdiction over defendant AFRA.  Though AFRA had members in Colorado and websites “advertised” by AFRA were (available?) in Colorado, that wasn’t enough, absent a showing that these activities were different than those conducted in the other 49 states in which AFRA allegedly had members.  Even if AFRA members/a Colorado affiliate amounted to purposeful direction of AFRA’s activities to Colorado, Shell didn’t allege any connection between those activities and her alleged injuries.  Shell’s harms arose from publication of her copyrighted works on various websites, but she didn’t show that the websites specifically targeted a Colorado audience, engaged in commercial or other significant transactions with Colorado residents, or otherwise were connected to Colorado.

Shell argued that her Colorado residency meant that her harm manifested in Colorado.  But the 10^th Circuit requires that the forum state be a focal point of the tort, and residence in the forum state, meaning that harm is suffered there, doesn’t alone establish personal jurisdiction over a defendant who hasn’t purposefully directed activities at the state.  The mere fortuitity of Shell’s Colorado residence didn’t establish specific jurisdiction over AFRA.

The court went on to address numerous other issues, including Shell’s Lanham Act claims against several defendants.  Shell averred that defendant Swallow published a number of defamatory statements about Shell, and that the statements were advertisements, but the complaint had nothing more than conclusory allegations that Swallow engaged in commercial activities.  At most, Swallow allegedly posted comments disparaging Shell and accusing her of criminal/fraudulent conduct.  This might state a claim for defamation, but didn’t plausibly allege that Swallow was advertising her own product or service.  Thus, the Lanham Act false advertising claim was dismissed.

Likewise, the state-law unfair trade practices claim against Swallow failed.  The complaint alleged that Swallow improperly obtained and disseminated materials from Shell’s training seminar and published unfavorable comments about her on the internet.  There were no allegations that Swallow engaged in an unfair trade practice in connection with Swallow’s own “business, vocation, or occupation,” as required, or that her conduct has had a significant impact on the public as consumers of Shell's goods or services. 

Similarly, the Lanham Act claim against defendant Henderson was dismissed.  The complaint didn’t allege nonconclusory facts to show that Henderson advertised anything, was in commercial competition with Shell, or made any statement in order to induce consumers to buy his goods or services.  In fact, the crux of Shell’s suit was that she offered her materials and training in exchange for a fee, but that defendants made them available for free. These activities may have caused Shell financial harm, but didn’t amount to commercial activity by Henderson.

Shell noted that AFRA in the past promoted and advertised her materials when she was a member of the board; offers brochures for anyone to print; publicizes its positions on child welfare issues; and promotes itself as an organization.  But none of that amounted to the sale of a product or service.  What she called advertisements were “merely disparaging statements about her, apparently posted online or communicated person to person.”  

None of the statements were specifically attributed to Henderson, nor were they made in connection with any effort by him to sell a competing product or service.  The only conduct specifically attributed to him was his creation of AFRA interactive online groups, used to exchange information, to “offer AFRA fund raising items,” and to promote AFRA as an organization.  She identified insulting and allegedly false comments posted on those groups and elsewhere by other people, and her disagreement with Henderson’s advice on child welfare issues.  But while those facts might support a defamation claim against the speakers, they didn’t plausibly suggest that Henderson made any false statements in connection with commercial advertising of a competing product or service. (Henderson allegedly made two statements, apparently in communications to other AFRA directors, that he thought Shell had “Alzheimer's or what ...” and that Shell “even went so far as offering to fabricate a sexual harassment case against me because I used to end my phone conversations with the Christian ‘I love you.’”)  Thus, the claim against him was dismissed without leave to amend. 

However, the unfair trade practices claim against Henderson survived.  Henderson was allegedly the founder, board member and former president of AFRA who maintained the AFRA website and set up interactive discussion groups, and he allegedly posted Shell's materials without consent and made nasty comments about her on these sites.  Reading the complaint most favorably to Shell, “because of Mr. Henderson's leadership role in AFRA, the allegations could plausibly suggest that his conduct was in the course of his business, vocation or occupation.”  Publishing Shell’s materials without consent or attribution and disparaging her professional reputation could plausibly be considered an unfair trade practice.  (Dastar?)  The complaint alleged that the market for Shell’s services and materials was affected by this conduct, injuring her financially.

Rare "no interstate commerce" Lanham Act case

Premier Comp Solutions, LLC v. Penn Nat. Ins. Co., 2012 WL 1038818 (W.D. Pa.)

Premier sued defendants for violations of the Lanham Act and various state-law claims.  The court dismissed the Lanham Act claim and remanded the rest.  Premier offers health-related services useful to institutions; defendants are entities that provide health insurance and related services, some of which overlap with Premier’s.  Specifically, defendant Hoover had a contract with the other defendants, PNI and Inservco to perform services similar to Premier’s.

A PNI/Inservco employee in Pennsylvania sent an email to a number of Hoover and Inservco employees about payments to Premier, suggesting that Premier was committing Medicare fraud and that the FBI was reviewing the situation, and directing them to deny payments for any billings from Premier.  The Medicare fraud/FBI statements were false.  This email was forwarded on to a number of other employees, including one who discussed it with an outside party related to the municipality of Monroeville, PA, which was wondering why Inservco had stopped paying Premier’s invoices.  The information spread telephone-style to other clients in PA, with some extra additions (e.g., that Premier’s business model was not ethical because Premier used providers that weren’t allowed under PA’s worker’s comp act). 

The court held that Premier hadn’t sufficiently shown use in commerce to avoid summary judgment.  The communications were all intrastate.  Although Premier operated outside Pennsylvania, it didn’t identify anyone outside Pennsylvania as having received the email or having been told about the misrepresentations in the email. 

Separately, summary judgment was appropriate because there was no “commercial advertising or promotion.”  The false statements were not sufficiently disseminated to the relevant purchasing public to constitute advertising or promotion within the industry.  The initial email went only to defendants’ employees, and those employees told three other people, who told a couple of other people.  In this case, the defendants’ employees to whom the email was sent were not the relevant purchasing public.  Inservco and PNI employees weren’t the employers buying insurance/worker’s comp services who’d be interested in plaintiff’s services.  The subsequent dissemination to five people wasn’t enough in light of Premier’s claims to provide services in all 50 states and its evidence that it had hundreds of current and potential clients, along with evidence that Inservco claimed 600 clients.  No reasonable jury could find sufficient dissemination.