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The More Interactive Your Website, the More Likely Your Business Can Be Forced to Defend Lawsuits in Other States

Businesses need to be intentional about how interactive they allow their websites to be, since they can be forced to defend themselves in lawsuits filed in another state if they actually make sales in other states through their websites.  In a decision issued August 28, 2009, federal Judge Aleta Trauger held that the U.S. District Court for the Middle District of Tennessee had no personal jurisdiction over the Denver-based defendant that had been sued for trademark infringement and unfair competition in Nashville, despite the defendant having a fully interactive web page from which Tennessee residents could order services.  Capital Confirmation, Inc. v. Auditconfirmations, LLC, No. 3:09-0412 (M.D. Tenn.).  My law partner and I served as local counsel for the defendant, along with Bobbee Musgrave of Denver.

For many reasons, it is almost always preferable to defend a lawsuit in your hometown or home state.  In today's environment, where almost every business has a website, many businesses would be surprised to learn they can be forced to defend themselves in a lawsuit in another state, depending in part on how interactive their website is.  Fully interactive websites are those that allow customers to order goods and services from the site.

In general, the law requires plaintiffs to sue defendants where they reside or have their principal place of business, or where the acts giving rise to the lawsuit occurred.  But where defendants "purposefully avail" themselves of the benefits of another state, they can be forced to defend in that other state.  Before the Internet, defendants who sold their goods and services in person typically did so locally, and could not be sued in other states.  The Internet, however, has allowed businesses of all sizes to expand their reach without ever physically leaving their home state.  Businesses with a robust Internet presence may unwittingly be at risk for defending against out-of-state lawsuits.

In the Sixth Circuit (the appeals court that covers Tennessee, Kentucky, Ohio and Michigan), a website's interactivity is measured on a sliding scale.  At one end are "passive sites that only offer information for the user to access."  At the other end are "active sites that clearly transact business and/or form contracts."  In the middle are "hybrid or interactive sites that allow users to exchange information with the host computer," and these middle cases must be evaluated on an individual basis.  See Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 890 (6th Cir. 2002).

Following well-established Sixth Circuit precedence, Judge Trauger's decision makes clear that an interactive website by itself is insufficient to be haled into federal court in Tennessee.  As she explained, suing an out-of-state defendant in Tennessee requires "something more" than merely an interactive web page.

In Capital Confirmations, the defendant's web page was fully interactive, but it had no legitimate sales into Tennessee.  The plaintiff had posed as a non-existent individual named "Frank Jepson," purporting to enter into a transaction on the defendant's web page from within Tennessee.  The court considered these transactions to be illegitimate.  The only other interaction with Tennessee was from a request that was aborted before any payment was made by the customer, so the court considered that interaction to be incomplete and of no impact.  The mere fact that a Tennessee resident could theoretically purchase goods or services over the defendant's web page is insufficient to hale the defendant into Tennessee.

The lesson to be learned from this decision is that businesses need to be intentional about the level of their web pages' interactivity.  One upside of the Internet is the ability to sell and market all across the country, not to mention all over the world.  The downside is that sales in other states can create jurisdiction in courts far from home.  One step businesses can take to minimize the chance of being sued by their customers out of state is to include a provision in all contracts that sets the exclusive jurisdiction in the place where the business is headquartered.  But such a provision will not work in suits by non-customers.  Instead, businesses need to gauge their appetite for defending lawsuits in other states before selling goods and services there, whether through the Internet, over the telephone, through distributors or in person.

In Long-Awaited Move, President Obama Appoints IP Czar

In a long-awaited move, President Obama has nominated the US Intellectual Property Enforcement Coordinator, otherwise known as the "IP Czar."  This position was created with the enactment of the PRO-IP Act, which former President Bush signed into law on October 3, 2008.  He deferred nominating anyone for the IP Czar position until the Act received partial funding, which did not occur until 2009, and until the next president took office.

On September 25, 2009, President Obama nominated Victoria Espinel , who currently serves as a visiting assistant professor at the George Mason University School of Law.  Her nomination awaits confirmation by the Senate.

Some are calling Ms. Espinel the Copyright Czar, but that title is too narrow, since her role stretches beyond mere copyright issues.  She will chair the newly created IP Enforcement Coordinator advisory committee, comprised of representatives from multiple federal departments, and her primary responsibility will be to coordinate efforts across the entire federal government to protect American intellectual property in all its forms.

You can read more about the expected role of the IP Czar in the context of IP reform, in an article entitled "The PRO-IP Act: Another Weapon Against a Failing Economy," which Dylan Ruga and I wrote, and which the American Bar Association published in the January/February 2009 issue of Landslide.

Middle District of Tennessee adopts Narrow Approach to Copyright Registration -- for the Time Being

A split exists among the various federal circuits in the United States over what is required before a plaintiff may file a lawsuit asserting copyright infringement.  Recently, the Middle District of Tennessee issued a reported decision that adopted the “narrow approach.” Specific Software Solutions, LLC v. Institute of Workcomp Advisors, LLC, 615 F. Supp. 2d 708 (M.D. Tenn. 2009).  Thus, for the present time, copyright owners in the 32 counties comprising Middle Tennessee must actually have received a determination from the Copyright Office as to the registrability of their works before they may sue another party for infringement in this judicial district.

The question before the court in Specific Software was, “What constitutes registration?”  The Copyright Act states at 17 U.S.C. Section 411(a), and the Sixth Circuit has held, that registration is a prerequisite to filing a copyright infringement suit.  But the Sixth Circuit has not decided what constitutes “registration” under this provision of the Copyright Act, and courts across the country have reached different conclusions.

The “narrow approach” holds that registration is not considered complete until the Copyright Office reaches a determination on the merits of the application and either accepts it or rejects it.  Some of the courts that follow the narrow approach include: the Western District of Michigan, the Central District of California and, for now, the Middle District of Tennessee.

The “broad approach” holds that registration is not dependent upon any consideration or action by the Copyright Office.  Instead, courts following the broad approach generally consider the registration requirement to be satisfied upon the plaintiff’s submission of the following to the Copyright Office: an application, deposit copy of the work and required fee.  These courts note that the Copyright Office’s eventual acceptance or rejection of the application has no bearing since the Copyright Act explicitly allows a plaintiff to initiate suit for infringement even when the application has been rejected.  Some of the courts that follow the broad approach include the District Court for the District of Columbia, the Middle District of North Carolina, the Fifth Circuit and the 10th Circuit.

In adopting the narrow approach, the Specific Software Court noted that those courts adopting the broad approach have “correctly recognized that there is something ‘uneconomical’” about dismissing a complaint simply because a plaintiff does not yet have a certificate of registration, especially since the plaintiff is allowed to sue even if the Copyright Office ultimately rejects the application and denies registration.  615 F. Supp. 2d at 715-16.  But the court was constrained by its interpretation of the Copyright Act, as currently worded, and settled on the narrow approach.  Id. at 716.

Across the country, this issue is far from settled.  Presently pending before the Supreme Court is the case Reed Elsevier, Inc. v. Muchnick, which, among other issues, raises the question of how “registration” should be defined under the Copyright Act in relation to initiating a suit for infringement.  It is set for oral argument on October 7, 2009.  Expect to see more clashes among the circuits until the Supreme Court issues a decision in that case.  Depending on how the Supreme Court comes out on that issue, the holding in Specific Software may or may not be overruled.

In my own role as Vice Chair of the American Bar Association’s Copyright Litigation Committee, I am helping lead a working group that has examined this precise issue.  For a number of reasons, we are recommending that the Copyright Act be amended to adopt the broad approach.  Among other reasons, the broad approach is consistent with the fact that, under the Copyright Act, copyright owners enjoy protection from the moment they create their work, regardless of whether they ever register their work.  Amending the Copyright Act to adopt the broad approach would also put the United States on equal footing with other Berne Convention countries, and abolish the higher burden currently placed on United States works, as compared with non-United States works. 

For the present time, plaintiffs who need to sue for copyright infringement but who have not yet obtained either registration or rejection from the Copyright Office should consider suing in one of the courts that has adopted the broad approach.  Many times, plaintiffs have a choice in where they file suit.  They can sue either where the defendant resides or has its principal place of business.  But they can also sue where the transaction giving rise to the lawsuit occurred.  These are often two different states.  And as I discussed in my last post, many courts will exercise personal jurisdiction over defendants who make significant and repeated sales into a specific state, even through the Internet.  For now, plaintiffs who do not yet have a determination from the Copyright Office in hand should weigh all their options and bring suit in one of the states following the broad approach.