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ABOVEPEER, INC. v. RECORDING INDUST. ASS'N

June 22, 2001

ABOVEPEER, INC., PLAINTIFF,
v.
RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC.; A & M RECORDS, INC.; ARISTA RECORDS, INC.; ATLANTIC RECORDING CORP.; BMG MUSIC D/B/A THE RCA RECORDS LABEL; CAPITOL RECORDS, INC.; ELEKTRA ENTERTAINMENT GROUP, INC.; GEFFEN RECORDS, INC.; INTERSCOPE RECORDS, INC.; ISLAND RECORDS, INC.; LA FACE RECORDS, A JOINT VENTURE PARTNERSHIP BETWEEN ARISTA VENTURES, INC. AND LA FACE RECORDS, INC.; MCA RECORDS, INC.; MOTOWN RECORD COMPANY L.P.; POLYGRAM RECORDS, INC.; SIRE RECORDS GROUP, INC.; SONY MUSIC ENTERTAINMENT INC.; UNIVERSAL RECORDS INC.; AND VIRGIN RECORDS AMERICA INC., DEFENDANTS.



The opinion of the court was delivered by: Kahn, District Judge.

ORDER

Presently before the Court is Defendants' motion to dismiss or, in the alternative, to stay or transfer Plaintiff's amended complaint pursuant to 28 U.S.C. § 1404(a). For the reasons stated herein, Defendants' motion is denied.

I. BACKGROUND

Plaintiff owns and operates the Aimster system, a service through which users may exchange encrypted information or other data, including music, movies, pictures, software, and instant messages. The Recording Industry Association of America, Inc. ("the RIAA") is a not-for-profit trade organization whose members engage in the creation, manufacture, and sale of musical recordings. The RIAA, although representing the interests of its members, does not own copyrights in any of their sound recordings. The remaining defendants are record companies owning copyrights to certain original sound recordings and are members of the RIAA.

On April 3, 2001, the RIAA, on behalf of its members, sent BuddyUSA, then the operator of the Aimster system, a cease-and-desist letter informing it that its system was enabling widespread infringement of its member companies' copyrights in various sound recordings. The letter also informed BuddyUSA that if it did not take steps to prevent the infringing activity within one week from the date of the letter, they would be left with "little choice but to seek additional legal remedies."

On April 11, just over one week later, John Cavalier, Chairman-designate of BuddyUSA, contacted Frank Creighton, Senior Vice-President of the RIAA and the author of the cease-and-desist letter, and agreed to a meeting on April 16, 2001 to discuss the dispute. That meeting was canceled, however, when BuddyUSA's representatives were unable to obtain a flight from Albany, New York, to Washington, D.C. A second meeting, scheduled for April 27, was canceled as well when BuddyUSA informed the RIAA that it had divested itself of all interest in the Aimster system.

On Friday, April 27, 2001, the RIAA received a letter from BuddyUSA stating that it had "ceased administering the Aimster service," but nevertheless offering to meet with representatives of the RIAA to "discuss this matter further." The RIAA did contact BuddyUSA and scheduled a meeting for the following Monday, April 30.

That meeting also did not occur, as on April 30, 2001, Plaintiff filed a declaratory judgment action in this Court against the RIAA, captioned AbovePeer, Inc. v. RIAA, et al., No. 01-CV-0632, seeking, among other things, a declaration that they were not "violating the copyright of any member of RIAA."*fn1 The complaints were later amended to add seventeen recording company defendants.

On May 24, 2001, two new actions were filed in the Southern District of New York asserting claims against AbovePeer, BuddyUSA, and their principal John Deep for, among other things, vicarious and contributory copyright infringement. The first, captioned Zomba Recording Corp., et al. v. Abovepeer, Inc., et al., No. 01-CV-4452, was brought by twenty-two record companies, including, but not limited to, all but three of the seventeen record companies named in the amended complaint in this action. The second, captioned Atlantic Recording Corp., et al. v. Abovepeer, Inc., et al., No. 01-CV-4460, was brought by twelve companies, among them filmed entertainment companies and record companies, including the remaining three record companies named in the amended complaint.

That same day, Plaintiff sought, and was granted by this Court, an injunction preventing the record company defendants named in the amended complaints, and those "acting in concert with them," from prosecuting the actions in the Southern District or elsewhere. On May 25, Plaintiff filed three new declaratory judgment actions in this Court, captioned AbovePeer, Inc. v. Zomba Recording Corp., et al., No. 01-CV-0809, AbovePeer, Inc. v. Motion Picture Assoc. of Amer., et al., No. 01-CV-0810, and AbovePeer, Inc. v. Acuff-Rose Music Publishing, Inc., et al., No. 01-CV-0811. The following business day, May 29, 2001, the Court enjoined the Defendants in these actions from commencing or participating in any other legal actions against Plaintiff.

II. ANALYSIS

In determining which of two competing actions should proceed, the well-established rule in this Circuit is that the first suit should have priority, absent special circumstances which justify giving priority to the second-filed suit or the showing of a balance of circumstances favoring the second suit. See, e.g., City of New York v. Exxon Corp., 932 F.2d 1020, 1025 (2d Cir. 1991) ("the first court has jurisdiction to enjoin the prosecution of the second one"); First City Nat'l Bank & Trust Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989); Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 218 (2d Cir. 1978). A "strong presumption" generally applies in favor of the forum of the first-filed suit. 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 131 (S.D.N.Y. 1994) (citing Exxon, 932 F.2d at 1025).

A. Special Circumstances

One "special circumstance" justifying a departure from the first-filed rule occurs when a party brings a declaratory judgment action after receiving notice of a planned lawsuit by the other party. See Factors, 579 F.2d at 219; Chicago Ins. Co. v. Holzer, No. 00 Civ. 1062, 2000 WL 777907, at *3 (S.D.N Y June 16, 2000); Mondo, Inc. v. Spitz, No. 97 Civ. 4822, 1998 WL 17744, at *2 (S.D.N.Y. Jan.16, 1998); J. Lyons & Co. Ltd. v. Republic of Tea, Inc., 892 F. Supp. 486, 491 (S.D.N.Y. 1995). In determining whether sufficient notice has been given, courts in this Circuit have looked for mention of the intention to file a law suit, a filing date, and/or a specific forum for the filing of the suit. See, e.g., Holzer, 2000 WL 777907, at *2; Mondo, 1998 WL 17744, at *2; J. Lyons, 892 F. Supp. at 491; Employers Insurance of Wausau v. Prudential Ins. Co. of Amer., 763 F. Supp. 46, 49 (S.D.N.Y. 1991).

In J. Lyons, for example, declaratory judgment actions were brought by the alleged infringers following the receipt of cease-and-desist letters and prior to suit being filed by Lyons, the trademark holder. The letters demanded that the various alleged infringers cease-and-desist the alleged infringement and indicated that if they failed to do so, Lyons would be "constrained to pursue appropriate legal steps against" them and its attorneys would then be "authorized to consider taking suitable legal and equitable action."

The court held under those circumstances that the alleged infringers did not have actual notice of litigation. See J. Lyons, 892 F. Supp. at 491. Although the letters "mentioned the possibility of legal actions, [they] did not specify any date or forum." Id. The court found that rather than suggesting it was about to file suit, Lyon's actions were suggestive of negotiations. See id.

Likewise, in Employers Insurance, the court found that a similar cease-and-desist letter "was at best an attempt to initiate settlement negotiations and [could not] reasonably be construed as a notice of suit." Employers Insurance, 763 F. Supp. at 49. The "notice" letter in that case stated that the parties were "prepared and fully intend to pursue all remedies available" to them. Id. at 47-48. The court held that, because the notice letter did not explicitly mention a lawsuit, a tentative filing date, or a forum, ...


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