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Capitol Records, LLC v. VideoEgg

March 5, 2009

CAPITOL RECORDS, LLC; CAROLINE RECORDS, INC.; VIRGIN RECORDS AMERICA, INC. EMI BLACKWOOD MUSIC, INC.; EMI VIRGIN MUSIC, INC.; EMI ROBBINS CATALOG, INC.; EMI WATERFORD MUSIC, INC. EMI GROVE PARK MUSIC, INC.; COLGEMS-EMI MUSIC, INC.; AND EMI VIRGIN SONGS INC., PLAINTIFFS,
v.
VIDEOEGG, INC.; HI5 NETWORKS, INC.; AND DOES 1-10, DEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge

OPINION & ORDER

The instant motion requires the Court to apply the unsettled rules of internet-based jurisdiction to an increasingly popular means of online interaction, the "social networking" website. Plaintiffs, three record companies and ten music publishers, bring this copyright infringement action against Defendants VideoEgg, Inc. ("VideoEgg") and Hi5 Networks, Inc. ("Hi5"). Hi5 moves to dismiss for lack of personal jurisdiction and improper venue and, in the alternative, to transfer of this action to the Northern District of California.*fn1 On January 16, 2009, the Court ordered discovery on the issue of personal jurisdiction. For the following reasonsHi5's motions to dismiss for lack of personal jurisdiction and improper venue are DENIED and its motion to transfer this action to the Northern District of California is GRANTED.

FACTUAL BACKGROUND

Plaintiffs are major record companies and music publishers, most of which are based in New York City. (Decl. of Michael Abitbol, dated August 15, 2008 ("Abitbol Decl.") ¶3; Decl. of Alasdair McMullan, dated August 18, 2008 ("McMullan Decl.") ¶¶3-5). Hi5 is a privately held California corporation based in San Francisco that owns and operates the internet website www.hi5.com. (Compl. ¶ 25.) All of Hi5's approximately 105 employees work in San Francisco, and the website was created and is maintained on servers located in California. (Aff. of Ramu Yalamanchi, dated July 31, 2008 ("Yalamanchi Aff.") ¶ 4, 11.) Hi5 does not maintain bank accounts, telephones, or an agent for service of process in New York, and it is not registered to do business in this state. (Id. ¶¶ 5, 6, 8, 10.)

Hi5.com is a self-described "social networking site," where registered users may, in Hi5's words, "share photos, send messages . . . join discussion groups, explore music and videos, and more." (Declaration of Marc E. Mayer, dated August 18, 2008 ("Mayer Decl.") Ex. 8.) Hi5 claims to have "more than 80 million registered users in over 200 nations" and "nearly 50 million unique monthly users." (Mayer Decl. at Ex. 8.) Registered users generate or upload most of the content available on the Hi5 website and interact with one another via the "social networking" features of the website. (Id.; Compl. ¶37.) Apart from making the website available to registered users, Hi5's interaction with users is generally limited to registration and provision of technical support. (Yalamanchi Aff. ¶14.) Hi5 does not advertise its website, but rather relies on word of mouth to increase its user base.(Id. ¶ 15.)

This litigation concerns technology that allowed registered users to upload video files to the Hi5 website and, after such video files had been "indexed," to view videos uploaded by other users by means of a "streaming" transmission enabled by technology supplied by VideoEgg. (Compl. ¶ 38.) This feature has been removed from the website.*fn2 Plaintiffs allege that video functionality led to the illegal reproduction, performance and distribution of their copyrighted recordings and musical compositions, and on the basis of such allegations they sue Hi5 for direct, contributory, and vicarious copyright infringement. (Compl. ¶¶ 45, 60, 76.)

Hi5 generates income from the sale of advertising displayed to registered users as they engage in "social networking" on the Hi5 website.*fn3 (Yalamanchi Aff. ¶ 3.) Such advertisements take the form of "banner" advertisements, which are graphic advertisements displayed on web-pages together with content such as user profiles, group pages and, during the period of video functionality, video files. (Compl. ¶ 41.) Plaintiffs allege that Hi5 used VideoEgg's technology to "embed" advertisements into user-uploaded videos so that the advertisement would run after the video was displayed. (Compl. ¶¶ 40, 41.) Hi5 promotes its website as an effective advertising platform for "global brands as well as national and regional advertisers." (Mayer Decl. Ex. 9.) Documents produced by Hi5 pursuant to this Court's Order for jurisdictional discovery confirm that Hi5 has the capability to target advertisements to registered users based on their geographic location or demographic profile and that Hi5 bases advertising rates on an advertiser's targeting requirements. (See, e.g. Discovered Documents Filed Pursuant To Court Order ("Doc.") No. H8289 (5/1/2007 email stating "[advertising] [r]ates vary per your targeting requirements (geo, gender, ethnicity, age, etc.)"). Hi5's advertising rates ranged from $2.00 to $6.00 per one thousand "impressions" or online appearances of the advertisement.

Hi5 has estimated that its website attracts 321,000 "unique" visitors from the New York metropolitan area each month.*fn4 (See e.g. Doc. No. H8757.) Hi5 confirms that users from New York state comprise approximately ten percent of its U.S. user-base, but constitute less than one percent of the total number of registered users, the majority of whom are located overseas. (Defs.' Supp. Br. at 2 n.2.) Documents produced by Hi5 show that users in the New York metropolitan area viewed 89,880,000 advertisements in a single month. (See Doc. H8757.) Based on a rate of $2.00 per thousand "impressions," Hi5 would have earned $179,760 in monthly revenue as result of New York users viewing the nearly 90 million advertisements. According to documents produced by Hi5, the company has received substantial advertising revenue from companies located in New York, and its advertising sales staff in San Francisco both communicated directly with potential advertisers in New York and expressed interest in advertising campaigns that targeted New York. (See, e.g. Doc Nos. H8514-8563; H8334; H8289-8290; H8340-8341.)

Plaintiffs have identified 254 videos files alleged to contain their copyrighted works, which videos were viewed a total of 871,293 times, including by Plaintiffs in their New York offices. (See Def.'s Supp. Br. at 9 n.3 (summarizing Doc Nos. H3286-8291.)) At least four Hi5 users who self-identified as New York residents uploaded a minimum of five allegedly infringing videos. (Doc. No. H8727-8730.) Hi5 has not produced documents that reflect information about the other website users who viewed the allegedly infringing videos, and, in the documents it has produced, Hi5 has redacted information about users who commented on those videos. (Doc. No. H0694.)

DISCUSSION

I. Personal Jurisdiction

A. Legal Standard

Although the plaintiff ultimately "bears the burden of establishing jurisdiction over the defendant by a preponderance of the evidence, the plaintiff need only make a prima facie showing that jurisdiction exists prior to the holding of an evidentiary hearing." Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 196 (2d. Cir.1990) (citing Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir 1985)). The plaintiff's obligation varies, however, depending on whether the jurisdictional determination is made prior to or subsequent to discovery. Id. at 197. Whereas prior to discovery the plaintiff may meet its burden by merely pleading good faith allegations sufficient to establish jurisdiction, "[a]fter discovery, the plaintiff's prima facie showing . must include an averment of fact that, if credited by the trier, would suffice to establish jurisdiction over the defendant. Id. That is, "[t]he prima facie showing must be factually supported." Id. In ruling on a motion to dismiss for lack of personal jurisdiction, pleadings and affidavits must be "construed in the light most favorable to plaintiff and all doubts are resolved in its favor." CutCo Industries, Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986) (citing Hoffritz, 763 F.2d at 57).

B. Applicable Law

The Copyright Act, 17 U.S.C. § 101 et seq., does not provide for nationwide service of process and so the Court applies the forum state's personal jurisdiction rules to determine if it has personal jurisdiction over a non-domiciliary defendant such as Hi5. Fort Knox Music Inc. v. Baptiste, 203 F.3d 193, 196 (2d Cir. 2000). Plaintiffs do not contend that Hi5's "contacts with New York are so continuous and systematic that it is subject to the jurisdiction of courts in New York on a general jurisdiction theory." Sole Resort, S.A. de C.V. v. Allure Resorts Management, LLC, 450 F.3d 100, 103 (2d Cir. 2006) (citing Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 415 (1984) (internal citation and quotation marks omitted). Rather, Plaintiffs contend that two provisions of New York's long-arm statute, N.Y. C.P.L.R. §302(a)(1) and §302(a)(3)(ii), afford this Court specific jurisdiction over Hi5 in this case. New York's long-arm statute does not coincide with the limits of the Due Process Clause, and thus a two-part inquiry is required: first, the Court must determine if jurisdiction is proper under the New York statute, and, if jurisdiction is statutorily permissible, the Court will then turn to the constitutional inquiry. Best Van Lines v. Walker, 490 F.3d 239, 244 (2d Cir. 2007).

C. New York Long-Arm Statute: Section 302(a)(1)

Under C.P.L.R. Section 302(a)(1), jurisdiction is proper over an out-of-state defendant who "transacts any business within the state [of New York]" when the cause of action "arises from" such acts. To determine if this standard has been met, courts look to the totality defendant's "interactions with, and activities within, the state," and their relation to the matter that gives rise to the law suit. D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 105 (2d Cir. 2006); PDK Labs, Inc. v. Friedlander 103 F.3d 1105, 1109 (2d Cir. 1997).

1. Hi5 "Transacts Business" in New York

In construing the phrase "transacts business," the New York courts rely upon U.S. Supreme Court cases that articulate the constitutional limits of a state's power to assert personal jurisdiction over an out-of-state defendant. See, e.g., Ehrenfeld v. Bin Mahfouz, 9 N.Y.3d 501, 508 (2007). Thus, "'[t]he overriding criterion' necessary to establish a transaction of business is 'some act by which the defendant purposefully avails itself of the privilege of conducting activities within New York.'" Id. (quoting McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y. 2d 377, 382 (1967)). "Purposeful activities are those with which a defendant, through volitional acts, 'avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws,'" Fischbarg v. Doucet, 9 N.Y.3d 375, 380 (2007) (quoting McKee 20 N.Y.2d at 382). Such acts may be contrasted with "random, fortuitous, or attenuated contacts, . . . [or] unilateral activity of another party or a third person." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (internal quotations omitted).

Cases that arise from a defendant's internet activity often present perplexing questions of personal jurisdiction because, generally speaking, a website is equally accessible everywhere. Although it is "now established that one does not subject himself to the jurisdiction of the courts in another state simply because he maintains a web site which residents of that state visit," National Football League v. Miller, No. 99 Civ. 11846 (JSM), 2000 WL 335566 *2 (S.D.N.Y. March 30, 2000) (citing Bensusan Restaurant Corp. v. King, 126 F.3d 25 (2d Cir. 1997), courts have struggled to fashion a functional test to determine when a non-domiciliary's online activity constitutes the transaction of business in a particular forum. To frame the inquiry, courts often attempt to locate the internet activity at issue on a "sliding scale of interactivity" between "passive" websites that merely make information available to interested visitors and "interactive" websites through which a defendant clearly "does business over the internet." Best Van Lines, 490 F.3d at 252. Although this analytical framework "may be useful for analyzing personal jurisdiction under Section 302(a)(1)" it "'does not amount to a separate framework for analyzing internet-based jurisdiction'" Id. (quoting Best Van Lines v. Walker, No. 03 Civ. 6585(GEL), 2004 WL 964009, *3 (S.D.N.Y. May 4, 2004)).

In this case, locating the Hi5 website on a "spectrum of interactivity" is of limited utility because it lies in the middle of such a spectrum. On the one hand, the Hi5 website is not wholly passive because it does more than make information available to interested users. See, e.g. Capitol Records, Inc. v. MP3Tunes.com, LLC, No. 07 Civ. 9931(WHP), 2008 WL 4450259 (S.D.N.Y. September 29, 2008) ("MP3 Tunes") (website is "interactive" because it permits transfer of digital files to and from users and allows for the exchange e-mails and postings). On the other hand, Hi5 does not conduct traditional business over the internet because it neither sells goods or services through its website nor charges membership fees to its registered users. See Id. (website owner transacts business under Section 302(a)(1) by interacting with New York users, some of which "paid for premium services"); Warner Bros. Entm't. Inc. v. Ideal World Direct, 516 F.Supp. 2d 261, 265 (S.D.N.Y. 2007) (transmission of digital files in exchange for membership fees sufficient for jurisdiction under Section 302(a)(1)).

In any event, mere interactivity is not enough to support jurisdiction under Section 302(a)(1). The constitutional underpinnings of the New York long-arm statute and the precedents of courts in this Circuit require something more. Freeplay Music, Inc. v. Cox Radio, Inc., No. 04 Civ. 5238 (GEL), 2005 WL 1500896, *6-7 (S.D.N.Y. June 23, 2005) ("It stretches the meaning of 'transacting business' too far to subject defendants to personal jurisdiction in any state merely for operating a website, however commercial in nature, that is capable of reaching customers in that state, without some evidence or allegation that commercial activity in that state actually occurred or was actively sought."); Chloe v. Queen Bee of Beverly Hills, LLC, 571 F.Supp.2d. 518, 529 (S.D.N.Y. 2008) ("[I]t is more consistent with 'traditional statutory and constitutional principles' to require some additional evidence of a defendant's 'purposeful availment' of the forum beyond that defendant's maintenance of an interactive commercial website."). Although ...


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