Capitol Records, LLC, et al. v. VideoEgg, Inc., et al.

The district court held that California-based defendant Hi5 Networks, which operates a social networking web site where allegedly infringing video files are posted, had sufficient contacts with New York to exercise personal jurisdiction over the defendant, and then granted the defendant’s motion to transfer the case to the Northern District of California.

Plaintiff record companies and music publishers alleged that Hi5’s web site (www.hi5.com) and VideoEgg’s technology facilitated the illegal reproduction, performance and distribution of their copyrighted recordings and musical compositions and filed suit for direct, contributory and vicarious copyright infringement. Defendant Hi5 moved to dismiss for lack of personal jurisdiction, claiming that its employees and servers are located in California and that it does not maintain offices and is not registered to do business in New York.

The Copyright Act does not provide for nationwide service of process so a court applies the forum state’s personal jurisdiction rules to determine if it has personal jurisdiction over a non-domiciliary defendant such as Hi5. Under New York’s long arm statute, 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.

According to the court, “the question of whether Hi5 uses its website to ‘transact business’ in New York under Section 302(a)(1) is complicated by the fact that Hi5 does not sell products or services to its users, but rather ‘sells’ the users’ attention to advertisers.” Plaintiffs contend that Hi5 “transacts business” in New York by providing social networking services to its New York users and by selling online advertisements to companies (including companies based in New York) that want their advertising message to reach New Yorkers. However, according to the court, much of Hi5’s interaction with its New York users lacks the traditional indicia of “purposeful availment” because it is neither volitional nor distinguishable from its interaction with users located in any other jurisdiction.

The court rejected plaintiffs’ argument that Hi5 “transacted business” in New York by providing social networking services to its New York users. According to the court, the “sheer availability” of allegedly infringing video files on the Hi5 website is insufficient to support jurisdiction under New York’s long arm statute “because the video files were uploaded by unsolicited registered users acting unilaterally” and “unilateral acts of third parties are not the kind of purposeful contacts that may properly form the basis of personal jurisdiction.” The court also held that display of the videos to New Yorkers, without something more, is insufficient to confer personal jurisdiction because the videos were available free of charge and irrespective of the viewer’s locale and “thus insufficient to constitute ‘transacting business’ in New York.”

However, the court concluded that Hi5 sold advertisements to New York companies and used certain videos to target ads to New York users, and that this supported exercising personal jurisdiction over the defendant. “A popular video represented a revenue stream that could be maximized if paired with geographically targeted advertisements” for which the defendant charged a premium. “Plaintiffs’ posited connection between Hi5’s advertising and plaintiffs’ copyright claims is far more than a theoretical nexus; it is a credible allegation of economic motive.”

The court also held that Hi5’s activities satisfied Section 302(a)(3)(ii) of New York’s long arm statute which provides that a party is subject to personal jurisdiction in New York if he or she (1) “commits a tortious act without the state causing injury to person or property within the state”; (2) “expects or should reasonably expect the act to have consequences in the state”; and (3) “derives substantial revenue from interstate or international commerce.”

The court held that plaintiffs’ allegations clearly satisfy the first and third elements of Section 302(a)(2)(ii). Plaintiffs alleged that Hi5 tortiously infringed their copyrights by creating and maintaining video functionality on its web site. This alleged tort was committed in California where the web site was created and is maintained. The alleged tort caused injury in New York because the tort of copyright infringement causes injury in the state where the allegedly infringed intellectual property is held. Plaintiffs alleged that Hi5 derives substantial revenue from interstate or international commerce and Hi5 did not contend otherwise.

After finding that the court could exercise personal jurisdiction over the defendant, the court granted defendant’s motion to transfer the case to the Northern District of California where defendant and several plaintiffs are located, where the allegedly infringing web site was designed and developed, and where witnesses and documentary evidence are located.