Tenth Circuit: Submitting eBay VeRO notice confers jurisdiciton in alleged infringer's home state

In a recent decision, the Tenth Circuit reversed a district court's dismissal of a copyright case for lack of personal jurisdiction.  The case arose out of the efforts by a copyright holder to have an eBay auction for allegedly infringing products removed via eBay's VeRO program.  After the auction was removed, the alleged infringer filed suit, seeking a declaration that its products did not infringe.  The district court had dismissed the matter for lack of personal jurisdiction, rejecting a Calder-type argument that the act of removing the auction was specifically directed to Colorado, where the alleged infringer resided.

The Tenth Circuit reversed the dismissal, finding that at least at the pleadings stage, a prima facie showing of jurisdiction had been made under Calder.  Specifically, the complaint sufficiently alleged that the copyright holder's actions were intentional and expressly aimed at the forum state with knowledge that the brunt of the injury would be felt in the forum state, and that the case arose out of that conduct.

More detail of Dudnikov v. Chalk & Vermillion Fine Arts, Inc. after the jump.



The plaintiffs run an internet-based business out of their Colorado home selling a variety of products on eBay under the name "Tabber's Temptations."  Tabber's Temptations is described by eBay as a "power seller," receiving thousands of positive feedback messages regarding the sale of its products since 1998.  In October, 2005, Plaintiffs launched an auction on eBay offering fabric for sale with the image of the cartoon character Betty Boop wearing various gowns.  Below are images of the fabric:

Boop Fabric 1 Boop fabric 2

Erté's works, Symphony In Black and Ebony and White, depict a tall slender woman pictured wearing a floor length form-fitting dress that trails her feet, and holding the leash of a thin, regal dog.  Another work, Starstruck, has a different distinctive gown.  These images are below:

Symphony in Black Ebony on White Starstruck

Defendant Chalk & Vermilion, on behalf of SevenArts, a British corporation who owns the copyright to Erté's works, learned of Plaintiffs' fabric auctions and notified eBay under its VeRO (Verified Rights Owner) program, seeking cancellation of the auction.  Upon receiving the notice, eBay made the cancellation.  Plaintiffs volunteered to withdraw its disputed fabric and requested Defendants withdraw its notice of claimed infringement (NOCI) fearing a negative impact on its high satisfaction rating of its eBay business.  When Defendants declined to withdraw the NOCI, Plaintiffs submitted a counter notice to eBay contesting the validity of SevenArts' copyright claim.  After this, Chalk & Vermillion stated they would file suit within 10 days to prevent the auction from being reinstated.  Before they could do so, Plaintiffs filed a pro se complaint in the District Court of Colorado seeking a declaratory judgment clarifying that their sale of the contested Boop fabric did not infringe Defendants' copyrights and an injunction preventing Defendants from interfering with future sales of the fabric.  

Defendants responded to the complaint by entering a special appearance and moved to dismiss for lack of personal jurisdiction.  A magistrate judge found that while the court lacked general jurisdiction over Defendants, specific jurisdiction did exist, and recommended the motion be denied.  Defendants objected to the magistrate judge's recommendation, and the district court sustained their objection, holding that neither specific nor general jurisdiction existed and, thus, granted the motion to dismiss.  Plaintiffs appealed.

On appeal, Plaintiffs did not raise the issue of general jurisdiction but limited their appeal before the court to specific jurisdiction.  Thus, in its analysis, the court used the tried and true "minimum contacts" test of International Shoe and the jurisdictional tenets of "purposefully directed" conduct and that the case "arise out of" the conduct of Burger King.  Plaintiffs' argument centered on Calder v. Jones as the basis of its analysis and subsequent finding of personal jurisdiction.  The court distilled Calder to three points necessary to find "purposeful direction" of contact to a forum: (1) an intentional action, (2) expressly aimed at the forum state, (3) with knowledge that the brunt of the injury would be felt in the forum state.

The court easily found the necessary "intentional action" in the Defendants' letter to eBay invoking the VeRO procedures to halt Plaintiffs' auction.

Regarding the second requirement, the court found that Defendants' actions were aimed at the forum state of Colorado.  Although Defendants argued that the notice invoked under the VeRO procedures was sent to eBay in California, correspondence threatening a lawsuit from Defendants to Plaintiffs was sent to Plaintiffs in Colorado and, further, that the ultimate purpose of Defendants' actions was to cancel Plaintiffs' auction which originated in Colorado.  

As to the third point of Calder, the court found that the brunt or bulk of harm was suffered entirely in the forum state of Colorado, and that Defendants knew that Plaintiffs' business and auction were based in Colorado and, therefore, the effects of the NOCI would be felt there.  As a result, the court found all three requirements met, and therefore found, at least at the pleading stage, that the Defendants' actions were purposefully directed at the forum, Colorado.

Having determined Defendants purposefully directed their activities at the forum state, the court moved on to address whether the Plaintiffs' claims arose out of the Defendants' contacts with the forum.  The court discussed the "but-for" and "proximate causation" tests to make such a determination, but picked neither test stating that "either theory . . . would support a determination that plaintiffs' cause of action arises from the defendants' contact with Colorado."

Finally, having determined that Plaintiffs met their burden establishing "minimum contacts," that Defendants' conduct was "purposefully directed" at Colorado, and that the lawsuit arose out of Defendants' contacts with Colorado, the court also found that the exercise of personal jurisdiction would not "offend traditional notions of fair play and substantial justice."  The court based this finding that Defendants' threat to litigate in federal court indicates a willingness to litigate in some federal court in the United States, California has virtually nothing to do with the litigation as eBay is not a party to the suit, there was no specific witness or evidence in California, and the merits of the dispute were wholly unrelated to California substantive law.  Accordingly, the court reversed the dismissal of the suit.

To read the full decision in Dudnikov v. Chalk & Vermillion Fine Arts, Inc., click here.

Bill Patry has a post on the case on his blog here, and a discussion the case appears on the Decision of the Day blog here, who also provided the links to the fabric photos.

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