October 5, 2017

Lit Alerts—October 2017

A Publication of the Litigation Practice Group

In This Issue:

Copyright Infringement: Ninth Circuit Rules That Nonexclusive Agents Do Not Have the Right to Sue for Infringement of the Material They Are Contracted to License

The Ninth Circuit held last month that a nonexclusive agent for photographers lacked standing to bring a copyright infringement action on behalf of the photographers for a third party's alleged infringement.

In DRK Photo v. McGraw-Hill, DRK Photo (DRK), the plaintiff, was an agency that contracted with photographers to promote their photographs and sign licensing agreements with publishers who would pay to use the photographers' photographs in their books. DRK received half the licensing fee the publishers paid for use of the photographs.

DRK filed suit against McGraw-Hill for copyright infringement when DRK determined McGraw-Hill was using its clients' photographs without paying a licensing fee. McGraw-Hill moved to dismiss, arguing that DRK lacked the standing to sue because it was not the exclusive agent for the photographers, and therefore DRK had no interest in a party infringing on the photographers' copyrighted work.

The Ninth Circuit agreed with McGraw-Hill, ruling that a nonexclusive agency relationship did not confer standing on DRK. The court explained that an exclusive agency relationship would have led to a different result—the court remarked that DRK and McGraw-Hill settled the claims relating to photographs that DRK had an exclusive right to license. The court also rejected DRK's argument that it was a beneficial owner of the photos, and therefore entitled to sue, based on its ability to sign licensing agreements for those photos.  The court stated that a beneficial owner must have held legal title to the photos at one time, and DRK had never actually owned the photos.

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Consumer Class Actions: Lawsuit Alleging Consumers Are Misled as to Beer's Brewing Location Survives Motion to Dismiss

Last month, the US District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative class action brought by beer consumers. The plaintiffs, on behalf of state and nationwide classes of purchasers, claimed that consumers are misled into believing that Kona Brewing Company's beer is brewed exclusively in Hawaii, when it is actually brewed in other states.

In denying in part the motion to dismiss, the Court honed in on three components of the beer packaging: (1) the only listed address is in Hawaii; (2) a map of Hawaii identifies Kona Brewing Company's brewery on the Big Island; and (3) the packaging invites consumers to "visit our brewery and pubs whenever you are in Hawaii." While these statements are objectively true, the Court held that they are nonetheless "actionable misrepresentations that are likely to deceive a reasonable consumer into thinking that the beer was brewed in Kona, Hawaii." The fact that the defendant's product labels explicitly identify all five brewing locations—only one of which is in Hawaii—was unavailing because those product labels were obscured by the product packaging and hence not visible at the time of purchase. Therefore, the Court allowed the plaintiffs' statutory claims under the California Consumers Legal Remedies Act, Unfair Competition Law and False Advertising Law, and for common law fraud, intentional misrepresentation, and negligent misrepresentation to proceed.

The Court dismissed express and implied warranty claims, however, and held that the plaintiffs lacked standing to request injunctive relief because they did not allege they would purchase Kona Beer in the future if it continued to be made outside of Hawaii. Rather, they alleged they would purchase the beer if it was actually brewed in Hawaii, which it is not.  Absent "a real and immediate threat of repeated injury," the plaintiffs lacked standing in federal court to pursue injunctive relief.

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Personal Jurisdiction: Subpoena to Foreign Bank Quashed on Due Process Grounds

The Southern District of New York recently quashed a subpoena seeking documents from the Commonwealth of Australia and New Zealand Banking Group Limited (ANZ Bank) for use in a foreign arbitration proceeding. This case was preceded by multi-national litigation between APR Energy Holding Ltd. and Forge Power Pty Ltd., related to a bankruptcy proceeding and four gas turbine generator sets worth millions of dollars. Having lost in the prior litigation, APR initiated arbitration against the Commonwealth of Australia and issued a subpoena seeking relevant information about Forge's finances, given that ANZ Bank is Forge's biggest creditor.

The parties initially disputed whether APR satisfied the criteria for enforcement of a Section 1782 subpoena, namely whether ANZ Bank "resides or is found in New York." ANZ Bank has only one branch office in New York, and this branch accounts only for 2% of the bank's assets, operating income and profit, and 0.3% of its employees. The court ultimately found this case to fit squarely within the precedent set by Gucci Am., Inc. v. Weixing Li, 768 F.3d 122 (2d Cir. 2014). Gucci applied Daimler AG v. Bauman, 134 S. Ct. 746 (2014), to hold that there was no basis consistent with due process for the district court to have exercised general jurisdiction over a nonparty bank incorporated and headquartered elsewhere merely because it has branch offices in the forum.

Further, the court rejected APR's argument that ANZ Bank consented to jurisdiction because its New York branch is regulated by the International Banking Act of 1978. The court also rejected APR's request for limited jurisdictional discovery to develop facts in support of subject matter jurisdiction because of APR's failure to rely on more than "conclusory allegations" or "mere speculations or hopes that jurisdiction exists."

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© 2017 Arnold & Porter Kaye Scholer LLP. This Law & Industry Update is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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