Lit Alerts—July 2020
Discovery for Use in Foreign Litigation: Second Circuit Declines to Extend Section 1782 Discovery to Private International Commercial Arbitrations
The Second Circuit recently held that a request for discovery under section 1782 cannot be made in connection with private international commercial arbitration, deepening an existing division among the federal circuits. From 2012 to 2013, Petitioner-Appellant Hanwei Guo invested approximately $26 million in companies known as Ocean Technology, Ocean Music, and Ocean Culture, all of which were founded by Guomin Xie, a music executive and lawyer, and operated in the Chinese music streaming market. Through a series of transactions that Guo asserted were "misleading, extortionate, and fraudulent," Guo sold his shares in the three Ocean entities for less than they were allegedly worth. Ocean Music then became part of Tencent Music, one of the world's largest music streaming services, following a series of mergers. Shortly before Tencent Music's American initial public offering, in September 2018, Guo initiated arbitration against Xie, Tencent Music, and other entities before the China International Economic and Trade Arbitration Commission (CIETAC). Guo claimed that Xie and others defrauded him and that "he was entitled to be paid compensation and to have his equity stake restored."
Subsequently, Guo filed a petition for discovery pursuant to 28 U.S.C. § 1782(a) in the US District Court for the Southern District of New York. Guo's petition sought discovery from four investment banks related to their work as underwriters in the Tencent Music initial public offering. Section 1782 of Title 28 of the US Code authorizes federal courts to compel the production of materials "for use in a proceeding in a foreign or international tribunal." The district court denied Guo's application, finding inter alia that CIETAC was "closer to a private arbitral body than it is to a 'governmental . . . tribunal' or 'other state sponsored adjudicatory bod[y]." Guo timely appealed and asked the court to revisit its holding in National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999) (NBC), in light of the subsequent holding in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) (Intel). In NBC, the Second Circuit had held that the phrase "foreign or international tribunal" did not encompass "arbitral bod[ies] established by private parties." Guo argued that private arbitrations are within the scope of section 1782(a) and that Intel's discussion of section 1782's legislative history and general principles of statutory construction undermined the court's prior decision in NBC that the phrase "foreign or international tribunal" did not encompass private arbitrations.
The Second Circuit affirmed the district court's denial of Guo's petition, holding the arbitration at issue was a non-covered, private, international commercial arbitration, and nothing in Intel alters the Second Circuit's prior conclusion in NBC that Section 1782(a) does not extend to private international commercial arbitrations. While that decision is consistent with the Fifth Circuit's interpretation of 28 U.S.C. § 1782, it appears to conflict with Fourth and Sixth Circuit decisions allowing parties to conduct discovery in the U.S. for use in private foreign arbitrations.
Intellectual Property: Met's Use of Van Halen Pic Ruled Fair Use
This month, a federal district court in New York dismissed a Florida photographer's copyright infringement claim against the Metropolitan Museum of Art, in which the photographer alleged that the Met infringed his copyright when it displayed a copy of his photograph on its website. In so ruling, the court was guided by its finding that the Met's use presented the photograph as "an historical artifact" that was "transformatively different from" its "original expressive purpose."
Lawrence Marano is the owner of the copyright in his photograph of famous guitarist Eddie Van Halen performing live. In the photograph, Mr. Van Halen is playing his "Frankenstein" guitar, which he assembled himself from modified factory seconds and mismatched odd-lot parts. The Met, a nonprofit museum, included a complete copy of the photograph in its online catalogue for an exhibition that "examined the instruments of rock and roll." The catalogue provided historical and technical information concerning the guitar alongside the photograph.
The Met moved to dismiss for failure to state a claim, arguing its use of the photograph constituted fair use. The district court agreed, relying heavily on the "transformative" nature of the Met's use, which differed from the original purpose for which the photograph was created. While the photographer created the photograph to depict Mr. Van Halen performing live, the court found, the Met used the photograph for an historical purpose, namely, as "an historical artifact and a recognizable representation of the 'Frankenstein' guitar in action." The Met also placed the photograph in a scholarly context that explained the "Frankenstein" guitar's historical significance within "the world of hard rock music."
The court rejected the plaintiff's argument that the use was not transformative because it "merely used it as an illustrative aid to depict the subjects featured" and did not "critique the artistic merits of the photograph itself." The court ruled that the "nature of the inquiry" is not "whether the exhibition comments on the Photo per se" but instead "whether it uses the Photo to help illustrate the historical artistic significance of the guitar." And, having found that the use was transformative, the court placed little weight on the other fair use factors—including the fact that the Met had used the entirety of the photograph, which might otherwise have weighed against a finding of fair use.
False Advertising: District Court Throws Out Cornbread Mix Slack-Fill Suit
In Buso v. ACH Food Companies, Inc., 2020 WL 1929024 (Apr. 20, 2020), the US District Court for the Southern District of California dismissed a putative slack-fill class action against ACH Food Companies because the packaging of its cornbread mix displayed the product's net weight and gave consumers a "rough estimate of cornbread that could be made from the product contained within the box."
In his complaint, the plaintiff alleged that ACH violated consumer protection laws barring deceptive and false advertising because its opaque boxes contained 50% of "non-functional" empty space that supposedly misled consumers as to the amount of product in the boxes. ACH moved to dismiss under Fed. R. Civ. P. 12(b)(6) on the ground that the plaintiff could not plausibly allege a reasonable likelihood of deception because the boxes accurately disclosed "the net weight and yield of the mix on the packaging."
The court dismissed the plaintiff's claims with prejudice to the extent they were based on the "reasonable consumer" deception theory, finding it would have been unreasonable for a consumer to be deceived because the front label "disclose[d] the product's net weight and approximate number of servings per container," and the "rear label indicate[d] that the box contains enough cornmeal mix to make one 8-in[ch] square loaf of cornbread or 12 standard cornbread muffins."
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