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Pennsylvania Corporation Subject to Personal Jurisdiction in California Where It Allegedly Misappropriated Digital Files from California Plaintiff's Website

Monday, August 22, 2011

CollegeSource, Inc. v. AcademyOne, Inc., No. 09-56528, 2011 BL 204502 (9th Cir. Aug. 8, 2011) The U.S. Court of Appeals for the Ninth Circuit held that a Pennsylvania company that allegedly misappropriated digital files from a California competitor's online service was subject to personal jurisdiction in California, even though the defendant had no office or employees in that state. The court's conclusion rested in significant part on its holding that a nonresident defendant is deemed to target an in-state plaintiff when it misuses intellectual property on the plaintiff's website.

The Parties' Competing Course Catalog Services

As explained by the court, plaintiff CollegeSource, Inc., a California corporation, and defendant AcademyOne, Inc. compete in the market to assist students and educational institutions when students transfer from one institution to another. CollegeSource maintains a collection of 44,000 digitally scanned course catalogs from 3,000 colleges and universities, covering academic years dating back to 1993. CollegeSource makes its catalogs available on its websites in .pdf format to individuals and institutions that register for an account. Students, parents, guidance counselors, and teachers may use CollegeSource for free, but educational institutions and libraries must pay for an account. AcademyOne is a Pennsylvania corporation that offers services similar to those of CollegeSource. It solicits California colleges and state educational agencies by phone and e-mail, sponsored the keynote speaker at a California higher education conference, and advertises its services on the Internet through Google, Inc.'s AdWords keyword search engine advertising program. 19 percent of all visitors to AcademyOne's website are from computers with a California Internet protocol ("IP") address. 15 percent of all students who have registered for AcademyOne's services are California residents, while 48 California colleges and universities have submitted institutional profiles for publication on AcademyOne's website. Two of AcademyOne's paid subscribers have California offices. However, AcademyOne has no offices, real property, or staff in California, and is neither licensed for business nor has an agent for service of process there. AcademyOne also pays no California taxes.

Defendant's Acquisition of Digital Catalogs from Plaintiff

In 2005 and early 2006, executives at AcademyOne attempted to acquire rights to CollegeSource's collection of course catalogs. Two of AcademyOne's vice-presidents contacted CollegeSource to determine whether it was interested in working together with AcademyOne, and they proposed two conference calls to discuss the proposed cooperation. These efforts by AcademyOne were unsuccessful, so AcademyOne began building its own collection of catalogs and a database of course descriptions. Two of its employees registered for CollegeSource trial memberships that allowed them to download three catalogs each. AcademyOne also engaged a China-based contractor to collect catalogs and course descriptions from a list of U.S. colleges and universities. Many of the catalogs the contractor obtained were hosted on CollegeSource's website. AcademyOne placed 680 catalogs from CollegeSource's collection on its website. Those catalogs were easily identifiable because they contained a first page bearing CollegeSource's Internet address and a second page containing CollegeSource's terms of use, which prohibited redistribution, modification, or commercial use of the catalogs without the consent of CollegeSource and the relevant institution. AcademyOne also copied individual course descriptions from CollegeSource's online database and pasted them on its own website. The descriptions from AcademyOne's website had the same typographical errors as the entries on CollegeSource's website, which were produced by optical character recognition software when CollegeSource scanned physical catalogs. CollegeSource sued AcademyOne in the U.S. District Court for the Southern District of California alleging, among other things, that AcademyOne was liable for computer fraud, breach of contract, unfair competition, and misappropriation. AcademyOne moved to dismiss the complaint for lack of personal jurisdiction. The district court granted AcademyOne's motion, and CollegeSource appealed to the Ninth Circuit.

Personal Jurisdiction over Nonresident Defendants

The Ninth Circuit reversed, finding that although AcademyOne did not have sufficiently continuous and extensive contacts with California for the court to exercise general jurisdiction, the court could exercise specific jurisdiction over CollegeSource's claims against AcademyOne. The court explained that in order to exercise personal jurisdiction over a nonresident defendant, a court must be satisfied that the assertion of jurisdiction comports both with procedural statutory requirements and with the due process requirements of the U.S. Constitution. In cases in which no federal statute authorizes personal jurisdiction, a federal district court applies the procedural law of the state in which the court sits. The California long-arm statute is coextensive with the reach of federal constitutional due process, which requires that a court may not exercise jurisdiction over a nonresident defendant unless the defendant has "certain minimum contacts" with the relevant forum, "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

General Jurisdiction

Personal jurisdiction may be either general or specific. A court may exercise general personal jurisdiction over nonresident defendants "when their affiliations with the state are so continuous and systematic as to render them essentially at home in the forum state." Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011). "The standard is met only by 'continuous corporate operations within a state [that are] thought so substantial and of such a nature as to justify suit against [the defendant] on causes of action arising from dealings entirely distinct from those activities.'" King v. American Family Mutual Insurance Co., 632 F.3d 570, 579 (9th Cir. 2011) (quoting Int'l Shoe, 326 U.S. at 318)). The court in the instant case held that AcademyOne was not subject to general jurisdiction in California. The court found relevant the absence of any AcademyOne offices or employees in California and the fact that the company was not registered in, and did not pay taxes in, the state. Although AcademyOne marketed its services to California residents, such activities do not support general jurisdiction unless they result in substantial and continuous commerce with the forum. The court further determined that the company's relationships with 300 California-based registered users who paid nothing for their trial accounts, and with two paid subscribers in the state, fell "well short of the necessary substantial 'volume' and 'economic impact'" required for general jurisdiction. CollegeSource at 10321 (quoting Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1172 (9th Cir. 2006)). AcademyOne's alleged misappropriation of CollegeSource's intellectual property purportedly occurred only over a relatively short period of time, and thus could not serve as a basis for assertion of general jurisdiction. Moreover, although AcademyOne operated an interactive website accessible from California, this fact "provide[d] limited help in answering the distinct question whether the defendant's forum contacts are sufficiently substantial, continuous, and systematic to justify general jurisdiction." Id. at 10322. For these reasons, the court found no error in the district court's decision not to exercise general jurisdiction over AcademyOne.

Specific Jurisdiction

— Basic Requirements for Exercise of Specific Jurisdiction The Ninth Circuit explained that courts may exercise specific jurisdiction over a nonresident defendant when the claim against the defendant arises from the defendant's contacts with the forum. In the Ninth Circuit, the assertion of specific jurisdiction is appropriate when: (1) the defendant has "purposefully direct[ed] his activities or consummate[d] some transaction with the forum or resident thereof; or perform[ed] some act by which he purposefully avail[ed] himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws"; (2) the claim "arises out of or relates to the defendant's forum-related activities"; and (3) the court's "exercise of jurisdiction must comport with traditional notions of fair play and substantial justice, i.e., it must be reasonable." Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004).

— Purposeful Direction

In cases involving allegedly tortious conduct, the Ninth Circuit has observed that the first element of the three-part specific jurisdiction test typically focuses on "purposeful direction" rather than "purposeful availment." CollegeSource at 10323-24. To determine whether a nonresident defendant purposefully directed his activities at the forum, the Ninth Circuit applies an "effects" test, which requires that the defendant have: "(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state." Brayton Purcell, LLP v. Recordon & Recordon, 606 F.3d 1124, 1128 (9th Cir. 2010). Applying this test, the court in the instant case observed that AcademyOne did not dispute that it had committed intentional acts when it downloaded CollegeSource's catalogs, copied CollegeSource's course descriptions, and posted copies on its own website. The court also found that AcademyOne expressly aimed its conduct at California and knew that its conduct was likely to cause harm in California. In reaching this conclusion, the court cited Brayton Purcell, in which the Ninth Circuit held that the "express aiming" prong of the purposeful direction analysis can be satisfied "where a plaintiff alleges that the defendant individually targeted him by misusing his intellectual property on the defendant's website for the purpose of competing with the plaintiff in the forum." CollegeSource at 10325-26. Attributing the actions of AcademyOne's Chinese contractor to AcademyOne, the court found that AcademyOne's alleged misappropriation of catalog files from CollegeSource's website fit the scenario described in Brayton Purcell, and thus constituted express aiming. The court gave little credit to AcademyOne's contention that it had not known CollegeSource was located in California, noting that CollegeSource's California address and telephone number were listed on the website from which AcademyOne downloaded the catalog files in question. Moreover, the court pointed out that AcademyOne's executives had attempted to schedule conference calls with CollegeSource, and opined that it was "difficult to believe that a conference call could have been scheduled without consideration of the time zones (and therefore the locations) of the participants." Id. at 10327. Because "a corporation incurs economic loss, for jurisdictional purposes, in the forum of its principal place of business," the alleged misappropriation inflicted harm that AcademyOne knew was likely to be suffered in California. Id. at 10328.

— Reasonableness of Exercise of Jurisdiction

In determining whether the exercise of jurisdiction would be reasonable, the Ninth Circuit considers seven factors: (1) the extent to which the defendant purposefully injected itself into the forum state's affairs; (2) the burden on the defendant of defending itself in the forum; (3) the extent of any conflict of sovereignty between the forum state and the defendant's home state; (4) the forum state's interest in adjudicating the dispute; (5) the most efficient means of judicially resolving the controversy; (6) the importance of the forum to the plaintiff's interest in securing convenient and effective relief; and (7) the existence of an alternative forum. See Dole Food Co. v. Watts, 303 F.3d 1104, 1111 (9th Cir. 2002). AcademyOne only made arguments as to the first, second, and seventh of the reasonableness factors, and the court found that none of them weighed against the exercise of jurisdiction over AcademyOne in California. The court had already concluded that AcademyOne had purposefully directed conduct toward California, and there was no evidence that defending CollegeSource's claims in California would impose an unreasonable burden on AcademyOne. Lastly, the court observed that although CollegeSource could conceivably maintain its suit against AcademyOne in the defendant's home state of Pennsylvania, whether another forum is available is relevant to the reasonableness analysis only if it is shown that the plaintiff's chosen forum is unreasonable. Having found that all of the requirements for the exercise of specific jurisdiction were met, the Ninth Circuit reversed the district court's judgment and remanded the action for further proceedings.
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