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CYBERSITTER, LLC v. People's Republic of China
Citations: 805 F. Supp. 2d 958; 2011 U.S. Dist. LEXIS 84722; 2011 WL 3322552Docket: Case No. CV 10-00038-JST (SHx)
Court: District Court, C.D. California; August 1, 2011; Federal District Court
The case involves CYBERSITTER, LLC, d/b/a Solid Oak Software, as the plaintiff against several defendants, including multiple corporations based in China and Taiwan, for the alleged intentional misappropriation of software code. The Court addresses five motions: three motions to dismiss for lack of personal jurisdiction from Haier Group Corporation, Beijing Dazheng Human Language Technology Academy, Ltd., and Zhengzhou Jinhui Computer System Engineering Ltd., a motion to dismiss for forum non conveniens from Dazheng (joined by Jinhui), and a motion from Haier claiming failure to join a necessary and indispensable party. The Court, led by District Judge Josephine Staton Tucker, denies all motions after considering the parties' briefs and oral arguments. In preliminary matters, the Court overrules multiple evidentiary objections raised by the parties concerning various declarations based on relevancy and foundation issues, confirming reliance only on admissible evidence. Additionally, the plaintiff requests judicial notice of specific facts about Haier, including its registered patents and trademarks in the U.S., the existence of a design center in Los Angeles, sponsorship of the NBA, and sales presence in major retail stores like Best Buy and Wal-Mart. The Court acknowledges these requests for judicial notice. Plaintiff seeks judicial notice of several facts: that Defendants' counsel appear on the AmLaw 100 2010 list of top-grossing law firms and that California is the center of the U.S. software industry. Defendant Jinhui objects, claiming the law firms' standings are irrelevant and California's status is disputable. Defendant Haier similarly objects, asserting that the requested facts are irrelevant or disputable and point to reliance on unverified corporate website statements. The Court, under Federal Rule of Evidence 201(b), can take judicial notice of facts not subject to reasonable dispute. It grants notice of Haier's trademark and patent registrations and the existence of its subsidiaries in New York and Delaware, as these are undisputed. However, the Court denies the request for judicial notice regarding most other facts due to lack of verification and relevance, including the AmLaw 100 listing and California's status in the software industry. Additionally, Plaintiff requests leave to file a sur-reply, arguing that Defendants introduced new evidence and legal authorities in their reply. Plaintiff specifically points to new evidence in Jerry Liao's Declaration and reliance on recent Supreme Court decisions. The Court denies the motion to strike the Liao Declaration, as it merely counters Plaintiff's evidence. Nonetheless, the Court partially grants Plaintiff's request for a sur-reply, acknowledging that new legal authority was introduced by Defendants. The Court notes that arguments raised for the first time in a reply brief are not typically considered. The Court prohibits the opposing party from filing a response to the reply without a prior written order. Any arguments or evidence in the sur-reply related to the Liao Declaration are struck and not considered, while the Court will consider the sur-reply addressing newly cited legal authority. Dazheng and Jinhui's motions to dismiss the case for forum non conveniens assert that California is an inconvenient forum and the case should be heard in China. The Court previously denied a similar motion from dismissed Defendants Sony Corporation and others, applying the "law of the case" doctrine, which prevents reexamination of previously decided issues unless specific exceptions are met. Dazheng argues it has evidenced severe inconveniences for all parties if the case remains in California, including the unavailability of crucial witnesses and the public interest concerns regarding an intellectual property dispute related to software intended for the Chinese market. However, the Court finds that Dazheng and Jinhui fail to present new arguments beyond those already considered. The Court emphasizes that forum non conveniens is used sparingly and that a plaintiff's choice of forum should not be disturbed unless strong private and public interest factors favor a foreign trial. The private interest factors include party and witness residence, convenience, access to evidence, witness compelability, cost of bringing witnesses to trial, judgment enforceability, and other practical issues. Public interest factors considered include: local interest in the lawsuit, the court's familiarity with governing law, the burden on local courts and juries, court congestion, and costs of resolving unrelated disputes. An alternative forum's existence is also examined. Dazheng and Jinhui argue that their witnesses and evidence are in China, which would impose significant burdens if the trial occurs in California, including difficulties in compelling witness testimony and high costs for transporting witnesses and translating documents. However, the Court previously denied a motion to dismiss by Sony et al., noting that while Dazheng and Jinhui reside in China, this does not alter the conclusion that both private and public factors favor retaining the case in California. The Court emphasized that witnesses are globally dispersed, suggesting that deposition testimony may be necessary regardless of the trial location. Dazheng and Jinhui failed to demonstrate that the challenges they face would result in "oppressiveness and vexation" disproportionate to the convenience of the Plaintiff. The Court acknowledged the logistical challenges but maintained that these alone do not justify dismissal. Additionally, Dazheng and Jinhui did not provide new evidence to overturn the Court's earlier decision, leading to the denial of their motion to dismiss for forum non conveniens. Separately, Dazheng, Haier, and Jinhui have moved to dismiss the action against each for lack of personal jurisdiction. Legal Standard Rule 12(b)(2) permits a defendant to challenge personal jurisdiction through a motion to dismiss, placing the burden on the plaintiff to prove jurisdiction exists. In the absence of an evidentiary hearing, the plaintiff needs only to establish a prima facie case of jurisdictional facts, with all uncontroverted allegations in the complaint taken as true and any factual disputes resolved in favor of the plaintiff. Courts assess personal jurisdiction based on compliance with the state's long-arm statute and federal due process. California allows personal jurisdiction to the extent permissible under due process, which requires that a defendant has "minimum contacts" with the state, ensuring that jurisdiction does not violate traditional notions of fair play and substantial justice. There are two types of personal jurisdiction: general and specific. Specific jurisdiction applies when a defendant's contacts with the forum relate directly to the cause of action, whereas general jurisdiction applies when the defendant's activities are substantial enough to warrant jurisdiction regardless of the claim. The plaintiff contends that the court has both specific and general jurisdiction over Haier, but acknowledges that general jurisdiction cannot be asserted against Dazheng and Jinhui. The court will first consider specific jurisdiction, which is determined using a three-part test: (1) the defendant must purposefully direct activities toward the forum or avail themselves of its privileges; (2) the claim must arise from those forum-related activities; and (3) the exercise of jurisdiction must be reasonable and consistent with fair play and substantial justice. In Schwarzenegger v. Fred Martin Motor Co., the Ninth Circuit clarified the plaintiff's burden in establishing personal jurisdiction, requiring satisfaction of the first two prongs of a jurisdictional test before shifting the burden to the defendant to demonstrate the unreasonableness of exercising jurisdiction. The court emphasized the "purposeful availment" requirement, which prevents nonresident defendants from being summoned based on random or fortuitous contacts with the forum state. In this case, the analysis is framed around "purposeful direction" due to the copyright infringement claims, aligning with tort principles. The court applies the three-part "Calder-effects" test to evaluate purposeful direction, requiring that the defendant (1) commits an intentional act, (2) expressly aims at the forum state, and (3) causes harm that the defendant knows is likely to occur in the forum state. The plaintiff alleges that defendants Dazheng and Jinhui improperly obtained trade secrets and engaged in copyright infringement by reproducing and distributing the plaintiff's works without authorization. Evidence suggests that the infringing Green Dam Youth Escort program was made available for download in the U.S. and that the plaintiff's proprietary code was publicly accessible on Jinhui's servers. Additionally, the plaintiff claims that Haier conspired with other defendants to misappropriate intellectual property by manufacturing and selling computers containing the infringing software in China, asserting that Haier targeted the plaintiff through these actions. Plaintiff claims that the intentional act of misappropriating and distributing software code inherently targets the victim, as knowledge of the source is necessary for theft. Although Plaintiff does not allege that Haier directly stole the code, it asserts that Haier knowingly distributed computers in China containing the allegedly stolen software. Specifically, Plaintiff accuses Haier and other manufacturers, including Dazheng and Jinhui, of participating in a scheme to spread illegal software in China. Plaintiff contends that at the time of distribution, Haier was aware or should have been aware that the trade secrets were improperly obtained through unauthorized decryption of the CYBERsitter program. Evidence of Haier's knowledge includes a cease-and-desist letter sent by Plaintiff on August 11, 2009, which informed Haier of the unauthorized distribution. Haier's response claimed compliance with Chinese laws and insisted that the Green Dam program was legitimately acquired, denying any involvement in the copyright dispute over CYBERsitter. The excerpt emphasizes that the intentional act requirement is met for Dazheng, Haier, and Jinhui, as "intent" pertains to performing a physical act rather than the outcome of that act. Courts have previously ruled that various actions connected to theft or misappropriation qualify as intentional acts. Regarding the "expressly aimed" criterion, it is noted that merely causing harm is insufficient; wrongful conduct must be targeted at a known forum resident. Dazheng argues its software was aimed solely at the Chinese market without any connection to California. Haier and Jinhui similarly claim they did not engage in relevant activities in California or target Plaintiff there. Jinhui further asserts that express aiming necessitates more than knowledge of Plaintiff's residence. Defendants argue that express aiming does not apply in this case because their actions, even if infringing, did not extend beyond willful copyright infringement while being aware of Plaintiff’s residence in California. They assert that they neither distributed nor marketed their infringing products in California, nor competed with Plaintiff there. However, this stance neglects the distinctions present in Calder and misinterprets relevant precedents, including the Ninth Circuit’s ruling in Columbia Pictures, which states that willful copyright infringement against a plaintiff known to be based in California fulfills the Calder effects test. The Ninth Circuit clarified that purposeful availment can occur through the intentional direction of actions that have impact in the forum state. The Supreme Court's decision in Calder established that a foreign act aimed at California, resulting in effects there, satisfies the specific jurisdiction requirement. While the courts have debated the broader implications of Calder, the Ninth Circuit agrees that express aiming is established when wrongful conduct is targeted at a plaintiff known to reside in the forum state. The Supreme Court further indicated that defendants should anticipate being subject to jurisdiction in California if their actions are aimed at a resident there, highlighting the necessity of recognizing the impact of their conduct on the plaintiff's business in California. The cases of Schwarzenegger and Brayton present distinct factual scenarios. In Schwarzenegger, an Ohio car dealership advertised using a famous movie character linked to a California resident, leading to questions of whether it could be subjected to California jurisdiction due to minimal and random contacts. The court highlighted that such actions could be seen as insufficient for establishing personal jurisdiction, as they may not reflect purposeful availment of California laws. Conversely, the current case involves a software developer alleging that foreign defendants knowingly stole and conspired to distribute its copyrighted software to customers in California, indicating intentional and targeted conduct. This intentional infringement suggests the defendants should anticipate being brought into a California court, as the harm is felt primarily where the plaintiff operates. Additionally, the Brayton case, which dealt with a passive website, is treated differently under personal jurisdiction standards in the Ninth Circuit, where mere maintenance of a passive website does not suffice for establishing jurisdiction. Unlike Brayton, the current case does not rely solely on website activity but alleges broader conspiratorial actions involving the distribution of software through various channels. The Ninth Circuit's precedent, as established in Columbia Pictures, supports that willful copyright infringement aimed at a forum resident fulfills the purposeful availment requirement, a point the defendants did not adequately address in their arguments. Thus, personal jurisdiction over foreign defendants in this case aligns with the established legal standards in similar Ninth Circuit rulings. In Righthaven, LLC v. Va. Citizens Def. League, the court acknowledged the ongoing conflict between Columbia Pictures and Ninth Circuit precedent but affirmed that willful copyright infringement by a defendant, who knows the plaintiff’s principal place of business is in the forum state, satisfies the Calder effects test for personal jurisdiction. The court noted that similar conclusions were reached in Corbis Corp. v. Integrity Wealth Mgmt. and Amini Innovation Corp. v. Cosmos Furniture, where defendants were found to have purposefully directed their infringing actions toward plaintiffs based on their knowledge of the plaintiffs’ locations. In the case at hand, the court determined that the plaintiffs made a prima facie showing that defendants Dazheng, Haier, and Jinhui knowingly directed their conduct at the plaintiff, who resided in California, thus satisfying the express aiming requirement. The court explained that the "brunt" of the harm does not need to occur entirely within the forum state, but rather that a jurisdictionally sufficient amount of harm is required. It cited Yahoo! Inc. and Brayton, confirming that foreseeable effects of the defendants' actions, including damage to the plaintiff’s business reputation and profits, would likely occur in California. The allegations indicated that the defendants were aware their actions could injure the plaintiff within the state, reinforcing the basis for jurisdiction. Plaintiff has met the requirements for specific personal jurisdiction over Defendants Dazheng, Haier, and Jinhui based on the Calder-effects test, demonstrating purposeful direction. The action arises from Defendants' forum-related activities, as the Plaintiff's injuries would not have occurred but for the alleged infringement involving the copying and distribution of the copyrighted software in California. With the first two elements satisfied, the burden shifts to Defendants to prove the jurisdiction is unreasonable. The reasonableness standard is assessed based on seven factors, including the extent of Defendants' purposeful interjection in the forum, the burden on Defendants, and the forum state's interest in the dispute, among others. Haier has not contested the reasonableness of jurisdiction, while Dazheng and Jinhui's arguments mirror those in their prior motion to dismiss for forum non conveniens. The "purposeful interjection" factor overlaps with previous analyses and is given minimal weight once purposeful direction is established. The Court finds personal jurisdiction over all three Defendants reasonable based on the balanced consideration of the relevant factors. Consequently, the Court denies the motions to dismiss for lack of personal jurisdiction. General jurisdiction over Haier is deemed unnecessary to address, given the conclusion on specific jurisdiction. Haier seeks to dismiss the lawsuit on the grounds that the People's Republic of China (PRC) is a necessary and indispensable party that is immune from suit. However, the court considers that the PRC is not immune under the commercial activity exception of the Foreign Sovereign Immunities Act (FSIA), specifically 28 U.S.C. § 1605(a)(2). The plaintiff had previously filed a motion for default against the PRC, which the court stayed, requiring the plaintiff to demonstrate why the PRC should not be considered immune. In response, the plaintiff argued that the actions of the PRC fell under both the commercial activity and tortious conduct exceptions of the FSIA. The court ultimately entered default against the PRC without detailing its reasoning, but acknowledged that the commercial activity exception applied, thus not necessitating examination of the tortious conduct exception. The FSIA establishes that foreign states and their instrumentalities are generally immune from suit, except under specific exceptions outlined in sections 1605 to 1607. The commercial activity exception allows for jurisdiction if the action is based on a commercial activity conducted by the foreign state in the U.S., connected to a commercial activity outside the U.S. with a direct effect in the U.S. The plaintiff argues that their claims meet the requirements of this exception, relying on the third clause of § 1605(a)(2). While it is undisputed that the PRC engaged in acts outside the U.S., Haier contends that these acts were not connected to commercial activities and did not produce direct effects in the U.S. The "in connection with a commercial activity" requirement involves two inquiries: (1) whether the People's Republic of China (PRC) engaged in commercial activity, and (2) whether the acts in question are connected to that activity. The Foreign Sovereign Immunities Act (FSIA) defines commercial activity as either a regular course of conduct or specific commercial transactions. Courts are instructed to assess the nature of the activity rather than its purpose, distinguishing between actions typically undertaken by private parties versus those exclusive to sovereign states. The plaintiff asserts that the PRC engaged in commercial conduct by licensing, sublicensing, distributing, and promoting the Green Dam software, alleging a payment of approximately $6.9 million for a one-year distribution license and subsequent licensing fees from computer manufacturers. Additionally, the PRC purportedly made the Green Dam program available for free online and promoted its download among Chinese speakers. Assuming the plaintiff's allegations are true, the PRC's actions in acquiring licensing and sublicensing rights constitute commercial acts, as such transactions could be performed by non-sovereign entities. The PRC's intent behind these actions—whether for governmental purposes or otherwise—does not negate their commercial nature. Furthermore, the plaintiff's claims must show a substantive connection or causal link to the PRC's commercial activities to satisfy the "in connection with" requirement. Plaintiff alleges misappropriation of trade secrets, copyright infringement, unfair competition, and civil conspiracy against the PRC, stemming from the PRC's licensing, sublicensing, and distribution of the Green Dam program without Plaintiff's consent. This activity establishes a causal link relevant to the Plaintiff’s claims and satisfies the "in connection with a commercial activity" requirement. The PRC's commercial activity could still be immune unless it had a direct effect on the Plaintiff in the U.S. A direct effect is defined as an immediate consequence of the defendant's actions, and while mere financial loss is insufficient to establish this, a legally significant act occurring in the U.S. qualifies. The Plaintiff claims the PRC misappropriated its copyrighted software by distributing the Green Dam program, with the injury occurring at its California headquarters, thus affirming a direct effect in the U.S. The court finds that the FSIA's commercial exception applies, allowing the PRC to be joined in the lawsuit. The court denies the motions to dismiss filed by Haier, Dazheng, and Jinhui for various reasons, including forum non conveniens and lack of personal jurisdiction. Disputes arise regarding whether Jinhui made the Green Dam program available for download; however, a declaration by Plaintiff's CEO claims to have found CYBERsitter code on Jinhui’s website. There are conflicting assertions about the ownership of another website linked to the Green Dam program, with the court assuming the Plaintiff’s claims are true for analysis. Dazheng's motion does not properly apply the Calder effects test, focusing instead on its lack of purposeful availment in California.