Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.

• Citation: 243 F.Supp.2d 1073
• Decision Date: 09 January 2003
• Docket Number: No. CIV.01-09923 SVW.,No. CIV.01-08541 SVW.,CIV.01-08541 SVW.,CIV.01-09923 SVW.
• Court: U.S. District Court — Central District of California
• Parties: METRO-GOLDWYN-MAYE R STUDIOS INC., et al., Plaintiffs, v. GROKSTER, LTD., et al., Defendants. Jerry Leiber, et al., Plaintiffs, v. Consumer Empowerment Bv A/K/A Fasttrack, et al., Defendants.

243 F.Supp.2d 1073

METRO-GOLDWYN-MAYE R STUDIOS INC., et al., Plaintiffs, v. GROKSTER, LTD., et al., Defendants. Jerry Leiber, et al., Plaintiffs, v. Consumer Empowerment Bv A/K/A Fasttrack, et al., Defendants.

No. CIV.01-08541 SVW.

No. CIV.01-09923 SVW.

United States District Court, CD. California.

January 9, 2003.

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ORDER DENYING DEFENDANT SHARMAN NETWORKS LTD.'S AND DEFENDANT LEF INTEACTIVE'S MOTIONS TO DISMISS

WILSON, District Judge.

I. INTRODUCTION

Plaintiffs bring these actions for copyright infringement under 17 U.S.C. §§ 501, et seq. The Court has jurisdiction pursuant to 28 U.S.C. § 1331. Defendant Sharman Networks Ltd. moves to dismiss for lack of personal jurisdiction, lack of subject matter jurisdiction, improper venue, and forum non conveniens. See Fed. Rules Civ. P. Rules 12(b)(1), (2), and (3). Defendant LEF Interactive Pty Ltd. moves to dismiss for lack of personal jurisdiction only.

For the reasons set forth below, both Motions are DENIED.

II. FACTUAL/PROCEDURAL BACGROUND

A. The Parties

These two related cases arise from the free exchange of copyrighted music, movies and other digital media over the Internet. When the actions were originally filed, Defendants Grokster, Ltd. ("Grokster"), Streamcast Networks, Inc. (formerly known as MusicCity.com, Inc.) ("Streamcast" or "MusicCity"), and Kazaa BV (formerly known as Consumer Empowerment BV) ("Kazaa BV"), distributed software that enabled users to exchange digital media via the same peer-to-peer transfer network. In the Metro-Goldwyn-Mayer. v. Grokster ease, CV-01-8541, Plaintiffs are organizations in the motion picture and music recording industries, and bring an action against Defendants for copyright infringement, pursuant to 17 U.S.C. §§ 501, et seq. In the Lieber v. Consumer Empoiverment case, CV-01-9923, Plaintiffs are professional songwriters and music publishers bringing a class action for essentially the same claims against the same Defendants. The cases have been consolidated for discovery and pretrial purposes.

When the actions were originally filed, Grokster, MusicCity and Kazaa BV each independently branded, marketed and distributed file-sharing software. All three platforms were powered, however, by the same "FastTrack" networking technology. This technology was developed by Defendants Niklas Zennstrom and Janus Friis (who also launched Kazaa BV), and licensed to each company. As a result, users of all three software platforms were connected to the same peer-to-peer "Fast-Track network," and were able to exchange files seamlessly.¹

Kazaa BV, which is a Netherlands corporation, did not contest jurisdiction in either case. Rather, it answered and counterclaimed for declaratory relief. In January 2002, while related legal action was pending against it in the Netherlands, Kazaa BV transferred ownership of key assets to the newly-formed Sharman Networks, Ltd. ("Sharman").² Sharman is a company organized under the laws of the island-nation of Vanuatu and doing business principally in Australia. The assets transferred to Sharman include the Kazaa.com website and domain, and the Kazaa Media Desktop ("KMD") software. In its agreement to acquire these assets, Sharman explicitly disclaimed assumption of any of Kazaa BV's liabilities, including any liability arising from these lawsuits. (Memo of P & A in Support of Sharman's Motion to Dismiss for Lack of Subject Matter Jurisdiction and Other Grounds ("Sharman Mot."), Declaration of Nicola Hemming, ¶ 6.)

The FastTrack software is owned by a company known as Joltid, Ltd. ("Joltid" (formerly "Blastoise")), which is owned by Zennstrom. Shortly after Sharman's acquisition of the Kazaa assets, Joltid granted an "irrevocable, perpetual, worldwide license" to Sharman for the use and sublicensing of FastTrack. (Sharman's Reply Memorandum in Support of Motion to Dismiss ("Reply"), Declaration of Nicola Hemming Concerning Blastoise Agreement, Exh. A, at 1.) In return, Joltid receives twenty percent of Sharman's revenue. (Id.; Decl. of Ana C. Reyes in Support of Opposition to Defendants' Motion, Hemming Dep. at 152.) In essence, Sharman has acquired Kazaa BV's primary assets— the Kazaa brand, domain and website, the KMD software, and a long-term license to the FastTrack software—without having formally acquired the company. Meanwhile, Kazaa BV has apparently ceased defending this action.

B. The Kazaa System

Although novel in important respects, the "Kazaa system" operates in a manner conceptually analogous to the Napster system described at length by the district court in A & M Records, Inc. v. Napster, Inc., 114 F.Supp.2d 896 (N.D.Cal.2000).

In summary, Sharman provides free proprietary software, the Kazaa Media Desktop, that enables Internet users to search for and exchange digital media with other users of file-sharing software powered by the FastTrack technology. Sharman also operates the Kazaa.com website, which serves as a central distribution and customer support hub for the KMD software.

The KMD software can be transferred to the user's computer, or "downloaded," from servers operated by Sharman (for instance, by visiting Sharman's Kazaa.com website, or third-party CNET's Download. com, and choosing to download the software). Once installed, each KMD user may elect to "share" certain files located on the user's computer, including, for instance, music files, video files, software applications, e-books, and text files. When launched on a user's computer, KMD automatically connects to the FastTrack peerto-peer network, and makes any shared files available for transfer to any other user's computer.

Once connected to the FastTrack network, the KMD software provides a range of means through which a user may search through this pool of shared files. For instance, a user can select to search only among audio files, and then enter a keyword title or artist search. Once a search commences, the KMD software displays a list (or partial list) of users who are currently sharing files that match the search criteria, including data such as the estimated time required to transfer each file. The user may then click on a specific listing to initiate a direct transfer from the source computer to the requesting user's computer. When the transfer is complete, the requesting user and source user have identical copies of the file, and the requesting user may also start sharing the file with others. The KMD software includes other features, such as facilities for organizing, viewing and playing media files, and for communicating with other users.

Because the KMD software itself is free, most of Sharman's revenue comes through its advertising partnerships. Instead of selling advertising directly, Sharman "bundles" its KMD software with third-party software that operates whenever KMD is launched. The third-party software retrieves advertising from third-party servers not controlled by Sharman, and then displays that advertising through the KMD interface.

III. SHARMAN'S MOTION TO DIMISS

A. Personal Jurisdiction

For this Court to have personal jurisdiction over the Defendants, the exercise of jurisdiction must be authorized under California's "long-arm" jurisdictional statute and comport with constitutional due process limitations. Aanestad v. Beech Aircraft Corp., 521 F.2d 1298, 1300 (9th Cir.1974); see Fed.R.Civ.P. 4(k)(1)(A). Because California authorizes jurisdiction to the full extent of the Constitution, the only question before the Court is whether the exercise of in personam jurisdiction in this case is consistent with due process. See Cal.Code Civ. Proc. § 410.10 (2002); Peterson v. Highland Music, Inc., 140 F.3d 1313, 1317 n. 2 (9th Cir.1998).

Plaintiff has the burden of establishing that jurisdiction exists over the Defendants. Cubbage v. Merchent, 744 F.2d 665, 667 (9th Cir.1984), cert, denied, 470 U.S. 1005, 105 S.Ct. 1359, 84 L.Ed.2d 380 (1985). However, the plaintiff need only make a prima facie showing of jurisdiction to survive a jurisdictional challenge on a motion to dismiss where, as here, a court has not heard testimony or made findings of fact.³ Ziegler v. Indian River County, 64 F.3d 470, 473 (9th Cir.1995); Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 268 (9th Cir.1995); Data Disc, Inc. v. Systems Tech, Assoc., Inc., 557 F.2d 1280, 1285 (9th Cir.1977). For purposes of a motion to dismiss, factual allegations are taken as true, though it is appropriate when considering jurisdictional issues to look beyond the pleadings to any evidence before the Court. Cargill Intern. S.A. v. MIT Pavel Dybenko, 991 F.2d 1012, 1019 (2d Cir.1993).

In the absence of a traditional basis for asserting jurisdiction (i.e., physical presence, domicile or consent), due process requires that a non-resident defendant have "certain minimum contacts with the forum [state] such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.' " International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940)). The defendant is subject to "specific jurisdiction" where the cause of action arises out of or relates to the defendant's contacts with the forum. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n. 15, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). If the defendant's contacts are of a sufficient magnitude, it is subject to "general jurisdiction"—that is, subject to suit on any matter, including those not arising out of the in-forum activity. See Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 447-48, 72 S.Ct. 413, 96 L.Ed. 485 (1952).

1) In-Forum Activities

Plaintiffs assert that Sharman engages in a wide range of contacts with this forum, which can be summarized roughly as follows:

1) Provision of...