Calif. Court Limits Piracy Suits

Limiting the entertainment industry’s ability to combat piracy, the California Supreme Court ruled Monday that California companies cannot bring lawsuits here against many out-of-state defendants operating on the Internet.

The state high court, in a case involving a trade secret dispute, held 4 to 3 that a California trade association for the DVD and movie industries cannot file suit in California against a Texas computer engineer who organized a Web site containing software that could be used for pirating copyrighted motion pictures on DVDs.

The decision was hailed as a victory for Internet users and small Internet businesses because it may spare them from being forced to travel out of state to defend lawsuits based on their Web sites.

When defendants do not show up in court, default judgments are often handed down that force them to remove the disputed material from the sites.

“People who use the Internet as a source of information win in this case,” said Ann Brick, a staff attorney for the American Civil Liberties Foundation of Northern California. “It means that courts are not going to be issuing default judgments that make information not available on the Internet simply because the defendants did not have the resources to come to court and raise a valid defense.”

A lawyer for the corporate plaintiff in the case complained that the ruling will force businesses to bring lawsuits in many different states and countries to protect their trade secrets from being dispersed on the Internet.

“It cuts back on the ability of states to protect their citizens from harm over the Internet,” said Jeffrey Kessler, who represented a California-based trade group for movie and DVD companies.

Matthew Pavlovich, the computer engineer in Texas, cannot be sued in California because his move to post the software for unscrambling DVD encryption technology was not targeted specifically at California, the court majority decided.

Knowledge that a misappropriation of trade secrets might harm business in California is not enough to give California courts jurisdiction over the matter, even though the Internet’s reach has no state borders, the court said.

Pavlovich, who began operating the Web site while in college in Indiana, can be sued only in Indiana or in Texas, where he now lives, the court said.

“The evidence in the record fails to show that Pavlovich expressly aimed his tortious conduct at or intentionally targeted California,” Justice Janice Rogers Brown wrote for the court. Justices Joyce L. Kennard, Kathryn Mickle Werdegar and Carlos R. Moreno joined the ruling.

The lawsuit was brought by the DVD Copy Control Assn., a nonprofit trade association created by the movie and DVD industries to administer licensing of an encryption technology to protect DVDs against unauthorized copying.

The lawsuit, which named Pavlovich and 20 other people, alleged that a resident of Norway posted a program for defeating the encryption technology in 1999. About the same time, the suit said, the same information appeared on the Web site operated by Pavlovich. Finally, Web sites in at least 11 states and 11 countries posted the program directly or provided links to where it appeared, according to the suit.

Justice Marvin R. Baxter, who wrote the court’s dissent, said California industries should be allowed to sue Pavlovich here because he knew that his actions would hurt the California movie industry and computer industry.

Observing that the lawsuit was filed against people distributed over a wide geographical area, Baxter said it is more efficient to file one lawsuit in a single forum rather than many suits in each defendant’s home state.

“California is a logical forum for convenient, efficient, and effective relief,” Baxter wrote. “The industries affected by Pavlovich’s conduct are centered or substantially present here.” Chief Justice Ronald M. George and Justice Ming W. Chin joined the dissent in Pavlovich vs. Superior Court, S100809.

Allonn Levy, whose San Jose law firm represented Pavlovich without charge, said the ruling benefits consumers and small to mid-size businesses that use the Internet.

“There are so many smaller companies trying to have a presence online and you are going to stifle that if they are susceptible to a lawsuit anywhere in the world,” he said. “They are not going to use the Internet, and I as a lawyer can not advise them to use the Internet if that is going to happen.”

He said the decision probably will have an effect nationally. “It is going to shape the way the jurisdiction is decided in every single intellectual property case that deals with the Internet,” Levy said. “This is such a cutting-edge issue that other jurisdictions are very likely to look to this decision and follow it.”

Kessler, the DVD Copy Control Assn. lawyer, said the group might ask the U.S. Supreme Court to review the decision.

“Our feeling was that when you have this injury occurring to citizens of California, you shouldn’t have to go all over the world and different states to find the perpetrators,” he said. “You should be able to sue in the home state of the victims.”