California adult website’s copyright infringement claim against Google may proceed in Canada, Federal Court rules

Image representing Google as depicted in Crunc...

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The recent Federal Court of Canada decision in Perfect 10, Inc. v. Google, Inc., 2011 FC 348 (CanLII) considers the issue of jurisdiction over a copyright infringement action against Google Inc. (Google US) and Google Canada Corp. (Google CA), (collectively, “Google”).  Google appealed the Prothonotary’s order dismissing its motion for an order striking out the Statement of Claim, dismissing the action or otherwise for an order staying the action. The Plaintiff, Perfect 10, Inc. (Perfect 10), is a California corporation conducting business out of California consisting mainly of selling, on its website, “adult” images of mostly naked women. It does not have an office or any employees in Canada and had only 13 Canadian customers out of 600 worldwide at the time of this initial litigation.

The issue on appeal was whether a stay ought be granted due to parallel proceedings commenced by the Plaintiff in 2004, alleging copyright and trade-mark infringement, trade-mark dilution, unfair competition, violation of publicity rights, unjust enrichment and misappropriation, against the Google group of companies (including Google US and Google CA) in an action in the United States District Court for the Central District of California.

In the parallel Canadian action, Perfect 10 alleged copyright infringement against Google US and Google CA related to their actions and service in Canada, alleging breaches of s. 27(1), (2) (b)-(e), and 3(1)(a), (b) of the Canadian Copyright Act. Specifically, Google US offers search functions through its sites which directly and/or indirectly reproduce infringing copies of the images in which Perfect 10 asserts copyright. Perfect 10 alleged that Google CA sold advertising in Canada on the Google US site and both Google companies reproduced, distributed and communicated copies of Perfect 10’s materials throughout Canada.

In the US action, Perfect 10 alleged that Google US copied works from third party websites and then displayed them on Google US’s site either as thumbnails or full size images without requiring a searcher to go through Perfect 10’s website or subscribe to Perfect 10’s services.  In the U.S. action, Perfect 10 unsuccessfully brought two injunction applications including a worldwide injunction and, following discoveries,  summary judgment motions were pending. Also, in the U.S. action, the Google defendants have pleaded the territorial limitation of the U.S. court and subject matter jurisdiction, whereas Google CA is only named in respect of the injunctive relief sought.

Phelan, J.  rejected Google’s arguments that the Prothontary erred in not exercising discretion to strike the claim as an abuse of process under Rule 221 of the Federal Court Rules.  With respect to forum non conveniens, Justice Phelan notes that Section 50(1) requires the Court to consider two matters in exercising its discretion to stay a proceeding: (1) that the claim is before another court or jurisdiction; (2) for other reasons it is in the interests of justice to grant a stay. The learned justice writes,

[29]           The Learned Prothonotary’s decision in respect of these issues and particularly s. 50(1) becomes problematic when the Learned Prothonotary concludes that having decided that the Defendants have not met the test of s. 50(1)(a) (claim proceeding in another jurisdiction), she held that she did not have to engage in an “interest of justice” analysis. In this regard, with great respect, I cannot concur.

[30]           Section 50(1) interposes “or” between the distinctly different concepts of “same claim” and “interests of justice”. To give effect to Parliament’s intent, the Court is to consider both concepts or branches in the exercise of discretion whether to stay a proceeding.

With respect to the 2nd branch of the s. 50(1) test, given the Learned Prothonotary’s decision not to consider it, the Court addressed the issue de novo applying the nine factors listed in White v E.B.F. Manufacturing Ltd., 2001 FCT 713 (CanLII), 2001 FCT 713,  at paragraph 36 as follows:

“1.         While there may be inconvenience and extra expense, there is no prejudice or injustice to either party.

2.         A stay could well prejudice the Plaintiff by delaying or preventing Canadian based claims.

3.         The Defendant had the burden on these two matters which it failed to satisfy.

4.         The Court is in a position to properly deal with the stay motion.

5.         This is not a clear case where a stay should be granted because of real prejudice.

6.         For reasons given earlier and found by the Learned Prothonotary, the two actions are not sufficiently similar.

7.         Because of the differences in legal regimes, there is a real possibility of inconsistent findings.

8.         The two actions are at different stages.

9.         Neither party enjoys a priority of filing date.” [emphasis added]

With respect to the second branch under s.50(1), Justice Phelan, citing Ford Aquitaine Industries SAS v Canmar Pride (The), 2005 FC 431 (CanLII), 2005 FC 431 and applying the factors in Spar Aerospace Ltd. v American Mobile Satellite Corp., 2002 SCC 78 (CanLII), [2002] 4 SCR 205, concludes:

“1.         The issue of residence of Defendants, witnesses and experts favours the U.S. although Google CA is resident in Canada.

2.         Location of material evidence would again, on balance, favour the U.S. although evidence of actions in Canada would be highly relevant.

3.         The place of contract is not as relevant as the place of infringement. As the infringement on the internet potentially occurs in a number of places, including on the server, on the customers’ screen and in the marketing in Canada, the matter is balanced.

4.         The existence of proceedings between the parties in the U.S. has been addressed including the differences between the actions.

5.         The evidence on the Defendants’ assets is limited but the U.S. would appear to dominate both Google US and Google CA. Clearly the assets of significance are in the U.S.

6.         The applicable law is a critical matter as Canadian law clearly applies to the Federal Court action. It is this law which the Plaintiff wishes to assert as a central legal basis for its claim.

7.         The advantage to the Plaintiff by its choice of this forum is the benefit of Canadian law and its enforcement in Canada – as the choice of the U.S. court accords similar benefits of U.S. law and enforcement in that jurisdiction.

8.         As to the interests of justice, there is significant force to the contention that the interests of justice in Canada favour Canadian proceedings. Foreign owners of intellectual property are recognized as having the right to commence actions in Canada for infringements occurring here under Canadian law. The Defendants accepted that possibility in doing business here and ought not to be able to shield themselves from Canadian legal process.

9.         The interests of the parties are clearly split.

10.      The potential problem of recognition of a foreign judgment is a substantive concern in both countries given the legal regimes, different defences and potential outcomes. The absence of proven foreign law in this instance is not fatal as it is not necessary to know as a fact what the U.S. law may be. The Court can take judicial notice that the laws are neither identical nor applied in the same way – the precise details of those differences are not critical at this juncture.

[40]           In my view, weighing all these factors together, I cannot see that the U.S. court is more convenient and appropriate for dealing with rights under Canadian law – even assuming a U.S. court could or would make such a determination. The situation is analogous to other instances of actions based on intellectual property rights proceeding in two or more national courts at the same time. It is not forum shopping to assert Canadian rights in Canadian courts and U.S. rights in U.S. courts.

[41]           Therefore, the Defendants have not satisfied me that this Court should exercise its discretion to stay this Federal Court action on the grounds of non forum conveniens.” [emphasis added]

In conclusion, parallel proceedings are neither necessary nor sufficient to stay an action on forum non conveniens grounds, especially where the parallel proceedings are subject to Canadian copyright law and the vagaries of multi-factored tests that include “interests of justice” and “prejudice” as factors.

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