When last we checked in with this case, a U.S. software company called CYBERsitter (aka Solid Oak software) filed a complaint in a U.S. federal court against a long list of Chinese computer software and hardware companies, alleging copyright infringement. I still think this case is a big loser, for the reasons I outlined last year, but there are a couple of worthwhile legal issues to discuss.
IP Dragon has a nice run-down of the case, with a list of defendants, etc.
The dispute relates to the ill-fated Green Dam Youth Escort Internet filtering software, commissioned by the Chinese government and, for a short time, mandated for installation in all PCs sold in the PRC. The scheme fell apart after facing a great deal of criticism, but a large number of copies of the Green Dam software were circulated.
Problem? It was later discovered that the Green Dam software included about 3,000 lines of code from U.S.-based CYBERsitter. Pretty clear case of copyright infringement if the above is accurate.
The case was filed at the beginning of this year and a federal judge in California ruled on some preliminary motions relating to jurisdiction on August 1. As is common with foreign-related cases of this nature, the defendants attempted to get the case kicked based on a concept called forum non conveniens, which actually means just what is sounds like (i.e. the forum is not convenient).
The defence was essentially arguing that because the allegedly infringing software was distributed in China, almost all the parties were from China, the witnesses and documents were in China, etc. that the better choice of venue would be a Chinese court.
Sometimes you win forum non conveniens arguments, and sometimes you don’t. The judge here shot the defence’s motion down, saying that the harm took place in California and that the defendants were aware that CYBERsitter was a California company.
Keep in mind that although I have a copy of the original complaint, I do not have access to the motion documents and am going by press reports of what happened a few days ago. The above justification for the judge’s forum non conveniens ruling sounds a bit thin to me, but I chalk this up to the reporter’s description.
A second, and more interesting issue, dealt with on August 1 was whether China should be a party to the case. As I discussed in a recent post on a New York case filed by some overseas Chinese dissidents that also had China as a defendant (Baidu vs. NYC Dissidents: Why This Case Sucks), foreign governments are generally immune from such liability under U.S. law, specifically the Foreign Sovereign Immunities Act. In the Baidu case, I assume that China will be excused as a party, since its censorship activities are public in nature, not commercial.
This CYBERsitter case is different because China’s actions with respect to the Green Dam Youth Escort software fall within the “commercial activity” exception. The exception provides for three bases upon which a foreign government can be sued by a plaintiff:
1. When the plaintiff’s claim is based upon a commercial activity carried on in the U.S. by the foreign state.
2. When the plaintiff’s claim is based upon an act by the foreign state which is performed in the U.S. in connection with commercial activity outside the U.S.
3. When the plaintiff’s claim is based upon an act by the foreign state which is performed outside the U.S. in connection with commercial activity outside the U.S. and which causes a direct effect in the U.S.
This dispute involves actions taken place in China, performed in part by the Chinese government, which caused harm to a U.S. company. Obviously we’re looking at #3.
But did China really engage in “commercial activity”? What does that mean? Without getting into a discussion of applicable case law, here’s some useful language from the plaintiff’s complaint on this issue (from page 5, paragraph 13 of the complaint):
Defendant People’s Republic of China (“PRC”) is a foreign state. As relevant here, PRC has engaged in the purely economic conduct of licensing, sublicensing, distributing and promoting the software program known as Green Dam at issue in this litigation. PRC may not claim jurisdictional immunity from this suit as its conduct arises from commercial activity that “causes a direct effect in the United States” as described in 28 U.S.C. § 1605(a)(2) in the form of damaging Solid Oak, a California company, by PRC’s unauthorised taking and use of Solid Oak’s intellectual property. The PRC’s actions alleged herein are purely economic because PRC purchased a one-year licence to exploit the software program at issue for approximately 6.9 million U.S. dollars, and then promoted the program and sublicensed the program to computer manufacturers, for which it received substantial sums.
The plaintiff is not addressing China’s censorship regime or the laws and regulations issued mandating that Green Dam Youth Escort software be pre-installed in PCs. That would be a public function, and China would be immune to related liability.
Instead, the argument here is that China’s activities were commercial. According to plaintiff, the government purchased a licence then sublicensed the software to hardware manufacturers and other parties, pocketing significant licence fees in the process. In other words, China was not acting as a government, but as a software sublicensor and should be held accountable for distribution of infringing material.
The judge agreed with plaintiff, and the case is moving forward with China as a party.
Is this the start of a trend? No, I wouldn’t worry about that.
As I already mentioned, another recent case, against Baidu, is very different. There, the dispute relates to censorship, and I can’t see how one could argue that China was engaging in commercial activity. These political cases almost always involve public action, so the Green Dam lawsuit does not provide a useful model.
Moreover, the vast majority of China-related disputes that end up in U.S. courts involve purely commercial activities between private companies (or State-owned Enterprises).
Don’t expect to see a flood of U.S. lawsuits against China.