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Electronic Frontier Foundation v. Global Equity Management (SA) Pty Ltd.

United States District Court, N.D. California

November 17, 2017

ELECTRONIC FRONTIER FOUNDATION, Plaintiff,
v.
GLOBAL EQUITY MANAGEMENT (SA) PTY LTD, Defendant.

          ORDER REGARDING MOTION FOR DE NOVO DETERMINATION OF DISPOSITIVE MATTER ASSIGNED TO MAGISTRATE JUDGE RE: NO. ECF 27, 28, 29

          JON S. TIGAR UNITED STATES DISTRICT JUDGE

         Before the Court is Plaintiff Electronic Frontier Foundation (“EFF”)'s motion for a de novo determination of a dispositive matter referred to the magistrate judge. ECF No. 27. EFF seeks default judgment against the Defendant Global Equity Management (SA) Pty Ltd (“GEMSA”). The Court grants the motion, finds that there is personal jurisdiction, and grants default judgment in favor of EFF.

         I. REQUESTS FOR JUDICIAL NOTICE

         In conjunction with its motion, EFF seeks judicial notice of nine complaints that GEMSA filed in federal district courts against companies with principal places of business in California. ECF No. 28. The Court may take judicial notice of court filings. Bias v. Moynihan, 508 F.3d 1212, 1225 (9th Cir. 2007) (providing that a court “may take judicial notice of proceedings in others court . . . if those proceedings have a direct relation to matters at issue.”). Accordingly, the Court grants EFF's request for judicial notice of the nine publicly filed GEMSA complaints in federal district courts.[1]

         II. ADMINISTRATIVE MOTION TO AUGMENT THE RECORD

         EFF also moved to augment the record under Civil Local Rule 72-3(b), 7-11 and 28 U.S.C. § 686. ECF No. 29. EFF seeks to add two declarations to the record: (1) A declaration from Kurt Opsahl, the General Counsel for EFF, describing EFF's connections with California (its property, banking, services, members, readers, and donors) and, (2) a declaration from Benjamin Weed, a partner at K&L Gates LLP who represents eBay in a suit in which GEMSA is suing eBay in another court in this district. ECF No. 29-3 ¶¶ 1-4. Weed explains that in January 2017, GEMSA's director Schumann Rafizadeh came to San Francisco for a several day mediation session, and, separately, for a two day deposition regarding the eBay suit. ECF No. 29-3 ¶ 7-8.

         Under 28 U.S.C. § 636(b)(1), a district court “may . . . receive further evidence” in reviewing a party's objections to a magistrate judge's findings and recommendations. Under Civil Local Rule 72-3(b), a party may move to augment the record to accompany a motion for de novo determination of a dispositive matter referred to a magistrate judge. Accordingly, this Court grants EFF's motion to augment the record and considers the declarations filed herein. ECF No. 29.

         III. BACKGROUND

         EFF is a nonprofit that aims to protect civil liberties as they relate to digital life, the internet, and other modern technology. ECF No. 1 (“Compl.”) ¶ 4. EFF advocates for free speech online and other civil liberties through litigation, blog posts, and policy analysis. Id. GEMSA is an Australian corporation that holds a number of patents and has filed several patent infringement lawsuits in the United States. Id. ¶ 5.

         EFF also advocates for reform of the United States patent system, including through an article series called the “Stupid Patent of the Month.” ECF No. 1 ¶ 9. The “Stupid Patent of the Month” series “call[s] attention to examples of questionable patents that stifle innovation [and] harm the public” each month in an effort to ultimately inspire patent reform. Id. ¶ 10. On June 30, 2016, EFF staff attorney Daniel Nazer published a “Stupid Patent of the Month” article about a patent owned by GEMSA, U.S. Patent No. 6, 690, 400 (“the '400 patent”) and GEMSA's related litigation efforts. Id. ¶ 13; see Daniel Nazer, Stupid Patent of the Month: Storage Cabinets on a Computer, Deeplinks Blog (June 30, 2016), https://www.eff.org/deeplinks/2016/06/stupid-patent-month-storage-cabinets-computer (the “article”), available at ECF No. 1-5. The article explains that the '400 patent claims the idea of using a cabinet to graphically represent data organization, and that GEMSA uses this basic idea to sue “just about anyone who runs a website.” Id. The article says that GEMSA “seems to be a classic patent troll.” Id. The article calls on Congress to pass venue reform legislation to reduce the harm caused by frequent patent litigators like GEMSA. Id.

         Two months after Nazer posted his article, GEMSA's counsel emailed EFF a demand letter, alleging that EFF had slandered the company and demanding that EFF retract the article, remove all copies of the article from the internet, issue an apology, and pay damages. Id. at ¶ 20-21. GEMSA demanded a response within two weeks, and threatened litigation if EFF did not comply. Id. ¶ 21. EFF responded by letter, seeking clarification. Id. ¶ 22. GEMSA did not respond, and instead filed suit against EFF in October 2016 in the Supreme Court of South Australia. Id. ¶ 23. GEMSA failed to properly serve EFF the lawsuit's initiating papers. Id. The lawsuit sought an order requiring EFF to immediately remove the article and restraining EFF from publishing any content regarding GEMSA's intellectual property. Id. ¶ 25. The lawsuit challenged nine specific statements in the article as misleading and negligent. Id. ¶ 27. For example, GEMSA alleged that: (1) EFF's statement that the ʼ400 patent is “stupid” was false, (2) EFF's description of the patent did not “accurately depict the complexities” of the patent, and (3) EFF “did not have reasonable grounds” for stating that the local rules for the district court for the Eastern District of Texas, where GEMSA filed its cases regarding the patent, favor frequent patent litigators like GEMSA. Id. GEMSA alleged that EFF's article harmed GEMSA's litigation efforts in the United States, as demonstrated by cancelled mediations, and a court setting a Markman hearing. Id. ¶ 31-32. According to GEMSA, such harm was part of a conspiracy by EFF, Airbnb (a defendant in a GEMSA patent litigation case), and Mark Cuban (an EFF donor), though GEMSA did not provide further details on this alleged conspiracy. Id. Although EFF never appeared in the Supreme Court of South Australia, on October 31, 2016, that court issued an injunction against EFF which ordered EFF to immediately remove the article and restrained EFF from publishing any content regarding GEMSA's intellectual property. Id. ¶ 34. EFF faces asset seizure, imprisonment, and other potential penalties for failing to comply with the Australian injunction. Id.

         GEMSA's counsel emailed EFF a second demand letter in January 2017 which included a copy of the injunction, and demanded that EFF remove the article, remove all references to the article across the internet, and pay $750, 000 in damages. Id. ¶ 35. Counsel for EFF responded in February 2017 declining to comply as the injunction was unenforceable because EFF's commentary consisted of “substantially true facts, protected opinion, and rhetorical hyperbole.” Id. ¶ 36. EFF has not removed the article and does not intend to do so, but nonetheless feels chilled from speaking about GEMSA's intellectual property. Id. ¶ 36-68.

         EFF turned to this Court for declaratory relief from the injunction under the Securing the Protection of our Enduring and Established Constitutional Heritage Act (the “SPEECH Act”), 28 U.S.C. §§ 4101-4105 and the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202. EFF alleges that declaratory relief is due because the Australian injunction violates EFF's free speech rights under the United States Constitution and under California law, as the article's statements are true, opinion, hyperbole, or otherwise protected by the First Amendment. Id. ¶ 42. Moreover, EFF alleges that the Australian court's exercise of jurisdiction did not comport with United States due process, and therefore also did not comply with the Hague Convention. EFF seeks only a declaration (1) “that the Australian Injunction is repugnant to the United States Constitution and the law of California and the United States, ” and (2) “that the Australian Injunction cannot be enforced in the United States.” Id. at 19.

         GEMSA has not appeared in this action. ECF No. 14 at 10. Accordingly, EFF seeks default judgment on its claims. Id. EFF argues that default judgment is due because the Australian injunction was a prior restraint on speech, which would not survive constitutional scrutiny in the United States under the SPEECH Act and the Declaratory Judgment Act. Id. at 10. In its motion for default judgment, EFF also elaborates on this Court's jurisdiction over GEMSA. EFF explains that this case closely resembles a case where the Ninth Circuit found personal jurisdiction because defendants sent demand letters and served process against a California company in California, but obtained a French court's order against that plaintiff. Id. at 16 (citing Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199 (9th Cir. 2006)).

         Magistrate Judge James, who was originally assigned this case, ordered EFF to provide supplemental briefing on how the Court had personal jurisdiction over GEMSA under the Supreme Court's test articulated in Walden v. Fiore, 134 S.Ct. 1115, 1122 (2014) and whether GEMSA was properly served. ECF No. 17. In its supplemental brief, EFF explained that in addition to the contacts with California alleged in the complaint, GEMSA retained counsel in California to prosecute three unrelated infringement actions. ECF No. 22 at 2 n.1. EFF also argued that GEMSA's successful effort to obtain the Australian injunction was a part of a “course of conduct explicitly aimed at suppressing a Californian's speech about litigation involving California companies such as Airbnb that is of interest to readers in the Northern District and throughout California. Id. at 3. EFF explained that GEMSA was properly served because its process server left the documents on the reception counter in compliance with Australian law, and therefore in compliance with the Hague Convention. Id. at 5-6.

         Shortly thereafter, Judge James issued a Report and Recommendation (“R&R”) recommending that this Court deny the Motion for Default Judgment. ECF No. 23. Judge James concluded that the Court had subject matter jurisdiction over the federal questions raised under the Declaratory Judgment Act and the SPEECH Act. Id. at 6. Judge James also concluded that GEMSA was properly served. Id. at 12. The R&R concluded, however, that the court lacked personal jurisdiction because GEMSA did not direct any conduct towards California or any resident of California other than the conduct involving EFF at issue in this case. Id. at 8-9. Judge James also rejected EFF's argument that GEMSA reached out to this district because it is prosecuting unrelated patent infringement cases in this district, as those cases were transferred to this district over GEMSA's opposition. Id. at 9-10.

         EFF then filed a motion for a de novo determination of the R&R, which is the subject of this order. ECF No. 27. EFF objects to the R&R's determination that this Court lacked specific personal jurisdiction over GEMSA. Id. at 8. EFF argues that the Report misinterpreted Walden, and that another Supreme Court case, Calder v. Jones, 465 U.S. 783 (1984), compels a finding of personal jurisdiction in this case. Id. at 10-11. EFF explains that GEMSA knowingly injured EFF in California because GEMSA knew EFF operated in California when it sought its injunction against EFF's operations. Id. at 15. EFF argues that under Calder's effects test, the effect of GEMSA's speech suppressing injunction is felt in California, where EFF does its speaking and where many of its readers reside. Id. at 20.

         IV. LEGAL STANDARDS

         When subject matter jurisdiction is based on a federal question, as is the case here, a federal court applies the long-arm statute of the state in which it sits to determine whether there is personal jurisdiction. Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1123 (9th Cir. 2002). California's long-arm statute provides that personal jurisdiction extends as far as federal due process allows. Daimler AG v. Bauman, 134 S.Ct. 746, 753 (2014) (applying California law). Under this standard, specific personal jurisdiction exists where:

(1) the defendant has performed some act or consummated some transaction within the forum or otherwise purposefully availed himself of the privileges of conducting activities in the forum, (2) the claim arises out of or results from the defendant's forum-related activities, and (3) the exercise of jurisdiction is reasonable.

Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1155 (9th Cir. 2006) (citation omitted). “If the plaintiff succeeds in satisfying both of the first two prongs, the burden then shifts to the defendant to ‘present a compelling case' that the exercise of jurisdiction would not be reasonable.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)).

         To decide whether the first prong is met in tort cases, the Ninth Circuit applies the “effects test” set forth in Calder v. Jones, which “is satisfied if (1) the defendant committed an intentional act; (2) the act was expressly aimed at the forum state; and (3) the act caused harm that the defendant knew was likely to be suffered in the forum state.” Love v. Associated Newspapers, Ltd., 611 F.3d 601, 609 (9th Cir. 2010); see also, 465 U.S. 783.[2] The Ninth Circuit has held that a case brought under the First Amendment, asserting that a foreign court's order is unenforceable by an American court, is likewise analyzed under the “effects test.” Yahoo!, 433 F.3d at 1206.

         Under this test, courts determine whether “the defendant has directed his actions at the forum state, even if those actions took place elsewhere.” Picot v. Weston, 780 F.3d 1206, 1212 (9th Cir. 2015). “An intentional act is one denot[ing] an external manifestation of the actor's will . . . not includ[ing] any of its results, even the most direct, immediate, and intended.” Morrill v. Scott Fin. Corp., 873 F.3d 1136, 1142 (9th Cir. 2017) (internal citations omitted). “[R]andom, fortuitous, or attenuated contacts are insufficient to create the requisite connection with the forum.” Id.

         The decision to grant or deny a plaintiff's motion for default judgment is soundly within this Court's discretion. See Aldabe v. Adabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The Court may evaluate the following factors in considering a motion for default judgment:

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute concerning material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 616 (9th Cir. 2016) (citing Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986) (the “Eitel factors”)). In assessing default judgment, the factual allegations in the complaint are taken as true. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 916-17 (9th Cir. 1987). As EFF seeks default judgment in the form of declaratory relief stating that GEMSA's injunction is unenforceable under the SPEECH Act, EFF “bear[s] the burden of establishing that the foreign judgment would not be enforceable.” 28 U.S.C. § 4104 (a)(2).

         V. DISCUSSION

         A. Whether the Court has jurisdiction over GEMSA

         When, as here, entry of judgment is sought against a party who has failed to plead or otherwise defend the action, the Court has an affirmative duty to determine whether it has jurisdiction over the subject matter and the parties. In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). At the outset, the Court agrees with and adopts the portions of the well-reasoned R&R concluding that the Court has subject matter jurisdiction over the claims and that GEMSA was properly served. ECF No. 23, at 6, 10-12. Remaining at issue, however, is whether the Court has specific personal jurisdiction over GEMSA.[3]

         As is relevant here, specific personal jurisdiction exists where: (1) the defendant purposefully availed itself, (2) the claim arises out of the defendant's forum-related activities, and (3) the exercise of jurisdiction is reasonable. Pebble Beach, 453 F.3d at 1155. The first prong is analyzed under the effects test which “is satisfied if (1) the defendant committed an intentional act; (2) the act was expressly aimed at the forum state; and (3) the act caused harm that the defendant knew was likely to be suffered in the forum state.” Love, 611 F.3d at 609.

         EFF alleges that this Court has specific personal jurisdiction over GEMSA under these standards because GEMSA: (1) emailed EFF a demand letter in August 2016 demanding that EFF take certain actions which would infringe on EFF's First Amendment rights in California; (2) obtained a court injunction that required EFF to carry out those acts in California; (3) engaged an agent to physically present EFF a copy of the injunction in California; (4) mailed a second demand letter to California threatening to enforce the injunction and demanding that EFF remove the article, pay $750, 000, and engage with California based internet companies to deindex the article;[4] and (5) carries out significant litigation activities in this district, including when its director entered California for a mediation and deposition regarding the same '400 patent at issue in this case. Compl. ¶ 8, 19-34; ECF No. 27 at 15-16.

         1. The applicability of Walden v. Fiore

         The Court first addresses EFF's contention that the R&R misapplies Walden in concluding that the Court lacks personal jurisdiction over GEMSA. ECF No. 27 at 11-12.

         In Walden, the Supreme Court expressly reaffirmed the Calder effects test, which guides this Court's analysis, but narrowed its application by holding that “the plaintiff cannot be the only link between the defendant and the forum.” Walden, 134 S.Ct. at 1122. The Court held that while “the parties' relationships with each other [continue to] be significant in evaluating their ties to the forum, ” Walden, 134 S.Ct. at 1123 (quotation omitted), “a defendant's relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction, ” id. (emphasis added). But Walden did not eliminate the plaintiff/defendant relationship from consideration. Post-Walden cases in the Ninth Circuit and in this district have continued to consider contacts between a plaintiff and a defendant, along with the defendant's other contacts with the forum, in finding personal jurisdiction. See RHUB Commc'ns, Inc. v. Karon, No. 16-CV-06669-BLF, 2017 WL 3382339, at *7 (N.D. Cal. Aug. 7, 2017) (concluding that because Walden directed the court to focus on the defendant's contacts with the forum states itself, and not to limit its analysis to contacts with the plaintiff, such a showing was made where defendant initiated contact with employees in the forum state); Bittorrent, Inc. v. Bittorrent Mktg. GMBH, No. 12-CV-02525-BLF, 2014 WL 5773197, at *5-8 (N.D. Cal. Nov. 5, 2014) (finding personal jurisdiction where a trademark infringement scheme hurt plaintiff's reputation, and therefore injured the California-based plaintiff in California despite the cybersquatting occurring in Germany); see also Picot, 780 F.3d at 1215 (finding the effects test was not met because, as in Walden, the injury was “not tethered to California in any meaningful way” because the conduct occurred fully out of state).

         The Walden court found no personal jurisdiction because there was no conduct in the forum state, and the only connection between the defendant and that forum was the harm the plaintiffs felt, which could have been felt in any state. Walden, 134 S.Ct. at 1125-26. Plaintiffs filed suit in Nevada in response to the defendant seizing their gambling winnings as they attempted to board a plane from Georgia to Nevada. Id. at 1119. The conduct in question occurred in Georgia, not in Nevada. The defendants did nothing to reach out to the plaintiffs in Nevada ' the forum state ' and the plaintiffs maintained residences in both Nevada and California. Id. The Court found that the harm at issue, the deprivation of money, was not “tethered to Nevada in any meaningful way” because it would have been felt in any state the plaintiffs chose to be in (and the plaintiffs in fact maintained residences in multiple states). Id. at 1125. In short, Walden stands for the proposition that a defendant's relationship to the forum must rely on something other than merely “random, fortuitous, or attenuated contacts.” Id. at 1123 (internal citation omitted).

         Here, by contrast, there are two instances of relevant conduct that are neither random nor attenuated in their relationship to the forum: (1) an injunction granted in an Australian court, and (2) a threat to enforce that injunction in California should the current motion be denied. Unlike the seizure at issue in Walden, the effects of these actions cannot be felt with equal force just anywhere. Indeed, California may properly be said to be the epicenter of the parties' dispute. EFF is a California nonprofit whose employees, and a significant amount of donors and readers, are located in the state. ECF No. 29-2. EFF uttered the challenged speech here. If the injunction is enforced, the actions to take the speech down will occur here. Likewise, the harm to EFF will also occur here. Cf. id.; see also Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty., 137 S.Ct. 1773, 1782 (2017) (rejecting specific jurisdiction where the plaintiffs were not California residents, did not claim to have suffered harm in California, and all the conduct giving ...


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