IP Law Daily Dismissal of some of Canadian seismic surveyor’s copyright infringement claims reversed
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Friday, March 10, 2017

Dismissal of some of Canadian seismic surveyor’s copyright infringement claims reversed

The federal district court in Houston’s dismissal of Canadian seismic surveyor Geophysical Service’s direct copyright infringement claim against TGS-NOPEC Geophysical Co. ("TGS") was reversed to the extent that it was based on the importation of unlawfully made copies and remand for further proceedings on that claim in light of the principles of the first sale doctrine and extraterritoriality, the U.S. Court of Appeals in New Orleans has decided. Furthermore, the district court’s award of attorney fees and costs to Geophysical’s Texas-based competitor TGS was reversed, and the court could reconsider that issue after its determination of the remanded claim. In addition, the district court’s dismissal of Geophysical’s contributory infringement claim, the dismissal of Geophysical’s direct infringement claim to the extent that it was based on infringing acts by TGS after it received copies of Geophysical’s seismic lines, and the dismissal of Geophysical’s claim of removal of copyright management information, were affirmed (Geophysical Service, Inc. v. TGS-NOPEC Geophysical Company, March 10, 2017, Higginbotham, P.).

The parties compete in the seismic data industry. Reflected sound waves bring information about the rock layers beneath the earth’s crust, information nigh useless until geophysicists digitally create "seismic lines," professional interpretation of the information gathered and puts it into a useful format. The result is a copyright-protected geological "picture."

The Canada-Newfoundland and Labrador Offshore Petroleum Board ("CNLOP Board"), established by Canadian legislation, regulates energy exploration to ensure worker safety, environmental protection and safety. Under Canadian law and the regulations of the CNLOP Board, companies are required to provide the CNLOP Board with a copy of each seismic line they create, and Geophysical provided copies of its seismic lines to the Board.

In 1999, TGS-NOPEC Geophysical Co. ("TGS") emailed the CNLOP Board to request copies of thirty-three of Geophysical’s old seismic lines. Pursuant to that request, and apparently acting under the authority of the Canadian legislation that established it, the CNLOP Board directed a private copy service in Canada to prepare copies of Geophysical’s old seismic lines and send them by courier to TGS in Houston.

Learning that the CNLOP Board had furnished the seismic lines, Geophysical filed this suit alleging that it held a valid copyright in its seismic lines and that TGS committed direct copyright infringement, committed contributory copyright infringement, and unlawfully removed Geophysical’s copyright management information from its works.

In its final opinion after reconsideration, the district court ruled that Geophysical failed to state a claim for direct infringement or removal of copyright management information because its allegations in support of those claims were speculative and conclusory. It further ruled that Geophysical could not maintain a claim for contributory infringement because the direct infringement upon which that claim was predicated occurred extraterritorially, and alternatively, because the act of state doctrine forbade the court from passing on the legality of the CNLOP Board’s actions. Finally, the district court ruled that to the extent Geophysical claimed importation of infringing material, that claim was barred because the act of state doctrine and "extraterritoriality principles" required the court to find that the copies were lawfully made. The district court then dismissed Geophysical’s complaint with prejudice and awarded TGS attorney fees and costs. Geophysical appealed.

Jurisdiction. As an initial matter, the court held that the Copyright Act’s insistence that infringing conduct be domestic offers an essential element of a copyright infringement plaintiff’s claim, not of jurisdiction. The appellate court was persuaded that bounding the reach of the Copyright Act to territorial conduct presents a question of the merits of the claim, not the jurisdiction of the court.

Infringement Geophysical’s briefing on appeal focused entirely on the importation component of its direct infringement claim and its contributory infringement claim. To the extent that Geophysical’s claim of direct infringement was based on alleged actions taken by TGS after receiving the imported copies, it now abandoned those allegations on appeal, as well as any claim of unlawful removal of copyright management information. Two claims remained: direct infringement by importation and contributory infringement.

Direct infringement by importation. The district court dismissed Geophysical’s claim of unlawful importation on two independent grounds. First, it found that Geophysical failed to plead unlawful importation in its complaint. Second, it found that amendment was futile: the claim would be barred because the act of state doctrine and "extraterritoriality principles" required the court to find that the copies made by the CNLOP Board were "lawfully made".

Geophysical adequately pleaded a claim for unlawful importation, the appellate court held. Under § 602 of the Copyright Act, importation into the United States of copyrighted work without the copyright holder’s permission is actionable as infringement of the copyright holder’s exclusive right to distribute. Geophysical’s complaint pleaded that TGS imported copies of its copyrighted seismic lines. It further alleged, under the heading "Direct Copyright Infringement," violation of Geophysical’s exclusive right to distribute. This was sufficient to state a claim.

On the merits, the doctrine of "first sale" is somewhat of a misnomer, the Fifth Circuit explained. The limitation embodied in § 109 does not depend on whether the copyright owner’s initial disposition was by sale; the only prerequisite is that the copy or phonorecord in question be "lawfully made."

The Fifth Circuit declined to resolve the question of whether the copies here were lawfully made, as the district court did not reach it, having found primarily that Geophysical failed to plead an importation claim, and alternatively, that the act of state doctrine required a finding of "lawfulness" regardless of whose law applied. Therefore, the case was remanded for determination of the proper standard by which to assess whether imported copies made abroad were lawfully made under § 109 and application of that standard.

As mentioned, the district court did not need to engage this "lawfully made" analysis because it found that the act of state doctrine mandated a finding that CNLOP Board’s making of the copies was lawful. The appellate court turned to that doctrine.

The district court accepted TGS’s argument that, because the act of state doctrine bars United States courts from deciding that a foreign government acted unlawfully, the court was required to find the copies made by the CNLOP Board "lawfully made" within the meaning of § 109. The Fifth Circuit disagreed.

The act of state doctrine limits, for prudential rather than jurisdictional reasons, the adjudication in American courts of the validity of a foreign sovereign’s public acts. The doctrine applies to bar an action when the relief sought or the defense interposed would have required a court in the United States to declare invalid the official act of a foreign sovereign performed within its own territory.

The question presented by the first sale doctrine, whether imported copies were "lawfully made," is different in kind from the question whether the copy-maker acted illegally or invalidly. Hence, the first sale question is outside the scope of the act of state doctrine even when the foreign copy-maker is a government agency, the court reasoned. The Copyright Act, which does not apply extraterritorially, does not operate against the CNLOP Board in Canada. Evaluating the first sale defense in connection with TGS’s importation of copies made by the Board does not decide whether the CNLOP Board is a copyright infringer, which would be a prohibited inquiry, according to the court.

Further, the rationale behind the act of state doctrine did not support its application here. Thus, disagreeing with the application here of the act of state doctrine, the court reversed the dismissal of Geophysical’s importation claim.

The inapplicability of the United States Copyright Act to extraterritorial conduct provided no defense to Geophysical’s importation claim. It was undisputed that TGS imported the copies of Geophysical’s seismic lines into Houston, Texas by causing the CNLOP Board to send them there. Therefore, the act of importation occurred in the United States and is actionable under the Copyright Act depending on the resolution of TGS’s first sale defense, the court opined. To the extent the district court’s dismissal of Geophysical’s importation claim rested on "extraterritoriality principles," that was incorrect, the court held.

Contributory infringement. Geophysical also asserted a claim of contributory infringement, seeking to hold TGS liable as a contributory infringer to the CNLOP Board’s direct infringement in creating copies of Geophysical’s seismic lines without Geophysical’s permission. The district court ruled that both the territoriality limit of the Copyright Act and the act of state doctrine independently barred this claim. The appellate court affirmed on the basis of extraterritoriality.

Where a copyright plaintiff claims contributory infringement predicated on direct infringement that occurred entirely extraterritorially, the plaintiff has stated no claim. Geophysical alleged that TGS authorized in Houston the CNLOP Board to infringe Geophysical’s copyright in Canada by creating copies in Canada and then exporting them. This failed to state a claim of contributory infringement because it alleged authorization of alleged direct infringement that occurred entirely extraterritorially. The district court correctly dismissed the claim on that basis. Affirm on the basis of extraterritoriality, the court did not need to consider whether the act of state doctrine would bar Geophysical’s contributory infringement claim.

Attorney fees. The district court’s award of attorney fees and costs was vacated. On remand, the lower court was free to entertain a new motion after disposing of Geophysical’s remaining claim.

The case is No. 15-20706.

Attorneys: Joel B. Rothman (Schneider Rothman Intellectual Property Law Group) for Geophysical Service, Inc. Melanie B. Rother (Norton Rose Fulbright US, LLP) for TGS-NOPEC Geophysical Co.

Companies: Geophysical Service, Inc.; TGS-NOPEC Geophysical Co.

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