Bernstein Shur Business and Commercial Litigation Newsletter #26

By Paul McDonald and Dan Murphy

March 2013 | Issue 26

We are pleased to present the 26th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight a recent U.S. Supreme Court decision favoring the emerging gray market, arbitration of employment disputes and other news that will have an impact on business and commerce. We hope you enjoy the newsletter.

In the News:

The U.S. Supreme Court held that the Copyright Act’s First Sale Doctrine applies to works that are lawfully made outside of the United States. In Kirtsaeng v. John Wiley & Sons, Inc., a U.S. publisher sought damages for copyright infringement and an injunction blocking sales of textbooks sold over the Internet by a U.S. student. The student’s friends and family in Thailand bought foreign editions of the textbooks, which were sold at lower prices than in the U.S. and mailed them to the student, who then sold them through online auctions, allegedly earning more than to $1 million in revenues. The publisher claimed the student was infringing its copyright by importing and selling the books without its permission. The student-seller based his defense on the First Sale Doctrine, an exception to a copyright holder’s exclusive distribution and reproduction rights. Under the doctrine, “lawfully made” and purchased works may be resold, loaned or rented, but not reproduced without permission. Seeking to limit the gray market in foreign-produced works, the publishers argued that the first sale doctrine could not apply because the foreign textbooks could not qualify as “lawfully made” works. The High Court disagreed, refusing to read a geographic restriction into the First Sale doctrine, and holding that resale of textbooks on the Internet by the student was not prohibited under the U.S. Copyright Act. Analysts believe the decision will provide support for the gray market in imported goods and will bolster online commerce. It will also require businesses to carefully consider international market/pricing segmentation strategies. Click here to read more about the case and here to access the court’s opinion.

The Second Circuit held that a former Goldman Sachs employee cannot pursue discrimination claims in court and instead must submit them to arbitration. In the case, Parisi v. Goldman Sachs & Co., a former employee alleged that the firm violated federal law by engaging in systematic pay and promotion discrimination. The employee sought to assert claims through a class action, however, her  employment agreement included a provision mandating individual arbitration of disputes. At the trial court level, the court ruled in favor of the employee, concluding that her rights could only be vindicated through a class action and that the arbitration clause abridged those rights. On appeal, the Second Circuit reversed, holding that the Federal Arbitration Act favored the enforcement of agreements to arbitrate, and that no substantive statutory right exists to pursue pattern-or-practice claims in federal court. The case is the latest in a recent group of cases upholding contractual arbitration provisions. Click here to read more about the case and here to access the court’s opinion.

A Federal Court authorized the Federal Trade Commission to serve a summons and complaint on a foreign defendant through email and Facebook. Service of process is the means by which a defendant is provided notice of a lawsuit and a court obtains jurisdiction over the defendant to hear the dispute. Although requirements for effective service vary by state, the most common service method is by personal service, delivery in hand to the defendant. For foreign defendants, courts have additional tools available to effectuate service, as long as such methods are not prohibited by treaty and comply with due process, including the requirement that the defendant obtain notice of the dispute. In the case, FTC v. PCcare247, Inc., U.S. District Judge Paul Engelmayer determined that service by email and Facebook was permissible and warranted because it was reasonably calculated to provide the defendants with notice of the action and afforded the opportunity to present their objections. Although Judge Engelmayer acknowledged that service by Facebook was novel, he emphasized that it was intended to work in unison with service by email. He also noted that courts should remain open to technological advances when considering requests for alternative service arrangements. Click here to read more about the case.