Friday, August 25, 2006

Mr. Nice Guy

After four lackluster and overly critical posts (triggered by a classic relaxing family vacation, and then some), I am back home and determined to regain some equanimity by accentuating the positive. Here is a link to an August 23rd Tenth Circuit opinion, 1Mage Software, Inc. v. Reynolds & Reynolds Co. There are two issues of interest in the opinion; the first involves "arising under" subject matter jurisdiction, the second arbitration. I will cover only the first issue, although the second is important too.

Federal question jurisdiction is provided for as a general matter in 28 USC 1331, and for IP specifically in 28 USC 1338(a). In the latter case, not just original, but exclusive jutrisdiction is provided for. But the dispute must still "arise under" the Copyright Act for original, exclusive jurisdiction to lie in the federal courts. If every dispute involving a copyright work was deemed to arise under the Copyright Act, the task would theoretically be easy. Courts have, however, rejected such an approach. Say, for example, a film studio gets financing for a movie and the bank takes a security interest. The film studio doesn't pay up, and the bank wants to foreclose on the copyright. Does such a dispute arise under the Copyright Act? No.

Contracts are another and the most frequently litigated area in which arising under jurisidiction disputes occur. Two parties enter into a licensing deal. The licensee breaches and the licensor says, you breached and now you are an infringer because your use is without a license. Very long chapters in treatises can be written on this subject.

The classic case on point is the legendary Henry Friendly's T.B. Harms Co. v. Eliscu, 339 F.2d 823 (2d Cir. 1964). T.B. Harms was thrown overboard for awhile in the Second Circuit, but reinstalled by Judge Leval's opinion in Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343 (2d Cir. 2000)(Judge Leval clerked for Judge Friendly). Judge Friendly's T.B. Harms opinion is not without its problems and may even have been wrong on the merits as the law clerk for him at the time mentioned to me once, but I am accentuating the positive today. The positive is this: the purpose of T.B. Harms is to ensure that exclusive federal jurisdiction is not knocked out at the FRCP 12(b)(6) stage, when facts are likely to be in short supply. It may turn out after discovery that the dispute really is a pure contract dispute, and if so and no other basis for federal jurisdiction exists, the case will be dismissed since lack of subject matter jurisdiction may be raised at any time.

The iMage opinion joins a long line of other circuits in adopting Judge Friendly's helpful approach. Have a nice weekend.

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