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Zaletel v. Prisma Labs, Inc.

United States District Court, E.D. Virginia, Alexandria Division

December 22, 2016

MICHAEL ZALETEL, d/b/a i4SOFTWARE, Plaintiff,
v.
PRISMA LABS, INC., Defendant.

          MEMORANDUM OPINION

          T.S. Ellis, III United Slates District Judge

         Defendant in this trademark infringement action has moved pursuant to Rule 12(b)(2), Fed. R. Civ. P., to dismiss plaintiff's complaint for lack of personal jurisdiction or, in the alternative, to transfer venue pursuant to 28 U.S.C. § 1404. Thus, at issue is the threshold question of personal jurisdiction, namely, whether defendant's distribution of allegedly infringing smart phone and tablet applications through third-party, online stores constitutes a sufficient basis for the exercise of personal jurisdiction over defendant in this forum.

         I.[1]

         Plaintiff, Michael Zaletel, a software developer, resides and works in North Carolina where, in 1999, he founded “i4software, ” a sole proprietorship, through which plaintiff has been developing and selling applications (“apps”) for smart phones. In the course of developing and selling apps, plaintiff registered the “Prizmia” mark with the United States Patent and Trademark Office, which mark plaintiff uses in connection with his “Prizmia” app.[2] The “Prizmia” app allows users to apply “filters” to photographs and videos, which filters have the effect of modifying images. Plaintiff sells its “Prizmia” app through the Apple App Store for 99 cents.

         Defendant, Prisma Labs, Inc., is a software company that is incorporated in Delaware but based in Moscow, Russia. Indeed, most of defendant's employees live in Russia. Defendant also has a recently-opened office in Sunnyvale, California, in the Bay Area, populated by two recently-hired software developers. The record is unclear whether defendant hired these software developers as employees or independent contractors, but there is no question that defendant hired one of these developers one month before plaintiff filed suit, and hired the other developer two months after plaintiff brought this action. Although defendant contends that its United States headquarters are in Sunnyvale, California, the record suggests that defendant is not registered to do business in California.

         In June 2016, defendant launched a photo-filtering app, called “Prisma, ” which is available for download without charge on the Apple App Store and the Google Play Store. This app is designed for devices using Apple's iOS and Google's Android operating systems. From June 2016 to October 2016, defendant's app has been downloaded approximately 70 million times. Plaintiff alleges that defendant, through defendant's use of the “Prisma” mark, infringes on plaintiff's registered “Prizmia” mark.

         Pertinent to the jurisdictional analysis, the record reflects that individuals, by using defendant's “Prisma” app, occasionally send their photographs or videos to one of defendant's servers located outside of Virginia. In such instances, defendant's server processes and filters the user's photographs or videos, and then returns the images to the user's device.[3] Importantly, however, the record discloses that defendant's servers do not know where an app user's device is located when the user's device sends a request to, or otherwise communicates with, the servers. Nor do defendant's servers know where an app user's device is located when the servers return filtered images to the user.

         In addition, defendant operates a website, http://prisma-ai.com, which contains information about defendant's “Prisma” app. This app is not available for download directly on defendant's website; rather, defendant's website includes links to the Apple App Store and the Google Play Store. If a user clicks through these links, that user could then download defendant's app from the third-party distributor. Defendant's website also includes links to various news articles about defendant's app, articles in which defendant's CEO and other employees have been quoted, as well as an email address for defendant. It is worth noting too, that defendant's website is passive and simply displays information. For instance, the website does not permit visitors to create an account to use the site (or to use defendant's app), nor does the website provide any sort of forms that a user could fill out, such as warranty forms. Nor is there anything on the website specifically targeting or singling out Virginia.

         Finally, it is worth noting the following:

• Defendant's app itself does not require an individual in the United States to create an account in order to use the app.
• Defendant does not know how many app users are in Virginia, as defendant does not count or keep track of the number of app-users in Virginia or in any other specific location.
• Defendant's contracts with the third-party distributors (the Apple App Store and Google Play Store) are enforceable under states other than Virginia.
• Defendant does not have any offices, employees, or contracts in Virginia.
• Defendant does not have an established communication network with Virginia consumers.
• Defendant does not market or advertise its app in Virginia, aside from defendant's website, which is generally accessible throughout the United States.
• Any software updates to the app are made available by the third-party distributors.
• Defendant did not design its app specifically for any State's regulations.

         II.

         Because defendant has timely filed a Rule 12(b)(2) motion, analysis properly begins with the question of personal jurisdiction. Once a defendant has raised a timely Rule 12(b)(2) motion, a plaintiff “bears the burden of demonstrating personal jurisdiction at every stage following such a challenge.” Grayson v. Anderson, 816 F.3d 262, 267 (4th Cir. 2016). Yet, a plaintiffs burden of persuasion depends on the case's procedural posture. For instance, a plaintiff must satisfy a prima facie standard “when the court addresses the personal jurisdiction question by reviewing only the parties' motion papers, affidavits attached to the motion, supporting legal memoranda, and the allegations in the complaint[.]” Id. at 268. In such circumstances, “the court must take the allegations and available evidence relating to personal jurisdiction in the light most favorable to the plaintiff.” Id.[4]

         Under Fourth Circuit law, resolution of a personal jurisdiction challenge involves a two-step inquiry. See Universal Leather, LLC v. Koro AR, S.A., 773 F.3d 553, 558 (4th Cir. 2014). The first step is to determine whether Virginia's long-arm statute, Va. Code § 8.01-328.1, by its terms, reaches defendant's conduct. If the long-arm statute does not reach defendant's conduct, the inquiry ends; there is no personal jurisdiction over defendant. See Id. But if the long-arm statute, by its terms, reaches defendant's conduct, then analysis turns to the second step-the due process inquiry-to determine whether the long-arm's reach exceeds its constitutional grasp. Id.; see also AESP, Inc. v. Signamax, LLC, 29 F.Supp.3d 683, 688 (E.D. Va. 2014) (describing this two-step process). Moreover, when a provision of the Virginia long-arm statute is held to permit the exercise of personal jurisdiction over a defendant to the outer limits allowable under federal due process, this two-prong test merges into the constitutional inquiry. See Tire Eng'g v. Shandong Linglong Rubber Co., 682 F.3d 292, 301 (4th Cir. 2012) (“Because Virginia's long-arm statute extends personal jurisdiction to the outer bounds of due process, the two-prong test collapses into a single inquiry when Virginia is the forum state.”).

         The Virginia long-arm statute provides for in personam jurisdiction over any person who “transact[s] any business” in Virginia, or who causes “tortious injury” in Virginia by an act or Significantly, an evidentiary hearing “does not automatically involve or require live testimony.” Id. (emphasis in original). Rather, “an evidentiary hearing requires only that the district court afford the parties a fair opportunity to present both the relevant jurisdictional evidence and their legal arguments.” Id. (quotation marks omitted). Thus, the Fourth Circuit has declined “to impose on a district court the hard and fast rule that it must automatically assemble attorneys and witnesses when doing so would ultimately serve no meaningful purpose.” Id. at 269. Indeed, a district court may, in lieu of taking live testimony, “consider evidence in the form of depositions, interrogatory answers, admissions, or other appropriate forms.” Id. at 268-69. Here, the distinction between an “evidentiary hearing” and a ruling on the review based solely on the complaint, motions papers, and related documents is of no moment, because plaintiff fails to make a prima facie showing of personal jurisdiction. omission outside of Virginia if that person (i) regularly does or solicits business in Virginia, (ii) engages in any other persistent course of conduct in Virginia, or (iii) derives substantial revenue from goods used or consumed or services rendered in Virginia. Va. Code. §§ 8.01-32.1(A)(1) & (4).[5] Because these provisions have been interpreted as extending to the limits permitted by the Due Process Clause, this analysis turns to the constitutional due process inquiry.[6] Simply put, neither long-arm provision constitutionally reaches defendant's conduct in this case.

         As the Fourth Circuit has recently noted, “[p]ersonal jurisdiction over persons conducting business on the Internet is determined under a [constitutional] standard that has evolved as necessary to accommodate the nature of the Internet.” Unspam Techs., Inc. v. Chernuk, 716 F.3d 322, 328 (4th Cir. 2013). That constitutional standard starts with the well-entrenched principle that a defendant must “have certain minimum contacts with [the forum] such that the maintenance of a suit does not offend traditional notions of fair play and substantial justice.” Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quotation marks omitted). Personal jurisdiction can be established under either general or specific jurisdiction.[7] Where, as here, a defendant's alleged contacts with the forum also constitute the asserted basis for the suit, analysis properly focuses on specific jurisdiction. See Tire Eng'g, 682 F.3d at 301 (where plaintiff “argues only that the court possess[es] specific jurisdiction over [defendants] . . . our analysis is confined to that model”). In this regard, the Fourth Circuit has adopted a three-part inquiry “to determine whether a defendant is subject to jurisdiction in a State because of its electronic transmissions to that State.” Chernuk, 716 F.3d at 328. Specifically, “the inquiry considers: (1) the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the forum state; (2) whether the plaintiff's claims [arose] out of those activities; and (3) whether the exercise of personal jurisdiction is constitutionally reasonable.” Id. (quoting ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002).[8]

         This first prong-“purposeful availment”-is “grounded on the traditional due process concept of ‘minimum contacts, ' which itself is premised on the basis that ‘a corporation that enjoys the privilege of conducting business within a state bears the reciprocal obligation of answering to legal proceedings there.'” Universal Leather, 773 F.3d at 559 (quoting Tire Eng'g, 682 F.3d at 301). Therefore, “in determining whether a foreign defendant has purposefully availed itself of the privilege of conducting business in a forum state, [courts] ask whether ‘the defendant's conduct and connection with the forum [s]tate are such that he should reasonably anticipate being haled into court there.'” Id. (quoting Fed. Ins. Co. v. Lake Shore Inc., 886 F.2d 654, 658 (4th Cir. 1989). Crucially, to satisfy this standard, “a defendant outside the forum State must have at least ‘aimed' its challenged conduct at the forum State.” Chernuk, 716 F.3d at 328 (quoting Calder v. Jones, 465 U.S. 783, 789 (1984)).

         Moreover, where, as here, defendant is a foreign corporation that (i) “has no presence in Virginia” and (ii) “did not itself sell products into Virginia, ” then “plaintiff[, ] to establish personal jurisdiction over defendant, must rely on the ‘stream of commerce' ...


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