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Geophysical Service, Inc. v. TGS-NOPEC Geophysical Co.

United States Court of Appeals, Fifth Circuit

March 10, 2017

GEOPHYSICAL SERVICE, INCORPORATED, Plaintiff - Appellant
v.
TGS-NOPEC GEOPHYSICAL COMPANY, Defendant-Appellee

         Appeals from the United States District Court for the Southern District of Texas

          Before HIGGINBOTHAM, ELROD, and HIGGINSON, Circuit Judges.

          PATRICK E. HIGGINBOTHAM, Circuit Judge:

         Canada has a law that requires companies who gather seismic data about the Earth's substructure to submit their findings to the Canadian government. After a period of confidentiality, the Canadian agency that compiles this data is then apparently permitted to release it to members of the public upon specific request. In this case, a Houston company requested seismic data from this Canadian agency pursuant to that law, and the Canadian agency sent copies of a particular Canadian company's seismic data to the United States. The Canadian company then sued the Houston company, alleging copyright infringement.

          We are called upon to determine whether the act of state doctrine forbids a United States court from considering the applicability of copyright's first sale doctrine to foreign-made copies when the foreign copier was a government agency. We hold that it does not. We must also decide whether the inapplicability of the Copyright Act to extraterritorial conduct bars a contributory infringement claim based on the domestic authorization of entirely extraterritorial conduct. We hold that it does. Accordingly, we affirm in part, reverse in part, vacate in part, and remand.

         I.

         The parties compete in the seismic data industry, using off-shore technological equipment to bounce sound waves off the ocean floor. The reflected sound waves bring information about the rock layers beneath the earth's crust, information nigh useless until geophysicists digitally create "seismic lines, " paper copies of which are known as "seismic sections." A seismic line is a cross section of the area surveyed that incorporates professional interpretation of the information gathered and puts it into a useful format. The result is a copyright-protected geological "picture" of the subterranean structure in the area surveyed, useful to the oil and gas industry in locating hydrocarbons. These pictures are often licensed to oil and gas explorers.

         Plaintiff-Appellant Geophysical Service, Inc. ("Geophysical") is a Canadian corporation based in Calgary, operating under Canadian law. 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, effective management of land, maximum hydrocarbon recovery and value, and benefits to the government. 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 the Board is required to keep these submissions confidential for ten years.[1] Geophysical provided copies of its seismic lines to the Board.

         In 1999, Defendant-Appellee 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, [2] 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. The Board billed TGS $97.75 in shipping and handling costs. Geophysical discovered this transaction years later, in 2013.

         With the requested copies of Geophysical's seismic lines in hand, TGS performed its own seismic surveys in the same locations surveyed by Geophysical and captured in its seismic lines. Geophysical also alleges that TGS prepared additional copies of Geophysical's seismic lines, distributed them to third parties, removed their copyright management information, and prepared derivative works from them.

         Learning that the CNLOP Board had furnished the seismic lines, Geophysical filed this suit in the Southern District of Texas. Its complaint alleged 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. TGS filed a motion under Rule 12(b)(6) to dismiss the complaint, or alternatively, to abstain. The district court first ruled that the CNLOP Board had an implied license to create copies of Geophysical's seismic lines, so TGS's importation of them was protected by the first sale doctrine, and that any other claims were insufficiently pled, but that Geophysical could amend its complaint to add sufficient allegations. Geophysical did not amend, but instead moved for reconsideration of the district court's initial order, which the court granted. Its new order is the subject of this appeal.

         In its final judgment, 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 its attorneys' fees and costs upon TGS's motion. Geophysical timely appealed both the dismissal and fee award.

         II.

         1.

         "We review a district court's grant of a motion to dismiss de novo."[3] We review whether a district court applied the correct legal standard for attorneys' fees de novo.[4] We review a district court's ultimate award of attorneys' fees for abuse of discretion.[5]

         2.

         Turning first to our jurisdiction, as we must, [6] we see only one jurisdictional issue: TGS's contention that, as Geophysical did not allege domestic copyright infringement, its claims are beyond the territorial reach of the Copyright Act.[7] Some cases treat the territorial reach of the Copyright Act as an issue of jurisdiction, [8] so we turn first to this question.[9]

         We are persuaded 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. As Arbaugh v. Y&H Corp.[10] explained:

If the Legislature clearly states that a threshold limitation on a statute's scope shall count as jurisdictional, then courts and litigants will be duly instructed and will not be left to wrestle with the issue. . . . But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.[11]

         The Copyright Act does not express its limit on territorial reach. That limit arises from the background presumption that legislation reaches only domestic conduct.[12] Because the domestic boundary is not "clearly state[d]" to "count as jurisdictional, " we "treat the restriction as nonjurisdictional in character."[13]

         Though the Court has never confronted the precise question before us, analogous cases applying Arbaugh confirm that the issue is not one of jurisdiction. Section 10(b) of the Securities Exchange Act's implicit requirement of domestic conduct is nonjurisdictional, [14] and a different threshold requirement of the Copyright Act is nonjurisdictional.[15] We are 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.[16]

         III.

         1.

         A claim of copyright infringement has two elements: (1) ownership of a valid copyright; and (2) copying constituent elements of the work that are copyrightable.[17] This appeal concerns the second element.

         Geophysical advanced three claims in the district court: direct infringement, contributory infringement, and unlawful removal of copyright management information. Geophysical's direct infringement claim as presented to the district court consisted of two distinct components: first, that TGS unlawfully imported copies of Geophysical's seismic lines; second, that TGS thereafter prepared additional copies, prepared derivative copies, and distributed those copies to the public.

         However, Geophysical's briefing on appeal shifts ground, focusing entirely on the importation component of its direct infringement claim and its contributory infringement claim. "An appellant abandons all issues not raised and argued in its initial brief on appeal."[18] 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 abandons those allegations on appeal, as well as any claim of unlawful removal of copyright management information. Dismissal of those aspects of Geophysical's claims is not before us.

         2.

         Two claims remain: direct infringement by importation and contributory infringement.

         A. Direct Infringement by Importation

         The district court dismissed Geophysical's claim of unlawful importation on two independent grounds. First, it found that Geophysical had failed to plead unlawful importation in its complaint. Second, it found that amendment was futile: Geophysical's unlawful importation 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" within the meaning of the first sale doctrine.

         1. Failure to Plead

         We are not persuaded that Geophysical failed to plead a claim for unlawful importation. 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.[19] Unauthorized importation of copyrighted work is a statutorily established method of demonstrating infringement of one of the exclusive rights afforded by § 106 of the Copyright Act and is not itself a separate claim that must be separately pleaded.[20]

         Geophysical's complaint pleads that TGS imported copies of its copyrighted seismic lines:

[O]n March 29, 1999, TGSN solicited CNLOPB to copy and distribute to TGSN copies of the . . . Works. . . . [O]n or about April 9, 1999, CNLOPB copied and distributed the . . . Works to TGSN by courier to TGSN in Houston, Texas.

         It further alleges, under the heading "Direct Copyright Infringement, " violation of Geophysical's exclusive right to distribute. The complaint did not state that "unauthorized importation" or some variant partially formed the basis of Geophysical's direct infringement claim, but its substance was sufficient, and we turn to the merits of Geophysical's direct infringement claim alleging unlawful importation.

         2. Merits

         On the merits of Geophysical's importation claim, TGS defended on the basis that its importation of copies of Geophysical's seismic lines was protected by the first sale doctrine because the copies were "lawfully made." TGS offered the district court several alternative bases by which to find that the copies it imported were lawfully made: (1) because the act of state doctrine required the court to deem the actions of the CNLOP Board lawful; (2) because Canadian law authorized the CNLOP Board to make the copies; and (3) because Geophysical had granted the CNLOP Board an implied license to create copies of its works, making their creation "lawful" under United States copyright principles. In finding that amendment would be futile, the district court was persuaded by the act of state argument. It ruled that Geophysical's claim of unlawful importation would be barred by the first sale doctrine because the act of state doctrine required it to find "lawful" the actions of the CNLOP Board, a Canadian government agency. It did not reach the question of whether Canadian or United States law governed whether the copies were "lawfully made."

         Ultimately, we disagree with the application of the act of state doctrine here, for reasons we will describe. But first, we turn to the principles of the first sale doctrine.

         i. First Sale Doctrine

         The Copyright Act vests in copyright holders several enumerated exclusive rights that they enjoy over their copyrighted works.[21] It is clear that one of those rights is the exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending."[22] But § 106 is equally clear that each of those exclusive rights is "[s]ubject to sections 107 through 122, "[23] which establish various limitations on the enumerated exclusive rights. Relevant here is § 109, which limits the copyright owner's exclusive right to distribute:

Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.[24]

         This "first sale doctrine" found its way into United States copyright law long before it was codified as § 109 in the current Copyright Act in 1976.[25] It reflects the fundamental principle of copyright that ownership of the copyright in a work is distinct from ownership of the material object that embodies the work.[26] When a copyright owner transfers or authorizes transfer of a copy or phonorecord embodying his copyright, he does not surrender his copyright, but he does mostly surrender control of the material object.[27] The copyright owner will not be heard to complain of his transferee's transferring the material object in a way that might otherwise foul the exclusive right to distribute.

         The doctrine of "first sale" is somewhat of a misnomer.[28] 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."[29] Accordingly, nations elsewhere in the world with similar copyright regimes refer to the principle as the "exhaustion doctrine, " reflecting the notion that the copyright owner "exhausts" his distribution right in a copy or phonorecord upon first transfer of that copy or phonorecord.[30]

         Section 109 by its plain terms limits only the exclusive right to distribute. The owner of a lawfully made copy or phonorecord is still forbidden from copying it, preparing derivative works based on it, publicly performing it, or publicly displaying it, any of which would violate one of the copyright owner's other exclusive rights (absent some other limitation or defense).[31]

         Section 602 of the Copyright Act establishes that unauthorized importation into the United States of copies or phonorecords acquired outside the United States is infringement of the § 106(3) exclusive right to distribute.[32]Because this "importation right" is merely a corollary of the distribution right, it is similarly limited by the first sale doctrine.[33] Accordingly, importation into the United States of lawfully made copies or ...


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