25 July 2007

Separated by a Common Tongue

Professor Patry excoriated the Second Circuit's analysis of an important choice of law issue in copyright matters yesterday in his blawg. He remarks:

[Phillips v. Audio Active Ltd.] is a disappointing opinion on many fronts. The court may well have been correct about the ultimate merits of Plaintiff's claim, but procedurally it is difficult to justify the result. Nor is my concern academic: as the court acknowledged, the result of its approach was not only to require separate proceedings in two different countries, but that so requiring "is a likely inconvenience to the parties and that they, in choosing to refer proceedings instead of claims, may have intended to bundle all claims constituting any proceeding in order to avoid fractured litigation." (p. 30). It is true that piecemeal litigation will occur anyway in arbitration disputes where one claim is held not be subject to the arbitration clause where others are, but the Phillips court's herniated analysis strikes me as leading it to protest too much that the piecemeal result in this case was imposed rather than created.

"Forum Selection Clauses: The 2d Disses the 7th" (24 Jul 2007). I'm afraid that Professor Patry was far, far too nice to the distinguished attorneys who both litigated this matter and issued this decision.

Not once in the entire opinion does one find a reference to a non-US source of anything: Not of law, nor even of definitions. If it would not make a difference to the final result, I suppose it doesn't matter whether one uses Webster's or the American Heritage Dictionary. This time, though, it makes an immense difference. The contract at issue says that matters that "arise out of" the recording contract must be brought in England, and interpreted under English law. That's easy to justify for the breach-of-contract claims. The Second Circuit says it's not so easy for the infringement-of-copyright claims, because it shouldn't have to refer to English law to figure out whether English law applies.

Without the benefit of briefing by the parties on this issue, we cannot understand why the interpretation of a forum selection clause should be singled out for application of any law other than that chosen to govern the interpretation of the contract as a whole. However, the parties neither objected to the district court's citation to federal precedent in its interpretation of the clause before us, nor construed the clause under English law in their briefs. We will assume from the parties' briefing that they do not rely on any distinctive features of English law and apply general contract law principles and federal precedent to discern the meaning and scope of the forum clause.

Phillips, slip op. at 12 (citations omitted). Just how much "briefing from the parties" does one need to read the Oxford English Dictionary's definition of "arise" and find definition 18?

"arising out of" (used with loose construction): to introduce a circumstance, action, proposal, etc.

This then leads to a single, one-time search of the free BAILII database, where one finds the following explanation of "arising out of" in the far-stricter context of insurance coverage:

26. On behalf of the syndicates Mr Boyd relied on what were essentially four main submissions. First, he concentrated on the contractual phrase arising from. This is plainly expressive of a causal relationship, but, said Mr Boyd, only required a weak or loose causal connection. In this respect he pointed to Caudle v. Sharp [1995] LRLR 433, where the phrase was the almost identical phrase "arising out of one event". At 438/9 Evans LJ considered the nature of the causal connection and held that it should not be restricted to that of proximate cause: however, other than saying that within the insurance context it was implicit in the concept of aggregation based on a single event that the causal connection was neither that of proximate cause at the one extreme nor was entirely unrestricted by any doctrine of remoteness at the other extreme, no express definition was there given to the causal relationship involved. On this basis, Mr Boyd submitted that, even though the BA aircraft's loss was only established after a period of "wait and see", there was no reason to think that it did not arise from the invasion and capture of the airport as much as the KAC losses had. Therefore there was, contrary to the judge's view, unity of cause. In any event, the test of the "unities" was only a guideline, and the contractual test was "arising from" which was well met here. Given the weak causal connection required, there was nothing that happened subsequently to the invasion and capture of the airport which could be said to be of sufficient causal relevance to displace the original event which had caused the deprivation of possession and the commencement of the "wait and see" period.

Scott v. Copenhagen Reinsurance Co., [2003] EWCA Civ 688.

In short, there exists a clear conflict of law between the US and the UK on whether "arising out of" is to be interpreted strictly or loosely when determining whether one claim "arises out of" the basis for another. It was inexcusable for the parties and the Court of Appeals to completely ignore the existence of the conflict. In the long run, this is really about remedies more than it is about the substantive law: Under either US or UK law, the musician has stated a claim for copyright infringement; the real question is whether the facts will ultimately support that claim. However, under US copyright law he could choose statutory damages (presuming that he had registered the copyrights in the individual works allegely infringed prior to the alleged infringement); there is no corresponding remedy in UK copyright law, which limits itself to actual damages.

Whether the Second Circuit reached the right result — that works created in the US1 by a US citizen should be judged under US copyright law, regardless of what it sees as defective choice of law/forum law pointing to another Berne Convention signatory — as a policy matter is beside the point. Both the court and the parties were inexcusably sloppy on the civil procedure question that underlies the policy question, and asking the policy question in the wrong context actually gets us nowhere.

  1. In yet another unfortunate omission, the decision does not state the locus of recording. It implies that the recordings were made in the US. If they had been made in the UK, I suspect that fact would have been stated. Suspect only, however; the cavalier attitude toward relevance in the rest of the opinion makes me very wary of relying too heavily upon that.