NY District Court Rules Cigar Aficionado Suit Against Cigar500.com May Proceed to Trial

Holding:

In this copyright and trademark infringement suit relating to plaintiff's Cigar Aficionado magazine and trademarks, the U.S. District Court denied defendant website operators' motion to dismiss. Defendants, charged for displaying on their website both the protected marks and a recent issue of the magazine, sought to dismiss the suit for lack of personal jurisdiction and under the doctrine of fair use. The District Court rejected both arguments, stating that defendants exhibited minimum contacts with New York, such as transacting steady business with New York residents via their interactive website. With respect to defendants' "fair use" argument, the District Court found that there were issues of material fact as to the adverse impact of the defendants’ use of the copyrighted works on the market for the plaintiff’s product. For these reasons, the District Court concluded that defendants’ claim of fair use cannot be decided on a motion to dismiss.

Detailed Summary:

Plaintiff, M. Shanken Communications, Inc. (“Cigar Aficionado”), filed this action against Cigar500.com, Inc. (“Cigar500” or “the Company”)  and its owners, Anthony Masciangelo, and Monique Masciangelo (collectively, “the defendants”) for copyright infringement under 17 U.S.C. § 501, et seq. (the “Copyright Act”). Plaintiff also asserted claims of trademark infringement, unfair competition, and trademark dilution under 15 U.S.C. §§ 1114, 1116, 1125(a) &  1125(c)(collectively, the “Lanham Act claims”), and defamation against its popular magazine, Cigar Aficionado. Opinion, p. 1.

Cigar Aficionado alleged that Cigar500 infringed plaintiff’s trademarks and copyrights pertaining to Cigar Aficionado through defendants’ operation of an online retailing website at www.cigar500.com. Particularly, in July 2007, Cigar500 launched a promotion on its website in which it prominently displayed portions of the May/June 2007 issue of Cigar Aficionado and the “Cigar Aficionado” marks. Plaintiff sought to recover damages and to enjoin defendants from further infringing or otherwise violating the plaintiff’s rights in its protected marks and material. Id. In response, defendants moved to dismiss all claims against them pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. They also moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that plaintiff failed to state claims upon which relief can be granted.

By way of background,  plaintiff is a New York corporation with its principal place of business in the Southern District of New York. Id., p.2, citing Compl. ¶ 5. On the other hand, Cigar500 is a Canadian corporation with its principal place of business in Woodbridge, Ontario, Canada which operates an Internet website at www.cigar500.com. Id, citing Compl.  ¶ 6. Cigar500.com is an online source of cigars, including Cuban cigars, as well as related products. Id., citing Declaration of Anthony Masciangelo, Jan. 10, 2008 (“AM Decl.”) ¶ 9.)

Defendants asserted that Cigar500 does not have an office, bank account, or other property in New York, maintain a phone listing in New York, have agents or employees located in New York, or specifically target New York residents in its advertising or public relations. Id., p. 3, citing AM Decl. ¶ 11.  Cigar500 does business internationally and its website specifically guarantees delivery of authentic Cuban cigars to residents in the United States. Id., citing Compl. ¶ 33.

In denying Cigar500’s motion to dismiss for lack of personal jurisdiction, the District Court held that the exercise of jurisdiction over Cigar500 and its Canadian owners would not violate the constitutional guarantee of due process because the minimum contacts requirement was met in defendants’ business in New York, and therefore, personal jurisdiction in this situation comports with “traditional notions of fair play and substantial justice.” Id., pp. 21-22 , citing Milliken v. Meyer, 311 U.S. 457, 463 (1940).

Specifically, Cigar500 and its owners could reasonably have expected a lawsuit in New York where: 1) Cigar500, acting on behalf of its owners, transacted steady business with New York residents via an interactive website; 2) Mr. Masciangelo,  one of Cigar500’s owners, was in the process of negotiating a business transaction with a New York-based company on behalf of Cigar500; and 3) the defendants chose to use the New York-based company’s intellectual property for the purpose of soliciting commercial transactions in New York and elsewhere. Id.

However, the District Court held that, based on the facts in the record, Cigar Aficionado had not made a prima facie showing of personal jurisdiction with respect to Cigar500’s other owner, Ms. Masciangelo. Cigar Aficionado asked for leave to replead in the event that the District Court found the factual allegations of the Complaint insufficient. Id., pp. 18-19, citing Monahan v. New York City Dep’t of Corrections, 214 F.3d 275, 283 (2d Cir. 2000). Because it could not be determined at this stage of the pleadings that the plaintiff will be unable to replead an adequate basis for jurisdiction with respect to Ms. Masciangelo, the District Court granted plaintiff leave to file an amended complaint within twenty days of the date of its opinion and order. Id., p. 19.

The District Court further rejected defendants’ argument that it should dismiss the copyright claim because the use of the plaintiff’s protected material constitutes “fair use” as a matter of law pursuant to 17 U.S.C. § 107, making the lawsuit dismissible under Federal Rule of Civil Procedure 12(b)(6) because there were no claims asserted upon which relief can be granted. In this case, the material that was used – both the magazine cover and the “Tasting Notes,”  with substantial copying involved – were allegedly copied verbatim from the plaintiff’s magazine. The District Court noted that this factor weighed heavily against a finding of fair use. Id., p. 25, referring to Harper & Row Publishers, Inc., 471 U.S. at 565. In addition, there were issues of material fact as to the adverse impact of the defendants’ use of the copyrighted works on the market for the plaintiff’s product. For these reasons, the District Court denied defendants’  motion to discuss because the defendants’ claim of fair use cannot be determined at this time.

The District Court denied both of defendants’ motions to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction and under Federal Rule of Civil Procedure 12(b)(6) for failure to state claims upon which relief can be granted.

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