Copyright Counterclaim May Proceed In State Court

It’s black letter law that federal courts have exclusive jurisdiction to hear infringement actions under the U.S. Copyright Act. But now the Indiana Supreme Court has found that state courts may indeed hear cases involving the Copyright Act if the claims are raised first in a counterclaim.

Federal courts have exclusive jurisdiction in cases when federal law “preempts” state law. The theory is that when federal law prevents states from acting in the same area, the area of law becomes preempted by the federal government. In copyrights, only the federal government, not the states, can register copyrights. So in a dispute concerning a copyright infringement, normally a federal court would have exclusive jurisdiction. But now that may not be so when a case is first filed in state court where there is no allegation of copyright infringement and the copyright claim is first raised by a counterclaim by the defendant.

The case of Green v. Hendrickson Publishers, Inc. started when Hendrickson sued Green for an accounting over books that had been published. Green counterclaimed alleging copyright infringement by Hendrickson. Green attempted to remove the case to federal court based upon the copyright infringement counterclaim but the federal court remanded the case back to the state court. This happened because the defendant had attempted to remove the case from state court.

In determining whether a case can be removed from state court to federal court, the federal court could only look at the allegations in the complaint. Because the complaint on its face did not allege any copyright infringement, the case could not be removed to federal court.

Back in state court, Hendrickson filed for partial summary judgment asserting that Green’s copyright counterclaim was federally preempted because they arose under the Copyright Act. The state trial court agreed that it could not hear the copyright claim because of federal preemption and dismissed the copyright counterclaim. Green appealed. On appeal, the Indiana Supreme Court first examined whether the counterclaim was a contract issue traditionally within the jurisdiction of a state court or whether it was a claim under the Copyright Act. It found that the claim by Green was a claim for copyright infringement because Green was seeking to stop the reproduction of the work. “Thus, if any breach of contract occurred, it was accomplished by the wrongful reproduction of the works, and violated no other provision of the contract. The agreement therefore provided the Greens with no rights they did not already enjoy under copyright law, and no element other than reproduction was needed to state a claim for a violation of those rights.” As a result, the only relief available to them was under the Copyright Act.

Because the only relief was under the Copyright Act, then the logical solution was for Green to file a separate action in federal court for infringement with Green as the plaintiff. However, rather than affirming the trial court’s dismissal, the Indiana court reinstated the copyright infringement counterclaim for the state court to hear. The court found that even though the claim was preempted by the copyright law, the state court could hear the claim nonetheless.

The Indiana Court based its decision on the recent U.S. Supreme Court case Holmes Group, Inc. v. Vornado Air Circulation Systems. The Holmes case involved a patent claim and whether a patent counterclaim could only be heard by the Federal Circuit. Prior to the decision in Holmes, the Indiana Court agreed that the Greens would have been forced to bifurcate the litigation by filing a new case in federal court on the copyright infringement action since actions arising under the Copyright Act would be subject to exclusive federal jurisdiction. But that is not the law now, the court found. While federal district courts have original jurisdiction over “”all civil actions arising under the Constitution, laws, or treaties of the United States,”” the Indiana court found that the test is applied to the facts and allegations in the complaint, not the answer or counterclaim. The Indiana court said Holmes “teaches that what Congress said-not what it intended-is controlling here. . . Accordingly, we think Holmes requires us to reject the federal authorities stating or implying that a state court may not entertain a counterclaim under patent or copyright law.”

The Indiana court said that the federal court’s jurisdiction over copyright claims is not exclusive and that “the desire for nationwide uniformity in the law of copyright would not seem to be seriously disturbed by an occasional holding from a state court.”

“We conclude that a copyright counterclaim is not subject to the exclusive jurisdiction provision of section 1338, and the authorities stating that such a claim ‘could not have been filed in the state court’ are no longer prevailing federal law,” the court wrote.