From The Recorder

Hong Kong-based Oron.com says it’s just an ordinary cloud storage company, like Dropbox or Apple’s iCloud. So why, it asks, should an American pornography distributor get an order freezing all of its assets and effectively shutting down its business?

The porn company — San Francisco-based DataTech Enterprises, also doing business as Raging Stallion — says there’s a key difference: Oron’s users post their content publicly, not to a private account, and Oron then pays them a commission when other users pay to download the files.

That directly incentives Oron’s users to infringe DataTech’s copyrights by uploading its popular content, just like the Megaupload website that the U.S. government recently shut down, DataTech says.

On Monday a U.S. Court of Appeals for the Ninth Circuit panel sounded inclined to uphold a preliminary injunction against Oron but suggested that U.S. District Judge Charles Breyer may have overreached — or "overseized," as one judge put it — by freezing all of Oron’s assets, rather than just some.

"This is the nuclear bomb of litigation," Oron’s counsel, Evan Fray-Witzer of Boston’s Ciampa Fray-Witzer, argued. "Litigation against an alien defendant creates a higher jurisdictional barrier."

DataTech Enterprises v. FF Magnat sounded as if it could make law on jurisdiction in international IP cases and on asset seizure.

Oron.com, which is owned by FF Magnat, claims it’s a legitimate cloud storage company that makes good faith efforts to police the illegal activities of a few users. DataTech, however, says Oron is part of a growing offshore piracy industry, skimming profits from "numerous small U.S.-based businesses" and ignoring regulations imposed by the Digital Millennium Copyright Act.

Though based in Asia, Oron has sufficient U.S. contacts to be subject to American court jurisdiction, DataTech argues. Oron registers its domain name with a U.S. registrar. It uses PayPal and other U.S.-based credit card payment processors. Tens of thousands of American users access the Oron.com website. And most of all, Oron pays commissions to American "affiliates" when the content they’ve uploaded causes users to buy subscriptions for faster downloads.

It’s not like Dropbox "when strangers come to look at the content," DataTech’s lawyer, D. Gill Sperlein of San Francisco, told the Ninth Circuit on Monday. "Then they give a kickback to the person that uploaded it. That extra act of inducement, that little bit of … volition makes it actually direct copyright infringement."

But Judge M. Margaret McKeown questioned whether there’s any evidence that DataTech’s movies specifically were used for inducement. No, admitted Sperlein. "Unfortunately, in the discovery process, they’ve been very reluctant to provide it," he said. McKeown and Judge Paul Watford suggested that could be tough luck for DataTech, since it is the party that moved for the injunction.

Oron’s Fray-Witzer said his client uses a PayPal affiliate based in Singapore, and that the United States represents only 12 percent of Oron’s market.

"Well, compared to the rest of the world, that’s not insignificant, is it?" asked U.S. District Judge Algenon Marbley, a visiting judge from Ohio. "That’s your largest market, isn’t it?"

Fray-Witzer said injunctive relief was inappropriate because the only dispute is over money damages under the Copyright Act, and that Breyer unfairly put the burden on Oron to prove how much of its profits did not come from DataTech content. He compared Breyer’s order to shutting down General Motors Co. over the use of a copyrighted photo in an annual report.

While appearing to agree that Breyer may have gone a little too far, McKeown didn’t sound completely sold. "Like it or not," she said, "your case lands in a different world than some of the prior cases about extraterritoriality."

Email: sgraham@alm.com.