Avoid New York law and courts in NDAs

28 Sep 23

Genius crowdsources song lyrics by soliciting individual contributors to post their interpretations of the words they hear in songs. Google rather blatantly copied Genius’ crowdsourced lyrics for display at the top of Google search results, as proven by Google’s replication of Genius-coded digital watermarks. Genius alleges violation of the Genius Terms of Service which plainly forbid that which Google did. Genuis claims a massive drop in ad revenue caused by a plummeting of the numbers of users visiting the Genius sites as a result of Google’s actions.

Genius brought breach of contract and unfair competition claims against Google in New York state court. Google sought removal to federal court, claiming that Genius’ claims are redressable only via copyright, and only US district courts have jurisdiction for copyright claims. The US District Court for the Eastern District of New York granted the motion to remove the case from state court, refused remand, and promptly dismissed the claims with prejudice, on grounds of copyright preemption.

The Second Circuit Court of Appeals, in an unpublished opinion (ML Genius Holdings LLC v Google LLC, 2022), affirmed the ruling, and in the process called into question the enforceability of any contract governing the supply or exchange of data or information.

The appellate court did so on the basis of US Copyright Act statutory preemption, citing section 301 of the US Copyright Act. This statute mandates that any state law claim or cause of action which is “equivalent to any of the exclusive rights” of copyright is preempted and abolished. The appellate court held that the prohibition in the Genius ToS on the copying of song lyrics isn’t “qualitatively different” from a copyright claim, thus rendering the ToS completely unenforceable.

Under this reasoning, a claim for breach of a non-disclosure agreement would not be qualitatively different from a copyright claim, either. And if the information at issue is not copyrightable, there’s nothing that can be done to prevent or remedy the misuse of that information. In the words of Professor Rub: “It would be absurd for a court to say that a corporate nondisclosure agreement about sensitive financial data is void because the contract prevents the copying or reproduction of that data.”

Five other US circuit courts of appeal had held that a breach of contract claim is not preempted, due to the “extra element” of mutual consideration upholding the promised exchange. This required element of any breach of contract claim renders the claim not “equivalent” to a copyright claim.

In short, avoid designating New York (or Connecticut or Vermont) law or courts in your confidentiality agreements. If the claim is based on the unauthorized use, reproduction or distribution of information, data, or works, the claim rises or falls exclusively as a matter of copyright. Contract law ceases to matter if the subject matter of the contract is content.

Further strategies and workaround clauses in this context can be found here at Redline.