Academic journal article Law and Policy in International Business

Economic Inefficiency and Jurisdiction over Foreign Affiliates in New York

Academic journal article Law and Policy in International Business

Economic Inefficiency and Jurisdiction over Foreign Affiliates in New York

Article excerpt

C'mon, C'mon, C'mon, now touch me babe, Can't you see that I am not afraid(1)

I. Introduction

Facing the prospect of personal jurisdiction over their foreign affiliates in New.York, international record companies today do not share the fearlessness expressed by Jim Morrison in the early 1660s. In an era of expanding international markets, Jurisdictional statutes subject these markets to unique and inefficient restraints, obstructing free trade and diverting business opportunities from those states maintaining these statutes. New York is constructing such a barrier with the Southern District Court's recent interpretation of the state's personal jurisdiction statute in Palmieri v. Estefan.(2) Ironically, this seemingly minor decision threatens New York's position as the headquarters for the international recording industry.

The District Court in Palmieri found thirty-three foreign affiliates of Sony Music's recording company to be subject to personal jurisdiction and potentially liable for copyright infringement in an action brought against Gloria Estefan and Sony Music.(3) Oddly enough, the underlying infringement suit has been subjugated to the more significant decision, which held these foreign entities liable for violations of the U.S. copywright ode.

This Note examines the impact of the Palmieri decision on the recording industry and analyzes its potential effects on other businesses headquartered in New York. Commentators have discussed the economic efficiency problems of expansive personal jurisdiction statutes, but these criticisms tend to focus on the relationship between constitutional standards of due process and efficiency concerns.(4) This note develops the efficiency considerations that should motivate judicial interpretations of personal jurisdiction statutes at the state level. Finally, the Note explains how expansive judicial interpretation of jurisdictional statutes such as New York's Civil Practice and Law Rule (CPLR) 301 threatens economic efficiency in a manner that should be reserved for the legislature.

II. The Recording Industry

The trend in the entertainment industry toward international ownership and co-financing has not only restructured the way business is conducted, but has also reshaped the legal and political issues that will confront the industry in the coming years.(5) Awareness of laws in other countries in fields as diverse as copyright and corporate law is essential within the new international economic scheme. Because of the development of trade agreements such as the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA), more and more businesses need to adapt to the changing structure of markets in order to succeed. Laws that seem less intrusive, such as the Jurisdictional statute discussed in this Note, also complicate the already intricate international playing field and affect the way nations conduct business. International conglomerates need to familiarize themselves with these laws because the consequences of ignorance could be great, as evidenced by the Palmieri decision.

The recorded music industry, once dominated by the United States, has expanded into a global market.(6) This globalization obviously includes growing foreign sales, but, perhaps more importantly, also includes the growing international ownership of traditionally domestically controlled record companies(7). Sony Music, a Japanese corporation which owns the moving defendants in Palmieri, purchased the U.S.-owned CBS Records for a reported $2.2 billion.(8) In December 1990, Matsushita, another Japanese corporation, purchased MCA, which is the parent of MCA Records and Universal Studios and is also a partial owner of Motown Records.(9) British-owned Thorn EMI Records, Dutch-operated Polygram, and German BMG Records complete the list of the foreign-owned record companies.(10) A combination of these companies' sales and those of the sixth major record company, domestically owned Warner Brothers, accounts for ninety percent of all music sales in the United States. …

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