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EDUCATIONAL TESTING SERV. v. KATZMAN

April 2, 1986

EDUCATIONAL TESTING SERVICE, Plaintiff
v.
JOHN KATZMAN and THE PRINCETON REVIEW, Defendants



The opinion of the court was delivered by: BARRY

 Educational Testing Service ("ETS") brings this action against The Princeton Review ("Review") and its sole officer and shareholder, John Katzman ("Katzman"), alleging copyright infringement and pendent state claims. Katzman, but not Review, now moves for dismissal claiming that this court may not assert personal jurisdiction over him. He claims, as well, that venue is improper. Katzman's motions will be denied.

 I

 ETS, a non-profit New York corporation with its principal place of business in New Jersey, has developed and administers the Scholastic Aptitude Test ("SAT") and the College Board Achievement Tests ("Achievement Tests") taken by almost two million high school students in their quest for admission to the college of their choice. The SAT and the Achievement Tests are copyrighted by ETS and, pursuant to 37 C.F.R. § 202.20, are secured tests which are only viewed by the public during the administration of those tests to registered examinees.

 In light of the intense competition to enter certain colleges and in recognition of the importance of SAT and Achievement Test scores in the admission process, it is not surprising that a number of SAT "coaching" courses, including the course offered by Review, have developed. Review, founded in 1981 *fn1" and operated as a sole proprietorship until its incorporation on March 7, 1984, quickly expanded from 15 students in New York to what was reported to be five thousand students nationwide in 1985. Review currently operates courses in Princeton, New Jersey; San Jose, California; Brookfield, Connecticut; Brookline, Massachusetts; Beverly Hills, California; Atlanta, Georgia; Philadelphia, Pennsylvania; Anaheim, California; Alexandria, Virginia; and Evanston, Illinois. *fn2" It advertises that it raises students' SAT scores an average of 150 points. *fn3"

 This action is not the first legal controversy between these parties. In November, 1982, ETS administered certain Math and English Composition Achievement Tests. It later discovered that, before the test date, the tests had been distributed by Katzman, although how Katzman obtained the tests is not clear. As a result, however, ETS was forced to cancel the scores of certain students and readminister the tests. ETS also discovered that, in order to become more familiar with ETS' tests, Katzman registered for and took several of those tests, including the January, 1983 SAT.

 On February 9, 1984, Katzman and one Robert Schiller copyrighted certain coaching materials including twenty questions which ETS claims were copies of or paraphrased from secure ETS questions. Schiller is the President of Pre-Test Review, Inc. ("Pre-Test"), a New Jersey corporation that offers coaching courses in New Jersey. Pre-Test distributed these materials, including the allegedly infringing questions, to its students in New Jersey in June, 1985. Review, it is claimed, distributed these same materials to its students in Brookline, Massachusetts. *fn4"

 ETS learned of the distribution of these materials in the Spring of 1985 and avers that, as a result of that distribution, it was forced to provide substitute test forms at the last minute to avoid cancelling the June, 1985 examination at certain test centers. ETS also alleges that various Review employees have taken ETS administered tests since the 1983 agreement. More significantly, as it relates to this motion, ETS alleges, and Katzman admits, that on January 26, 1985, Katzman attempted to take the SAT as a standby candidate at Dwight-Englewood School in Englewood, New Jersey.

 ETS' amended complaint alleges that Review and Katzman have infringed upon its copyright in certain SAT and Achievement tests by reproducing and distributing them to Review students. Further, ETS claims that Review and Katzman are in breach of the 1983 agreement between Katzman and ETS. Finally, ETS alleges that Review and Katzman have unjustifiably and improperly interfered with ETS' common law right to preserve the integrity of its testing program and the confidentiality of its secure tests. ETS seeks a permanent injunction prohibiting defendants from further copyright infringement and ordering them to comply with the terms of the 1983 agreement. *fn5" Finally, ETS seeks statutory damages pursuant to the Copyright Act of 1976, 17 U.S.C. § 504(c), which permits damages of up to $50,000 for willful infringement of a copyrighted work.

 II

 Pursuant to Fed.R.Civ.P. 4, this court has jurisdiction over Katzman only if a New Jersey state court would have jurisdiction. *fn6" New Jersey courts exercise jurisdiction over a non-resident defendant to the extent permitted under the due process clause. N.J.Civ.Prac. R. 4:4-4. ETS bears the burden of establishing that Katzman has contacts with New Jersey sufficient to satisfy this standard. Compagnie des Bauxites de Guinee v. L'Union Atlantique S.A. D'Assurances, 723 F.2d 357, 362 (3d Cir. 1983).

 1) made two phone calls from New York to ETS in New Jersey relating to test administrations in the New York City area and the scores of individual Review students. (Contact 1)

 2) wrote one letter from New York to ETS at its New Jersey address relating to test administrations in the New York city area and the scores of individual Review students. (Contact 2)

 3) visited ETS' offices in New Jersey on November 10, 1982, to resolve issues related to the 1982 Achievement test incident. (Contact 3)

 4) provided copies of secure test questions for distribution in New Jersey to Pre-Test in or before February, 1984. (Contact 4)

 5) ordered 7,600 copies of various ETS tests from ETS' New Jersey headquarters. (Contact 5)

 ETS further alleges that, since the incorporation of Review in March, 1984, Katzman:

 1) attempted to take the SAT at Dwight-Englewood School in Englewood, New Jersey on January 26, 1986, in violation of the 1983 Agreement. (Contact 6)

 2) personally helped to establish a New Jersey branch of Review subsequent to the filing of this action. (Contact 7)

 3) telephoned ETS five times regarding test administrations in the New York City area and the scores of individual Review students. (Contact 8)

 4) wrote four letters to ETS regarding test administrations in New York and the test scores of individual Review students. (Contact 9)

 5) placed two orders for ETS materials. *fn7" (Contact 10)

 6) in his alter ego of Review, solicited employees through advertisements in at least eight New Jersey newspapers in July, 1985 and posted a notice in the Princeton University Placement Office. (Contact 11)

 7) in his alter ego of Review, advertised in February and August, 1985 in The New York Times, which has a weekday circulation of 130,000 copies in New Jersey. *fn8" (Contact 12)

 ETS argues that this court should consider Katzman's contacts with New Jersey in his corporate capacity on two grounds. First, ETS argues that New Jersey law does not limit the reach of its courts for the purpose of asserting jurisdiction over corporate officers. Second, it argues that Katzman's total control of Review as its founder and sole owner, officer, director, and shareholder justify viewing Review and Katzman as the same for jurisdictional purposes. ETS contends that these twelve contacts taken together establish sufficient minimum contacts between Katzman and New Jersey so as to satisfy the due process concerns of fair play and substantial justice. *fn9"

  Alternatively, ETS argues that under Calder v. Jones, 465 U.S. 783, 104 S. Ct. 1482, 79 L. Ed. 2d 804 (1984), Katzman is subject to jurisdiction under an "effects test" because of what ETS characterizes as intentional conduct that Katzman knew would injure ETS in New Jersey. Jurisdiction is proper, ETS avers, because the brunt of the harm caused by Katzman was suffered in New Jersey.

 The Court of Appeals for the Third Circuit has developed a two step analysis for determining whether jurisdiction may be asserted over a non-resident defendant:

 
The initial determination that must be made is whether the claim or cause of action which is being pursued arises from the defendant's forum related activities [citation omitted]. . . . If the claim pursued arises from forum related activity, the court must determine whether there are enough contacts with the forum arising out of that transaction in order to justify the assertion of jurisdiction over the out-of-state defendant. . . . If the claim pursued arises from non-forum related activity, the plaintiff must demonstrate that in other respects the defendant has maintained 'continuous and substantial' forum affiliations [citations omitted]. Reliance Steel Products Co. v. Watson, Ess, Marshall & Enggas, 675 F.2d 587, 588 (3d Cir. 1982). (emphasis in original)

 Subsequently, in Dollar Savings Bank v. First Security Bank of Utah, 746 F.2d 208, 211 (3d Cir. 1984), the Third Circuit utilized a similar test but stated that "'general jurisdiction' exists when the claim does not arise out of or is unrelated to the defendants' contacts with the forum [citations omitted]." Id. (emphasis added). Similarly, "'specific jurisdiction' is invoked when the claim is related to or arises out of the defendant's contacts with the forum." Id. (emphasis added). The impetus for this modification apparently was Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n *fn8" & 9, 80 L. Ed. 2d 404, 104 S. Ct. 1868 (1984), in which the Supreme Court observed that

 
when a State exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's contacts with the forum, the State is exercising 'specific jurisdiction' over the defendant. . . . When a state exercises personal jurisdiction over a defendant in a suit not arising out of or related to the defendant's contacts with the forum, the State has been said ...

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