Perfect 10, Inc. v. Yandex N.V.

RESPONSE

N.D. Cal.August 23, 2012

Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Eric J. Benink, Esq., SBN 187434 Krause Kalfayan Benink & Slavens, LLP 550 West C Street, Suite 530 San Diego, CA 92101 (619) 232-0331 (ph) (619) 232-4019 (fax) eric@kkbs-law.com Natalie Locke, Esq., SBN 261363 Perfect 10, Inc. 11803 Norfield Court Los Angeles, CA 90077 (310) 476-8231 (ph) (310) 476-0700 (fax) natalie@perfect10.com Attorneys for Plaintiff Perfect 10, Inc. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION PERFECT 10, INC., a California corporation, Plaintiff, v. YANDEX N.V., a Netherlands limited liability company; and DOES 1 through 100, inclusive, Defendants. Case No.: CV 12-1521 WHA PLAINTIFF PERFECT 10, INC.’S SUPPLEMENTAL MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO YANDEX N.V.’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION Date: June 14, 2012 Time: 8:00 A.M. Ctrm: 8 Judge: Honorable William Alsup ii 12 cv 1521 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS I. INTRODUCTION……………………………………………………………….1 II. STATEMENT OF RELEVANT FACTS………………………………………..3 A. Yandex N.V. is in the Search Engine Business……………………….......3 B. The Creation and Formation of Yandex Labs…………………………….4 C. The Overlap and Close Relationship of Officers and Directors…………..5 D. Hiring and Firing of Employees and Compensation Packages…………...7 E. Yandex Inc. Provides Hosting, Web Crawlers, IP Addresses, And 5,000 Servers for Yandex N.V. Search Engines………………………………...7 F. Yandex N.V. uses Yandex Inc. to Facilitate Transactions in the U.S…….8 G. Yandex Lab’s Vital Work on the Search Engines……………………….11 H. Shared Finances………………………………………………………….13 I. Yandex N.V. Promulgates Company - Wide Policies that Govern Yandex Inc……………………………………………………………….14 J. Yandex N.V.’s Contacts With California And the U.S………………….14 III. ARGUMENT…………………………………………………………………...16 A. Legal Standards on Agency Test………………………………………...16 B. Yandex. Inc. Performs “Sufficiently Important Services”……………..16 C. Yandex N.V. Controls Yandex Inc………………………………………19 D. Yandex N.V. Has Sufficient Contacts with the U.S. To Warrant F.R.C.P. 4(k)(2) Jurisdiction…………………………………………….21 IV. THE IVASHENSTEV A DECLARATION IS FALSE AND MISLEADING…………………………………………………………………22 V. OTHER YANDEX MISREPRESENTATIONS……………………………….23 VI. CONCLUSION…………………………………………………………………25 ii 12 cv 1521 Perfect 10’s Reply Memorandum Of Points And Authorities In Support of Its Motion For Preliminary Injunction Against Defendant Yandex 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Cases Acorn v. Household Int’l Inc. 211 F.Supp.2d 1160 (N.D. Cal. 2002)………………………………………….20 Bauman v. DaimlerChrysler AG 2005 WL 3157475 at *8 (N.D. Cal. November 22, 2005)……………………..21 Bauman v. DaimlerChrysler Corp. 644 F.3d 909 (9th Cir. 2011) ………………………………………...3, 16, 17, 19 Bellomo v. Penn. Life Co. 488 F.Supp.744 (S.D.N.Y. 1980)………………………………………………20 Bulova Watch Co., Inc. v. K. Hattori & Co., Ltd. 508 F.Supp. 1322 (E.D.N.Y. 1981)………………………………………...18, 19 Burger King Corp. v. Rudzewicz 471 U.S. 462 (1985)…………………………………………………………….21 Doe v. Unocal Corp. 248 F.3d 915 (9th Cir. 2001)……………………………………………………18 Gallagher v. Mazda Motor of America, Inc. 781 F.Supp. 1079 (E.D.Pa. 1992)………………………………………………18 Helm v. Alderwoods Group, Inc. 696 F.Supp.2d 1057 (N.D.Cal. 2009)………………………………………17, 20 Hydoxycut Marketing and Sales Practices Lit. 810 F.Supp.2d 1100 (S.D.Cal. 2011) ………………………………………..2, 17 In re Musicmaker.com Securities Lit. 2001 WL 3062431 at *9 (C.D. Cal. June, 4, 2001)…………………………….17 Martin v. D-Wave Systems, Inc. 2009 WL 4572742 at *4 (N.D. Cal. December 1, 2009)…………………...21, 22 Ochoa v. J.B. Martin & Sons Farms, Inc. 287 F.3d 1182 (9th Cir. 2002)…………………………………………………..21 1 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. INTRODUCTION Perfect 10, Inc. (“Perfect 10”) submits this supplemental briefing per the Court’s June 11, 2012 Order (Dkt. No. 24) (the “Order.”). In the Order, the Court found that jurisdictional discovery was appropriate to determine: (i) the importance of Yandex Inc. to Yandex N.V (Order 6:5-10); (ii) whether Yandex N.V. has the right to exercise control over Yandex Inc. or Yandex LLC (Order 5:26-27; 6:11-14); and (iii) whether the Court’s exercise of personal jurisdiction over Yandex N.V. comports with due process to establish nationwide jurisdiction pursuant to Rule 4(k)(2) (Order 9:17). The Importance Of Yandex Inc. Discovery has revealed that Yandex Inc. is extraordinarily important to Yandex N.V.’s search engine business. First Yandex Inc. hosts yandex.com, the English version of Yandex N.V.’s search engine that has infringed Perfect 10’s copyrights. This means that the infringing webpages and images that are being offered to users around the world by Yandex.com are being provided from Palo Alto, California. Second, Yandex Inc. provides critical computer resources for use by Yandex N.V. search engines. These resources include thousands of IP addresses (an IP address is similar to a telephone number for a computer) and hundreds of web crawlers that copy text and images from the Internet for use by Yandex N.V. search engines. Yandex Inc. also owns at least 5,000 servers that store the images and text copied by Yandex Inc. web crawlers for use in Yandex N.V. search engines. Third, Yandex Inc. has provided Yandex N.V. with a U.S. base for its business operations, and has been used by Yandex N.V. to purchase U.S. companies such as SPB Communications, Inc. Fourth, Yandex N.V. used Yandex Inc. to recruit top search engineers from Silicon Valley to work directly on the Yandex search engines. Finally, Yandex Inc. functions as a U.S.-based advertising agency to attract U.S. 2 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 advertising clients whose ads are then placed on Yandex N.V. search engines. Yandex N.V. Has The Right To Control, and Has Controlled, Yandex Inc. Yandex N.V. board minutes and corporate governance documents reveal that Yandex N.V. has both the right to control, and has controlled, Yandex Inc. For example, Yandex N.V. voted to fire Yandex Inc. employees and to transfer others to Blekko, Inc. a California search engine in which Yandex N.V. has made a $15 million investment. Yandex N.V. provided Yandex Inc. with $5 million to purchase computer servers and then resell them to Blekko at cost. Yandex N.V. directed Yandex LLC to loan Yandex Inc. $20 million to purchase a portion of SPB Communications, Inc. Yandex Inc. would not have had the resources, nor would it have had any reason to, perform any of these transactions on its own. Yandex N.V.’s corporate governance guidelines state that Yandex N.V. is to manage its subsidiaries, and that no material non-ordinary transaction can be made by any subsidiary, whether it is Yandex Inc. or Yandex LLC, without Yandex N.V. approval. Yandex Inc. was incorporated by Arkady Volozh, CEO of Yandex N.V. Its two board of directors are Volozh and Ilya Segalovich, the two control persons of the Yandex N.V. Yandex Inc. was not created to make a profit and relies almost exclusively on funds paid to it by Yandex LLC for the creation of search engine software. Yandex Inc. has not followed corporate formalities and does not even have a CEO or active President as required by its bylaws. In sum, Yandex N.V. is not a passive holding company that simply invests in its subsidiaries. See Hydoxycut Marketing and Sales Practices Lit., 810 F.Supp.2d 1100, 1118 (S.D. Cal. 2011). Instead Yandex Inc. is Yandex N.V.’s agent because if Yandex Inc. did not exist, Yandex N.V. would undertake to perform the services rendered by Yandex Inc. itself. It also has the right to control Yandex Inc. As such, Yandex Inc.’s 3 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 contacts with California may be imputed to Yandex N.V. under the agency theory. See Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 921-924 (9th Cir. 2011). Yandex N.V. is Subject to Jurisdiction in the U.S. Pursuant to Rule 4(k)(2) Even if Yandex Inc. were not Yandex N.V.’s agent, Yandex N.V.’s own contacts throughout the U.S., including its $15 million investment in California-based search engine Blekko; its investment of $40 million through Yandex Inc. to purchase 5,000 Las Vegas servers and a portion of U.S. based SPB Communications, Inc.; its contract with Blue Shirt Group of San Francisco; its sale of $401 million in stock through the U.S. NASDAQ stock exchange; and its other contacts detailed in Section II.J below are sufficient to establish F.R.C.P. 4(k)(2) jurisdiction. Perfect 10 respectfully requests that Yandex N.V.’s motion should be denied in its entirety. II. STATEMENT OF RELEVANT FACTS A. Yandex N.V. is in the Search Engine Business Yandex N.V. is a publicly-traded company that describes itself in its SEC filings and in its press releases as a “search engine” company. See Perfect 10’s Opposition Brief (“Oppo Brf.”) (Dkt. No. 21), 2:10-14; Order at 4:18-22. Yandex N.V.’s website, company.yandex.com, is hosted by Yandex Inc. Supplemental Declaration of Dr. Norman Zada filed herewith (“Zada Suppl. Decl.”) ¶7, Exh. 14. Most of Yandex N.V.’s revenues are derived from advertising on its search engines. Oppo. Brf. 4:2-7. Contrary to what Yandex N.V. may argue, it is not a holding company that “invests” in subsidiaries. In fact, on March 21, 2011, Yandex N.V. resolved in a board meeting to “continue to be engaged in the business of internet search and technology . . . and not in the business of investing or reinvesting in, or owning, holding, or trading securities.” Declaration of Eric J. Benink (“Benink Decl.”), filed herewith, Exh. J, p. 976. Yandex N.V. has stated in press releases and on its website that it operates its search engines. Zada Decl. (Dkt. No. 21-1), Exh. 4, p. 1. The accuracy of those statements was 4 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 confirmed by Yandex Inc. Chief Technology Officer (“CTO”) Arkady Borkovsky in his deposition. Deposition Transcript of Borkovsky attached to Benink Decl., Ex. C (“Borkovsky Tr.”) at 111:3-8; 7:22-8:3; 12:4-6. Perfect 10 alleges that Yandex N.V. search engines yandex.com and yandex.ru infringe Perfect 10’s copyrights. B. The Creation and Formation of Yandex Labs As explained by Yandex N.V. Chairman of the Board, Alfred Fenaughty, Yandex Labs is the informal name for the “U.S. technology and business development facility” that Yandex N.V. formed in 2008. Deposition Transcript of Alfred Fenaughty attached to Benink Decl, Ex. A (“Fenaughty Tr.”) at 8:9-16; 39:15-24; 42:17-43:5; Benink Decl., Exh. B-42; Borkovsky Tr. at 8:24-9:25. Yandex Labs has been located in Palo Alto, California for approximately three years. Prior to that, it was located in Burlingame, CA. Borkovsky. Tr. at 98:16-25; 100:20-101:5; Benink Decl., Exh. D-25. “Yandex Labs” was Yandex N.V.’s idea. Fenaughty Tr. at 42:10-12. Originally, Yandex Labs operated through Yandex LLC. Fenaughty Tr. at 40:15-19. In fact, Yandex LLC was registered to business in California from October 10, 2008 to October 19, 2010 under the name: “Limited Liability Company ‘YANDEX’ doing business in California as Yandex Labs”. Declaration of Natalie Locke (“Locke Decl.”), Exh. 1, pp. 1, 3. Two California Statements of Information for Yandex LLC indicate that Yandex LLC’s business was “Internet Search Engine.” Locke Decl., Exh. 2, pp. 1-2. In or about August 2010, Yandex N.V decided that Yandex Labs should not continue to be operated through Yandex LLC. It adopted a resolution to establish Yandex Inc., liquidate “Yandex Labs, a US branch of Yandex LLC,” and transfer “its employees and physical assets” to Yandex Inc. Benink Decl, Ex. B-45, p. 938. At the time Yandex Inc. began operating Yandex Labs, the lease for the office space was assigned from Yandex LLC to Yandex Inc. Yandex N.V., as the guarantor of the original lease, was required to affirm its guarantee upon the assignment. Benink 5 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Decl., Exh. K, p. 502. Yandex Inc. was formed in August 2010 and registered to do business in California as a foreign (Delaware) corporation. Benink Decl., Exh. L. The sole incorporator was Volozh, who is CEO of Yandex N.V. and Yandex LLC. Benink Decl., Exh. M, p. 297. Yandex N.V. is the 100% shareholder. Zada Decl. (Dkt. 21-1), Exh. 2, p. 26; Benink Decl., Exh. N., p 293; Fenaughty Tr. at 97:6-8. Volozh is referred to by Yandex N.V. documents as the CEO of Yandex N.V. and all of its subsidiaries. Benink Decl., Exhs. O, pp. 106-107; B-37, p. 285-287; Fenaughty Tr. at 18:10-24. Volozh speaks for the entire Yandex family. Benink Decl, Exh. B-36, p. 87. Volozh is one of two Yandex Inc. board members. The other is Ilya Segalovich, who is CTO of Yandex N.V. and Yandex LLC. Benink Decl., Exhs. M, p. 293; O, p. 185; D-1 p. 1. Yandex Inc. does not have its own website. A description of Yandex Labs may be accessed on the Yandex N.V. website, company.yandex.com website, which also publishes Yandex N.V.’s SEC filings, Yandex press releases, corporate information, descriptions of the Yandex management team, and explanations as to how the Yandex search engines and web crawlers operate. Benink Decl., ¶ 16, Exh. GG. C. The Overlap and Close Relationship of Officers and Directors There is significant overlap of the control persons within the Yandex companies. The following diagram summarizes the board of directors and control persons of Yandex Inc., Yandex N.V. and Yandex LLC: Yandex Inc. Board Yandex N.V Board Yandex LLC Officers Arkady Volozh Arkady Volozh (CEO) Arkady Volozh (CEO) Ilya Segalovich Ilya Segalovich (CTO) Ilya Segalovich (CTO) + six outside directors The Yandex N.V. Articles of Incorporation, as amended on May 21, 2012, states, “‘Executive Director’ means: a member of the Board of Directors having the 6 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 responsibility for the day-to-day management of the Company or any Subsidiary.” (emphasis added). Benink Decl., Exh. Q, p. 37. Yandex N.V.’s Compensation Committee Charter states that the Chief Executive Officer (Volozh) and Chief Technolgoy Officer (Segalovich) are the CEO and CTO of the entire Yandex “Group.” Benink Decl., Exh. B-37, pp. 285-286. As a result of this structure, the Yandex N.V board controls Yandex Inc. Indeed, Yandex Inc.’s President, Max Kiselev, “is not active at all” and does not have an office at Yandex, Inc. Borkovsky Tr. at 24:4-10; 24:21-23. Yandex Inc. Secretary John Dowdy estimated that Kiselev spends “maybe 20 minutes a year” working for Yandex Inc. Deposition Transcript of John Dowdy attached to Benink Decl. as Exh. E (“Dowdy Tr.”) at 7:17-18; 14:14-15:1. Dowdy has no office at Yandex Inc., spends “zero” hours at its offices, and is not paid any salary. Dowdy Tr. at 7:17-24; 8:3-5. He supervises a team that records Yandex Inc.’s financial transaction in a general ledger and creates its financial statements. The primary persons on that financial team are not Yandex, Inc. employees, but rather Yandex LLC employees. Dowdy Tr. at 8:11-9:23. In fact, both Kiselev’s and Dowdy’s primary duties lie elsewhere. Kiselev is part of Yandex LLC’s senior management team and is responsible for developing distribution channels by getting web browsers to offer Yandex search engines. Fenaughty Tr. at 49:12-50:8. Dowdy is also a Yandex LLC employee and signed Yandex N.V.’s S.E.C. filing as Yandex N.V.’s “Chief Accounting Officer.” Dowdy Tr. at 10:25-11:15; 11:22-12:4. Similary, Yandex Inc.’s CTO Borkovsky is considered part of the greater “Yandex Management Team” (Borkovsky Tr. at 26:8-19; Benink Decl, Exh. D-1, pp. 1-2.) (He even attended at least one Yandex N.V. board meeting.) Benink Decl., Ex. B-45, p. 934. There have been no Yandex Inc. board meetings since the inception of Yandex Inc. Benink Decl. ¶ 14. Yandex Inc. does not have its own legal support, but rather 7 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 uses Yandex LLC attorneys. Borkovsky Tr. at 125:10-18. Yandex Inc. does not have a CEO in violation of its bylaws. Borkovsky Tr. at 23:25-24:3; Benink Decl., Exh. M, pp. 307-308. D. Hiring and Firing of Employees and Compensation Packages Yandex N.V dictates hiring and firing decisions at Yandex Inc. For example, on September 23, 2011, Yandex N.V. purchased an interest in Blekko, Inc. a search engine based in San Francisco for approximately $15 million. Fenaughty Tr. at 114:12-17; Benink Decl., Exh R., p. 653. At a November 9 and 10, 2011 board meeting, the Yandex N.V. board decided that Yandex Labs employees should be split into three categories: those to be transferred to Blekko, Inc., those to remain at Yandex Labs and those that would be asked to leave Yandex Labs. Fenaughty Tr. at 118:7-17; 122:1-16; Benink Exh., B-52, p. 995. The Yandex N.V. board approved the termination of Yandex Labs employees because it did not feel those employees fit Yandex N.V.’s ongoing needs. Fenaughty Tr. at 123:2-13. The Yandex N.V. board named Cliff Brunk as the “Chief Scientist” and confirmed that Borkovsky would continue to serve as the CTO. Fenaughty Tr. at 55:16-56:1; 57:24-58:3; 59:18-60:6; Benink Decl., Exh. B-44, p. 927. The board named the vice-president of Yandex Labs, “Vish,” and made the decision on hiring his replacement, Anya Barski. Fenaughty Tr. at 98:20-99:13; Borkovsky Tr. at 23:4-61. Yandex N.V. granted stock options to “technical” people at Yandex Labs. Fenaughty Tr. 60:15-23; 61:17-62:17; Benink Exh. B-45, p. 937. It also granted stock options to employees as well. Fenaughty Tr. 62:21-63:23; Benink Exh. B-45, p. 937. E. Yandex Inc. Provides Hosting, Web Crawlers, IP Addresses, And 5,000 Servers For Yandex N.V. Search Engines 1 Although Fenaughty testified that they were “presidents,” it appears that Barski was a vice-president. See, Benink Decl., Exh. S. Borkovsky made the same mistake, believing that Barski was the previous CEO of Yandex Labs. This demonstrates just how little the actual president Kiselev was involved. 8 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Yandex Inc. hosts yandex.com, one of the websites that infringes Perfect 10 copyrights. Zada Suppl. Decl. ¶7, Exh. 14. This website allows the sharing of Perfect 10 images by Twitter and Facebook users. Zada Suppl. Decl. ¶ 12, Exh. 19. Yandex Inc. also hosts tweetedtimes.com, a Yandex LLC registered website that features major U.S. media such as USA TODAY and The Washington Post. Zada Suppl. Decl. ¶8, Exh. 15. Yandex Inc. operates hundreds of web crawlers which are used by Yandex N.V. search engines to copy text and images from websites for use in those search engines search results. Borkovsky Tr. at 91:22-92:23; Zada Suppl. Decl. ¶¶6, 10, Exhs. 12-17. Yandex Inc. owns 5,000 Yandex servers in Las Vegas, Nevada. Borkovsky Tr. at 70:17-25; Fenaughty Tr. at 71:1-13; see also Fenaughty errata sheet. These servers are critical to the functioning of the Yandex search engines. They contain the “crawled Web pages and indexed web pages for Web search.” Borkovsky Tr. at 71:15-22; Zada Suppl. Decl. ¶6, Exh. 13. Yandex image crawlers download images. Yandex web crawlers crawl web sites in California. Borkovsky Tr. at 92:22- 93:6. The web crawlers utilize IP addresses assigned to Yandex Inc. Zada Suppl. Decl ¶¶9-10, Exhs. 12, 16-17. Without the web crawlers, the Yandex search engines would not operate successfully. Borkovsky Tr. at 91:12-15. Moreover, the Yandex N.V. board has identified as one of its top five priorities as of February 9, 2012, the “leveraging [of] the Nevada data center to create a global database that allows us to launch in the US as an API.” Benink Decl., Exh. B-53, p. 1010. In 2011, the Yandex N .V. board budgeted approximately one-quarter of [its] capital budget for the Inc.-owned Nevada servers in connection with its desire to build up more of an international database. Fenaughty Tr. at 72:11-73:6 The Yandex N.V. board approved the investment in the Nevada data centers largely based on a presentation by Yandex LLC. Fenaughty Tr. at 97:23-98:11. F. Yandex N.V. uses Yandex Inc. to Facilitate Transactions in the U.S. Beyond the role of developing critical pieces of software for the search engines 9 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 at issue, N.V. utilizes Yandex Inc. as a vehicle to implement N.V.’s business transactions in the U.S. for the benefit of its search engine business. Indeed, Yandex N.V.’s Board of Director’s meeting minutes contain numerous references to Yandex’s desire to expand internationally and into the U.S. Benink Decl, Exh. B-50, p. 969; Exh. B-52, p 994-995; Exh. B-53, 1010-11. Efforts to Attract US Advertisers Yandex N.V. utilizes Yandex Inc. to employ a salesperson, Preston Carey (who works in Boston) to attract advertising dollars from U.S. companies. Fenaughty Tr. at 100:23-101:11; Borkovsky Tr. at 44:13-45:23. The decision to hire Carey was not made by Yandex Inc. His name was brought to the attention of the Yandex N.V. board by Yandex N.V. director John Boyton. Fenaughty Tr. at 102:10-12. Yandex N.V.’s Board listened to a sales presentation by Carey, an “international sales consultant” regarding “international sales opportunities.” Benink Decl, Ex. B-44, p. 928. The Board then formed a subcommittee to “oversee the project and develop a business case for further investigation.” Id. Yandex N.V. then “encouraged” his hiring Fenaughty Tr. at 102:2-6. Carey “works for” Alexei Tretiakov, Yandex LLC’s Commercial Director. Fenaughty Tr. at 102:22-103:1. Carey has attended Yandex N.V. board meetings and he, together with Tretiakov, have updated the Yandex N.V. board “on the status of international sales efforts, specifically covering Mr. Carey’s efforts to attract large US customers.” Fenaughty Tr. at 105:11-17; Benink Decl., Ex. B-50, p. 969. Tretaikov, without Carey, has made presentations to the Yandex N.V board regarding sales performances “for the U.S. office.” Fenaughty Tr. at 125:3-13, Benink Decl., Exh. 53, p. 1011. In order to facilitate Mr. Carey’s efforts, Yandex Inc. and Yandex LLC entered into an October 10, 2010 Agreement by which Yandex Inc. acts as Yandex LLC’s advertising “agency.” Benink Decl, Exh.T, p. 1069; Dowdy Tr. at 40:18-25; 106:2- 14; 106:22-107:8. Yandex Inc. enters into contracts with U.S. companies to place 10 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 advertisements on Yandex search engines. Benink Decl., Exhs., Z, AA, BB. It pays Yandex LLC for its clients’ clicks on Yandex N.V. search engine ads per its agreement with Yandex LLC, and then bills its clients for those ads so as to make a slight profit. Benink Decl, Exh. F-63; Dowdy Tr. at 50:2-22; 52:14-54:15;106:2-14; 106:22-107:8. Yandex Inc. paid Yandex LLC slightly over $3 million on behalf of its advertising clients in 2011. Benink Decl., Exh. F-63; Dowdy Tr. at 53:16-54:15. Purchase of Equipment As discussed above, Yandex N.V. used Yandex Inc. to purchase 5,000 servers in Las Vegas, Nevada used in the operation of the search engines. Borkovsky Tr. at 71:15-22. The servers were purchased by Yandex Inc. for approximately $20 million, using capital contributions from Yandex N.V. and possibly intercompany loans. Benink Decl, Exh. B-53, p. 1015, 1018; Benink Decl., Exh F-54; Dowdy Tr. at 41:9- 43:23; 63:3-12. Yandex Inc., resold some of these servers to Blekko, Inc. for $5 million (Yandex Inc.’s cost). Dowdy Tr. at 65-16-66:8. SPB Purchase Yandex N.V. employed Yandex Inc. as a vehicle to purchase shares of SPB Software, Inc. (with its primary business office in Carson City Nevada) together with the shares of two other SPB entities. Benink Decl., Exh. U. Yandex N.V., Yandex LLC and Yandex Inc. are all parties to the agreement with Yandex N.V. acting as a guarantor for Yandex Inc. and Yandex LLC. Benink Decl., Exh., U, pp. 816-817, 865. Kiselev, a Yandex LLC employee, signed the agreement as an authorized signatory of Yandex Inc., Yandex LLC, and Yandex N.V. Benink Decl, Exh. U, pp. 866-867. Yandex LLC funded Yandex Inc.’s $20 million purchase of the SPB Software, Inc. shares; the lending was discussed at a Yandex N.V. board meeting. Dowdy Tr. at 46:7-47:18; Fenaughty Tr. at 76:6-25. The SPB transaction has been discussed by the Yandex N.V. board. Fenaughty Tr. at 110:22-111:8; Benink Decl., Ex. B-51, p. 990. “SPB Mobile” as Chairman Fenaughty referred to it, provides an “operating 11 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 shell” for mobile devices. Fenaughty Tr. at 77:10-22. The purchase was made based on Yandex N.V.’s concern “about a shift from desktop to mobile” and desire to “establish a capability to serve the small screen market.” Fenaughty Tr. at 76:13-18. Yandex N.V. thought that SPB was in an area that might impact its “overall business as to how [its search engine] would be used and where it would be used.” Fenaughty Tr. at 77:23-78:10. A Yandex press release announcing the purchase of SPB confirms the same (“. . . users will have easy access to the company's services including its search capabilities featured on a wide variety of mobile devices.”) Benink Decl, Exh. FF. It is worth noting that in its reply brief (Dkt. No. 22) (“Reply”), Yandex N.V asserted that SPB was simply an investment in a business “unrelated to search engines.” Reply at 6. Certainly providing a way to obtain Yandex search results on mobile phones is not unrelated to Yandex N.V.’s core business. Reimbursement Agreement Yandex N.V. entered into a “Reimbursement Agreement for Consulting and Advisory Services” with Yandex Inc. Benink Decl, Ex. W. Under the terms of this Agreement, Yandex, Inc. pays for Yandex N.V. costs (including legal costs) for “administrative convenience” and is reimbursed later by Yandex N.V. For example, Yandex Inc. paid for the legal services of Yandex N.V.’s primary outside lawyer, Trisha Johnson, and was then reimbursed for those payments by Yandex N.V. Benink Decl, Exhs. W; F-67, p. 1040; DD., p.1; Dowdy Tr. at 67:22-25; 79:2-22. Presence in Silicon Valley Yandex Inc. also exists as a way for Yandex to interface with companies that Yandex may wish to conduct business with in Silicon Valley. Fenaughty Tr. at 47:15 - 48:7. Fenaughty and/or Volozh have met with representatives of California based high-tech companies, including Mozilla, Apple, and Blekko on Yandex business while in California. Fenaughty Tr. at 54:11-18, 56:14-57:20; 84:24-85:22. Yandex has 12 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conducted business with these entities. Fenaughty Tr. at 55:4-6; 85:17-86:8; 114:12- 16. G. Yandex Lab’s Vital Work on the Search Engines Yandex Labs develops programs that are used by the search engines at issue (yandex.com, yandex.ru). Borkovsky Tr. at 131:18-132:10. Yandex Labs has worked on 6 - 10 projects for the search engines including programs related to “content,” “search,” “ranking.” (Borkovsky Tr. at 65:7-24) and “search quality” Borkovsky Tr. at 126:21-127:11; 128:24-129:25; Benink Decl., Ex. D-27, p. 9. These programs involve “user behaviors” and “real-time crawling,” which allows the search engines to discover which web pages contain “trending information.” Borkvosky Tr. at 67:20-68:13. Yandex Labs works in close collaboration with other Yandex teams helping them solve challenging problems in Web crawl, indexing, machine-learned ranking and search relevance areas. Borkovsky Tr. at 98:16-99:23; Benink Decl, Exh. D-25. Borkovsky has described Yandex Inc. as a “satellite office” in that the work performed by Yandex Inc. is used to run the search engines. Borkovsky Tr. at 131:18-132:10 (“So in a way, we work for that engine.”) It is also described as a wholly owned “division” of “Yandex.” Benink Decl., Exh. D-25. Yandex Inc. and Yandex LLC’s operations are tightly integrated and Yandex Inc. coordinates with Yandex LLC on search engine software projects. Borkovsky emails Yandex LLC employees to discuss technical details and to get decisions made. Borkovsky Tr. at 53:7-21. Borkovsky emails Yandex N.V. CTO Segalovich continuously when Yandex Inc. is working on Yandex LLC software projects. Borkovsky Tr. at 55:21-56:7. Yandex Inc. employees use the same email address as Yandex LLC employees (@yandex-team.ru.) Borkovsky Tr. at 101:6-12; Exh. D-25. For its search engine work, Yandex Inc. bills out its services to Yandex LLC based on the number of hours it works on the projects. Borkovsky Tr. at 50:3-10. Yandex Inc. was not set up to be profitable. The money it receives is used to reimburse salaries. 13 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Borkovsky Tr. at 50:11-17. In fact, Borkovksy testified that Yandex Inc. provides services to Yandex LLC on a cost basis. Borkovsky Tr. at 44:2-10. Yandex LLC paid approximately $10 million to Yandex Inc. for this work in 2011. Benink Decl, Exh. F; Dowdy Tr. at 50:2-22; 52:20-54:15. At times, Yandex LLC transfers money to Yandex Inc. for its forecasted costs. Benink Decl., Exh. F-67, p. 1033; Dowdy Tr. at 67:22-25; 68:1-70:19. Yandex LLC is the only entity for whom Yandex Inc. provides software development services. Dowdy Tr. at 54:13-15. Yandex Inc. currently employs software engineers from Yahoo! and Google (both search engines). Borkovsky Tr. at 128:12-23; 126:21-127:16; Benink Decl, Exh. D-27. Silicon Valley was chosen as location for Yandex Labs because it benefits the Yandex family of companies to leverage skills and industry experience found in Silicon Valley (Borkovsky Tr. at 130:1-16, Benink Decl., Exh. D-27, p. 9) and because Yandex N.V. felt that it might have trouble recruiting enough engineers in Russia. Fenaughty Tr. at 43:10-18. H. Shared Finances At the February 9 and 10, 2012 Board Meeting, Yandex N.V. ratified previous “Intra-Group Loans and Capital Contributions” it had made to “ensure that the subsidiaries are properly capitalized and to fund various capital improvement projects.” Benink Decl., Exh B-53, pp. 1015, 1018. Included among those loans and capital contributions were $9.5 million and $8 million capital contributions from Yandex N.V. to Yandex Inc. to fund the U.S. data center (the Nevada servers) and Yandex N.V.’s “investment in Blekko from Yandex, Inc.” Benink Decl., Exh., X. Yandex Inc. board resolutions reflect that Yandex Inc. was authorized to accept from Yandex N.V. $8 million in non-refundable capital contributions in further connection with the purchase of shares of SPB Software. Benink Decl., Exh X. Dowdy testified that Yandex N.V. makes contributions to Yandex Inc. from time to time because “as the sole shareholder they may be aware of some of…Yandex Inc.’s plans.” Dowdy Tr. at 82:19-22. In 14 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2012 Yandex LLC also loaned Yandex Inc. $20 million in connection with its purchase of SPB Software, Inc. which was specifically discussed at a board meeting of Yandex N.V. Dowdy Tr. at 46:7-47:18. Per Yandex Inc.’s 2011 balance sheet, Yandex Inc.’s biggest assets were (i) the Las Vegas, Nevada servers and (ii) the interest it holds in SPB Software. Benink Decl, Exh. F-64; Dowdy Tr. at 57:12-59:15. In total, those assets were valued at over $40 million. Id. As explained above, both were funded by capital contributions by Yandex N.V. and inter-company loans. I. Yandex N.V. Promulgates Company-Wide Policies that Govern Yandex Inc. Yandex N.V.’s Corporate Governance Guidelines govern Yandex N.V and its subsidiaries. Fenaughty Tr. at 12:21-13:4, Benink Decl., Exh. B-36. Under these guidelines, Yandex N.V.’s board of directors provide advice and assistance to the subsidiaries’ management and oversee management of the “company,” which is defined as Yandex N.V. and its subsidiaries. All Yandex N.V. subsidiaries must obtain Yandex N.V. approval before they make any material transaction not made in the ordinary course of business. Benink Decl., Exh. B-36, p. 81. Yandex N.V.’s Compensation Committee Charter states that the Yandex N.V. Compensation Committee reviews, approves, and recommends for approval, the compensation of CEO, CTO, CFO, and “other group senior management as is deemed appropriate.” Fenaughty Tr. at 17:21-18:9; Benink Decl., Ex. B-37. This Yandex N.V. committee has discussed and set the compensation levels of Yandex Inc. employees CTO Arkady Borkovsky and Vice President Cliff Brunk. Fenaughty Tr. at 20:25-23:17. It also adopted a Code of Business Conduct and Ethics policy that governs its subsidiaries. Fenaughty Tr. at 24:21-25:6; Benink Decl, Ex. B-39. The policies include matters such as compliance with laws, rules, and regulations; confidentiality; protection and proper use of corporate assets; gifts and gratuities; bribes and kickbacks; accuracy of books 15 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 and records; concerns about accounting and auditing matters; sexual and racial harassment; and equal opportunities for employment. Benink Decl., Exh. B-39. Employees are advised that they may report alleged violations directly to the Yandex Group’s CFO in Russia. Benink Decl., Exh. B-39. J. Yandex N.V.’s Contacts With California And The U.S. Yandex N.V. has the following contacts with the U.S.: • It is the 100% owner of Yandex Inc. Benink Decl., Exh. N., p. 293. • It designated Yandex Inc. as its agent for process of service in its SEC filings. • It invested approximately $15 million in Blekko, a search engine based in California; the purchase agreement contains a California choice of law provision and choice of venue provision for San Mateo county. Benink Decl., Exh., R pp. 643, 653. • It entered into an agreement with The Blueshirt Group of San Francisco and consented to arbitration in California and California law in that agreement. Benink Decl., Exh. V, p. 475 • It is listed on the NASDAQ and has sold $401 million in stock, much of it to U.S. investors. Benink Decl., Exh. O, p. 178. • It guaranteed Yandex Inc.’s lease for its office space in Palo Alto, CA. Benink Decl, Exh. K, p. 494. • It retained U.S.-based investment bankers; the contract has a New York choice of law provision. Benink Decl, Exh., Y, p. 769. • It is a party to and guarantor of the SPB purchase agreement in which shares of SPB Communications, Inc., a Nevada corporation were sold. Benink Decl., Exh. V, pp. 867-868. • Yandex N.V.’s Chairman of the Board, Alfred Fenaughty, has two separate residences in California. Fenaughty Tr. at 90:25-91:17. 16 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 • Yandex N.V. Board Member John Boyton resides in Massachusetts Fenaughty Tr. at 95:19-23. • Yandex N.V. Board Member Charles Ryan resides in the U.S. Fenaughty Tr. at 96:1-6. • Yandex N.V. has held Board of Directors meetings in Palo Alto, California and in Menlo Park, California and Yandex N.V. Board members meet with U.S. companies in California to discuss Yandex business, including Apple, Blekko, and Mozilla. Benink Decl., Exh. B- 44, B-50; Fenaughty Tr. at 105:11-21. As explained by Yandex N.V. board member Charles Ryan, Yandex N.V. holds board meetings in Silicon Valley because it is “one of the most important centers for technology in the world” and because it is a way for the N.V. Board to “meet with various other companies, service providers and technology companies with whom [the Board] ha[s] relationships.” Deposition Transcript of Charles Ryan, attached to Benink Decl. as Exhibit G at 5:16- 25; 37:9-38:10. III. ARGUMENT A. Legal Standards on Agency Test A foreign parent company may have the necessary contacts by virtue of its relationship to a subsidiary through either the “alter ego” or “agency” theory. Bauman, 644 F.3d at 919. The agency test is satisfied by a showing two things: (1) that the subsidiary performs services that are sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation’s own officials would undertake to perform substantially similar services, and (2) the parent has a right to control the subsidiary’s activities. Id. at 919-24. See also, Order 5:8-14. B. Yandex Inc. Performs “Sufficiently Important Services” The principal focus of the agency test is the importance of the services to the 17 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 parent. Bauman, 644 F.3d at 922. “The purpose of examining sufficient importance is to determine whether the actions of the subsidiary can be understood as a manifestation of the parent’s presence.” Id. at 921. If the parent would undertake the services of the subsidiary if the subsidiary did not exist, then this element is met. Id. at 921-922. But this test is met even when those services might be delegated by the parent to another agent or subsidiary. Id. at 922, fn. 13. In other words, the test does not ask whether Yandex N.V.’s own officials (represented by a board of directors) would directly undertake those services. Here, many of the services Yandex Inc. provides would likely be delegated to Yandex LLC if Yandex Inc. did not exist. In fact, Yandex Labs was once operated by Yandex LLC from October 10 2008 to October 19, 2010! Yandex N.V. argues that “Yandex N.V. is a holding company acting consistent with its role as an investor. . .” (Dkt. 17-1, 7:21-22). The sufficient importance element has been found where a subsidiary was not a true passive holding company in the business of investing in subsidiaries. In Hydroxycut, the parent company Kerr was the parent to 50 corporations described together as the Iovate Companies. In analyzing the agency test, the Court rejected Kerr’s argument that it was a true holding company and held: It is clear the one business enterprise has been divided into numerous parts that work together and depend on each other. All of the functions of the subsidiaries are devoted to the common end of developing and selling the Iovate Companies’ diet and nutritional supplements. Hydroxycut, 810 F.Supp.2d. at 1119. The sufficient importance element has also been found where a subsidiary acted as a distribution channel for vehicles in California that accounted for 2.4% of worldwide sales, Bauman, 644 F.3d. at 922; where a subsidiary was used by the parent as an agent to implement strategy and to acquire a controlling stake in a third party, In re Musicmaker.com Securities Lit., 2001 WL 3062431 at *9 (C.D. Cal. June, 4, 2001); and where a subsidiary provided “management, administrative, accounting, and data 18 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 processing services” for a larger group of 180 companies (“SCI”) involved in the “death business.” Helm v. Alderwoods Group, Inc., 696 F.Supp.2d 1057, 1064, 1069- 1070 (N.D. Cal. 2009). The Yandex search engines are critically important to Yandex N.V. (Order 5:24-25). As discussed above, Yandex Inc. provides critical infrastructure for the Yandex N.V. search engines. Yandex Inc. hosts the search engine yandex.com. Zada Suppl. Decl ¶7, Exh. 14. Yandex Inc. deploys web crawlers for the Yandex N.V. search engines and owns 5,000 servers in Las Vegas that support those search engines. Zada Suppl. Decl. ¶¶6, 9-10, Exhs. 13, 16-17; Borkovsky Tr., at 70:17-23. Without Yandex Inc. and all of the search infrastructure it provides, Yandex N.V.’s search engines would not operate successfully. Borkovsky Tr. at 91:12-15. Yandex Inc.’s team of software engineers work directly on the search engines in close collaboration with Yandex LLC’s technical persons. Any Yandex N.V. argument that this search engine work is not important or minimal must be rejected based on the undisputed fact that Yandex Labs been in continuous operation since 2008. Finally, as explained above, Yandex N.V. has also used Yandex Inc. as the vehicle to conduct major transactions for the Yandex search engine business, including the SPB Software stock purchase and the purchase of 5,000 servers in Nevada for $20 million. These transactions were not for Yandex Inc.’s direct benefit; they were for the benefit of the Yandex group of companies in the search engine business. Yandex Inc. would not have undertaken these transactions on its own accord. For example, Yandex Inc. CTO Borkovsky did not even ask anyone why Yandex Inc. purchased SPB Software. Borkovsky Tr. at 109:23-110:5. And the use of the Reimbursement Agreement for Consulting and Advisory Expenses that Yandex Inc. and Yandex LLC employed to reimburse attorney Trisha Johnson should not be discounted either. This is a perfect example of Yandex N.V. 19 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 using one of its subsidiaries to accomplish actions for its direct benefit. Yandex N.V. is not simply a passive holding company investor. Rather Yandex Inc. is nothing more than an incorporated department of Yandex N.V. whose presence in Palo Alto, California substitutes for the presence of Yandex N.V. See Doe v. Unocal Corp., 248 F.3d 915, 928-929 (9th Cir. 2001); citing Gallagher v. Mazda Motor of America, Inc., 781 F.Supp. 1079, 1083-84 (E.D.Pa.1992); quoting Bulova Watch Co., Inc. v. K. Hattori & Co., Ltd., 508 F.Supp. 1322, 1342 (E.D.N.Y.1981.) If Yandex Inc. did not exist, Yandex N.V. would certainly have this work performed by another agent or subsidiary. C. Yandex N.V. Controls Yandex Inc. The control required to establish agency is of a lower standard than that under the alter-ego test. Bauman, 644 F.3d. at 922. The Ninth Circuit specifically noted that it is not a requirement that the parent must exercise actual control over the operations of its subsidiary on a day-to-day basis for the agency theory to be established. Id. (noting that “this argument is in error because it conflates the agency and alter ego tests”). Instead, only a right to control must be established. And as discussed above, the right to control is also the lesser important of the two elements necessary to establish the agency theory. As explained above, Yandex N.V. Corporate Governance Guidelines provide it with such a right, as Yandex N.V. must approve all material non-ordinary Yandex Inc. transactions. Benink Decl, Exh. 36, p. 81. Yandex N.V. has demonstrated its complete control of Yandex Inc. Not only did Yandex N.V. create Yandex Inc., but it also moved what was then Yandex Labs from Yandex LLC to Yandex Inc. Benink Decl. Exh. B-45, p. 938. Yandex N.V. has provided Yandex Inc. with millions in capital contributions, without which Yandex Inc. could not survive. Benink Decl, Exh. F-64, p. 1032; Dowdy Tr. at 82:19-22. Yandex N.V. has directed Yandex Inc. to purchase and then resell $5 million in servers at cost to Blekko. Dowdy Tr. at 65:16- 20 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 66:8. Yandex N.V. has even voted to fire certain Yandex Inc. employees and transfer others to Blekko. Benink Decl., Exh. B-52, p. 994-994. Yandex N.V. oversaw the decision to hire Preston Carey to work for Yandex Inc. to recruit U.S. advertisers to advertise on Yandex N.V. search engines. Yandex N.V. has also installed as Yandex Inc’s two person board, Arkady Volozh and Ilya Segalovich, the CEO and CTO of Yandex N.V. Overlapping directors, while not determinative, is probative of control. Acorn v. Household Int’l Inc., 211 F.Supp.2d 1160, 1167 (N.D. Cal. 2002) (“several courts have found such overlapping control structures to be probative of a broad principal/agent relationship.”) Yandex, Inc. is not a stand-alone company and was not created to make money. It has had no board meetings since inception. It has no CEO. Its president does not even have an office at Yandex Inc. Yandex Inc.’s employee roster does not include either a CEO, a president, a secretary, or a treasurer. Benink Decl., Exh. CC, p 526. Yandex’s promulgation of Yandex-wide written policies on matters such as sexual and racial harassment, and accounting and audit matters, also reflect its control of Yandex Inc. Benink Decl, Exh. B-39, p. 71-78. See Helm, 696 F.Supp.2d at 1070 (finding employee handbook issued by parent, inter alia, supported plaintiffs’ contention that parent exercises close control of its subsidiaries’ daily operations). Perfect 10’s opposition brief discussed at great length, Yandex N.V. ubiquitous descriptions of itself and “Yandex” as a search engine company. The existence of a single brand and image supports the finding of an agency relationship as well. See Acorn, 211 F.Supp.2d at 1165 (“This close relationship between parent and subsidiary is reflected in HI’s frequent references to itself and its subsidiaries as a single, unitary enterprise.”); see also Helm, 969 F.Supp.2d at 1070 (“. . .[parent company] SCI’s imposition of a national SCI brand, Dignity Memorial, on its companies in California . . .suggest[s] that SCI controls the manner in which SCI’s California businesses provide mortuary and funeral services.”) Thus, even though SCI had no employees and 21 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 conducted no business in California, Judge Illston nevertheless found that “defendants have not provided a basis ‘for distinguishing between the business of the parent and the business of the subsidiaries,’” and asserted jurisdiction over SCI. Id. See also Bellomo v. Penn. Life Co., 488 F.Supp. 744, 746 (S.D.N.Y. 1980) (asserting jurisdiction over holding company where business of subsidiaries constituted the only business of parent.) D. Yandex N.V. Has Sufficient Contacts With the U.S. To Warrant F.R.C.P. 4(k)(2) Jurisdiction This Court has already found that Yandex N.V. satisfies the first two requirements for 4(k)(2) jurisdiction. The final requirement is that the federal court’s exercise of personal jurisdiction must comport with due process. At its base, due process seeks to ensure that a defendant is not haled into court for contacts that are random, fortuitous, or attenuated. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985). It places responsibility on defendant's own actions that create a substantial connection with the forum. Id. The Ninth Circuit's flexible approach allows for a lesser showing of contacts if considerations of reasonableness are met. Ochoa v. J.B. Martin & Sons Farms, Inc., 287 F.3d 1182, 1188, n. 2 (9th Cir. 2002). Here, as discussed more thoroughly above, Yandex N.V. has deliberately injected itself into the U.S. It has contracts with The Blueshirt Group, investment bankers, Blekko, Yandex Inc., and Yandex Inc.’s landlord in a guarantor capacity. Yandex N.V. has consented to California jurisdiction in two of those contracts and consented to a California choice of law in another. It is a signatory to a purchase agreement buying the shares of SBP Software, Inc. (a Nevada company). Benink Decl, Exh. U, pp. 814, 866-867. It is also listed on the NASDAQ stock exchange and raised $401 million in its IPO, much of which was from U.S. Investors. Benink Decl, Exh. O, p. 178. It also designated Yandex Inc. as its agent for service of process in its SEC 22 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 filings. Zada Decl. (Docket 21-1) Exh. 1, p. 1. While listing on a U.S. stock exchange and designation of an agent in the forum state, may not be enough, by itself to establish personal jurisdiction, they may be considered in the mix of contacts that the Court considers. See Bauman v. DaimlerChrysler AG, 2005 WL 3157472 at *8 (N.D. Cal. November 22, 2005) (“Neither is a listing on a stock exchange, without more, sufficient to confer general jurisdiction.”) (italics added); Martin v. D-Wave Systems, Inc, 2009 WL 4572742, at *4 (N.D. Cal., December 1, 2009) (considering designation of agent as one of the factors in support of exercise of general jurisdiction). And it would be imminently reasonable for the Court to assert jurisdiction over Yandex N.V. Yandex N.V. has held board of director meetings in or around Palo Alto, California. Its Chairman, Alfred Fenaughty owns two residences in California. Fenaughty Tr. at 90:25-91:17. Two other Yandex N.V. board members (of its eight member board) reside in the U.S. Its highest level executives come to California to meet with businesses in California to discuss ongoing and future business dealings, including Apple, Blekko, and Mozilla. Yandex N.V. has already entered into agreements in which it consented to California jurisdiction so being haled into California courts should come as no surprise. Yandex N.V. cannot possibly argue that its contacts with the U.S. are random, fortuitous, or attenuated. IV. THE IVASHENSTEVA DECLARATION IS FALSE AND MISLEADING Yandex relied almost exclusively in its motion to dismiss, on the declaration of an outside Yandex N.V. board of director, Elena Ivashentseva. However, her declaration contains a number of false and/or misleading statements. First, Ivashentseva contends that she has been a non-executive outside director of Yandex N.V. since 2000. Ivashentseva Decl. ¶1. However, Yandex N.V. was not even formed until 2004. Zada Suppl. Decl. Exh. 22, p. 11. The only entity that existed in 2000 was Yandex LLC. To the extent that Ivashentseva considered Yandex LLC to be the same as Yandex N.V., and that serving as a director of Yandex LLC was the 23 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 same as being a director of Yandex N.V. is yet another fact to support Perfect 10’s contention that the Yandex family of companies is operated as a single entity. Ivashenteva has stated that “none of Yandex N.V.’s officers or directors reside in or are domiciled in California.” This statement is misleading at best, because Alfred L. Fenaughty, the head of the Yandex N.V. board of directors, has two residences in California. Fenaughty Tr. at 90:25-91:17. Ivashentseva’s statement that Yandex N.V. “does not engage in business activities in California” is demonstrably false. Yandex N.V. invested $15 million in Blekko Inc., a California based search engine. Benink Decl., Exh. R. p. 621, 648, 653. Yandex N.V. board members, including Arkady Volozh and Alfred Fenaughty, have held meetings to discuss business with a number of California companies, including Apple, Blekko, and Mozilla. Yandex N.V. holds board meetings in California. Ivashentseva’s statement that Yandex N.V. “has not purposefully availed itself of the benefits or protections of the law of California…” is also demonstrably false. Yandex N.V. has signed agreements with California companies in which it consented to California jurisdiction and to California law. Ivashentseva’s statement that “Yandex LLC surrendered its registration to do business in California several years ago,” is also misleading. Yandex LLC surrendered its registration to do business in California on or about October 19, 2010, approximately a year and seven months before Ivanshentseva signed her declaration. Locke Decl., Exh. 1, p. 3. V. OTHER YANDEX MISREPRESENTATIONS In addition to the misleading statements made in the Ivashentseva Declaration, Yandex N.V. has also made a number of inaccurate statements to the Court during the 24 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 discovery hearing on August 8, 2012.2 For example, in order to persuade the Court that Dr. Zada should be forced to drive two and a half hours down to San Diego to see AEO documents, Ms. Kassabian stated to this Court that Dr. Zada “has a mansion in Beverly Hills.” In fact, Dr. Zada lives in a house in Los Angeles that is not a “mansion.” Zada Suppl. Decl. ¶¶3, 16, Exh. 23, p. 4. Dr. Zada has lost most of his money attempting to protect what is left of Perfect 10. Ms. Kassabian also represented to the Court that Yandex only stores thumbnails on its servers. Zada Suppl. Decl. ¶16, Exh. 23, pp. 7-8. There are in fact, many hundreds of full-sized Perfect 10 images on yandex servers, surrounded by Yandex ads. Zada Suppl. Decl ¶11, Exh. 18. Ms. Kassabian also stated that there was no precedent for a protective order that would allow Dr. Zada to view AEO documents at his home. Zada Suppl. Decl. ¶16, Exh. 23, p. 3. In fact, other courts have allowed Dr. Zada unrestricted access to AEO documents. (See Dkt. No. 56-1) /// /// /// /// /// 2 During that hearing, Ms. Kassabian persuaded the Court to trust her representations that all contracts involving Yandex N.V. would be produced and that no portions of Yandex N.V. minutes relevant to jurisdictional issues had been redacted. 25 Perfect 10’s Supplemental Opposition to Yandex’s Motion to Dismiss for Lack of Personal Jurisdiction | Case No. 12CV1521 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 VI. CONCLUSION Yandex N.V. is not a passive holding company whose only interest is in owning profitable subsidiaries. It operates a family of companies together as a single entity, “Yandex,” whose unitary goal is to make its search engines successful. Yandex N.V. uses Yandex Inc. as a base for its operations in the U.S. and to provide critical computer infrastructure for its search engine business. It is imminently fair to hale Yandex N.V. into a California court considering Yandex N.V.’s numerous contacts with California and the U.S. Perfect 10 respectfully requests that this Court deny Yandex N.V.’s motion to dismiss. Dated: August 22, 2012 Respectfully submitted, Krause Kalfayan Benink & Slavens, LLP. By: ___________________________________ Eric Benink Attorney for Plaintiff, Perfect 10, Inc. /s/ Eric Benink