Internet Jurisdiction - A Pragmatic Approach

Fortunately, federal law trumps state law in this "due process" area. Federal courts often wind up with state lawsuits involving citizens of different states by reason of their jurisdiction over many diversity of citizenship cases and the concomitant right of an out of state person or company to remove state court cases brought against them to the federal courts. Accordingly, federal courts do, in fact, exert some policing pressure to limit the zeal of state courts to hear cases against all out of state defendants - no matter how remote.

Consequently, the focus of this presentation shall be upon federal, not state, Internet cases. As we shall see, the cases discussed suggest the following "rules of thumb:"

1. If your client operates a Website in a state, your client can be sued in that state.
2. If your client operates in a state a Website which is merely a "passive" Website, providing information to all comers without interactivity, the odds are pretty good that your client cannot be ultimately subject to jurisdiction in a foreign jurisdiction.
3. If your client operates an interactive Website which develops a dialog with a potential plaintiff in a foreign state, or sells something to that foreign plaintiff, your client likely will be subject to jurisdiction in that foreign state.
4. If your client operates a Website or service which sells services to, or directs advertising or a "stream" of commerce towards a number of citizens in a foreign state - and there is a citizen of that foreign state who has a complaint against your client which the courts of that state otherwise could not hear for want of jurisdiction; a citizen to whom your client did not direct messages or the "stream of commerce" - even that citizen likely can sue your client in that foreign state.
5. If your client does a tortious act on or through its Website which has a foreseeable impact or effect on a company or other citizen of a foreign state, your client likely can be sued by such injured persons in such foreign state.
6. As indicated above, if your client sells something to a citizen of a foreign state, that citizen likely can sue your client in either your client’s home state or in the citizen’s foreign state; however, if that foreign citizen is a deadbeat and fails to pay, or otherwise commits a breach of contract, your client likely will have to sue that citizen in the citizen’s foreign home state; not in the home state where your client does business.

Some legal analysis to support these conclusions follows.

The modern law of personal jurisdiction holds that in order to be subject to jurisdiction in a forum, a defendant need have sufficient "minimum contacts" with the forum that it is fair to sue him there.

International Shoe v. Washington, 326 U.S. 310 (1945). The International Shoe court found that "continuous and systematic" activities of the defendant in the forum state would support so-called "general jurisdiction" tantamount to "doing business" under state law jurisdictional statutes. See, International Shoe, 326 U.S. 310 at 317.

The problem is knottier in the case of so-called "special" or "long-arm" jurisdiction, because the foreign defendant may not generally be subject to any old suit in a foreign state, but, because of some specific activities which have impact in the foreign jurisdiction, still may be dragged into court there to defend himself against those specific charges.

Some limitations on such long-term jurisdiction were set forth in Hanson v. Denckla, 357 U. S. 235 at 253 (1958),

In Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985), the court allowed a contract suit by a Florida franchisor to proceed in Florida against a Michigan franchisee, concluding that the parties’ negotiations, contract terms and course of dealing made it reasonably foreseeable to the Michigan franchisee that he might have to litigate in Florida.

In negligence tort cases, the case of Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987), suggests that when a foreign defendant puts a product into the "stream of commerce" and the product winds up in a foreign state, the foreign defendant is subject to special or long-arm jurisdiction in that forum state, provided the defendant has directed marketing efforts towards the foreign state.

The case of Calder v. Jones, 465 U.S. 783 (1984) suggests that intentional tortfeasors may be subject to jurisdiction in a forum state provided that their intentional conduct had a foreseeable impact or effect in the forum state.

In general, the factors appropriate to determining the reasonableness of subjecting a foreign defendant to jurisdiction in a forum state are set forth in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980), which looked at five main factors:

1. The burden on the defendant;
2. The forum state’s interests;
3. The plaintiff’s needs;
4. The judicial systems’ interests; and
5. Social policy.

What does all this federal law have to do with Internet jurisdiction? A lot, it turns out, because these are the principles by which the "minimum contacts" via the Internet with the forum state - requisite to determining that jurisdiction exists in the forum state - must be evaluated.

Rather than attempt to digest and analyze every reported state and federal Internet jurisdiction case, let us instead look at a few illustrative cases to indicate how these general principles are being applied in Internet cases.

1. Action-Specific Conduct as Jurisdictional Basis.

A leading Internet active conduct case is Compuserve, Inc. v. Patterson, 89 F.3d 1257 (6^th Cir. 1996). In Compuserve, a Texas resident contracted with Compuserve in Ohio for Compuserve to offer his "shareware" for sale. Compuserve successfully obtained jurisdiction over Patterson in Ohio. The appellate court reasoned that Patterson had directed his commercial activity at and through Compuserve in Ohio, and thus subjected himself to jurisdiction there in an action for a declaratory judgment of non-infringement.

Similarly, in Panavision International, L.P. v. Toeppen, 141 F.3d 1316 (9^th Circuit 1998), a domain name/cybersquatting case, the court found, in upholding jurisdiction for Panavision in California, that the Illinois defendant had directed his activity towards the California plaintiff, and in fact, had attempted to extort $13,000 from Panavision to encourage the Illinois cybersquatter to relinquish Panavision’s own name to it. (Note: The new federal anti-cybersquatting law, 15 U.S.C. §1125(d), would now be available to Panavision.)

2. Active General Conduct as Jurisdictional Basis.

The case of Mieczkowski v. Masco Corporation, 997 F. Supp. 782 (E.D. Texas 1998), represents an interesting application of the foregoing principles because it allowed suit in Texas for a crib death there caused by a bed made by the defendant, a company based in North Carolina, sold from a Washington D. C. store to a Virginia resident, who moved the bed to North Carolina and sold it used t the plaintiffs there. The plaintiffs then moved the bed to Texas, where the accident occurred. The Masco court, in upholding jurisdiction, found no specific or long arm jurisdiction whatsoever, but held that since the defendant had systematically marketed and sold a substantial number of beds to Texas residents over the Internet, the North Carolina resident was subject to general jurisdiction in Texas, even though there had been no actual Texas marketing or sales to the plaintiffs in Texas.

In accord with Masco is Zippo Manufacturing Company v. Zippo Dot Com, Inc., 952 F. Supp., 1119 (W. D. Pa. 1997) in which a Pennsylvania cigarette manufacturer successfully asserted long-arm jurisdiction over a California-based Internet news service. The news service had a substantial number of paying subscribers in Pennsylvania.

By contrast, however, had the Masco furniture company been the plaintiff trying to recover the price of the bed, the result probably would have been the opposite, with no jurisdiction being found. See, Pres-Kaps, Inc. v. System One, Direct Access, Inc., 636 So.2d 1351 (Fla. App. 1994), review denied, 645 So. 2d 445 (Fla. 1994), a rare state case denying long-arm jurisdiction.

Zippo, supra, 952 F.Supp. 1119 At 1125.

3. "Passive" Website as Jurisdictional Basis.

Generally, if a Website is not interactive, but merely informational in nature, the courts have been unwilling to support long-arm jurisdiction in foreign fora. In Cybersell, Inc. v. Cybersell, Inc., 130 F3d (9^th Cir. 1997), an Arizona Internet commercial firm was denied jurisdiction over a Florida Webpage construction company.

"Cybersell FL did nothing to encourage people in Arizona to access its site, and there is no evidence that any part of its business (let alone a continuous part of its business) was sought or achieved in Arizona. To the contrary, it appears to be an operation where business was primarily generated by the personal contacts of one of its founders. While those contacts are not entirely local, they aren’t in Arizona either. No Arizonan except for Cybersell AZ ‘hit’ Cybersell FL’s website. There is no evidence that any Arizona resident signed up for Cybersell FL’s web construction services. It entered into no contracts in Arizona, made no sales in Arizona, received no telephone calls from Arizona, earned no income from Arizona, and sent no messages over the Internet to Arizona. The only message it received over the Internet from Arizona was from Cybersell AZ. Cybersell FL did not have a ‘800' number, let alone a toll-free number that also used the ‘Cybersell’ name. The interactivity of its web page is limited to receiving the browser’s name and address and an indication of interest - signing up for the service is not an option, nor did anyone from Arizona do so. No money changed hands on the Internet from (or through) Arizona. In short, Cybersell FL has done no act and has consummated no transaction, nor has it performed any act by which it purposefully availed itself of the privilege of conducting activities, in Arizona, thereby invoking the benefits and protections of Arizona law."

Cybersell, Inc., 130 F.3d 414 at 419 (9^th Cir. 1997). Accord, Bensusan Restaurant Corp. v. King, 937 F.Supp. 295 (S.D. NY 1996), affirmed 126 F.3d 25 (2d Cir. 1997), which held that the owner of "The Blue Note" jazz club in New York could not bring suit in New York against the owner of a Missouri jazz club of the same name just because the Missouri club owner maintained a passive Website containing general information about his Missouri club. The Bensusan court reasoned that the defendant had neither targeted his Web advertisements at New York, nor purposefully entered into the "stream of commerce" there. (Note: Inset Systems v. Instruction Set, Inc., 937 F. Supp. 161 (D. Conn. 1996) found that general Internet advertising was sufficient solicitation to allow jurisdiction; most federal "passive" site cases are to the contrary, however.)

The foregoing analysis, while not exhaustive, suggests that companies - other than consumers - which do business via the Web and/or which direct systematic advertisements towards a forum state are likely to be subject to jurisdiction there. Tortfeasors whose actions are directed towards or which foreseeably impact or affect specific individuals in a forum state are likely to be subject to suit there.

On the other hand, consumers merely buying on the Internet are likely immune from suit in foreign jurisdictions, but may have the right to sue their suppliers.

Finally, operators of passive, non-interactive Websites have little reason to fear out-of-state lawsuits, unless they are deemed to target their advertisements or commercial speech at identifiable groups within a particular foreign state.