Litigation Update: The Decision In Braintech?

One of the most contentious issues in lawsuits involving the Internet is the question of personal jurisdiction. Under what circumstances can a court take jurisdiction over a non-resident defendant because of injuries caused by information posted on websites that are accessible virtually anywhere in the world? Can a Texas court, for example, take jurisdiction over a Canadian defendant simply because he posted disparaging and allegedly defamatory comments about a publicly-traded company on an investors bulletin board that were then downloaded and read by shareholders living in Texas?

This is essentially what happened in Braintech Inc. v. Kostiuk, a recent decision of the British Columbia Court of Appeal. The defendant, John Kostiuk, lives in Vancouver, B.C. Braintech, a publicly-traded computer software company is also headquartered in B.C., but has a small R&D facility in Austin, Texas. Braintech decided to sue Kostiuk in Texas because of the allegedly defamatory comments that Kostiuk had posted on an investors’ chat line that were read by shareholders and potential shareholders residing in Texas. The Texas District Court assumed jurisdiction under the state’s "long-arm statute", Kostiuk failed to appear, a default judgment in the amount of $300,000 U.S. was entered, and Braintech then commenced an action in B.C. to enforce the Texas judgment.

Under Canadian law, a foreign judgment will be enforced in Canada if the plaintiff can establish "a real and substantial connection" between the parties and the action on the one hand, and the jurisdiction of the foreign court, on the other. Factors that will be considered include where the parties reside, where the contract was signed or performed, where the tort was committed, or where the bulk of the damage was sustained. The concern, of course, is to avoid "forum shopping" and to preserve some measure of fair play for the non-resident defendant.

The B.C. trial court concluded that there was a "real and substantial connection" with Texas because of the publication in that state of the alleged libel which affected the interests of actual or potential resident investors. Kostiuk appealed the trial court’s enforcement order to the B.C. Court of Appeal.

The Court of Appeal reversed the Trial Court’s decision, concluding that the only natural forum for this dispute was British Columbia, not Texas. The only contact that Kostiuk had with Texas was his passive use of an out-of-state Internet bulletin board, and the "mere possibility that someone in that jurisdiction might have reached out to cyberspace to bring the defamatory material to a computer screen in Texas". This was deemed to be insufficient. The motion to enforce the Texas judgment in B.C. was denied. Not surprisingly, the B.C. Court of Appeal relied heavily on recent developments in the U.S. regarding the issue of jurisdiction.

American courts have had more experience with the issue of Internet jurisdiction. Over the last several years American judges have developed a two-step approach to the question. First, the court decides whether the impugned activity is covered by the state’s long-arm statute; secondly, the court determines whether the exercise of personal jurisdiction over the non-resident defendant satisfies the constitutional "due process" requirement - that is, whether there are a sufficient number of "minimum contacts" with the forum so that the exercise of jurisdiction accords with "traditional notions of fair play and substantial justice". Some have suggested that this two-step American analysis is in essence very similar to the Canadian concept of "real and substantial connection".

In Internet cases, most American courts have adopted a "sliding scale" approach for the "minimum contact" analysis that considers the level and extent of commercial activity that is actually conducted in the jurisdiction. At one end of this scale or spectrum is the "active" category - where the non-resident clearly does business over the Internet and has "systematic and continuous contacts" within the jurisdiction, using directed advertising, entering into contracts with residents, transmitting and downloading computer files, etc. Here both American and Canadian courts would allow the exercise of personal jurisdiction over the non-resident defendant.

At the other end of the spectrum is the totally "passive" category. Here there is no on-going business activity. At most, there is simply the posting of information on a web site that is not aimed or directed at any residents in the particular jurisdiction. The vast majority of American courts have held that posting information on websites or bulletin boards that are accessible to users worldwide is not sufficient to subject the non-resident defendant to the jurisdiction of the foreign state simply because the information happens to be downloaded to a computer screen in that jurisdiction. Something more is required.

The middle category ends up being the most difficult to adjudicate because it occupies the middle ground on the spectrum - cases where there is "something more" - that is, some level of Internet interaction or exchange of information with residents in the jurisdiction.

What exactly counts as " something more"? As a general proposition, the fewer things that "happen" in a forum state, the less likely that a court is going to find that the claim arose out of the transaction of business within that state. But where the defendant "purposefully directs" his activities to residents of the forum state through ads or e-mail messages, or uses an Internet service provider located in the forum state; or an interactive website that is accessible by residents of the forum state; or engages in the extensive exchange of e-mail messages therein; or purposefully "avails himself" of the privilege of conducting activities in the forum state (by, for example, "taking advantage of the state’s benefits and the protection of its laws") - then U.S. courts have found sufficient connection for personal jurisdiction to take hold.

But simply putting up a webpage, or posting information in a chat room or on an electronic bulletin board that is not aimed at any particular resident or any particular state is not enough to confer jurisdiction.

That is why, in the end, the B.C. Court of Appeal decision in Braintech was relatively straightforward. And that is why on March 9, 2000, the Supreme Court of Canada refused to grant Braintech leave to appeal, in essence giving its stamp of approval to the decision of the B.C. Court of Appeal. The B.C. Court of Appeal for its part, adopted the American active versus passive approach and concluded quite easily that Mr. Kostiuk’s behaviour fell within the latter passive category.

Otherwise, as a number of American courts have noted, "a finding of jurisdiction based simply on a website would mean... worldwide personal jurisdiction over anyone who establishes a website", and this in turn would be tantamount to a declaration that any court anywhere in the world could assert personal jurisdiction over anyone posting information on the Web.

The decision of the B.C. Court of Appeal in Braintech, which is now the leading Canadian authority on Internet jurisdiction, was both sensible and uneventful. The more difficult cases - those that occupy the middle ground on the spectrum are making their way through the system and will challenge our courts to examine what "real and substantial connection" means for Internet jurisdiction and the policing of activities in cyberspace.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.