India: Minimum Contact Theory

Last Updated: 11 September 2013

Article by Himanshu Sharma and Ritiraj 1

Introduction

In Personam Jurisdiction refers to the power which a court has over the defendant himself in contrast to the court's power over the defendant's interest in property (Quasi in rem) or power over the property itself (in rem)2. A court that lacks personal jurisdiction is without power to issue an in personam judgment i.e. judgment against the individual or corporation3. The Minimum Contact theory comes into picture when either or both of the parties seem to be from outside the Court's territorial jurisdiction. It is used as a method to establish the Court's jurisdiction over the parties to a case by determining their quality and intensity of their contact i.e. services or transactions with the Forum State4. In India, it has been incorporated by giving a liberal interpretation to Section 20(c) of the Code of Civil Procedure, to expand jurisdiction especially in cases of trademark infringement, passing off of trademarks, domain name infringements.

Origin of the theory

In America, concept of personal jurisdiction and fairness and due process were not on the same page traditionally. Non-residents could be brought to court while they were in State, however fortuitous or brief presence it might be5. With the International Shoe v. Washington6, modern jurisdictional analysis stepped in, imbibing Fair play and substantial justice in exercising of personal jurisdiction by courts. Incorporating the spirit of the Fourth and Fifteenth Amendments to the United States Constitution that talk about substantive due process and procedural due process, the core meaning of due process of law is to secure the principle of legality by ensuring that executive and judicial deprivations are grounded in valid legal authority7. In this case, a suit to recover payments due to the unemployment fund by a Corporation which did not even have an office or shop in the State was questioned on the basis of personal jurisdiction. Service of process upon one of the corporation's salesmen within the State, and notice being sent by registered mail to the corporation at its home office was challenged as not satisfying the requirements of due process8. The Supreme Court of Washington was of opinion that the regular and systematic solicitation of orders in the state by appellant's salesmen, resulting in a continuous flow of appellant's product into the state, was sufficient to constitute doing business in the state so as to make appellant amenable to suit in its courts.

Earlier the parties' presence within the territorial jurisdiction of a court was prerequisite to its rendition of a judgment personally binding him9. Later the position developed that due process required only that, in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice"10. It was held supra, that, to the extent that a corporation exercises the privilege of conducting activities within the State, it enjoys the benefits and protection of laws of the State and obligations arising out of these which require the Corporation to respond to a suit brought to enforce them can, in most instances, will be held binding on it. Hence, the Corporation is bound by its purposeful availment in that forum.

Development of the theory in the International arena

Shoe (Supra) lay down that Courts could exercise general personal jurisdiction as well as specific personal jurisdiction, depending on the level of contact. If contact is so continuous and substantial that the subject can be sued for anything within the State, it's the former, but if the contact is only sufficient for jurisdiction over claim arising from those contracts, it's the latter11. With the development of Internet and globalization of business, businesses spread worldwide had the risk of being sued anywhere, which mandated stricter norms in determining "Purposeful Availment", also known as Sliding Scale test12. The case of Asahi Metal Industry Co. v. Superior Court13questioned if the mere awareness that a product may reach a remote jurisdiction when put in the stream of commerce was sufficient to satisfy the requirement for minimum contacts under the Due Process Clause. The courts here and in World-Wide Volkswagen Corp. v. Woodson14held that a party must do more than intentionally put goods in the stream of commerce even if it expected its products to reach the forum state. Foresight alone wasn't enough to establish personal jurisdiction over the defendant Corporations here as neither party deliberately took steps to see their products in the forum markets15. The substantial connection with the forum state necessary for a finding of minimum contacts must come about by an action of the defendant purposefully directed toward the forum state16. Even after that, fair play and justice will have to be satisfied i.e. reasonableness of the party to be sued in that forum.

The cases of Cybersell Inc v. Cybersell Inc and Ors17 and Chloe v. Queen Bee of Beverly Hills, LLC18gave a three step test to exercise personal jurisdiction in matters dicey in territorial jurisdiction.

  1. The non resident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws.
  2. The claim must be one that arises out of or results from the defendant's forum related activities.
  3. Exercise of jurisdiction must be reasonable

But the case of Panavision International LP19brought out the loophole in application of existing rules of personal jurisdiction to conduct that took place in part in cyberspace - it was observed that simply registering someone else's trademark as a domain name and posting a website on the Internet is not sufficient to subject a party domiciled in one state to jurisdiction in another. Even a passive website cannot be the subject of a Court's personal jurisdiction, until it harms the other. The Minimum Contact Theory wasn't sufficient to determine such cases wherein the level of contact or interactivity of the domains couldn't be defined. This brought in the aspect of 'active intention of the party to establish contact with the forum state, economically benefit itself and harm the interests of the plaintiff by targeting the latter's market. It led to the development of Calder test20 (effect test) i.e. exercising jurisdiction by objective territoriality.

In the case of Burger King Corp v. Rudzewicz21, it was held that the court could exercise jurisdiction over a nonresident despite his physical absence, where an alleged injury arises out of or relates to actions by the Defendant himself that are "purposefully directed towards residents of the forum State". It was also held that "purposeful availment" would not result from "random" or "fortuitous" contacts by the defendant in the forum state, the plaintiff was required to show that such contacts resulted from the "actions by the defendant himself that created a substantial connection with the forum State" i.e. he must have engaged in "significant activities" within the forum state or have created "continuing obligations" between himself and residents of the forum state.

Summarizing the position in the US, to establish personal jurisdiction of the Court, even when a longarm statute existed and Effects test proved, plaintiff would have to show that the defendant purposefully availed of jurisdiction of the forum state by "specifically targeting" customers within the forum state.

In England, until the passive display is advertisement, it wouldn't be viewed as targeting. Countries like Australia and Canada are supported by their long-arm statute, which though decreases the importance of Minimum Contact theory, doesn't diminish the importance of due process requirements, including reasonability. Reasonableness of exercise of jurisdiction can be gauged by considering the following measures- the burden on the defendant of coming for a trial in that forum state, the interests of the forum State, the plaintiffs interest in obtaining relief, the interstate judicial system's interest in obtaining the most efficient resolution of controversies and the shared interest of the several States in furthering fundamental substantive social policies

Use in India

As the businesses in India are extending their horizons globally hence the use of Minimum Contact Theory was used to expand jurisdiction of Courts in cases trademark infringement through domain name and when some non-residents are involved. In the case of (India TV) Independent News Service Pvt Limited Vs. India Broadcast Live LLC and Ors22 and Banyan Tree Holding (P) Limited vs. A. Murali Krishna Reddy and Anr.23, the foreign precedents were rushed to provide the justification for exercising jurisdiction over the defendants. As jurisdiction in our courts is defined by territorial and pecuniary jurisdiction, a liberal interpretation of Section 20(c) of Code of Civil Procedure by the Courts allowed this.

In India TV case, the court established minimum contact of the defendant with the forum state to exercise jurisdiction. It was found out that the website could not only be accessed from but also subscribed to from Delhi and it was thus contended that the defendant was carrying on business with deliberative effort for profit or gain from India. As the plaintiff was a corporation based in India in the same field, its economic interests were being hampered. Hence, according to the Cybersell case, court held that defendant in this case had directed his activity toward the forum state i.e. Delhi and held defendant liable for passing off.

In Banyan Tree case, it was held that creating a site, was like placing a product into the stream of commerce, which may be felt nationwide or even worldwide but, without more, it was not an act purposefully directed towards the forum state". Purposeful Availment means that it has to be actively intentional24. The Courts in order to ensure that this method of exercising jurisdiction didn't violate the codified method of territorial jurisdiction, the Courts, in both these cases used Section 20(c) of the Code of Civil Procedure, i.e. the case can be instituted where the cause of action arises. Courts held that even if neither the plaintiff, nor the defendant were within the local jurisdiction of the Court where the case was instituted, but it was proved that the domains of the defendant were accessed by the people belonging to the plaintiff's market under the impression of the defendant being the plaintiff, because of similar trademarks or domain names, then cause of action will deemed to have arisen in that market and the case could be instituted there. Mere avoidance to restrict the access of their sites outside the defendant's local jurisdiction could not be an excuse if people would take services from it, thus harming the other similar Corporation.

Conclusion

Thus, from mere establishment of contact with the forum state, the theory gradually required deliberate direction from the defendant and harm to the plaintiff in order to be applicable in modern times. The difference in Indian use of this theory and International use is that here, it is restricted by territorial jurisdiction and cause of action needs to arise at the place where case is instituted. Whereas, international use of the theory shows how objective territorial application of jurisdiction without the restrictions of territorial application helps in extending jurisdiction of courts to a wide degree, thus serving the interests of justice in the society.

Restriction of territorial jurisdiction being placed by codified laws, further expansion of personal jurisdiction beyond those lines require appropriate amendments in Section 19 and 20 of the Code of Civil Procedure to incorporate the Objective territoriality principle, i.e. the Effects test. This is so because judicial precedents of lower courts and foreign courts do not have binding authority on the Indian Courts and considering the growing involvement of non-residents in cases of trademark infringement, passing off and domain names owed to the ever-increasing horizon of globalization of businesses and internet connectivity, we need definitive law in this matter. Continued dependence on case laws and International law principles, without incorporation in domestic law will keep the law regarding this matter vulnerable to dismissal by the higher courts and leave unprotected the valid interests of the members of the society.

Footnotes

1 IIIrd year student NLU Delhi

2 Black's Law Dictionary, (6th Ed.) p.790

3 India TV) Independent News Service Pvt. Limited V. India Broadcast Live LLC and Ors., (2007)ILR 2Delhi1231

4 Forum State is the State where the case has been instituted

5 Burnham v. Superior Court, 495 U.S. 604 (1990)

6 326 U.S. 310, 1945

7 www.law.nyu.edu/idcplg?IdcService accessed on 21st July, 2013

8 http://supreme.justia.com/cases/federal/us/326/310/case.html accessed on 20th of July, 2013

9 Pennoyer v. Neff, 95 U. S. 714, 95 U. S. 733, 1878

10 Milliken v. Meyer, 311 U. S. 457, 311 U. S. 463

11 www.law.nyu.edu/idcplg?IdcService accessed on 21st July, 2013

12 Zippo Mfg. Co. v. Zippo Dot Com, Inc. 952 F.Supp. 1119

13 480 U.S. 102 (1987)

14 444 U.S. 286 (1980)

15 http://supreme.justia.com/cases/federal/us/444/286/case.html , accessed on 21st of July, 2013

16 http://www.lacrosselaw.com/purposeful-availment-test-limited/ accessed on 21st of July, 2013.

17 Case No. 96-17087 D.C. No. CV-96-0089-EHC

18 616 F.3d 158 (2nd Cir. 2010)

19 141 F.3d 1316

20 Calder v. Jones 465 U.S. 783 (1984)

21 471 U.S. 462

22 (2007)ILR 2Delhi1231

23 2010(42)PTC361(Del)

24 Ballard v. Savage 65 F.3d 1495 (1995)

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