You and a friend decide to start a new Internet company selling little bean-bag bears out of your home in Hawaii. You gather some inventory, set up a website from which customers can purchase online, and open for business. The orders start trickling in, mostly local, but a few nationwide.
Happily, you ship the bears, without thinking that completing such sales might have unforeseen consequences. Nevertheless, a short time later, you discover that you are being sued for trademark infringement by Ty, Inc., the maker of the Beanie Baby. Worse yet, you are being sued in Illinois, a state that you have never come within a thousand miles of, because of one sale of 3 bears that you made to a customer there.
Farfetched? This exact scenario was recently litigated in the United States District Court for the Northern District of Illinois. 2001 U.S. Dist. LEXIS 5761.
The Hawaiian company, Baby Me, claimed that its contacts in Illinois were so minimal that it could not reasonably expect to be hauled into court there, and that Illinois’ exercise of jurisdiction over it would be a violation of its constitutional due process rights.
The court noted, however, that although Baby Me’s contacts with Illinois were few, the website offered itself up for business anywhere in the U.S. The contacts in question involved the sale of the allegedly infringing goods, and thus were directly related to the suit. The court held that Baby Me was subject to jurisdiction in Illinois for this particular suit. The seven-month-old, two-person company had to defend an expensive lawsuit thousands of miles from its home.
The law of personal jurisdiction based on Internet activity is still very murky. But, this much is clear: If your website allows purchase of goods and services online, you are most likely subjecting yourself to jurisdiction anywhere that you make sales, especially if the suit is directly related to those sales.
But what if the website merely provides information to users, or provides free services such as news or email? The case cited most often on the subject of Internet jurisdiction, Zippo Manufacturing Co. v. Zippo Dot Com, examined web activity on a sliding scale, placing sites at which business is conducted on one end of a spectrum, and sites that are passive and merely display information at the other, jurisdiction proper and not proper, respectively.
In the middle ground were interactive websites at which information is exchanged between the user and the host, but no business is conducted. The Zippo court stated that for these sites "the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the website," and the "likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of the commercial activity that an entity conducts over the Internet." 952 F. Supp. 1119, 1124.
The sliding scale analysis of Zippo, although cited favorably by most courts, provides little guidance for the owner of "middle ground" websites who seek to avoid being sued in every jurisdiction in the U.S.,** particularly as it can be difficult for an owner to determine if a site fits in the middle ground. Email links, links to other sites, and "click-through" advertisements can be considered signs of interactivity and a "commercial exchange of information" on an otherwise passive site. Courts have even found sites that sell directly over the Internet to be in the middle ground. Millennium, 33 F. Supp. 2d 907.
An inquiry into the nature of the activity of the middle ground site is fact driven. Courts have not established a clear pattern as to what activities will lead to a finding of personal jurisdiction. There are also conceptual differences in the way courts consider websites and their contacts. Most courts assess a website that is pulled up on a home computer as if the host initiated contact with the home computer. Courts choosing this approach would thus be more likely to find jurisdiction, because every website "hit" becomes a contact initiated by that site.
However, the D.C. Circuit rejected the above conceptualization, choosing to view the contact as initiated by the home computer, as if the user made a telephone call to the host. 199 F.3d 1343. A court choosing this approach would be less likely to find jurisdiction.
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The issue of jurisdiction in foreign countries because of web activity is also a significant concern, but too complex to be addressed here.In general, a passive website is often considered to be similar to an advertisement in a national publication. As such, it plays a role in any jurisdictional analysis, although without "something more," jurisdiction will likely not be found.
However, not all courts follow this reasoning in all cases. In Panavision International v. Toeppen, the defendant operated a passive site that infringed on the plaintiff’s trademark. 141 F.3d 1316. The court applied an "effects" test, holding that the defendant was a cybersquatter whose tortious actions were intentional, expressly aimed at the forum state, the harm was suffered in the forum state, and the defendant knew that this was likely to be the case. Thus, the defendant was subject to jurisdiction in California based solely on the effect of his website in that state.
Although courts often refer to the sliding scale test of Zippo as a new approach to jurisdiction, the test is little more than new terminology for the "minimum contacts" test of traditional jurisdictional analysis. A court considering a personal jurisdiction question for a middle ground site must still examine the contacts that the defendant made with the forum state in assessing whether jurisdiction comports with due process requirements.
It is extremely important to realize that in the Internet realm, the mere act of establishing a website constitutes some sort of contact, even though many additional contacts may arise unbeknownst to the owner of the site. For example, Web site "hits," emails and use of other interactive features often occur without the site owner having knowledge of the location of a particular contact. The site owner may respond to such contacts, unwittingly adding to a basis for jurisdiction in the other party’s forum. Additionally, many websites are established by parties that would never consider advertising nationally. These parties, like Baby Me, may not be aware that such a site could lead them down a dangerous path.
The Internet is a powerful business tool, giving site owners the ability to locate and connect with customers and potential customers in ways previously unimaginable. However, any person or business looking to establish a web presence should not ignore the issue of personal jurisdiction. Although there is no clearly defined path to avoid subjecting oneself to suit in other forums, careful consideration of the personal jurisdiction problem can help mitigate and possibly eliminate potential dangers.
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.
