* The authors acted as counsel to Intermix
Introduction
The last decade has witnessed two important developments that are quickly reshaping Canadian society. On the one hand, the Internet revolution has changed the way that we access information, communicate with one another, and trade goods and services throughout the world. On the other hand, the proliferation of class actions, which can group together thousands and even millions of consumers into a single lawsuit, has radically transformed the legal landscape. In Desjean v. Intermix,1 a class proceeding filed in the Federal Court, these two phenomena — the emergence of the Internet and class action litigation — intersect in a compelling way. The issue raised by the case is a relatively novel one: Can an individual who acquires a web product sue the provider in the forum where that product was downloaded? What test should be applied to determine whether a Canadian court can assert jurisdiction?
Before the Federal Court
In 2005, Patrick Desjean filed a Statement of Claim in the Federal Court in which he sought to certify a class action against Intermix Media Inc., an American Internet company based in California. The claim alleged that the company deceptively bundled spyware and adware with the free software that consumers downloaded from its websites. In response to the claim, Intermix moved to dismiss the claim on the basis that the Court lacked jurisdiction over Intermix and the underlying matter. The Federal Court granted the motion and the Federal Court of Appeal upheld this ruling.
In his original Statement of Claim, Desjean alleged that Intermix breached Section 52 of the Competition Act by engaging in deceptive, fraudulent and illegal practices, as well as false advertising. More specifically, he alleged that Intermix offered consumers free software, such as screensavers and games, without disclosing the fact that additional software was attached to these downloads. The additional software included, according to Desjean, spyware or adware programs that were designed to deliver ads and invasive content to computers. Desjean additionally alleged that Intermix attempted to prevent consumers from detecting and removing the additional software. According to Desjean, such practices allowed third parties to implement various schemes that led him to experience computer problems and entitled him to damages under Section 36 of the Competition Act.
Before the case moved towards a certification hearing, Intermix filed a motion to dismiss the claim on the basis that the Federal Court lacked jurisdiction. The matter was heard by Mr. Justice de Montigny. The Court began its legal analysis by observing that the development of the law in the context of virtual communications technology is still in its infancy. It proceeded to survey the recent case law on the assumption of jurisdiction by a court against an out-of-country defendant. In particular, the Court referenced Morguard Investments Ltd. v. De Savoye,2 in which the Supreme Court of Canada set out the "real and substantial connection" test. The Court also referred to Muscutt v. Courcelles,3 in which the Ontario Court of Appeal developed eight factors4 for courts to use when determining whether a real and substantial connection between the action and the forum exists.
Based on the evidence filed by Intermix and the application of the factors in Muscutt, the Federal Court concluded that the real and substantial test had not been met. In particular, with respect to the factor that considers the connection between the forum and the defendant, the Court noted that Intermix has no servers, employees, offices or bank accounts in Canada. It also noted that Intermix has not availed itself of Canadian laws, that it does not pay taxes in Canada and that it has no advertising, marketing or specific content aimed at the Canadian market. Further, with respect to the factor that considers the unfairness to the defendant of assuming jurisdiction, the Court held that it would be manifestly unfair to subject Intermix to its jurisdiction because it would place too great an onus on a foreign website operator with no real presence in Canada. Another important factor is whether the case is interprovincial or international in nature because jurisdiction is more easily justified in interprovincial cases than in the context of international litigation. The cross-border nature of the dispute between Desjean and Intermix was yet a further element that favoured a finding of an absence of jurisdiction.
In addition, the Court referred to Canadian and American case law on Internet jurisdiction. According to the Court, it is now well-established in the American authorities that there must be certain "minimum contacts" between the defendant and the jurisdiction. This idea was clarified by Millennium Enterprises, Inc. v. Millennium Music, LP,5 which outlined a spectrum of contact. On one end of that spectrum, the defendant conducts business over the Internet with residents of the forum, and the assumption of jurisdiction is usually appropriate. On the other end, the defendant simply posts information that is accessible to users in the forum, and the assumption of jurisdiction is usually inappropriate. In between these two extremes, a defendant operates an interactive website and allows users to exchange information with the host computer. In such instances, the court must analyze the level of interactivity. An application of this approach led the Court to conclude that the websites Intermix operated were not interactive and did not justify a finding of minimum contact.
In addition to concluding that jurisdiction was not appropriate because there was no "real and substantial connection" or "minimum contacts" between the defendant and the forum, the Court also held, in obiter, that even if it could have assumed jurisdiction, it would have declined to do so because there was a more appropriate forum in which to resolve the dispute. California, or possibly another US state, was deemed to be a more convenient jurisdiction. Consequently, the Federal Court struck Desjean's Statement of Claim for lack of jurisdiction.
Before the Federal Court of Appeal
Desjean appealed this decision, placing special emphasis on Moran v. Pyle National (Canada) Ltd.,6 in which the Supreme Court of Canada held that a manufacturer has the burden of defending its products wherever they cause harm, as long as the forum is one that it should have reasonably contemplated when it made its goods available. Desjean further argued that the trial judge should have held that there was a real and substantial connection between Intermix and Canada.
In a judgment rendered in November 2007, the Federal Court of Appeal (per Létourneau, Pelletier and Trudel, JJ.A.) unanimously dismissed the appeal. It held that because the appeal was based on an alternative appreciation of the facts, Desjean needed to demonstrate palpable and overriding error on the part of the trial judge. The Court ruled that Desjean failed to satisfy this requirement: He made no reference to the trial judge's reasoning in his submissions and he was simply substituting his analysis of the relevant facts for those of the trial judge.
The Court also addressed the applicability of Moran to the facts of the case. It noted that Desjean had based his claim against Intermix on alleged violations of the Competition Act, a statute aimed at preventing fraudulent and misleading practices, and not on allegations that Intermix had placed defective products on the market. As a result, the Court ruled that Moran could not be relied upon to support jurisdiction in a case based on false or misleading advertising.
Conclusion
Desjean v. Intemix represents a further step in the evolution of the real and substantial connection test. Although the digital age and the advent of class actions pose new challenges for litigants, counsel and judges alike, the Federal Court and the Federal Court of Appeal have reaffirmed and adapted Morguard to contend with this modern reality.7 In so doing, they have emphasized that the mere act of downloading a product is not enough to settle the question of jurisdiction. Instead, it is necessary to evaluate the actual nexus between the forum in which the class proceedings are filed, the parties and the substance of the proposed lawsuit. In this respect, the revolutions that have so changed our world have also, ironically, brought us full circle.
Footnotes
1 [2007] 4 F.C.R. 151 (F.C.).
2 [1990] 3 S.C.R. 1077.
3 (2002), 60 O.R. (3d) 20 (Ont. C.A.).
4 These factors are the following : (1) the connection between the forum and the plaintiff's claim; (2) the connection between the forum and the defendant; (3) unfairness to the defendant in assuming jurisdiction; (4) unfairness to the plaintiff in not assuming jurisdiction; (5) involvement of other parties to the suit; (6) the court's willingness to recognize and enforce an extra-provincial judgment rendered on the same jurisdictional basis; (7) whether the case is interprovincial or international in nature; and (8) comity and the standards of jurisdiction, recognition and enforcement prevailing elsewhere.
5 33 F. Supp. 2d 907 (D. Or. 1999).
6 [1975] 1 S.C.R. 393.
7 Note that the applicability of this test in Québec has not been explored by the authors.
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