Media Law
BULLETIN
November 2005
E-Commerce and the Advent of
Jurisdiction Based on Internet
Contacts
The Internet – “Big Business”
With Internet commerce, many
businesses have learned a hard lesson
about the consequences of doing
business as “e-merchants,” primarily in
the form of being forced to face litigation
in jurisdictions they would never set foot
in as a “brick and mortar” business.
As the Ninth Circuit so aptly stated,
“It is increasingly clear that modern
businesses no longer require actual
physical presence in a state in order
to engage in commercial activity there.
With the advent of ‘e-commerce,’
businesses may set up shop, so to
speak, without ever actually setting
foot in the state where they intend to
sell their wares.”1 This e-commerce is
big business.
According to a January 2004 estimate,
online sales, in the United States
alone, were anticipated to reach $65
billion by the end of 2004, with growth
expected to continue at a compound
annual rate of 17% through 2008 to
$230 billion. This study also estimated
online growth, in the United States,
was expected to grow 14% in 2005.
This figure is equivalent to 30% of the
entire U.S. population. Many believe
that by 2008 approximately one-half of
the U.S. population will make at least
one online purchase a year.
Jurisdiction 101 – The Basics of
Jurisdiction in the United States
As the previous figures demonstrate,
online purchases are rapidly becoming
a preferred means of shopping. Online
retailing in the United States is a
[ Highlighting legal issues affecting the
media and entertainment industries ]
multibillion-dollar industry in which an
unsuspecting online retailer could face
jurisdictional issues in all 50 states.
Therefore, it is increasingly important
for online merchants and retailers to
understand the basics of jurisdiction in
the United States before embarking on
an e-commerce venture.
Jurisdiction is the power of a court
to render a decision that will be
recognized and enforced by authorities
and other courts. There are two
types of jurisdiction, subject matter
jurisdiction and jurisdiction over the
parties – or personal jurisdiction. A
court must have both subject matter
and personal jurisdiction before it can
consider the case.2
Personal jurisdiction is the power of a
court to adjudicate the personal legal
rights of parties properly brought before
it.3 To establish personal jurisdiction
over a non-resident defendant, the
plaintiff must satisfy both constitutional
due process requirements and the
requirements of the given state’s
long-arm statute.4 Many state longarm statutes authorize a court to
exercise jurisdiction over a nonresident defendant on any basis not
inconsistent with the U.S. Constitution
or the state constitution,5 which in most
cases requires that a defendant have
sufficient “minimum contacts” with the
state, such that maintenance of the
suit does not offend “traditional notions
of fair play and substantial justice.”6
Once the court determines that there
are sufficient “minimum contacts,” a
defendant then becomes subject to
either specific or general personal
jurisdiction.7
General jurisdiction is asserted if the
non-resident defendant conducts
“substantial” or “continuous and
systematic” activities in the state,
whether or not those activities give rise
to the plaintiff’s complaint.8 A finding of
general jurisdiction requires a higher
level of “contacts” with the forum state.9
Specific jurisdiction, on the other
hand, is proper if the case arises out
of certain forum-related acts or if the
defendant’s out-of-state activities were
purposefully directed toward a state
resident and caused injury.10
When exercising either general
or specific jurisdiction over a nonresident defendant, the overriding
principle is that the defendant must
have purposefully availed itself of
the privilege of conducting activities
in the forum state, thus invoking the
benefits and protections of its laws.”11
The purposeful availment requirement
ensures that a defendant will not
be hauled into a jurisdiction solely
as a result of “random,” “fortuitous,”
or “attenuated” contacts.12 As with
general jurisdiction, the assertion of
specific jurisdiction over a non-resident
defendant must be reasonable to
comport with constitutional due
process requirements. Acts that have
satisfied the “purposeful availment”
requirement include directing a
magazine article at the forum
residents;13 placing goods into the
stream of commerce;14 and nationwide
advertising.15
Media Law Bulletin is a consistently
relevant, frequently irreverent,
and potentially entertaining monthly
publication written and edited by
Sedgwick’s Los Angeles-based
Media Law Group. To receive future
editions by e-mail, drop a line to
james.holmes@sdma.com.
[ 2 ] November 2005 Media Law Bulletin Sedgwick, Detert, Moran & Arnold LLP
© 2005 Sedgwick, Detert, Moran & Arnold LLP
[ www.sdma.com ]
5
Zurich
4
San Francisco
3
This communication is published as
an information service for clients and
friends of the firm and is made available with the understanding that it does
not constitute the rendering of legal
advice or other professional service.
Paris
2
Gator.com Corp. v. L.L. Bean, Inc., 398
F.3d 1125 (9th Cir. 2003).
See Ruhrgas AG v. Marathon Oil Co., 526
U.S. 574 (1999).
International Shoe Co. v. State of
Washington, 326 U.S. 310 (1945).
Id.
See, Cybersell, Inc. v. Cybersell, Inc.,
130 F.3d 404 (9th Cir. 1997) (Arizona
Orange County
1
Newark
Footnotes
Media Law Bulletin is published by
Sedgwick, Detert, Moran & Arnold
LLP. For copies of the cited cases,
or any other assistance, please
contact James J.S. Holmes, Esq.
or John F. Stephens, Esq. at (213)
426-6900 or send an e-mail to
james.holmes@sdma.com or john.
stephens@sdma.com.
New York
By John Stephens and
Stacy Goldscher
Media Law Bulletin
Los Angeles
Analyzing whether these primarily
Internet-based contacts supported
a finding of “minimum contacts” and
the assertion of personal jurisdiction,
the court noted that the Internet
made it possible to conduct business
worldwide entirely from a desktop
and that a new rule was necessary
to evaluate “minimum contacts” over
the Internet. The court ruled that the
“likelihood that personal jurisdiction can
be constitutionally exercised is directly
proportionate to the nature and quality
of commercial activity that an entity
conducts over the Internet.”
Each state is free to set its own
requirements for personal jurisdiction
subject to federal constitutional limits of
due process. A circuit-by-circuit survey
of jurisdictional decisions analyzing
Internet-based personal jurisdiction
reveals that, although it is clear that not
all U.S. courts have adopted the Zippo
test, the key issue in the jurisdictional
arena is the nature and quality of
Internet contacts between the defendant
and the forum state.17 The stronger the
contacts, the more likely a court will be
to assert personal jurisdiction over a
non-resident defendant. Therefore, this
is an issue that a merchant must keep in
mind when setting up its website.
London
In analyzing the issue, the court
noted that Zippo Dot Com’s contacts
with Pennsylvania occurred almost
exclusively over the Internet, and it had
no offices, employees or agents in the
state. Moreover, the only advertising it
conducted involved information posted
on its web page. Of its approximately
140,000 subscribers, approximately
2% were Pennsylvania residents.
Finally, Zippo Dot Com had entered into
agreements with seven Internet service
providers in Pennsylvania to permit their
subscribers access to the news service.
long-arm statute); L.L. Bean v. Gator.
Com, 2003 DJDAR 10023 (California
long-arm statute); McGill Technology
Ltd. v. Gourmet Technologies, Inc,
300 F.Supp.2d 501 (E.D. Mich. 2004)
(Michigan long-arm statute); Mink v.
AAAA Development LLC., 190 F.3d 333
(5th Cir. 1999) (Texas long-arm statute).
6
International Shoe Co. v. State of
Washington, 326 U.S. 310 (1945).
7
See Burger King Corp. v. Rudzewicz,
471 U.S. 462 (1985); Helicopteros
Nacionales de Columbia, S.A.v. Hall,
466 U.S. 408 (1984).
8
Helicopteros Nacionales de Columbia,
S.A.v. Hall, 466 U.S. 408 (1984).
9
Data Disc, Inc. v. Systems Technology
Assocs., Inc., 557 F.2d 1280, 1287 (9th
Cir.1977); Metropolitan Life Ins. Co. v.
Robertson-Ceco Corp., 84 F.3d 560 570571 (2d Cir. 1996).
10
Burger King Corp. v. Rudzewicz, 471
U.S. 462 (1985).
11
Hanson v. Denckla, 357 U.S. 235 (1958).
12
Burger King Corp. v. Rudzewicz, 471
U.S. 462 (1985).
13
Calder v. Jones 465 U.S. 783 (1984).
14
World Wide Volkswagen v. Woodson,
444 U.S. 286 (1980).
15
United States SEC v. Carrillo, 115 F.3d
1540, 1545 (11th Cir. 1997).
16
952 F.Supp.1119 (W.D. Pa. 1997).
17
A chart tracking the test used in each
federal circuit for assertion of personal
jurisdiction based on Internet activities
is available for download from our
website, at www.sdma.com/medialaw/
circuitchart.pdf.
Dallas
The benchmark case dealing
with Internet jurisdiction is Zippo
Manufacturing v. Zippo Dot Com.16
Zippo Manufacturing is a Pennsylvania
corporation that manufactures “Zippo”
lighters, and holds the trademark on the
name “ZIPPO.” Zippo Dot Com, Inc. is
a California corporation, that operates
a website, an Internet news service
and held the rights to the domain
names “zippo.com,” “zippo.net” and
“zipponews.com.” Zippo Manufacturing
brought suit against Zippo Dot Com
alleging that it had violated the Federal
Trademark Act and various other
Pennsylvania state intellectual property
laws. Zippo Dot Com moved to dismiss
the action on the grounds that the court
lacked personal jurisdiction.
Accordingly, the court developed a
sliding scale to determine personal
jurisdiction over non-resident
defendants. At the extreme end, a
website that is fully interactive and
acts as a virtual storefront suggests
jurisdiction will almost always be
proper. At the other end, a completely
passive website that simply provides
information to the end user, without
any opportunity for interaction with the
owner of the site, suggests the contacts
will likely never be sufficient for a
finding of jurisdiction. For cases in the
middle of the spectrum, (i.e., where the
user just exchanges information with
the website), the court found that “the
exercise of jurisdiction is determined by
examining the level of interactivity and
commercial nature of the exchange of
information that occurs on the web site.”
The court concluded that Zippo Dot
Com’s activities in Pennsylvania were
sufficient to satisfy the court’s exercise
of personal jurisdiction.
Chicago
Zippo Mfr. Co. v. Zippo Dot Com,
Inc. – Setting the Benchmark
for Internet-Based Exercise of
Personal Jurisdiction
SEDGWICK |
MEDIA LAW BULLETIN
|
NOVEMBER 2005
Eight Years After Zippo:
A Circuit-by-Circuit Look at Personal Jurisdiction
Zippo Mfr. Co. v. Zippo Dot Com, Inc., 952 F.Supp.1119
(W.D. Pa. 1997)
FOLLOWS
ZIPPO
MODIFIES
ZIPPO
DEVELOPED
OWN TEST
Second Circuit
First Circuit
Fourth Circuit
Inset Systems Inc. v. Instruction
Set, Inc., 937 F.Supp. 161
(D. Conn. 1996)
Digital Equipment Corp. v. Alta
Vista Technology, Inc., 960
F.Supp. 456 (D. Mass. 1997)
ALS Scan, Inc. v. Digital
Service Consultants, Inc.,
293 F.3d 707 (4th Cir. 2002)
Third Circuit
Zippo v. Zippo Dot Com, 952
F.Supp.2d 1119
(W.D. Pa. 1997)
Fifth Circuit
Mink v. AAAA Development
LLC, 190 F.3d 333
(5th Cir. 1999)
Sixth Circuit
Neogen Corp. v. Neo Gen
Screening, Inc., 282 F.3d 883
(6th Cir. 2002)
Seventh Circuit
D.C. Circuit
Jennings v. AC Hydraulic A/S,
383 F.3d 546 (7th Cir. 2004)
GTE New Media Services,
Inc. v. Ameritech Corp., 21
F.Supp.2d 27 (D.D.C. 1998)
Tenth Circuit
Intercon, Inc. v. Bell Atlantic
Internet Solutions, Inc., 205
F.3d 1244 (10th Cir. 2000)
Eleventh Circuit
Nida Corp. v. Nida, 118
F.Supp.2d 1223
(M.D. Fla. 2000)
Eighth Circuit
Lakin v. Prudential Securities,
Inc., 348 F.3d 704
(8th Cir. 2003)
Ninth Circuit
Gator.com Corp. v. L.L. Bean,
Inc., 341 F.3d 1072
(9th Cir. 2003)
This chart was prepared by John Stephens and Stacy Goldscher as a reference to their article, “E-Commerce and the Advent of Jurisdiction Based on
Internet Contacts,” published in the November 2005 issue of Sedgwick’s Media Law Bulletin.
Media Law Bulletin is published by Sedgwick, Detert, Moran & Arnold LLP. For copies of the cited cases, or any other assistance, please contact James
J.S. Holmes, Esq. or John F. Stephens, Esq. at (213) 426-6900 or send an e-mail to james.holmes@sdma.com or john.stephens@sdma.com.
© 2005 Sedgwick, Detert, Moran & Arnold LLP. This communication is published as an information service for clients and friends of the firm and is made
available with the understanding that it does not constitute the rendering of legal advice or other professional service.