JURISDICTION ON THE INTERNET – WHERE TO SUE?
Due to the borderless nature of the internet issues of liability and jurisdiction on this
medium are fraught with difficulty. Despite the fact that e-commerce is experiencing
incredible growth on a global scale European states have not yet dealt clearly with the
question of which court to try the defendant in a dispute which arises out of an online
transaction. In direct comparison with the European situation the US courts have
succeeded in establishing a strong framework of case law in relation to this issue. In
this article I propose to examine European legislation on this issue and look to US
caselaw to determine if we can draw from their experience in order to deal with online disputes in a practical commercially workable manner.
In Europe we have begun to address this area using legislative means. The Brussels
Regulation (which replaced the Rome Convention on judgements in jurisdiction and
enforcement of civil and commercial matters 1968) on 1 March 2002 stated that
jurisdiction in business to business contracts would be dictated by the jurisdiction
clause in the contract. In the event that no jurisdiction clause existed jurisdiction
would be in the member state where the defendant was domiciled (Art 2) – this would
be the statutory seat or main place of business, if the defendant was a company (Art
60). However, a consumer can bring proceedings in his home court if the trader
“pursues commercial activities in the member state of the consumers domicile or by
any means directs such activities to that member state” (Art 15-17). No definition of
directs is provided and no guidance or case law available to determine this issue.
Commentators believe that offering a choice of languages, currencies or delivery
times and prices for countries could be held to be factors. Others suggest that
advertising or sending brochures to customers in a member state are also relevant
factors. E-tailers should be aware that if they inadvertently sell goods to another
member state they may find themselves subject to the jurisdiction of that consumer’s
forum. This is a particularly difficult issue to determine when software and electronic
products are delivered electronically to customers. The upcoming Hague Convention
on jurisdiction and foreign judgements in civil and commercial matters has also been
slow in setting out global jurisdiction rules – at present it is also including the term “
directing activity” in its draft.
At this point it would appear that most of the European initiatives in this area revolve
around the definition of the term directs/directing activities. Case law in the US has
also been focusing on this term since the key jurisdiction case of International Shoe
Co v Washington in 1945 326 US 310 (1945). In the US you can establish general or
specific jurisdiction, which gives you a right to sue out of state. Only specific
jurisdiction has been found to be relevant with regard to internet disputes. Specific
jurisdiction is established if:
1) the defendant “purposefully directed his activities” to that state thereby
invoking the benefits and protection of its laws
2) the cause of action arose out of those activities and
3) the assertion of jurisdiction was fair.
To establish this a “minimum contacts test” was applied.
The Shoe case predates the internet but the position regarding on-line disputes has
been clarified by current case law, in particular the leading case Zippo Manufacturing
v Zippo Dot Com 952 F.Supp 1119 (ED Penn, Jan 16, 1997). It required that:
1) there must be an interactive website and
2) commercial activity
in order to attract jurisdiction. It then developed a new “sliding scale analysis” that
measured the nature and quality of the commercial activity of the defendant on the
internet. It was determined that there are 3 levels of activity – a passive website which
merely distributes information and does not attract jurisdiction, an intermediate
website which has some level of interactivity (this site may attract jurisdiction
depending on the level of interactivity and the commercial nature of the exchanges).
Finally an interactive site where a defendant conducts business over the internet with
parties in another jurisdiction, which will always be subject to specific jurisdiction.
This will usually involve entering contracts knowingly with an out of state resident
e.g. Compuserve v Patterson 89 F 3d 1257 (6th Cir, 1996). The most difficult area is
that of intermediate websites, which must be examined on a case-by-case basis.
The facts of Zippo were as follows: Zippo was a manufacturer of lighters who
brought a trademark infringement action a Californian internet news service company
that used the domain name Zippo.com. The website displayed an advertisement and
an application form allowing users to subscribe to the defendants news service. The
defendant entered 3000 electronic agreements with forum residents. He also entered
contracts with 7 internet providers to furnish its service to subscribers in
Pennsylvania. It was deemed to be an interactive website with sufficient commercial
activity to attract jursdiction.
Although the vast majority of cases have followed Zippo on this issue, its basic
sliding scale has been adapted and evolved over time. In each instance different
factors are given different weight and importance to determine the issue. Although
none of the concepts are new per se they move from the basic two-step test i.e.
Establishing that an interactive website exists and that commercial activity took place.
Sometimes this involves applying other tests hand in hand with Zippo such as the
“effects test” from Calder v Jones 465 US 783 (1984). In that case the fact that the
action had an effect in the other jurisdiction was factored into the equation in order to
determine whether jurisdiction existed in that forum. This has generally been applied
in tortious claims and this hybrid test is sometimes termed the “contacts and
connector analysis”. The courts also focused on the actual impact of the action in the
locality as a major factor in their decision in ALS Scan v Digital Service Consultants
293F.3d 707 (4th Cir 2001). This case set out a test requiring that the defendant:
1) Directs electronic activity
2) With manifested intent of engaging in business or other interactions within the
state
3) Activity creates a potential cause of action cognisable in the states courts
Other cases have moved back towards the Shoe case and focused on whether the
defendant “purposefully availed” themselves of the laws of that forum and therefore
ought to be prosecuted by the same laws they relied on to protect themselves.
“Purposefully availed” was defined as establishing an intentional interaction was
directed toward the forum state. In this case it meant that the website operator targeted
his site to the forum state and/or knowingly conducted business with the forum state
residents. This intention can also be established by combining internet and noninternet contacts e.g. business trips, paper advertisements etc. to establish jurisdiction
eg. Barrett v Catacombs Press 44F. Supp 2d. 717 (ED Pa 1999). A mixture of the
basic principles such as minimum contacts, purposeful availment and reasonableness
of being sued in the jurisdiction were used to come to a decision in Digital Control
Inc. v Boretronics Inc. 161 F Supp 2d 1183 (2001).
All of these developments seem to revolve around the notion of intent and directing
activities, which have an effect in a specific forum. They have taken a very real
interpretation of the acts in each case not only looking at the intent of the defendant
but whether contact existed between the defendant and plaintiff and what actual harm
occurred in the jurisdiction thereby balancing the interests of both sides of the dispute.
In this respect they are particularly relevant to the European model as it stands at
present and may influence the interpretation of the term “directs” in our legislation at
a later date.
The factors that have been held to be particularly relevant in these cases are:
1)
2)
3)
4)
5)
6)
the conduct targeting the forum
location of contract of sale
volume of online sales from forum
whether offices, properties or personnel are located in forum
whether phonecalls were made to the forum
whether income was earned in the forum
The recent case of “Toys R Us” v Step Two 318 F.3d 446 (3d Cir Jan 27 2003) has a
European element and is particularly instructive with regard to defining the term
“directs”. In that case a Spanish company, Step Two infringed the plaintiffs trademark
by selling toys from a website located in Spain. Two New Jersey residents had
purchased goods from the website. However the whole site was in Spanish with
quoted prices only in pesetas and euros. Not only that but the site was not
programmed to accept US addressees. As a result it was determined that the defendant
did not “purposefully avail” themselves of that jurisdiction and did not intend to target
customers in New Jersey. Such cases could have direct application in the European
situation where it has already been suggested that such a test should apply.
But on a very practical level what facts have we learned from case law and how
would we advise clients in relation to website design and carrying out business online? It appears from US case law that:
1) Websites must have more than a mere presence to attract jurisdiction, for
example mere advertising is regarded as passive e.g. Cybersell Inc v Cybersell
Inc. 130F.3d 414 (9th Cir. 1997)
2) If an advert includes a toll free number it does not constitute an increase in
contacts and is not more likely to attract jurisdiction.
3) Websites which actively solicits information from users are not passive –
Maritz v Cybergold 947 F.Supp 1328 (1996)
4) Interactive means exchange of information on both sides which usually
requires knowledge that you were entering into a contract in another forum
e.g. Compuserve v Patterson.
5) Look to the actual not the potential activities conducted over the internet and
actual interaction between users and the company – Millennium Enterprises
Inc v Millennium Music LP 33F.Supp 2d 907 i.e. there must be hits on the
website from the other forum.
6) Sending goods into a forum in connection with the operation of an interactive
or non-interactive site is a factor which can attract jurisdiction – Gary Scott
Int. v Baroudi 981 F.Supp 714 (D Mass 1997).
7) Contracts that result in actual sales are more likely to attract jurisdiction
8) If the defendant caused harm in the forum state by purposefully directing
activities there jurisdiction is likely.
9) Internet and non-internet contacts eg. Having a website plus sending
correspondence or advertisements can be added together to find jurisdiction.
Barrett v Catacombs Press.
Case law has also demonstrated that the following steps can be taken to limit the
likelihood of attracting jurisdiction to another forum:
1) Your website should include terms and conditions clearly identifying your
market, choice of law and forum and dispute resolution clauses should be
included.
2) If a website is not designed to target customers in a jurisdiction e.g. not
programmed to accept certain addresses no jurisdiction can attach e.g. Toys
“R” Us Inc v Step Two.
Written by Sinead Morgan, B.Comm, LLB, LLM, Solicitor at law
Sinead Morgan completed a commerce and law degree in National University of Ireland,
Galway and a Masters in International Commercial Law (specialising in IP law) in Queen
Mary and Westfield College, London. She trained in BCM Hanby Wallace and qualified in
1999, continuing to work there as a solicitor for a number of months in the employment law
department before heading off to Australia to gain legal experience in Minter Ellison as a
senior paralegal. She took a career break to travel around Australia and Asia before
returning to Ireland and is presently working in finance whilst seeking a legal post, updating
herself on current developments and writing legal IT articles.
24 February 2004
Bibliography weblinks:
General:
1. http://www.cli.org/DPost/jcases.html
2. www.kentlaw.edu/cyberlaw/resources/guide/html
Case law:
1. International Shoe case http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&court=US&case=/us/326/310.
html
2. Zippo case- people.hofstra.edu/faculty/peter_j_spiro/ cyberlaw/zippo.htm
3. Calder v Jones http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&court=US&case=/us/465/783.
html
4. Compuserve v Patterson - http://www.law.emory.edu/6circuit/july96/96a0228p.06.html
5. ALS Scan case - http://laws.lp.findlaw.com/4th/011812p.html
6. Barrett v Catacombs Press - http://web.umr.edu/~canisr/cs317/cases/jurisdiction/barrett.txt
7. Digital Control Inc. v. Boretronics Inc. (link to website where case available for small fee)
2001 U.S. Dist. LEXIS 14600, (W.D. Wa., Sep. 6, 2001) (No. C01-0074L)
8. Toys “ R “ Us Case - http://caselaw.lp.findlaw.com/data2/circs/3rd/013390p.pdf
9. Cybersell case - http://laws.lp.findlaw.com/9th/9617087
10. Maritz case - http://www.loundy.com/CASES/Maritz_v_Cybergold
11. Millenium case - http://www.kentlaw.edu/legalaspects/millennium.html
12. Gary Scott case - http://www.ecomlawonline.com/intlaw/iljurisd.htm