MAY 13, 2004
The Ninth Circuit to Look at Internet Jurisdiction:
Does Business Conducted in Cyberspace Satisfy the
Requirements of Continuous and Systematic Contact?
On April 29, 2004, upon the vote of a majority, the Ninth Circuit Court of Appeals ordered
a reconsideration of the ruling in Gator.com Corp. v. L.L. Bean, Inc., 341 F.3d 1072 (9th Cir.
2003), vacated by, rehearing en banc granted by, 2004 U.S. App LEXIS 8471 (9th Cir. April 29,
2004), reopening the question of whether maintaining an interactive Web site and advertising
on the Internet can make a party subject to a court’s jurisdiction. This decision may affect
airlines and aviation related companies which sell their products and services via their Web
sites.
The Personal Jurisdiction Test: General v. Specific
California’s long-arm statute permits the exercise of jurisdiction to the full extent permitted
by the due process clause of the United States Constitution (Cal. Civ. Code §410.10). A
defendant must have sufficient “minimum contacts” with the State of California such that
the maintenance of suit does not offend traditional notions of fair play and substantial justice
(see International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Accordingly, a defendant’s
activities in California should be such that a defendant “should reasonably anticipate being
haled into court” in California (World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297
(1980)).
Personal jurisdiction can be either general or specific (see Panavision Int’l, L.P. v. Toeppen, 141
F.3d 1316, 1320 (9th Cir. 1998)). A federal court can exercise general jurisdiction over a
defendant if the defendant’s activities in the forum state are “substantial” or “continuous
and systematic,” even if the cause of action arises out of activity unrelated to the defendant’s
contacts with the state (see Bancroft & Masters, Inc. v. Augusta National Inc., 223 F.3d 1082, 1086
(9th Cir. 2000)). On the other hand, even if the defendant’s contacts with the forum state are
not “substantial” or “continuous and systematic,” a court may exercise specific jurisdiction
(1) if the defendant “purposefully availed” itself of the privilege of conducting business in
the forum; (2) the cause of action arises from the forum-related activity; and (3) the exercise
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of jurisdiction in the forum state is “reasonable” (see Burger King Corp. v. Rudewicz, 471 U.S.
462, 472-73 (1985)). The “purposeful availment” requirement is satisfied if the defendant has
committed an intentional act that was expressly aimed at the forum state and causes harm
that is suffered, and that the defendant knows is likely to be suffered, in the forum state
(Bancroft, supra, 223 F.3d at 1087 (citing Panavision Int’l, L.P., supra, 141 F.3d at 1321)).
Application to Internet Jurisdiction: Gator.Com Corp. v. L.L. Bean
In Gator.com, 2001 U.S. Dist. LEXIS 19737 (N.D. Cal. 2001), the plaintiff software company
had developed a pop-up menu that appeared on consumers’ computer screens when they
visited various retailers’ Web sites. One of these retailers was L.L. Bean. Gator.com’s pop-up
window, featuring advertisements and coupons from L.L. Bean competitors, would pop up
on consumers’ computer screens when they visited the L.L. Bean Web site. In early 2001,
L.L. Bean sent a cease-and-desist letter to Gator.com seeking written assurance that it would
discontinue the competitive advertisements on the L.L. Bean Web site and seeking a
monetary settlement and injunction. Gator.com responded by filing suit against L.L. Bean in
California, seeking a declaration that its pop-up menu did not violate any applicable laws,
including trademark law, trademark dilution, unfair competition, deceptive trade practices, or
deceptive consumer sales practices (id. at *2). In its motion to dismiss, L.L. Bean argued that
(1) the California court does not have general jurisdiction over L.L. Bean because its contacts
with California are not substantial, continuous, or systematic, since L.L. Bean is a Maine
corporation with its principal place of business in Maine and its only contacts with California
consumers consist of catalog sales, a toll-free telephone number, and an interactive Web site;
and (2) the court lacks specific jurisdiction over L.L. Bean because its only contact with
Gator.com, a California corporation, consisted of a single cease-and-desist letter (id. at *4-5).
The District Court for the Northern District of California granted L.L. Bean’s motion to
dismiss noting that “there is a difference between doing business with California and doing
business in California” (id. at *10 (emphasis in original)). The court found that L.L. Bean’s
contacts with California, namely advertising, catalog sales, and an interactive Web site, did
not qualify as either substantial or continuous and systematic contacts with the State of
California (id. at *16). Furthermore, the court found that L.L. Bean did not “purposefully
avail” itself of jurisdiction in California by the sending of the cease-and-desist letter to
Gator.com, reasoning that “‘otherwise, every complaint arising out of alleged trademark
infringement on the Internet would automatically result in personal jurisdiction wherever the
plaintiff’s principal place of business is located’” (id. at *24 (quoting Cybersell, Inc. v. Cybersell,
Inc., 130 F.3d 414, 420 (9th Cir. 1997)).
Gator.com appealed the district court’s decision, 341 F.3d 1072 (9th Cir. 2003). On
September 2, 2003, the Ninth Circuit Court of Appeals reversed and remanded, finding that
L.L. Bean’s overall contacts with California met the “continuous and systematic” test
because, through its Web site, it makes and solicits millions of dollars of sales, it serves the
California market, it targets California consumers through electronic advertising, it ships very
large numbers of products to California, and it maintains ongoing contacts with California
vendors (id. at 1078). Accordingly, despite the fact that L.L. Bean’s contacts with California
were almost exclusively through its “virtual store,” the Ninth Circuit found that it was clearly
doing business with California over the Internet and its Internet business contacts with
California were substantial, continuous, and systematic (id. at 1079). The Ninth Circuit
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concluded that “[i]t is increasingly clear that modern businesses no longer require an 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….. Businesses who structure their activities
to take full advantage of the opportunities that virtual commerce offers can reasonably
anticipate that these same activities will potentially subject them to suit in the locales they
have targeted” (id. at 1081).
On April 29, 2004, upon the vote of a majority of judges, the Ninth Circuit Court of Appeals
vacated its September 2, 2003, opinion and ordered that the case be reheard by the en banc
panel, 2004 U.S. App LEXIS 8471 (April 29, 2004). The order after rehearing is
forthcoming.
The Ninth Circuit’s decision on the question of whether jurisdiction can be had in a
particular state over a company solely engaging in e-commerce and doing business over the
Internet is not to be taken lightly, particularly since more and more businesses, including
airlines and aviation related companies, are utilizing Internet sales. As this jurisdictional issue
continues to evolve, the Ninth Circuit’s ruling may have considerable impact on rulings
made by other judicial circuits around the country that are faced with the same issue.
For more information on this issue or other aviation matters, please contact:
•
Brian C. Dalrymple at (415) 984-8275
•
Stephen C. Johnson at (415) 984-8222
•
Hugh R. Koss at (415) 984-8414
•
Kyle Levine at (415) 984-8272
•
Donald B. MacDougall at (516) 832-7611
•
William L. Robinson at (949) 475-6911
•
Eric Strain at (415) 984-8373
•
Christopher D. Thomas (585) 263-1087
•
Lori Winfree at (949) 475-6916
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