SEDGWICK, DETERT, MORAN & ARNOLD LLP
Media Law Bulletin
“E-Merchants” Beware. The Ninth
Circuit Has Opened Up The Pandora’s
Box Of General Jurisdiction.
“It 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.”1 This is a lesson that
clothing retailer L.L. Bean learned the
hard way when the Ninth Circuit Court of
Appeals ruled, in Gator.Com Corp. v. L.L.
Bean, Inc., 2003 DJDAR 10023 (9th Cir.
2003) that L.L. Bean’s internet activities
provided sufficient contacts with
California to support a finding of General
Jurisdiction.2
When L.L. Bean set up its interactive
website and accepted its first order from a
customer way out west in California, it
probably understood that it could be
brought into a California court in connection
with a dispute arising out of that order.
What L.L. Bean might not have realized is
that maintaining an interactive website,
accessible by customers in California, may
subject it to all lawsuits, of any kind, in any
jurisdiction, whether related to its website
activities or not. With the increased popularity in the marketplace of e-commerce,
it is a lesson that other e-merchants
should take to heart.
resident on any basis not inconsistent with
the Constitution of the United States
or the Constitution of California.3
Application of jurisdiction over a non-resident defendant comports with the
requirements of the due process clause of
the United States Constitution if the
defendant has “minimum contacts” with
the forum state such that maintenance of
the suit does not offend “traditional
notions of fair play and substantial justice.”4 Once the Court determines that
there are sufficient “minimum contacts”
with the forum state it can assert either
general jurisdiction or specific jurisdiction
over the defendant.
ness in Maine. It operates clothing stores
in Maine, Delaware, New Hampshire,
Oregon and Virginia. L.L. Bean does over
one billion dollars in gross sales annually.9
Gator.com is a Delaware corporation with
its principal place of business in
California. Gator.com develops and
distributes software to consumers who
purchase merchandise over the internet.
When Gator.com’s program recognizes
certain URLs pre-selected by Gator, a
pop-up window that offers the customer a
coupon for a competitor is activated.10
General jurisdiction is asserted if the nonresident defendant conducts “substantial”
or “continuous and systematic” activities
in the state, whether or not those activities
give rise to Plaintiff ’s complaint.5
L.L. Bean’s website is one of those
pre-selected by Gator.com. L.L. Bean
alleged that Gator.com’s practice of placing pop-up ads offering coupons from
competing retailers infringed on the good
will associated with L.L. Bean’s trademark
and constituted an unfair business practice.11 Gator.com brought a declaratory
relief action seeking an order that it was
not infringing on L.L. Bean’s trademark or
engaging in unfair business practices
through the marketing of its program.
L.L. Bean brought a Motion to Dismiss,
alleging that the District Court lacked personal jurisdiction. The District Court
agreed and dismissed the action.12 The
Court of Appeal reversed, finding that
there was general jurisdiction over L.L.
Bean.13
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.6 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.”7 “The purposeful availment
requirement ensures that a defendant will
not be haled into a jurisdiction solely as a
result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts.8
Jurisdiction and E-Commerce, A Case
Study: Gator.Com v. L.L. Bean
Jurisdiction: A Primer
To have an action heard in a particular
court, a Plaintiff first must demonstrate
that the court has personal jurisdiction
over the defendant. To establish personal
jurisdiction over a non-resident defendant, the plaintiff must satisfy both constitutional due process requirements as well
as the state’s long arm statute. California’s
long arm statute authorizes California
courts to exercise jurisdiction over a non-
November 2003
The Ninth Circuit Court of Appeals
recently dealt with the issue of jurisdiction
over an e-merchant when it made its ruling in Gator.com v. L.L. Bean, a case
involving alleged trademark infringement
and unfair business practices.
The Parties
Clothing retailer L.L. Bean is a Maine corporation with its principal place of busi-
The Dispute: Gator.Com Takes a Bite
Out of L.L. Bean’s Business
Jurisdiction: L.L. Bean’s Virtual
Contacts with California
In making its determination regarding
whether a California court can exercise
jurisdiction over an out-of state defendant, the court must examine that defendant’s contacts with the state. In this case,
the Court determined that L.L. Bean had
the following contacts with California.
During fiscal year 2000, L.L. Bean sold
millions of dollars of merchandise to
California residents. Sales to California
residents accounted for approximately six
percent of the company’s total sales
obtained through its website, mail order
catalog and toll-free telephone number.14
L.L. Bean “mailed a substantial number of
November 2003
SEDGWICK, DETERT, MORAN & ARNOLD LLP
Media Law Bulletin
catalogs and packages to California
residents, targeted substantial number
of California residents for direct email s
olicitation, and maintained substantial
numbers of ‘on-line’ accounts for California
consumers.”15 L.L. Bean maintains an interactive website whereby California residents
may view and purchase products on-line as
well as interact with L.L. Bean customer
service representatives.16 Finally, L.L. Bean
maintains relationships with numerous
California vendors from whom they
purchase products.17
On the other side of the equation, L.L. Bean
lacked certain contact generally present
when general jurisdiction is conferred. L.L.
Bean is not authorized to do business in
California. It has no agent for service of
process in the state and is not required to
pay California State taxes.18 It operated no
retail outlets within the state and employs
no California residents. For all practical
purposes, L.L. Bean has no physical presence in California. Finally, while L.L. Bean
conducts national print and broadcast
marketing efforts, they include, but do not
target, California residents.19
The Decision: A Virtual Store with
Virtual Employees Is Enough For General
Jurisdiction
The Court reviewed the contacts L.L. Bean
had with California and determined that
they were sufficient to establish general
jurisdiction. The Court based its decision
on L.L. Bean’s extensive marketing and sales
in California, its extensive contacts with
California vendors and the fact that its website was “clearly and deliberately structured
to operate as a sophisticated virtual store in
California.”20 The focus of the Court’s analysis was on the interactive nature of the L.L.
Bean website. The Court ruled that a finding of general jurisdiction is consistent with
the “sliding scale” test courts have devised
to apply to internet-based companies.21 The
sliding scale test requires both that the
party in question conduct business over the
Internet and that the Internet business contacts with the forum state be substantial or
continuous or systematic. Applying this
test, and recognizing that “an online store
can operate as a functional equivalent of a
physical store.”22 The court concluded that
“L.L. Bean’s website is highly interactive and
very extensive: L.L. Bean ‘clearly does business over the Internet. . . . millions of dollars
in sales, driven by an extensive, ongoing,
and sophisticated sales effort involving very
large numbers of direct email solicitations
qualifies as ‘substantial’ or ‘continuous and
systematic’ commercial activity.’”23
The Aftermath
2. Id.
3. Code of Civil Procedure section. 410.10.
4. See International Shoe v. Washington,
326 U.S. 310, 316; See also, Von’s
Companies, Inc. v. Seabest Foods, Inc.
(1996) 14 Cal.4th 434, 444.
In the wake of the Ninth Circuit’s decision,
many e-merchants may be forced to reevaluate their Internet presence. Operating an
interactive on-line store once was seen as an
easy way to increase a company’s sales.
Now, in light of Gator.com and other similar rulings, the decision to operate an interactive site must now be balanced against the
very real possibility that the company will
be open to lawsuits of every variety, in every
state in the nation.
5. Helicopteros Nacionales de Colombia,
S.A., v. Hall, 466 U.S. 408, 415 (1984); See
also Bancroft & Masters, Inc. v. Augusta
Nat’l Inc., 223 F.3d 1082, 1086 (9th Cir.
2000).
The subjective nature of the jurisdiction
analysis confirms that this decision is not
clear-cut. For instance, a non-resident
company that chooses to heed the lesson
taught by the Gator.com Court and operate
a passive website, but who gets more than
six percent of its business from California
residents still may be subject to general
jurisdiction. Conversely, a company that
chooses to keep its interactive website operational yet achieves less than six percent of
its business from California from the operation of the website may find itself avoiding
jurisdiction. The questions companies
must ask is how important is the business
that may result from an active presence on
the Internet and how willing are they to
defend themselves against litigation nationwide. Ultimately, these are questions that
only the company can answer. Yet, the decision may force companies to revert to preinternet business practices and again alter
the business landscape for both companies,
and their customers.
8. Id. at 476.
6. Helicopteros, supra 466 U.S. at 415;
Burger King Corp. v. Rudzewick, 471 U.S.
462, 476 (1985).
7. Burger King Corp., Supra 471 U.S. at 475.
9. Gator.Com, supra at 10024.
10. Id.
11. Id.
12. Id.
13. Id.
14. Id.
15. Id.
16. Id.
17. Id.
18. Id.
19. Id.
20. Id. at 10025.
By Stacy R. Goldscher.
[Stacy R. Goldscher is an associate in
Sedgwick, Detert, Moran & Arnold’s LLP
Los Angeles Office]
21. See Cybershell, Inc. v. Cybershell, Inc.,
130 F. 3d 414 (9th Cir. 1997); Zippo
Manufacturing Company v. Zippo Dot
Com, Inc., 952 F.Supp 1119 (W.D. Penn
1997).
Footnotes
22. Gator.Com, supra at 10025.
1. Gator.Com Corp. v. L.L. Bean, Inc. 2003
DJDAR 10023 (9th Cir. 2003).
23. Id. at 10026.
MEDIA LAW BULLETIN is published by Sedgwick, Detert, Moran & Arnold LLP and affiliated entities. For copies of the cited
cases, or any other assistance, please contact James J.S. Holmes, Esq. or Stacy R. Goldscher at (213) 426-6900 or send an E-mail to
james.holmes@sdma.com or stacy.goldscher@sdma.com © 2003, Sedgwick, Detert, Moran & Arnold LLP.