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Avoiding the Long Arm of the Law in Cyberspace
Periodical: Los Angeles Daily Journal
Date: November 21, 1997
In
recent months, numerous cases have addressed the issue of what types
and quantity of online activities suffice to establish personal
jurisdiction over a defendant outside its home state.
Significantly
for those who do business on the Internet most of these decisions have
found a defendant ‘s online activities sufficient to establish
jurisdiction in the plaintiff's chosen forum. Moreover, although some
of these decisions simply apply to cyberspace notions of jurisdiction
used in other contexts, others imply that any business with a presence
on the Internet may be sued in any of the 50 states.
The
majority of cases do require online contact establishing
"purposeful availment" of the benefit of doing business in
the forum state in order to establish jurisdiction.
The seminal decision in the area is CompuServe Inc. v.
Patterson, 89 F.3d 1257 (6th Cir. 1996).
In
CompuServe, the court held that the defendant had
"purposefully availed" himself of the benefits of doing
business in Ohio by subscribing to the Ohio plaintiff's online
service, entering into a "shareware registration agreement"
with plaintiff which was governed by Ohio law, transmitting his
software to plaintiff's computers in Ohio, marketing his software to
third parties through CompuServe and accepting the financial benefits
of his relationship with CompuServe.
In
most cases involving actual online business transactions, "the
exercise of jurisdiction is determined by examining the level of
interactivity and commercial nature of the exchange of information
occurring" online. Zippo
Manuf. Co. v.Zippo Dot Com Inc., 952 F. Supp. 1119, 1124 (W. D.
Pa. 1996).
More
problematic are cases involving "passive" World Wide Web
sites which only provide information or advertisements to users. In
most such cases, a finding of jurisdiction has been disfavored as it
"would mean that there would be nationwide (indeed, worldwide)
personal jurisdiction over anyone and everyone who establishes an
Internet web site[,] . . . [which ] is not consistent with traditional
personal jurisdiction case law."
Weber v. Jolly Hotels, 1997 U.S. Dist Lexis 14036 (D.
N.J., Sept. 12, 1997).
However,
some courts have suggested that any business availing itself of the
Internet's global reach can be subjected to jurisdiction wherever a
plaintiff chooses. Maritz
Inc. v. Cybergold Inc., 947 F. Supp. 1328 (E.D. Mo. 1996); Inset
Systems Inc. v. Instruction Set, 937 F.Supp. 161 (D. Conn. 1996). In Maritz, for example, the court opined that "[t]hrough
its web site, CyberGold has consciously decided to transmit
advertising information to all Internet users, knowing that such information will be
transmitted globally. Thus,
CyberGold's contacts are of such a quality
and nature, albeit a very new quality and nature for personal
jurisdiction jurisprudence, that they favor the exercise of personal
jurisdiction." Maritz,
947 F.Supp. at 1333.
Decisions
like Maritz may create substantial problems for businesses
wishing to avoid being sued outside their home states.
There are, however, a few steps businesses may take to at least
minimize the potential for suit in an inconvenient forum:
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Avoid
Offending. Obviously,
the best way to avoid being sued in a distant court is to avoid
any dispute which may lead to a suit.
Competent attorney oversight of a client’s Internet
activities is essential to this endeavor. To avoid problems, you should have your clients discuss any
proposed new online activities with you before they are
undertaken.
-
Post
Disclaimers. If your client is a local business which uses its Web
site solely to provide local customers with more information at
low cost, the Web site should say something like "Harry's
Auto Body does business in California only and this Web site is
not intended to, and should not be construed to, solicit business
from residents of other states."
Will
such provisions work? Maybe not, depending on the other facts of any
particular case, but they cost little and provide one more factor
militating against jurisdiction in a distant forum. (Naturally, the
efficacy of this measure depends on the client's willingness to turn
away business from another state.)
-
Choice
of Law/Forum Clauses. Any
business selling goods or services online should include a choice
of law and/or forum clause in any online contracts for provision
of such goods or services. Similarly, many Web sites include
"terms of use" provisions, which can be drafted to
include assent to suit in a friendly forum on any matter
arising out of use of the Web site (not just on matters
arising out of online contracts).
To
minimize the possibility of such clauses being disregarded as an
unreasonable provision in an adhesion contract, such clauses should
require the other party to "click" its assent to the choice
of law or forum. Conversely,
a party wishing to avoid jurisdiction elsewhere should, if possible,
balk at agreeing to another state's law (and, obviously, to its use as
a forum). See CompuServe, 89 F.3d at 1264 (defendant's entering
into online contract with Ohio corporation with Ohio choice of law
clause favored jurisdiction in Ohio).
Win
the "Race to the Courthouse." A
time-tested technique for avoiding a plaintiff's choice of an
inconvenient forum is to file for declaratory relief before the
adversary can sue you first. This
is the strategy CompuServe successfully used against Patterson.
Although a smaller business should be wary of initiating costly
litigation against a larger, richer adversary, once it becomes clear
that either the client, the adversary or both are unwilling to adopt
settlement positions likely to resolve a particular dispute
informally, one should consider filing suit. Litigation admittedly is
costly and inconvenient, but it will be cheaper and less inconvenient
if conducted in your client's home state.
-
Maximize
favorable off-line contacts.
Even if jurisdiction exists in an inconvenient forum, a
defendant may move, in state court, for stay or dismissal on
grounds of forum non conveniens, and in federal court, for
transfer pursuant to 28 U.S.C. Section 1404.
To
improve the chances of such motions succeeding, the client should,
wherever realistic, ensure that any off-line contacts with a
prospective adverse litigant take place in the client's home
jurisdiction. A small
business may have only limited ability to influence the behavior of a
much larger one, but there are some steps that should be attempted
nevertheless.
For
example, if the other party to an online contract has a local office,
the client should deal with that office as much as possible, thus
maximizing the possibility that relevant documents and witnesses will
be concentrated in its home state.
Similarly, meetings between the parties should take place in
the client's jurisdiction wherever possible.
Employing
the above devices cannot, of course, ensure that a company will avoid
suit in an inconvenient forum - nothing can.
They are, however, relatively inexpensive steps that may well
minimize the risk to the extent possible.
Our Litigation
Department specializes in civil litigation at all levels of the
judiciary, and has wide-ranging experience in litigating business,
commercial and entertainment-industry related matters. We have
extensive experience in accounting and partnership, antitrust, and
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include copyright and intellectual property, real estate and products
liability litigation as well as in the appellate practice.
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