Avoiding Speed Traps on the Information Superhighway: The Emerging Law of Personal Jurisdiction Online


Periodical: The Business Suit

Date: Fall 1997

The lure of the Internet and its potentially global reach has proven nearly irresistible to businesses and it is the rare enterprise, large or small, which has neither established a presence on the World Wide Web, nor commenced planning to do so.  However, many businesses who have set up shop in cyberspace have failed to thoroughly analyze the potential legal traps for the unwary Netizen.  This is especially the case with smaller and local businesses, which commonly will have had little familiarity with areas of law like trademark, copyright and right of publicity that frequently are implicated in Internet-related disputes.  Thus, in the absence of advice from knowledgeable counsel, such businesses may unwittingly expose themselves to substantial liability in those areas. 

Of equal importance is the possibility that a business’ online activities may subject it to the possibility of suit in inconvenient foreign jurisdictions.  The last eighteen months has seen a wave, if not a flood, of cases addressing the issue of personal jurisdiction in cyberspace.  Significantly for those who do business on the Internet, the majority of these decisions have found a defendant’s Internet activities sufficient to establish jurisdiction in the plaintiff’s chosen forum.  Moreover, although some of these decisions merely apply to cyberspace notions of jurisdiction used in the context of telephone and mail contacts, others offer a disturbingly broad view of Internet-based jurisdiction, suggesting that any business with a presence on the Internet may be sued in any of the fifty states. 

Attorneys specializing in business litigation therefore cannot afford unfamiliarity with the emerging principles of online jurisdiction.  This article summarizes the recent decisions concerning personal jurisdiction in cyberspace, evaluates the different approaches to analyzing Internet jurisdiction and suggests several ways in which businesses may minimize their risk of being sued in an inconvenient forum. 

1.      Recent Cases Addressing Jurisdiction Over Online Disputes

The basic principles of jurisdiction apply in the online context as elsewhere.  Thus, a plaintiff opposing a jurisdictional challenge must show that his lawsuit (1) comes within the applicable state long-arm statute, and (2) satisfies the constitutional requirements of due process set forth in cases like International Shoe Co. v. Washington¸ 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945) and Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)  However, the novelty of Internet technology left unclear until recently just how those principles would be applied in cyberspace.  Commencing in early 1996, however, federal and state courts have issued a number of cases specifically addressing what amount and type of online activities are sufficient to establish personal jurisdiction over a defendant. 

The decision in CompuServe Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996) is regarded as the seminal case in the area of online jurisdiction.  In that case, the defendant Patterson was a Texas resident who subscribed to Ohio citizen CompuServe’s online service.  Patterson also marketed as “shareware” certain Internet navigational software that he had developed, and entered into a “Shareware Registration Agreement” (“SRA”) with CompuServe that allowed him to do so through CompuServe’s computers in Ohio.  Id., at 1260.  Both the SRA and Patterson’s CompuServe Service Agreement, provided that they were entered into in Ohio and were to be governed by Ohio law.  Id.  Patterson denied ever visiting Ohio or having any other contacts with that state.

After Patterson had marketed his shareware through the CompuServe system for three years, CompuServe began marketing a similar product, which Patterson believed infringed certain common law trademarks he and his company owned.  Id.  CompuServe thereafter filed an action against Patterson in Ohio federal court, seeking a declaration that, inter alia, it had not infringed any common law trademarks belonging to Patterson or his company, FlashPoint. 

After the district court granted Patterson’s motion to dismiss the action on grounds of lack of personal jurisdiction, the Sixth Circuit reversed on appeal.  After noting that Ohio’s long arm statute had been held to extend jurisdiction “to the federal constitutional limits of due process,” id., at 1262, and the Court found that Patterson had “purposefully availed” himself of the benefits of doing business in Ohio by:  (1) subscribing to CompuServe; (2) entering into the SRA, which was governed by Ohio law; (3) transmitting his software to CompuServe’s computers in Ohio; (4) marketing his software to third parties through CompuServe, an Ohio citizen; and (5) accepting the financial benefits of his relationship with CompuServe.  As the Court put it, “Patterson deliberately set in motion an ongoing marketing relationship with CompuServe, and he should have reasonably foreseen that doing so would have consequences in Ohio.”  Id., at 1265.  The court also found it significant that Patterson had sent electronic and regular mail messages to CompuServe asserting his claim that it had violated his trademark.  Id., at 1266.

In the wake of CompuServe have come a series of cases which have fleshed out the emerging law of Internet jurisdiction and outlined several general principles.  First, it seems clear that jurisdiction based on or relating to online activities will almost always be sustained in cases in which defendants actively do business (e.g., sell or license goods or services) on the Internet, CompuServe, 89 F.3d 1257, or where their online activities allegedly breach “offline” contracts.  Digital Equip. Corp. v. Altavista Tech., Inc., 960 F. Supp. 456 (D. Mass. 1997)(action alleging online breach of licensing agreement).  See also Resuscitation Technologies, Inc. v. Continental Health Care Corp., 1997 U.S. Dist LEXIS 3523 (S.D. Ind. March 24, 1997); Howard v. Hogg, 1996 OHIO APP. LEXIS 5533 (Ohio App. 3d 1996)(confirming business transaction online may constitute transacting business under long-arm statute); Panavision Int’l, L.P. v. Toeppen, 938 F. Supp. 616 (C.D. Cal. 1996)(intentional “poaching” of California business’ domain name supports jurisdiction in California).  In such cases, “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” 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).  See also Smith v. Hobby Lobby, 968 F. Supp. 1356 (W.D. Ark. 1997), Bensusan Restaurant Corp. v. King, 1997 U.S. APP. LEXIS 23742, 44 U.S.P.Q.2d. (BNA) 1051 (2d Cir., Sept. 10, 1997). 

However, some courts have suggested that any business availing itself 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 defendant had set up a Website advertising its soon to be launched online service.  Plaintiff asserted that defendants’ online activities infringed its trademarks and sued defendant in plaintiff’s home state of Missouri.  The Maritz court rejected defendant’s motion to dismiss for lack of jurisdiction, stating that “[t]hrough its website, 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.

2.      Minimizing Personal Jurisdiction Problems Online.

Decisions like Maritz may create substantial problems for unsophisticated businesspersons.  As noted above, many smaller businesses who lack experience with and expertise in intellectual property law may view the Internet as an inexpensive way of reaching a large potential market.  Although such businesses may not be alert to their own possible misuse of trademark- and copyright-protected materials, holders of rights in such materials surely will be.  Moreover, search capabilities on the Internet and World Wide Web make it easier for such rightsholders to identify (and take action against) potential infringers.  There are, however, a few steps businesses may take to at least minimize the potential for suit in an inconvenient forum.

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.  Thus, while a local business may think it’s amusing to use a drawing of Mickey Mouse in an online ad urging customers to avoid “Mickey Mouse operations” and employ its own services instead, the Disney Corporation is unlikely to be amused.  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 intends its Website to provide local customers with more information at low cost, the Website should prominently include a disclaimer explaining precisely that:  “Sam’s General Stores, Inc. does business in Utah and Arizona only and this Website is not intended to, and should not be construed to, solicit business from residents of other states.”  Will this or other similar language work?  Maybe not, depending on the other facts of any particular case, but it costs little and provides one more factor militating against jurisdiction in a distant forum. 

Choice of Law/Forum Clauses in Online Contracts.  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.  To minimize the possibility of the clause 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.  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).  However, this may be impossible where your client has little bargaining strength.

Win the “Race to the Courthouse”.  One tried and true method of avoiding a plaintiff’s choice of an inconvenient forum is to make sure you are the plaintiff.  For example, had Patterson sued CompuServe in Texas, a Texas court clearly would have had jurisdiction over CompuServe.  Obviously, a smaller business might not wish to initiate costly litigation against a larger, richer foe if there is a chance to settle their dispute without filing an action.  However, once it becomes clear that either your client, its adversary, or both are unwilling to adopt settlement positions likely to resolve a particular dispute informally, it is time to consider filing suit.  While litigation is admittedly costly and inconvenient, it will be cheaper and less inconvenient if conducted in your client’s back yard, rather than halfway (or more) across the country. 

Maximize Favorable Offline 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. § 1404.  To improve the chances of such motions succeeding, your client should, wherever realistic, ensure that any offline contacts with a prospective adverse litigant take place in the client’s home jurisdiction.  Obviously, 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 a party to an online contract has a local office, your 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. 

Despite the above, you should remember the old adage about best laid plans — none of the above precautions can insulate your clients from exposure to the expense and difficulty of litigation out of state.  They may, however, minimize that risk to the extent possible.  The rest is up to you.

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 securities and corporate litigation. Additional areas of emphasis include copyright and intellectual property, real estate and products liability litigation as well as in the appellate practice.

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