Jurisdiction Issues in cyberspace – American perspective
Jurisdiction Issues in cyberspace – American perspective
The Internet has been called a network of networks, local computer systems hooked to regional systems hooked to national or international high-capacity “backbone” systems. Each link, or node, in this web is a computer or computer site, all connected together by a variety connections: fiber optic cable, twisted-pair copper wire, microwave transmission, or other communications media. Each computer in the network communicates with the others by employing machine-language conventions known as the IP, or Internet Protocols. Indeed, it is these protocols that define the network; those machines that talk to one another using IP are the Internet.
The Internet protocol provides for “telepresence” or geographically extended sharing of scattered resources. An Internet user may employ her Internet link to access computers, retrieve information, or control various types of apparatus from around the world. Access to Internet resources is provided via a system of request and reply; when an on-line user attempts to access information or services on the network, her local computer requests such access from the remote server computer where the desired is housed. The remote machine may grant or deny the request, based on its programmed criteria; only if the request is granted does the server tender the information to the user’s machine.
These features make available a vast array of interconnected information including computerized digitized text, graphics, and sound. The usefulness of such computer networking has not been lost on businesses, or for that matter, on consumers. A crop of private Internet access providers has developed to offer network access and facilities to such customers outside the research community. Consequently, private and commercial traffic is becoming a dominant force in the development and growth of the electronic frontier. Businesses of all types routinely use the Internet for a variety of commercial transactions, and consumer services have begun to appear. At present, commercial traffic on the network generally culminates in an exchange of physical goods, and it is presently possible to access a variety of mail-order catalogs on-line. The variety and availability of such consumer services is likely to grow, as are attendant facility for on-line advertising and marketing.
In particular, the network offers novel opportunities for transactions involving information-based goods and services. Information and information-based services on the network have traditionally been offered for free, but will increasingly be offered on a commercial basis. Unlike transactions involving physical goods, delivery of digitized information products such as music, photographs, novels, motion pictures, multimedia works, and software can be accomplished entirely within the network itself. Such information products already comprise an sizable portion of the gross national product of developed nations. That portion is likely to increase world-wide, and the Internet will facilitate such increases.
Issue of Jurisdiction
Jurisdiction refers to a court’s power to compel one to physically appear in a distant forum to defend or prosecute a lawsuit. In America, all courts’ jurisdictional powers are limited in two ways–by due process and by state statutes known as Long-Arm Acts.
Personal jurisdiction
Personal jurisdiction is the competence of the court to determine a case against a particular category of person. It requires a determination of whether or not the person is subject to the court in which the case is instituted. If the person is a resident there is no doubt that he is subject to the municipal laws. But if he is not a resident then what laws are to applicable?
It is further classified into (a) general jurisdiction, and (b) specific jurisdiction
General jurisdiction
Historically very close contacts with the state, like residency or domicile, physical presence at the time of service of process or some other substantial, continuous and systematic contact with the forum state is required for ‘general jurisdiction”. Then the person would be a subject to the power of the court with respect to any cause of action that might be bought.
Specific jurisdiction
It refers to the power of the court with respect to a particular cause of action based upon some set of “minimum contacts” with the forum state that relate to that cause of action.
Principles of Personal Jurisdiction in the US
In 1878, in the famous case of Pennoyer v. Neff[1], the Supreme Court confirmed what have since been known as the traditional bases of in personam jurisdiction: the defendant’s domicile in the forum, presence in the forum when served with process, and consent. Milliken v. Meyer[2] reaffirmed in 1940 that a domiciliary may be sued in her home state on any claim.i.e. domicile gives the forum “general personal jurisdiction” over the defendant, so she can be sued there for a claim that arose anywhere, and not just one related to her activities in the forum.
The Court expanded consent as a basis of jurisdiction by embracing forum selection clauses in the 1972 case of The Bremen v. Zapata Off-Shore Co.
Even with the expanded concept of consent, by the mid-twentieth century, innovations in travel and communications strained the traditional bases of jurisdiction. By then a defendant could easily enter a state and commit a tort or breach a contract and escape before being served with process. Absent consent, a plaintiff had no choice but to sue the defendant in the latter’s domicile, which might be inconvenient for the plaintiff and give the defendant a “home court advantage.” The Court responded in International Shoe Co. v. Washington[3] with the famous “minimum contacts” test. It indicated that the new test applied if the defendant “be not present” in the forum, thus implying that the new test
would serve as an alternative to the traditional bases in Pennoyer.
The International Shoe test provides that jurisdiction comports with due process if the defendant has certain minimum contacts with the forum such that maintenance of the suit does not offend traditional notions of fair play and substantial justice. Through the decades, though, the Court has clothed the phrase with some meaning and structure. First, the test consists of two parts – one about contact and one about fairness. Second, to establish a relevant contact between the defendant and the forum, two factors must be present: the defendant must have “purposefully availed” of the forum and it must be foreseeable that the defendant could be haled into court in that forum. Third, if there is a relevant contact, the court must weigh several fairness factors to see whether jurisdiction should be upheld.
These fairness factors include burden on the defendant, the interest of the plaintiff, the forum state’s interest, and shared substantive policies of the states. Because of the importance of contact, a great deal of case law addresses whether the defendant has engaged in “purposeful availment” of the forum. The requirement of purposeful availment is intended to ensure that the defendant’s contact with a forum will not be inadvertent or accidental. Thus, it embodies the notion that a defendant should not
be made to answer for a claim in a state to which she has not directed her activities.
Due Process
Due Process is embodied in the United States Constitution and in the constitutions of all the states. Basically, due process provides that a court cannot force people (or businesses) to physically appear in a state to defend a lawsuit unless it would be fair to make them do so. Whether it would be fair depends on several factors, including (1) the relationship between the dispute and the parties’ contacts with the state where the lawsuit is pending and (2) whether, under the circumstances, the defendants reasonably should have expected that they might have to appear in that state to defend a lawsuit.
Long arm statute
Long-Arm Acts are the second check on a court’s jurisdictional power. Long-Arm Acts (as in “the long arm of the law”) specify the kind of conduct for which a nonresident defendant might have to appear in court and defend. Usually, this conduct includes soliciting or transacting business within the state or committing a wrongful, harmful act within the state. Because widespread use of the Internet for business is a relatively new phenomenon, the courts are now just starting to decide whether business solicited or conducted entirely in cyberspace (such as by email or through a Web site) is conducted “within” a state as defined by a state’s Long-Arm Act, and if so, whether a court may fairly exercise its jurisdictional power consistent with due process.
Illinois was the first state to do so. Its statute[4] allowed service of process outside the state on nonresident individuals and corporations in actions arising out of (1) the transaction of any business in the state; (2) the commission of a tortious act within the state; (3) the ownership, use, or possession of real estate in the state; or (4) a contract to insure any person, property, or risk located in the state. The Illinois statute became a template for many state long-arm statutes.
In 1963, the Uniform Interstate and International Procedure Act was promulgated by the Commissioners of Uniform Laws. The Uniform Act was similar to the Illinois statute, but also included a provision authorizing jurisdiction in the event that an act or omission outside the state caused injury in the state. This Uniform Act also became a model for other states in developing their long-arm statutes. Since 1963, all states and the District of Columbia have enacted long-arm statutes
Analysis of case law
Maritz,Inc. v Cybergold,Inc.[5]
The defendant corporation operated an Internet site in California that allowed users to sign onto a mailing list to receive advertisements. The defendant’s site was yet to begin to operate by taking ads and registering subscribers, the plaintiff, a Missouri corporation, filed suit claiming trademark infringement and unfair competition contending that defendant activities ran afoul to the Lanham Act. The only contacts with Missouri were 300 hits by Missouri residents on the defendant Web site. The site was apparently hosted on a California server. Defendant had no offices or employees within Missouri. The court held that Missouri could exercise jurisdiction consistent with the International Shoe test. That test consisted of five factors: the nature and quality of the contacts; the quantity of contacts; the relation of the cause of action to the contacts; the interest of the forum in adjudicating the case; and the convenience of the parties. The court applied these factors as follows. First, in assessing the quality and nature of the contacts the Maritz court explained that maintenance of a Web site on the Internet is clearly of a different nature and quality than other, more traditional, means of contact with a forum. The major difference, according to the Maritz opinion, is that the Web site seeks to reach all Internet users. Therefore, the court concluded that the defendant’s contacts were of such a quality and nature that they favour the exercise of personal jurisdiction over defendant. Second, the court observed that there had been 181 hits on the defendant Web site, and that the Web site “was clearly intended as a promotion.” the court concluded that these were a sufficient quantity of contacts with the forum to justify the exercise of jurisdiction under the International Shoe test. Third, the court reasoned that the contacts and the cause of action were related. Just as in the Inset case, the rationale by which the court justified its holding was defendant’s intent to reach a global audience. The court also reasoned that a commercial Web page, by its very nature, “solicits” business within the forum. The Court reasoned that CyberGold’s alleged violation of the Lanham Act was a tortious act that caused injury to a Missouri resident. This, in turn, permitted the exercise of jurisdiction under those provisions of Missouri’s long-arm statute that authorized suit in Missouri against non-residents who committed tortious acts within the state. The court further found that asserting jurisdiction over CyberGold comported with due process notwithstanding CyberGold’s argument that its operation of the site was passive
Compuserve Inc. vs Patterson[6]
The plaintiff CompuServe, an Internet Service Provider had its own Web site and it acted as a conduit. Its subscribers could upload their software on to CompuServe system and CompuServe then displayed it, and if there were interested buyers they could buy the displayed software and then through CompuServe the subscriber could get the payment.The distribution agreement incorporated by reference the CompuServe’s Service Agreement and Rule of Operation, both of which CompuServe published on its Web site, providing that the performance of the agreement occurred in Ohio and electing Ohio law to govern any dispute arising out of the agreement. During the term of the agreement, twelve subscribers from Ohio downloaded the Patterson software. Patterson found that the shareware that he placed on CompuServe’s system was copied by CompuServe and it was trying to sell its own version of the same. So, he wanted to sue them.But CompuServe brought a declaratory judgment action in Ohio against Patterson, a resident of Texas who had never been to Ohio and who objected to the exercise of long-arm jurisdiction by the Ohio court.
The court held the exercise of jurisdiction consistent with International Shoe’s principles because Patterson acted to create the connection with the forum, he was on notice that Ohio law would apply, and he engaged in repeated commercial transactions with CompuServe in Ohio.
Cybersell, Inc., an Arizona corporation (“Cybersell AZ”), v. Cybersell, Inc., a Florida corporation (“Cybersell FL”)[7].
Cybersell AZ, a web services marketing firm that owned the registered trademark “Cybersell,” sued Cybersell FL, a small company providing business consulting services for Internet marketing. Cybersell FL used a Web site that contained a hyperlink of the mark Cybersell to allow the viewer to e-mail messages to the company. Applying the Zippo test to the facts of this case, the court held that the Cybersell FL had not purposefully availed itself of the benefits of Arizona, so jurisdiction could not be exercised. The court explained that mere advertisement on a Web site is not enough; “something more” is required for the purposeful availment test to be met. There had been no actual contacts with forum: no forum resident had signed up for Cybersell FL’s web services; no e-mail messages or other Internet communications had been exchanged between Cybersell FL and any Arizona residents; and there had been no contracts, sales, phone calls, or income from Arizona or with Arizona residents. Thus Cybersell FL did not target the forum by directing activity to forum.
Zippo Manufacturing Co. v. Zippo Dot Com, Inc.[8]
A Pennsylvania manufacturer of well-known cigarette lighters brought a trademark infringement action against a California Internet news service company that used the domain name Zippo.com. Defendant operated a World Wide website hosted on a California server which was available to Pennsylvanian residents. The defendant’s Web site displayed an advertisement and an application form that customers could fill out to subscribe to the defendant’s news service, permitting a customer to submit an application, provide a credit card number or have credit approved, and receive a password for access to the defendant’s news service.
Defendant had entered into subscription contracts with some 3000 Pennsylvanians (which represented 2% of its clientele).The court held that defendant had purposefully availed itself of the benefits of Pennsylvania law and the Pennsylvania economy so that the forum could exercise jurisdiction consistent with the International Shoe criteria.
The Zippo court explained that the International Shoe principles require application according to a “sliding scale” that measures the nature and quality of the commercial activity of the defendant on the Internet. For purposes of analysis, this sliding scale can be divided into three levels: the passive Web site, the intermediate Web site and the interactive Web site.
It further held “Our review of the available cases and materials reveals that the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the . This sliding scale is consistent with well developed personal jurisdiction principles. At one end of the spectrum are situation where a defendant clearly does business over the . If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the , personal jurisdiction is proper. (Compuserve v. Patterson) At the opposite end are situations where a defendant has simply posted information on an Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make information available to those who are interested in it is not grounds for the exercise of personal jurisdiction. (Bensusan) The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web Site. (Maritz v. Cybergold).”
The Zippo court found that the case clearly involved a category three interactive Web site, thus permitting the forum to exercise long-arm jurisdiction consistent with due process principles. In support of this finding, the court noted the following: first, the defendant entered contracts interactively with three thousand Pennsylvania residents; second, the defendant issued passwords to those three thousand subscribers, thus beginning performance of the contracts; and third, the defendant entered into contracts with seven Internet providers to serve customers in the forum. These contacts put the Web site into the interactive category and satisfied the principles of International Shoe. These electronic activities demonstrated that the defendant targeted or directed its activities toward the forum; thus, the defendant had purposefully availed itself of the benefits of the forum law and economy and reasonably should have anticipated being haled into the forum to defend itself.
Moreover, the court rejected the proposition that the contacts were insignificant, noting that the test has always been the “nature and quality,” not the quantity, of the contacts and recognizing that the reasonableness prong of the International Shoe test had also been easily met.
The Zippo opinion is probably the most persuasive and influential opinion and the leading authority on the subject of cyberspace.
Millennium Enterprises, Inc., d/b/a Music Millennium, et al. v. Millennium Music, et al[9].
This case is instructive because the Millennium court carefully reviews all Internet cyberspace jurisdiction precedents and concludes, after comparison of the Zippo approach to other approaches, that the Zippo approach is the most legitimate application of the International Shoe principles to the dynamics of cyberspace.
Plaintiff Music Millennium Enterprises, Inc. sells music products such as CDs from retail music stores in Oregon.Music’s Web site was interactive because customers could purchase compact disks “CDs,” request franchise information, or join a discount CD club on the Web site.Defendants’ sole contacts with Oregon consist of: (1) the availability to Oregon residents of defendants’ website at which music products can be purchased; (2) the sale of a single compact disc to an Oregon resident, who apparently ordered the same at the behest of plaintiffs’ attorneys.
Plaintiffs commenced suit, charging that defendants’ use of “Millennium Music” infringed plaintiffs’ trademark in “Music Millennium” under Federal and state laws, and constituted dilution, unfair competition and unfair trade practices under state law. Defendants moved to dismiss, arguing that the Oregon District Court lacked personal jurisdiction over them. The court agreed, and dismissed the suit.
The court held that the middle interactive category of Internet contacts as described in Zippo needs further refinement to include the fundamental requirement of personal jurisdiction: “deliberate action” within the forum state in the form of transactions between the defendant and residents of the forum or conduct of the defendant purposefully directed at residents of the forum state.
The last and by far most interesting question analyzed by the court was whether the availability to forum residents of an interactive website on which forum residents could but had not yet effectuated purchases was enough to permit the court to exercise specific personal jurisdiction in a lawsuit arising out of the website’s operation. The court answered this question in the negative, holding that something more, such as actual sales to forum residents or a site particularly targeted toward forum residents, was required to sustain personal jurisdiction.
The court observed that the level of potential interactivity of Music’s Web site was not insubstantial, and the potential exchange of information between Music’s Web site and customers would, if consummated, be commercial in nature, and then concluded that under these facts the Zippo approach does not permit the exercise of jurisdiction because there had been no actual interaction between residents of Oregon and the Web site.
Millennium court carefully reviews all Internet cyberspace jurisdiction precedents and concludes, after comparison of the Zippo approach to other approaches, that the Zippo approach is the most legitimate application of the International Shoe principles to the dynamics of cyberspace.
Panavision Int’l. v. Toeppen [10]
Panavision International, L.P. is a corporation with its principal place of business in California and the owner of the federally registered trademarks “Panavision” and “Panaflex.” Defendant Toeppen is an Illinois resident who registered with NSI (based in Virginia) the domain names Panavision.com and Panaflex.com. Toeppen created a website at panavision.com which featured aerial views of Pana Illinois. When plaintiff requested that Toeppen cease using the domain name, he demanded a hefty payment. Plaintff responding by commencing suit in California, charging defendant with federal and state dilution of trademark and unfair competition. In denying Toeppen’s motion to dismiss for want of personal jurisdiction, the court held that its exercise of jurisdiction over the defendant comported with due process because his tortious conduct of improperly registering a domain name, even though done out of state, was expressly calculated to cause injury in California. the court did not rely on the existence of Toeppen’s website, or its availability to California residents, to establish jurisdiction over Toeppen. the court expressly held that it did not have general jurisdiction over Toeppen for all purposes. As to specific jurisdiction, the court stated: ” It is important to note that the Court does not hold that Toeppen is ‘doing business’ in California via the internet.”
The California court held that jurisdiction was proper because Toeppens out of state conduct was intended to and did result in harmful effects in California. Toeppen expressly aimed his conduct at California . the court relying on the effects theory noted that the effect of the defendant’s action was felt in plaintiff’s jurisdiction because it is plaintiff mark that is involved.
Conclusion
After discussing a plethora of cases in which the US courts have dealt with the jurisdiction aspect in relation to online disputes, a three-pronged test has emerged for determining whether the exercise of personal jurisdiction over a non-resident defendant is appropriate :
- the defendant must have sufficient (minimum contacts) with the forum state
- the claim asserted against the defendant must arise out of those contacts, and
- the exercise of jurisdiction must be reasonable.
In an internet context the real issue is whether making available a web site in the forum (and in the rest of the world) suffices to establish specific jurisdiction over a defendant. Generally, the mere accessibility of a website in a forum will not be deemed sufficient for a court to exercise jurisdiction over the defendant, but this position is not shared uniformly in all countries. Courts by and large are looking at the impact, contact and effect of a particular website on local jurisdiction meaning thereby something more than a mere website access.
[1] 95 U.S. 714 (1878).
[2] 311 U.S. 457 (1940).
[3] 326 U.S. 310
[4] Ill. Rev. Stat. chap. 110, para. 17 [1955]
[5] 947 F. Supp. 1328 (E.D. Mo. 1996)
[6] 89 F. 3d 1257(6th Cir. 196)
[7] 130 F. 3d 414 (9th Cir. 1997)
[8] 952 F.Supp. 1119 (E.D. Penn., Jan. 16, 1997)
[9] 33 F. Supp. 2d 907 (D. Or., Jan. 4, 1999)
[10]938 F. Supp. 616 (C.D.Cal. Sept. 20, 1996)
