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Jurisdiction: Building Confidence in a Borderless Medium

July 26-27, 1999
Montreal, Canada

A US Perspective on The Global Jurisdictional Checkpoints in Cyberspace

Thomas Vartanian*
Partner
Fried, Frank, Harris, Shriver & Jacobson


1. Introduction

Cyberspace transcends geography. Perhaps that means that the rules that determine who can tax, incorporate and resolve disputes in cyberspace will be different from those to which we are accustomed. It certainly seems to mean that we must view more and more commercial transactions from the perspective of international laws. Perhaps many rules need not change just because we may wonder where cyberspace is and how digital traffic moves. Does Internet commerce differ from telephone or catalogue commerce and, if so, how? Should the existence and location of a server affect how a business should be taxed?

The law should take a fresh look at how different forms of legal jurisdiction are determined in the boundless world of cyberspace. The American Bar Association's Business Law Section, through its Cyberspace Law Committee, and with the joint sponsorship of four other Sections, has funded a two-year transnational jurisdiction in cyberspace project which will make its report on nine different areas of the law at the London 2000 Annual Meeting (see http://www.abanet.org/buslaw/cyber ). But, the courts must and are dealing with these issues today.

1.1. The Nature of the Internet

The Internet is a global network where local computer networks are connected to regional networks that combine to form national and international high capacity systems.1 Each link in this web of networks is a computer connected to other computers by a variety of connections, including fiber optic cables, copper wires, microwave transmissions, and other communications media. Communications between computers on the Internet are in the machine language known as Internet Protocols ("IP").2 Communications in IP eliminate geographic barriers by way of a packet switching network and "smart communications."

Transmissions over the Internet utilize a packet switching network that breaks up a communication into distinct packets of data that can be transmitted individually as capacity on network connections permit. Each packet is labeled with the "address" of the final destination. It may follow a number of different routes from computer to computer until arriving at its final destination, where the packet is reassembled by the recipient computer server.3 A stream of packets on one channel between two computers may carry parts of an e-mail message to an intended recipient within the same state, interspersed with parts of a software program downloaded from a server in another state, to a user in Tokyo along with a myriad of other packets that are parts of communications in the stream of data traversing the Internet worldwide.

The Internet architecture employs "smart communications." As a network of computers, every link is capable of using computer intelligence to monitor packet traffic on the network and route packets along the least congested route to the next computer. This process is generally repeated.4 Each computer determines whether to send packets along a channel, to hold packets pending reduction of network traffic, or to reroute packets of data via different channels to their ultimate destination to maximize use of the available carrying capacity of the Internet. In sum, a single communication has the potential to be broken up into separate packets and sent through several different jurisdictions before reaching its final destination. With the exceptions of the jurisdiction in which the communication originates, and the jurisdiction in which the communication is received, only segments of the communication may pass "through" computer servers located in other territories, but not the entire communication.

Generally, there is no centralized control of data transmissions over the Internet. Each computer acts autonomously, coordinating data flow with its nearest connected computers, guided by the "invisible hand" that arises from the interconnection of millions of independent actions on the Internet. "There is no central authority to govern Internet usage, no one to ask for permission to join the network, and no one to complain to when things go wrong."5

2. The Federal Government and the Commerce Clause

The United States Constitution grants express powers to a centralized government to represent the composite interests of the states that make up our Union. James Madison wrote over 200 years ago that if "we are to be one nation in any respect, it clearly ought to be in respect to other nations."6 In that vein, the federal government was given control of foreign relations, and specifically, Congress was given the power to regulate commerce with foreign nations and among the states.7 State and local governments, however, have increasingly interjected themselves into varying aspects of foreign affairs.8 In a critique of local government's increasing involvement in foreign relations, one commentator states: "[t]he national interest demands that local interference in foreign and defense policy be curtailed before the federal government finds itself hamstrung by hundreds of would-be secretaries of state touting their own parochial agendas. . . . Foreign policy must be made in Washington and not in the citizens' backyards."9

Congressional statutes concerning foreign commerce prevail over any contrary state statutes.10 The Commerce Clause is more than an affirmative grant of power to the U.S. Congress, it has a negative implication as well.11 Even in the absence of federal law, state regulations or taxes are invalid if they unduly burden interstate or foreign commerce.12 In a lawsuit involving a state's infringement of foreign commerce, rather than interstate commerce, a court will look to whether the state or local law prevents the federal government from speaking "with one voice when regulating commercial relations with foreign governments," among other factors.13

The Internet creates a conundrum in that states trying to regulate Internet commerce within their territory may be viewed in effect as seeking to regulate the Internet worldwide.

2.1. The Internet as a Railroad or "Superhighway"

As U.S. courts confront a state's application of its laws to the Internet, judges will naturally seek to determine the most appropriate analogy for the application of existing legal principles to criminal activity on the Internet. In mid-1997, a federal court in New York in the case of American Library Association v. Pataki ("Pataki") stated that "the phrase 'information superhighway' is more than a mere buzzword; it has legal significance."14 The New York statute at issue attempted to prohibit transmissions of sexually-related communications to minors via the Internet. The Pataki court issued an injunction preventing the statute's enforcement, finding it an unconstitutional infringement on interstate commerce.15 In analogizing the Internet to a highway or railroad, the Pataki court stated that the Internet fits within the parameters of interests traditionally protected by the Commerce Clause.16

The Pataki court gave three grounds for its decision: (1) the New York Act represents an unconstitutional projection of New York law into conduct that occurs wholly outside of New York;17 (2) even if the New York Act is not a per se violation of the Commerce Clause, it is an invalid, indirect regulation of interstate commerce because it imposes on interstate commerce burdens that are excessive in relation to the benefits it confers;18 and (3) the Internet is one of those areas of commerce that must be marked off as a national preserve to protect users from inconsistent legislation that, taken to its most extreme, could paralyze development of the Internet altogether.19

The Pataki court recognized that the "Internet is wholly insensitive to geographic distinctions."20 Internet users generally do not know the location of the Internet resources that they access, and Internet service providers also cannot be certain from which jurisdiction the resources are accessed.

For example, a user may have four e-mail accounts with four different Internet service providers, each providing access the World Wide Web. Two may exist in the District of Columbia while the other two are located in the State of Maryland. However, all are easily accessible from any computer located across the Potomac River in northern Virginia by virtue of a local telephone call. In addition, the user could make a local telephone call from northern Virginia for a remote login into one of the D.C. Internet service providers and then use a software application called Telnet to access another Internet service provider in Baltimore. From there, the user could access the worldwide resources of the Internet. The issue then is in which of the three jurisdictions, D.C., Maryland, or Virginia, the user may be sued or prosecuted for a violation of the law. It might be all three.

If a user accesses a site that distributes illegal materials, such as pornography, then is the website owner subject to suit in any or all of the three jurisdictions discussed above? If the website operator is subject to jurisdiction in some or all of these sovereign territories, how might that operator curtail or limit its service to dispel this jurisdictional dilemma? "[N]o aspect of the Internet can feasibly be closed off to users from another state,"21 no more than a state may shut down its highways, railroads, or ports. The Internet is more than a communications system, it is the foundation for electronic commerce serving as the conduit for digital goods, including software, data, music, graphics, videos, literature, and economic information that can be downloaded from the provider's site or mirror site to a user's computer anywhere in the United States and throughout the world.

The extraordinary low cost of participation in worldwide commerce and communications is one of the most phenomenal developments in this century. However, the emergence of a real threat of multijurisdictional liability and criminal prosecution may, in some instances, deter both business and individuals from using the Internet. Much of the democratization and liberalization of the barriers to the international marketplace created by the Internet may be lost if legislators, whether at the national, state, or local level, create a morass of jurisdictional entanglements on the World Wide Web. Merchants may be deterred by potentially conflicting content requirements or the threat of potentially defending civil suits or facing criminal prosecution in multiple jurisdictions. The expense and effort entailed in monitoring and complying with the regulatory requirements of every jurisdiction that an entrepreneur or user may electronically touch could be enormous.22

2.2. Extraterritorial Assertions of State Jurisdiction that Violate the Commerce Clause

States may not directly interfere with interstate commerce by establishing statutes or regulations that effectively dictate the manner in which commercial activities may occur beyond their borders. Put another way, the Commerce Clause precludes a state from exporting its regulatory policies into other states by legislative enactment.23 State statutes that, on their face, directly regulate commercial transactions occurring wholly outside that state are per se violations of the Commerce Clause.24 For example, a state's efforts to regulate the manner in which corporate takeovers are conducted, when the target corporation is an in-state corporation, violate the Commerce Clause if the state's attempt to, for example, prevent a takeover is based on considerations of fairness to corporate shareholders, although not one of the shareholders is a resident of that state.25 If one state were permitted to pass a statute that directly restrains interstate commerce on the Internet with sweeping extraterritorial effect, then any other state could do the same.26 The Commerce Clause prevents such a regime of overlapping state regulations of commerce.

Regardless of the legitimate purpose of a statute, a statute that by its operation directly interferes with or burdens interstate commerce is invalid.27 When the practical effect of a state statute is to control activities beyond its territorial borders, the statute will be struck down as violative of the Commerce Clause.28 The courts will not only consider the consequences of the statute itself, but will determine how the statute interacts with "legitimate regulatory schemes of other States and what effect would arise if not one, but many or every, State adopted similar legislation."29

2.3. Indirect Regulation of Interstate Commerce that Violates the Commerce Clause

Even if a statute withstands constitutional scrutiny because it does not directly affect interstate commerce through extraterritorial application, it may still be determined an impermissible indirect regulation of interstate commerce if the burdens it imposes on interstate commerce are excessive relative to the local benefits.30 A court will first determine the legitimacy of the state's interest in prescribing the regulation. Then the court will determine the burden on interstate commerce in light of any benefit obtained in meeting the state's alleged interest in enacting and enforcing the statute.31 For example, the State of New York's interests in protecting minors from pedophiles, and the benefits associated with a statute to limit the transmission of pornography to minors, were found to be insufficient to outweigh the burdens on Internet commerce.32

2.4. Avoidance of Inhospitable Jurisdictions

It is well-accepted that commercial parties may agree to have their contract governed in accordance with a particular state's laws and agree that any disputes shall be resolved exclusively in that state's courts or by arbitration within that state. Choice of law and forum provisions may increase legal certainty for commercial participants using the Internet. Such provisions, however, may not be enforceable if they are not reasonable or properly supported by consideration.33 They also may not provide the legal certainty that Internet merchants seek when dealing with individual consumers worldwide.34 Furthermore, although civil liability in commercial transactions may, as agreed by contract, be assessed in jurisdictions with more favorable laws, those same venue and choice of law provisions are not applicable to a sovereign's decision to impose its criminal laws.

Rather than relying solely upon choice of law provisions, an Internet merchant or financial institution may seek to conduct its activities on the Internet in a manner that avoids commercial transactions with citizens of a forum with unfavorable laws. This may be accomplished through several features incorporated into the merchant's or financial institution's website. The merchant or financial institution may prominently display either a list of jurisdictions to which it is directing its business or list those jurisdictions in which it is not doing business, or both. They may also install filtering devices programmed to determine the location of any potential customers by requiring either zip code or other identifiable data to determine the customer's geographic location. Based on predetermined criteria, such software could reject attempts to transact business by customers of unfavorable states. If the merchant or financial institution subsequently becomes aware that a customer is a resident of a state in which it does not wish to conduct business, it may decide to return all funds received from, and cancel any orders made by, that customer. Of course, to the extent that a merchant or financial institution commits itself to not doing business with residents of particular jurisdictions, it must be prepared to experience a loss of potential revenue.

3. Jurisdiction Over a Foreign Party

In the United States, federal and state governments have either already implemented legislation over Internet activities or are in the process of doing so.35 Regulation may result in liability for proscribed online activities.36 The applicable scope of Internet legislation is not, however, without bounds.37 As discussed above, Internet use may subject financial institutions and Internet merchants to multiple jurisdictions, theoretically requiring them to comply with the most restrictive laws created by a single state or nation. In this multijurisdictional scenario, which entails the prospect for conflicting regulation, the potential for civil litigation may require electronic commerce participants to be concerned with which foreign courts they may be subject to suit in and the legal standards under which their conduct will be assessed.

3.1. Personal Jurisdiction

Traditionally, a court may only hear disputes and render judgments in actions involving a foreign party if the court has personal jurisdiction over that party. Courts may assert personal jurisdiction over any party who is physically present within the territorial confines of the state in which that court sits.38 Over the course of the 20th Century, as interstate travel and communication has become easier and more affordable, the concept of "presence" has been judicially expanded to include contacts between foreign parties outside the forum and persons in the forum.39

There are two types of personal jurisdiction: general and specific. General jurisdiction results when a party's ties to a certain forum are continuous, systematic, and ongoing.40 A court with general jurisdiction over a party may exercise jurisdiction over disputes concerning matters unrelated to the party's contacts with the state.41 Specific jurisdiction, often asserted when a party's contacts are not continuous, systematic, and ongoing, permits a court to assert jurisdiction over parties to a dispute arising from the party's contacts with a state.42

3.2. The Assertion of Personal Jurisdiction by Federal and State Courts Over Foreign Parties

In the United States, two rules of law govern a court's assertion of personal jurisdiction over a foreign party: state long-arm statutes and the Due Process Clause of the Constitution.43 Long-arm statutes provide state courts with the authority to hale foreign parties into court.44 State long-arm powers cannot, however, exceed the constitutional limits of federal Due Process.45 Long-arm statutes also affect a federal court's jurisdiction because federal courts generally apply the state long-arm statute of the state in which the federal court sits in disputes involving foreign parties.46

Some long-arm statutes broadly define proper assertions of jurisdiction, permitting courts to interpret them as being coextensive with the limits of the 14th Amendment Due Process Clause.47 Other long-arm statutes, however, do not reach to the fullest extent of federal Due Process, but only permit assertions of jurisdiction over foreign parties that operate within the state or cause tortious injury in the state.48 Some long-arm statutes that reach to the extent of federal Due Process may nevertheless limit a state's assertion of jurisdiction to specific circumstances.49

Courts interpreting the reach of long-arm statutes in cases involving the World Wide Web have generally responded in one of three ways. Some courts have found that a foreign party's website falls within the specific provisions of the long-arm statute.50 Other courts have found that a foreign party's website design did not satisfy the long-arm statute. They focused on the limited nature of the website, which they perceived as merely providing information to Internet users rather than selling products.51 Those courts have held that even if foreign parties might reasonably expect their websites to have an effect in the forum, they could not reasonably expect to derive significant revenue from the forum, nor expect their websites to result in a significant injury in the forum.52 Finally, a third group of courts dealing with such disputes have found that resolution of the federal Due Process question resolves any uncertainty about the state long-arm statute because the reach of the statute is coextensive with Due Process.53

Assertions of jurisdiction must comport with the strictures of federal Due Process.54 An assertion of personal jurisdiction over a foreign party does not violate federal Due Process if the party has certain minimum contacts with the forum such that jurisdiction does not offend traditional notions of "fair play and substantial justice."55 General jurisdiction is applicable where a party's ties to a state are continuous, systematic, and ongoing; rendering the assertion of jurisdiction, even for matters unrelated to the party's contacts with the state, compatible with federal Due Process.56 Specific jurisdiction exists if a controversy relates to or "arises out of" a party's contacts with a forum and there is "a relationship among the defendant, the forum, and the litigation."57

In determining whether a court's assertion of general jurisdiction is proper, a court will analyze the nature of the defendant's contacts and business activities within the forum.58 Generally, if an entity maintains a corporate office in a forum from which it performs a variety of business activities, the entity will be subject to jurisdiction in that forum even if the office is temporary.59 However, mere purchases of products from a state, even if regularly occurring, are insufficient for an assertion of general jurisdiction over the purchaser.60

4. The Early Cases

A number of courts have conducted in depth examinations of the assertion of general jurisdiction based on a corporation's contacts with a state via the Internet or other electronic means.61 In a 1996 case, McDonough v. Fallon,62 a federal district court in California considered four activities of a Minnesota advertising agency in determining the appropriateness of jurisdiction: (1) hiring in-state independent contractors; (2) purchasing advertisements from California-based entities; (3) placing advertisements in California; and (4) maintaining a website.63 Recognizing the danger of asserting general jurisdiction over the advertising agency, because of its website and the possibility of failing to give reasonable effect to personal jurisdiction protections, the court held that use of the agency's website by citizens of the forum state cannot by itself establish jurisdiction.64 The court focused on the agency's lack of significant forum clients and the fact that no residents of the forum state actually purchased the products placed into the stream of commerce by the nonresident.65 The court found the purchase of advertisements, which were unrelated to the cause of action, insufficient to support an exercise of general jurisdiction.66 Considering these contacts in their entirety, the court found that they were not substantial, systematic, or continuous and, therefore, did not support general jurisdiction over the agency.67

Participants in electronic commerce must be aware of the possibility of a court's assertion of specific jurisdiction over their activities. Specific jurisdiction does not violate the federal Due Process if (1) a party purposely avails itself of the privilege of conducting activities within the forum, rendering it reasonable for the party to anticipate being haled into court in the forum, and (2) the exercise of specific jurisdiction does not offend traditional notions of fair play and substantial justice.68

In determining whether a foreign party purposefully availed itself of the benefits bestowed by the laws of the forum, a court inquires as to whether the foreign party could reasonably anticipate being haled into that forum's courts.69 This anticipation is based on the extent that the foreign party's activities, sales, services, and business solicitations, or any manner in which they otherwise avail themselves of any of the benefits of the forum's laws, are calculated to reach the forum. The court will not only look to whether foreign parties regularly sell products to forum residents, but also to whether the parties indirectly, through others, serve or seek to serve the forum market.70 The unilateral actions of the consumer to take a foreign party's products to a distant forum, although foreseeable, does not, however, render the subsequent suit foreseeable.71

By placing its products into the stream of commerce and expecting consumers in a forum to purchase those products, a corporation purposefully avails itself of that forum's laws.72 For example, a magazine publisher is subject to suit in a forum in which it has "regular monthly sales of thousands of magazines."73 Regular sales do not qualify as random, isolated, or fortuitous contacts such that personal jurisdiction may not be exercised.74

The Supreme Court has found a franchisee subject to the jurisdiction of a foreign forum because he deliberately reached out beyond his home state in negotiating with a Florida corporation to purchase a long-term franchise and its ongoing benefits.75 The Court held that the franchise relationship, wherein the franchisee submitted to regulations issued by the franchiser from its Florida headquarters, did not constitute random, fortuitous, or attenuated contacts with the forum.76 A participant in electronic commerce or banking may use "pull technology" for its contractual relationships with others and incorporate a choice of law and forum clause within the contract so as not to be haled into a foreign forum.77

In examining whether an assertion of specific jurisdiction comports with traditional notions of fair play and substantial justice, a court will consider its forum's interest in adjudicating the dispute.78 In particular, a court will focus on the foreign party's contacts and balance whether the forum's interest in deciding the dispute is greater than the interests of foreign party's state.79 Although resolution of a dispute in a foreign forum may be inconvenient and may burden the foreign party's ability to call witnesses, such inconvenience does not necessarily rise to a constitutional dimension.80 Courts recognize that there are dangers accompanying assertions of jurisdiction based on contractual relationships with inequalities in bargaining power, but such concerns are generally unwarranted when both parties are commercial entities.81

Whether a foreign party is subject to the specific jurisdiction of a court by virtue of its contacts via the Internet will have significant implications on the manner in which electronic banking and commerce disputes will be resolved.82 Electronic commercial activities create forum contacts not based on physical presence within a forum, the contacts are more attenuated. In evaluating the forum contacts created by electronic interaction with customers, courts could decide that the customers created the contacts by reaching out to banks' websites or they could decide that the banks purposely directed their activities into the particular forum. Creating electronic contracts indicates ongoing forum benefits, such as the enjoyment of the benefits of a forum's commercial laws creating additional contacts, and increasing the potential for general jurisdiction. Regular advertisements or billing activity directed to forum consumers, the creation of special services appealing to forum residents, the absence of restrictions on electronic access, and efforts to comply with a forum's commercial regulations are also methods that may constitute purposeful availment of the benefits of that forum's laws.

5. Developing Judicial Patterns Involving Electronic Communications

A number of courts have looked at this issue, and despite variations, legal patterns are developing to address the increasing amount and types of electronic commerce. In 1986, a California federal district court considered the effect of the defendants nonresidents operation and use of an online electronic database in California Software, Inc. v. Reliability Research, Inc.83 In California Software, the nonresident defendants, a Nevada corporation ("RRI") and its officers, made allegedly false statements in communications with customers of the plaintiffs, two California software firms. These communications were made with California residents as well as individuals outside of California. The defendants communicated with these potential software purchasers in three ways: by letters, telephone calls, and by a nationally disseminated computer based information service known as the Computer Reliability Forum ("CRF"), operated by the nonresident defendants.

The court found each contact sufficient to support specific jurisdiction. The court rejected the notion that, in this day of electronic communications, jurisdiction requires physical entrance into a forum state. The court found jurisdiction proper because the nonresident defendant, RRI, intended its message to affect the plaintiff, a California forum resident. The court considered the electronic nature of the contact indeterminate.84 The defendants distributed their messages to a wider audience by placing them on the CRF system, and thus, correspondingly broadens the permissible scope of jurisdiction exercisable by courts. The court found jurisdiction to be proper due to a state's strong interest in protecting its citizens' rights and the reasonableness of the nonresident defending a suit in California.

In a 1992 case, Plus System, Inc. v. New England Network, Inc.,85 a district court in Colorado considered whether to assert jurisdiction over a New England ATM network member. The defendant, New England Network, Inc. ("NENI"), is comprised of approximately 700 financial institutions that market and promote a regional shared ATM network in New England. The action arose out of a dispute over royalties on ATM transactions by customers of NENI members that do not use the "PLUS" network but in which the "PLUS" mark is the only mark that appear on both the customer's card and the ATM.

The court first analyzed whether NENI had purposely availed itself of the forum state, Colorado. The court found NENI's physical presence in Colorado unnecessary. The court considered two contacts in particular, joining a Colorado-based national ATM network and entering into a licensing contract signed, at least by the plaintiff, in Colorado. It also looked to the licensing contract's choice of law clause, the making of monthly payments to the plaintiff, a Colorado resident, NENI's sending of a representative to Colorado to initiate the PLUS relationship, and the frequent electronic communication of NENI's computers with PLUS. The court held that the above Colorado contacts, over the contract's life of five years, indicated that NENI purposely availed itself of Colorado.86 It also found that the exercise of jurisdiction would not offend traditional notions of fair play and substantial justice because of the strong connection between Colorado and the dispute giving rise to the suit.

Also in 1992, a federal district court in California, in Resolution Trust Corp. v. First of America Bank, analyzed whether it had jurisdiction over a defendant located in Michigan.87 At issue was whether the non-forum bank established minimum contacts in California by belonging to national clearinghouse service association and accepting wire transfers from a California bank. The court noted that the Michigan bank affirmatively entered the stream of commerce flowing to California by joining the clearinghouse association. However, the court recognized that entering the clearinghouse is a technological necessity in modern banking and that if this contact supported jurisdiction, all banks would be subject to jurisdiction in every state. The court stated that:

Participating in the national clearinghouse service seems analogous to having telephone service which allows people to call the bank from all parts of the country and world to perform banking transactions. Yet, such technology which makes banking services more accessible to customers does not commit the bank to national jurisdiction without some affirmative action to avail itself of a particular forum.88

The court held jurisdiction inappropriate.89

In 1994, a Florida state court, in Pres-Kap, Inc. v. System One, Direct Access, Inc.,90 examined the implications of the forum contacts created by a New York travel agency's use of an online electronic database located in Florida. Expressing concern about the far-reaching implications of basing jurisdiction on such contacts, the court held that maintenance of the suit offended traditional notions of fair play and substantial justice. The court found the notion of defending the suit "wildly beyond the reasonable expectations of such computer information users."91 It compared the New York travel agency's situation to that of a nonresident Lexis or Westlaw user and expressed concern about how many individuals would be subject to jurisdiction if it ruled otherwise.92

5.1. Recent Cases Supporting Jurisdiction

As electronic commerce has grown, there have been an increasing number of cases in the United States dealing with the appropriateness of courts asserting jurisdiction in a wide range of circumstances. In Inset Systems, Inc. v. Instruction Set, Inc.93, the plaintiff alleged that the defendant's Internet website, which contained advertising and a toll-free telephone number, constituted sufficient minimum contacts for purposes of federal Due Process. The court agreed that, through its website, defendant had purposefully availed itself of the privilege of doing business within Connecticut. Since this case, the trend has shifted away from finding jurisdiction based solely on the existence of "passive" website advertising.94

Reversing a lower court's decision, the Sixth Circuit held that a federal district court in Ohio could assert jurisdiction over a nonresident of the forum state in a trademark and unfair competition claim arising from the nonresident's Internet contacts with the forum state.95 Patterson, the nonresident, created several contacts with the forum as a result of his computer activities by entering into a Shareware Registration Agreement ("SRA") with CompuServe and subscribing to CompuServe, an online electronic database system. He also sent e-mails and physical mail to CompuServe in Ohio, and posted a message on a CompuServe electronic forum. The SRA incorporated two other documents by reference. Collectively these documents created a relationship governed by Ohio law in which Patterson placed his software on the CompuServe system in exchange for CompuServe agreeing to provide its subscribers with access to Patterson's software for their use and possible purchase.

Focusing on Patterson's unique relationship with CompuServe, the court distinguished Patterson from a mere purchaser of services. Patterson chose to repeatedly transmit his software onto CompuServe's system located in the forum. Others gained access to Patterson's software via that system.96 Patterson advertised and sold his software through that system. As the court stated, "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."97

The Sixth Circuit distinguished this from merely placing a product into the stream of commerce.98 It also relied on Patterson entering into the SRA. The court noted that either contact alone might be insufficient for jurisdiction, but taken together and analyzed along with other factors, the contacts rendered jurisdiction proper. These other factors included the SRA's choice of law provision, Patterson's sending of e-mail and physical mail to CompuServe in Ohio, and Patterson's posting a message on a CompuServe electronic forum. The court also considered Patterson's software sales through the CompuServe system, not only to consumers in the forum state, but also via the CompuServe system. Since the CompuServe system was located in the forum, the court considered the forum contacts created by Patterson in sending messages to consumers in other states. The court found the intangible and electronic nature of Patterson's contacts insignificant, applying a traditional analysis to this new medium. In holding Patterson subject to jurisdiction in the forum state of Ohio, where CompuServe's headquarters was located, the court declined to address whether Patterson's contacts were sufficient to subject him to jurisdiction in any other forum state in which CompuServe operated and via which Patterson's product might be available.99

Maritz, Inc. v. Cybergold, Inc.100 is cited for the proposition that interactive websites constitute minimum contacts for jurisdictional purposes. In Maritz, the defendant maintained a website that offered subscriptions to receive future information. The court found jurisdiction because the defendant consciously decided to transmit advertising information to all Internet users, ignoring whether any resident in the forum actually had subscribed or received information, noting that forum residents had accessed the site 131 times.

In Edias Software International, L.L.C. v. Basis International, Ltd.101, a district court in Arizona examined whether a nonresident software distributor's contacts with Arizona residents provided a basis for jurisdiction. Edias Software alleged that Basis breached their contract and that Basis' website gave rise to claims for libel, defamation, tortious interference with contract, and violation of federal trademark laws. Basis' contacts with the state of Arizona included a contract with an Arizona resident, Arizona product sales, employee visits, phone calls, faxes, and e-mails. Most significantly, the nonresident's website was accessible in the forum. The Edias court found that the fact that the website that reached forum customers and nonresident's e-mails to forum residents were sufficient contacts under the minimum contacts analysis to assert jurisdiction. The court asserted that nonresidents maintaining Internet web pages risk jurisdiction.102

In Minnesota v. Granite Gate Resorts, Inc.103, the Minnesota Attorney General alleged that a nonresident company and its president engaged in deceptive trade practices, false advertising, and consumer fraud under Minnesota law when the nonresident included on its website an advertisement for its sports betting service based in Belize. Considering whether Granite Gate had established minimum contacts with the forum, the court noted that Granite Gate published a statement on its website asserting that it had the right to apply for injunctive or other relief with regard to a customer in Minnesota. Discussing the nature of Granite Gate's website contacts with the forum, the court rejected the defendants' claim that it mailed nothing to Minnesota, sent nothing to Minnesota, and never advertised in Minnesota. The court stated that "[t]his argument is not sound in the age of cyberspace. Once the Defendants place an advertisement on the Internet, that advertisement is available 24 hours a day, seven days a week, 365 days a year to any Internet user until the Defendants take it off the Internet."104 The court found that it would be inappropriate to view Granite Gate's website as a one-way contact. The court posited that if that were an accurate description, Minnesota residents would only receive a blank screen when clicking on Granite Gate website icons.105 Instead, they received a plethora of information, including a Las Vegas phone number to Granite Gate's gambling service.

Examining the quantity of contacts with the forum, the Minnesota court found that Minnesota residents were regular visitors to the website and that Granite Gate's mailing list included Minnesota residents. During one two-week period, over 248 different locations in Minnesota accessed Granite Gate's website. In light of the detailed records kept by Granite Gate of website users, it could not reasonably claim that Minnesota residents were not accessing their website. Accordingly, the court held that jurisdiction was proper.

In Telco Communications Group, Inc. v. An Apple a Day, Inc.106, the court addressed the issue of personal jurisdiction over a defendant whose actions occurred over the Internet. In Telco the plaintiffs alleged that Apple a Day's press releases over the Internet defamed Telco. Apple a Day challenged the suit for lack of personal jurisdiction. The Telco court applied Virginia's long-arm statute to the Apple a Day's activities.107 Under that statute, a Virginia court may assert jurisdiction over a defendant who regularly does or conducts business in Virginia and causes tortious injury in Virginia by an act or omission outside Virginia.108 Apple a Day did not challenge the fact that a tortious injury occurred as the result of an act or omission outside the state. The Telco Court, therefore, focused on the regular conduct of business prong and, agreeing with the Connecticut district court's decision in Inset, held that posting an advertisement or solicitation on a website constitutes a consistent course of conduct and that the press releases constituted doing or soliciting business. In doing so, the Telco court rejected the Second Circuit's holding in Bensusan that nonresidents must be physically present in the state for jurisdiction to attach. The court also found that jurisdiction existed based on a tortious injury resulting from an act or omission in Virginia.109 It reasoned that the defendants were aware of the breadth of the distribution of the press releases, both from information they had received when contracting to post the press releases and from their knowledge of Telco's and an ISP's presence in Virginia. Finally, though the defendants did not challenge a finding of personal jurisdiction on federal Due Process grounds, the court held that the defendants could reasonably have anticipated being haled into court and thus no violation of federal Due Process would occur.

In GTE New Media Services, Inc. v. Ameritech Corp.,110 companies providing national "Yellow Pages" directory services over the Internet were subjected to the court's jurisdiction because they were highly interactive and the "quality and nature significant so as to allow the assertion of personal jurisdiction." Defendants did actually derive substantial advertising revenues from the sites from residents of the forum accessing and utilizing the site.

In Vitullo v. Velocity Powerboats, Inc.111, defendants' website solicited residents to attend their "local boat show." It provided a hyperlink with information about a boat show within the forum state, and the court found that the website's targeting of local residents was sufficient to assert specific jurisdiction.

Jurisdiction has also been found where the defendant's website encouraged and enabled anyone, including residents in the forum, to send e-mail to the company (Hasbro, Inc. v. Clue Computing, Inc.);112 where minimal sales in the forum through traditional methods, along with an interactive website, were viewed as constituting continuous and systematic contacts with the forum (Mieczkowski v. Masco Corp.);113 where an interactive website accepted hotel reservations from residents of the forum (Park Inns International v. Pacific Plaza Hotels, Inc.);114 where purposeful availment was found based on the defendant's sale of subscriptions for Internet services to residents of the forum state, and contracts were executed with those residents through its website (American Network, Inc. v. Access America/Connect Atlanta, Inc.);115 where the defendant's website solicited contributions, provided a toll free telephone number and was supplemented by newspaper advertising (Heroes, Inc. v. Heroes Foundation);116 where the defendant had purposely availed itself of the benefits of the forum by entering into an agreement with the residents of the forum and thereafter sold products to forum residents on at least three occasions through its website (Digital Equipment Corp. v. AltaVista Technology, Inc.);117 and where the defendant knowingly registered established trademark names as domain names for his websites, then attempted to "sell" the rights to the domain name to the holder of the trademark (Panavision International v. Toeppen).118

5.2. Cases Denying Jurisdiction

In Bensusan Restaurant Corp. v. King,119 the operator of a New York jazz club brought suit against the owner of a small Missouri jazz establishment, claiming merely that its website infringed on its right to the trademark "The Blue Note." The court concluded that assertion of jurisdiction over the defendant on this basis alone would violate the Due Process Clause.

In Zippo Manufacturing Co. v. Zippo Dot Com, Inc.,120 the plaintiff alleged trademark dilution and infringement based on the defendant's website domain names. In denying jurisdiction, the court applied a "sliding scale" under which the likelihood that personal jurisdiction could be constitutionally exercised was directly proportionate to the nature and quality of commercial activity conducted over the Internet. At one end of the scale are circumstances where a defendant "conducts business" over the Internet with residents of the forum, allowing for the assertion of personal jurisdiction in most cases. At the opposite end are situations where a defendant simply posts information on a website which is accessible to users in the forum state, as well as others. In the middle are situations where a defendant operates an interactive website, allowing a user to exchange information with the host computer.

Most courts follow the reasoning set forth in Bensusan and Zippo and decline to assert jurisdiction based solely on website advertising.121 Those courts which have asserted jurisdiction in cases involving passive websites seem to have done so because the defendant had additional contacts with the forum which related to the plaintiff's claim,122 i.e., it "conducted business" over the Internet by engaging in repeated or ongoing business transactions with residents in the forum, or by entering into a contract with the plaintiff through the Internet.123

Differing conclusions have been reached in cases falling into the middle "interactive" category identified in Zippo. Some courts have found that an interactive website alone is sufficient, while others require additional non-Internet activity in the forum, regardless of whether the activity is related to the underlying claim. Still others require additional conduct in the forum that is related to the plaintiff's cause of action.

In Hearst v. Goldberger124 the federal district court for the Southern District of New York faced the issue of whether, in a trademark infringement case, the court had personal jurisdiction over the defendant as a result of his website being accessible to and electronically visited by New York computer users. The court based its analysis on one of New York's jurisdictional statutes, C.P.L.R. §302.125 It found that Goldberger's website, announcing the future availability of his services, amounted to the equivalent of advertisement in a national magazine. Such advertisements do not provide a basis for personal jurisdiction under the transacted business or solicitation prongs of the statute. The Hearst court distinguished the case from Bensusan, stating that Bensusan addressed purposefully directed contact. It also distinguished Maritz and Inset, reasoning that in those instances defendants consciously decided to transmit advertising information to all Internet users.

Courts have denied jurisdiction either based on the application of legal principles, or a failure to offer evidence of contacts with the forum. In Edberg v. Neogen,126 a website allowing users to order product information and send electronic mail to defendant did not support jurisdiction where no user in the forum state was shown to have accessed the site. The defendant in E-Data Corp. v. Micropatent Corp.127 operated a website where users could purchase, license and download photography images. Plaintiff merely showed the potential for the defendant to reach and solicit forum residents, but offered no evidence that defendant did so. The court rejected jurisdiction.

Courts have similarly rejected personal jurisdiction on an interactive website where electronic advertising was the only activity conducted on the website (Weber v. Jolly Hotels);128 where the defendant's website allowed the user to type in an e-mail address and receive a copy of a publication (Scherr v. Abrahams);129 where a domain name was used by two parties who advertised and sold their services over the Internet (CD Solutions v. Tooker);130 and where a company provided web advertising, marketing, consulting services and business consulting services for strategic management and marketing through a "passive" website, which included the company logo, a local phone number, an invitation to send electronic mail, and a hypertext link through which users could introduce themselves (Cybersell, Inc. v. Cybersell, Inc.).131

It appears that the better view is that "purposeful availment" which results in jurisdiction is shown if a defendant has taken deliberate action within the forum state, or if it has created continuing obligations to forum residents.132

6. Bright Lines Are Developing

A recent case, Millennium Enterprises, Inc. v. Millennium Music, LP,133 provides an excellent summary of the cyberspace jurisdiction cases decided to date. The plaintiff, Music Millennium, was incorporated and principally did business in Oregon. It also sold products through mail, telephone orders and its Internet website.

Defendant Millennium Music, Inc., a South Carolina corporation, operated retail music stores in South Carolina and sold products through its Internet website. The vast majority of its sales occurred at its retail locations. From March 1998, through September 1998, defendants sold fifteen compact discs to nine separate customers in six states and one foreign country over the Internet. The sales totaled approximately $225. During the same period, aggregate retail sales were $2,180,000. Defendants purchased a small amount of compact discs from a distributor located in Portland, Oregon, between 1994-1997, totaling approximately one-half of one percent of defendants' inventory purchases for those years.

In 1998, plaintiff received a credit document from a distributor in Oregon, which apparently was intended for defendants. Later in 1998, an Oregon resident purchased a compact disc from defendants through its website at the request of an acquaintance of the plaintiff's counsel. Defendants sold no other merchandise to any Oregon resident. Plaintiff alleged that the use of the name "Millennium Music" in connection with the sale of goods in interstate commerce violated, among other things, state and common law trademark rights.

The Millennium Music court concluded that although contacts that are "isolated" or "sporadic" may support specific jurisdiction if they create a "substantial connection" with the forum, the contacts must be more than random, fortuitous, or attenuated.134 It is not required that a defendant be physically present within the forum, provided its efforts are purposefully directed toward forum residents.135

Did the defendant in the Millennium Music case "purposefully avail" itself of the forum at issue by soliciting sales over the Internet? The only sale outside Oregon was nothing more than an attempt by plaintiff to manufacture a contact with this forum sufficient to establish personal jurisdiction. Moreover, there was no confusion shown regarding plaintiff's and defendants' trade names, since the only out-of-state purchaser knew exactly with whom she was dealing and knew that defendants were not associated in any way with plaintiff. Likewise, defendants' sporadic purchases from a distributor in the forum could not suffice to establish the requisite minimum contacts unless the cause of action arose from or related to those purchases.136 Defendants in the Millennium case did nothing more than publish an interactive website. Accordingly, the court concluded that the defendants did not "conduct business" in Oregon over the Internet.

But, neither was defendants' website passively providing information for those interested. Thus, its website fell into the middle category, requiring further inquiry into the level of interactivity and commercial nature of the exchange of information to determine whether jurisdiction should be exercised.

Defendants' website could be seen as satisfying the requirements for personal jurisdiction under the middle category in Zippo. The level of potential interactivity was not insubstantial. But, the court found that this middle interactive category required "deliberate action" within the forum state, which could include transactions between the defendant and forum residents through the defendant's website, or conduct of the defendant purposefully directed at residents of the forum state through the website. While defendants did maintain a website which allowed users to purchase products, thus rendering it foreseeable that residents of Oregon, or any other state or country for that matter, could purchase a product from defendants, foreseeability alone could not serve as the constitutional benchmark for personal jurisdiction in the view of the court.

Neither was defendant's website a "conduct and connection" with Oregon giving defendant "fair warning" that it should reasonably anticipate being "haled" into court in Oregon. Defendants merely published information on an Internet website that is accessible to whomever may find it. Defendants had not taken action creating "a substantial connection" with Oregon, or deliberately engaged in "significant activities" within Oregon, or created "ongoing obligations" with residents of Oregon in a manner related to plaintiff's claims.

The court's decision contrasts with decisions in Inset and Maritz because it determined that a defendant which establishes an interactive website must "purposefully direct" its activities at or take "deliberate action" in or create "substantial connection" with the forum state so as to provide "fair warning" that such activities may subject the defendant to jurisdiction in a distant forum.

Conclusion

The existence of a website, whether passive or interactive, may not rise to the requisite level of conduct that subjects a business to jurisdiction in another forum. A website is not automatically projected or "pushed" to a user's computer without invitation, as are advertisements in a newspaper or on the television and radio. Rather, the user must take affirmative action to access or "pull" either a passive or interactive website. Contrary to the scenario described in Inset, information published on websites is not thrust upon users indiscriminately.

Specific jurisdiction appears not to be appropriate unless the forum-related contacts give rise or relate to the plaintiff's cause of action. Absent actual business transactions in the forum, or evidence that consumers were targeted in the forum, the distinctions between specific and general jurisdiction become blurred. If an interactive website constituted "purposeful availment" simply by being continuously accessible, a plaintiff could sue a foreign defendant in any forum and claim jurisdiction, even if the cause of action were unrelated to the website. That cannot be the correct result either as a matter of law or business.

The court in Millennium Music seems to have been correct in concluding that the "imposition of broad territorial concepts of personal jurisdiction on the commercial uses of the Internet has dramatic implications, opening the web user up to inconsistent regulations throughout fifty states, indeed, throughout the globe." Overreaching jurisdiction increases the likelihood of "dramatically chilling what may well be the most participatory marketplace of mass speech that this country -- and indeed the world -- has yet seen." Businesses may forgo the efficiency and accessibility of electronic commerce if faced with the "litigious nightmare" of being subject to suit in every jurisdiction on the globe.137


Endnotes

Thomas P. Vartanian is the Managing Partner of the Washington office of the New York law firm Fried, Frank, Harris, Shriver & Jacobson, Chairman of the Office's Corporate Department, and head of its Financial Institutions Transactions and Electronic Commerce Technology Groups. He is an Adjunct Professor in the graduate law program at Georgetown University Law Center, where he teaches a course on 21st Century Banking issues. Mr. Vartanian is also Chair of the American Bar Association's Committee on Cyberspace Law and a member of the ABA's Banking Law Committee; he is also a member of the ABA's 1998 Ad Hoc Committee on Financial Services Deregulation and Consolidation. He is co-author of two recently published books entitled 21st Century Money, Banking & Commerce and The Management of Risks Created by Internet-Initiated Value Transfers, and a contributing author of The Year 2000 Legal Guide.

This article is an updated version of Chapter 19 of 21st Century Money, Banking & Commerce and will be available through the E-BankFutures Internet updating system for the book. See http://www.ffhsj.com/21stBook.

  1. See Dan L. Burk, Federalism in Cyberspace, 28 Conn. L. Rev. 1095, 1097 (1996).
  2. See id. (citing A Close-up of Transmission Control of Transmission Control Protocol/Internet Protocol (TCP/IP), Datamation (Aug. 1, 1988); Ed Krol & Paula Ferguson, The Whole Internet for Windows 95 (1995)).
  3. The address is not a geographical location such as a street address, but rather a logical address that designates a particular computer server that may be relocated in any part of the country or the world while retaining its same logical address. See id.
  4. See Is the Internet Ready for Prime Time? Skeptics Have Field Day With Shutdown, Electronic Messaging News, Aug. 6, 1997 (describing the one day shutdown caused by human error, in which modifications to one server's messaging system, in essence, communicated to the rest of the Internet that it had no traffic flow causing all other computers to redirect their packets through that server which caused an overload and enormous traffic at that server).
  5. Burk, supra note 1, at 1098.
  6. The Federalist No. 42 (James Madison).
  7. U.S. Const. art I, 8, cl. 3.
  8. See Richard B. Bilder, The United States Constitution in its Third Century: Foreign Affairs: Distribution of Constitutional Authority: The Role of States and Cities in Foreign Relations, 83 Am. J. Int'l L. 821 (1989) (noting that over 1000 state and local governments participate in varying aspects of foreign affairs).
  9. Id. (quoting Peter J. Spiro, Taking Foreign Policy Away From the Feds, Wash. Q., No. 1, 1988, at 191, 202-03).
  10. The Constitution provides that the laws and treaties of the United States are "the supreme law of the land" and preempt state law, international agreements, and federal determinations and interpretations of customary international law. U.S. Const, art. VI, cl. 2. In determining whether a Congressional statute preempts state or local laws, courts determine whether the federal statute embodied the "clear and manifest purpose of Congress" to preempt the entire subject area covered by the state statute or whether by implicit legislative design, states where precluded from entering that field of law. See Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977); Burbank v. Lockheed Air Terminal, 411 U.S. 624, 633 (1973); Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). Though the Court has upheld a wide variety of statutes that regulate intrastate economic activity that substantially affect interstate commerce, the Supreme Court has struck down federal statutes that intrude upon intrastate matters that do not touch economy or commerce amongst the states. See United States v. Lopez, 514 U.S. 549 (1995) (finding unconstitutional a federal statute regarding firearm possession in proximity to school, on the basis that it was not a valid exercise of Congress' authority under the Commerce Clause because it did not regulate commercial activity or economic interests).
  11. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 231-32 (1824) (Johnson, J., concurring). The negative implication of the Commerce Clause is also known as the "dormant" Commerce Clause.
  12. See Philadelphia v. New Jersey, 437 U.S. 617 (1978) (striking down a New Jersey statute that prohibited the importation into the state any wastes which originated outside the territorial limits of New Jersey). The Supreme Court noted that it not only looks to a state's purpose in whether or not the statute is discriminatory, but also whether the accomplishment of a valid purpose has the effect of discriminating against out-of-state articles of commerce. Id. at 626-27. See also Kassel v. Consolidated Freightways Corp. of Del., 450 U.S. 662 (1981) (striking down an Iowa statute that prescribed a maximum length for tractor trailers, far shorter than the length used by many trucks in interstate commerce). In balancing the state's interest in the safety of its citizens against the burden on interstate commerce, the Court stated that "[r]egulations designed for salutary purpose nevertheless may further the purpose so marginally, and interfere with commerce so substantially, as to be invalid under the Commerce Clause." Id. at 670.
  13. Japan Lines, Ltd. v. County of Los Angeles, 441 U.S. 434, 449 (1979) (quoting Michelin Tire Corp. v. Wages, 423 U.S. 276, 285 (1976)).
  14. Pataki, 969 F. Supp. at 161. Railroads, trucks, and highways have long been recognized under the law as "instruments of commerce," because they serve as conduits for the transportation of products and services. See, e.g., Kassel, 450 U.S. 662; Southern Pacific Co. v. Arizona, 325 U.S. 761 (1945).
  15. Pataki, 969 F. Supp. at 183-84. But see New York v. Barrows, 664 N.Y.S.2d 410 (N.Y. Sup. Ct. 1997) (upholding a similar N.Y. statute under the Commerce Clause since the statute forbids the transmission of sexually related communications via the Internet to minors, where such communications were intended to lure the child into sexual relations within the State of New York).
  16. Pataki, 969 F. Supp. at 161, 167.
  17. Id. at 169.
  18. Id.
  19. Id. (emphasis added). Constitutional issues have also been raised in ACLU v. Reno, 31 F. Supp.2d 473 (E.D. Pa. 1999), appeal docketed, No. 99-1324 (3rd Cir. April 27, 1999); Mainstream Loudoun v. Board of Trustees of the Loudoun County Library, 2 F. Supp.2d 783 (E.D. Va. 1998) and 24 F. Supp.2d 552 (E.D. Va. 1998).
  20. Pataki, 969 F. Supp. at 170.
  21. Id. at 171.
  22. See Burk, supra note 1, at 1126-28. California has enacted a criminal statute imposing consumer disclosure obligations for online vendors and explicitly regulating the manner in which those disclosures are presented to consumers on the vendors' web pages. The law applies to the sale of goods to any consumer who is a resident of California regardless of whether the vendor is from California, another state, or from another country. See Cal. Bus. & Prof. Code 17538 (Deering 1996); see also California Applies Consumer Protections to Internet Commerce, 21st Century Banking Alert No. 97-1-16, Jan. 16, 1997, available at <http://www.ffhsj.com/bancmail/21starch/970116.htm>. A recent Supreme Court case, however, reversed a large punitive damage award against BMW that was based on its failure to comply with an Alabama consumer disclosure statute. The damage award was struck down because it was based on BMW's national policy of non-disclosure, rather than purely on the company's failure to follow Alabama law. BMW of North America v. Gore, 517 U.S. 559, 116 S. Ct. 1589, 1596-97 (1996).
  23. See Pataki, 969 F. Supp. at 174.
  24. Healy v. Beer Institute, 491 U.S. 324, 336 (1989), Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573, 581-82 (1986).
  25. Edgar v. Mite, 457 U.S. 624 (1982) (striking down an Illinois anti-takeover statute seeking to entrench management of Illinois corporations). Only a plurality of the Court adhered to the extraterritoriality analysis, whereas a majority of the court struck down the statute under the balancing test. Id. at 643. A majority of the Supreme Court has adopted the extraterritoriality rationale in later cases. See Healy, 491 U.S. at 336; Brown-Forman Distillers, 476 U.S. at 581-82.
  26. See Edgar, 457 U.S. at 642.
  27. Shafer v. Farmers Grain Co., 268 U.S. 189, 199 (1925).
  28. See Southern Pacific, 325 U.S. at 775 (striking down a statute limiting the length of trains, and thereby preventing a state from imposing its regulatory policies on neighboring states).
  29. Healy, 491 U.S. at 336.
  30. See Pike v. Bruce Church, 397 U.S. 137, 142 (1970).
  31. "The distinction between direct regulations of interstate commerce, which are subject to a per se rule of invalidation, and indirect regulations subject to the less stringent balancing test has never been sharply defined. In either situation, however, the 'critical consideration is the overall effect of the statute on both local and interstate activity.'" Pataki, 969 F. Supp. at 177 n.8 (citing Brown-Forman, 476 U.S. at 579; Raymond Motor Transportation, Inc. v. Rice, 434 U.S. 429, 440-41 (1978)).
  32. Pataki, 969 F. Supp. at 178. See also Hunt v. Washington Apple Advertising Comm'n, 432 U.S. 333, 350 (1977) ("[A]finding that state legislation furthers matters of legitimate local concern, even in the health and consumer protection areas, does not end the inquiry.").
  33. George B. Delta & Jeffrey H. Matsuura, Law of the Internet 3.04 (1998).
  34. Id.
  35. Communications Decency Act of 1996, Pub. L. No. 104-104, 507, 1996 U.S.C.C.A.N. (110 Stat.) 132 (codified at 18 U.S.C. 1462, 1465). See also GA. Code Ann. 16-9-93.1; Thomas P. Vartanian, Robert H. Ledig, Edward B. Whittemore, & James P. Baetzhold, Georgia Internet Law Raises Jurisdictional Questions for Electronic Commerce, Electronic Banking L. & Com. Rep., Feb. 1997, at 15.
  36. See United States v. Thomas, 74 F.3d 701, 706-07 (6th Cir. 1996) (applying the community decency standards of the forum state into which the nonresident defendants transmitted computer-generated images, despite defendants' argument that the pictures were intangible); Playboy Enterprises, Inc. v. Chuckleberry Publishing, Inc., 939 F. Supp. 1032 (S.D.N.Y. 1996) (holding a nonresident in contempt for setting up an infringing website in violation of a previous injunctive order, but finding jurisdiction based on the previous injunction).
  37. See Reno v. ACLU, 524 U.S. 844 (1997) (finding two provisions regarding "indecent" and "patently offensive" communications on the Internet unconstitutional under the First Amendment); ACLU v. Miller, 977 F. Supp. 1228 (N.D. Ga. 1997) (enjoining enforcement of the Georgia Internet law); Pataki, 969 F. Supp. 160 (denying New York the right to regulate Internet activity because of interference with the Commerce Clause).
  38. Pennoyer v. Neff, 95 U.S. 714 (1878).
  39. International Shoe v. Washington, 326 U.S. 310, 320 (1945).
  40. See Steven Baicker-McKee, William Janssen, & John B. Corr, Federal Civil Rules Handbook, 2.4 (1997) [hereinafter Federal Civil Rules Handbook].
  41. Id.
  42. Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414 (1984) (quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)); see also Federal Civil Rules Handbook, supra note 41, 2.5.
  43. Fed. R. Civ. P. 4(k); Wenz v. Memery Crystal, 55 F.3d 1503 (10th Cir. 1995) (assertions of jurisdiction over nonresident defendants require an examination of both the state long-arm statute and issues of due process); Federal Civil Rules Handbook, supra note 41, 2.3.
  44. Federal Civil Rules Handbook, supra note 41, 2.5.
  45. Id. Federal Due Process, as used herein, refers to the protections offered under the due process clauses of the U.S. Constitutions, in particular the Fifth Amendment for federal actions and the Fourteenth Amendment for state actions. These protections have been interpreted to mean that the exercise of jurisdiction must not be fundamentally unfair to a defendant. See id. 2.4.
  46. See, e.g., Reynolds v. International Amateur Athletic Fed'n, 23 F.3d 1110, 1115 (6th Cir. 1994); Aanestad v. Beech Aircraft Corp., 521 F.2d 1298, 1300 (9th Cir. 1974); Wilson v. Humphreys (Cayman) Ltd., 916 F.2d 1239, 1243 (7th Cir. 1990); Federal Civil Rules Handbook, supra note 41, 2.5. However, certain federal causes of action, including suits under federal antitrust laws and securities laws, provide that courts can exercise nationwide personal jurisdiction. Id. 2.7; see, e.g., 15 U.S.C. 22 (providing nationwide personal jurisdiction in antitrust claims). Additionally, Federal Rule of Civil Procedure 4(k)(2) permits the exercise of personal jurisdiction in federal causes of action where the defendant has sufficient minimum contacts with the United States as a whole, but not with any particular state. See Fed. R. Civ. P. 4(k)(2).
  47. See Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987) (finding that California's long-arm statute authorizes jurisdiction "on any basis not inconsistent with the Constitution of this state or the United States"); United States v. Ferrara, 54 F.3d 825, 828 (D.C. Cir. 1995) (holding that the D.C. long-arm statute provides for the exercise of jurisdiction over any party to the extent permissible under the Due Process Clause, merging the statutory long-arm and constitutional jurisdictional questions into one inquiry); Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997) (holding that the court was authorized to exercise jurisdiction to the limits of the federal Constitution); see, e.g., D.C. Code Ann. 13-423; 42 PA. C.S.A. 5322 (b). The California long-arm statute provides that "[a]court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or that of the United States." 5 Cal. Civ. Proc. Code 410.10.
  48. See Federal Civil Rules Handbook, supra note 41, 2.5; see, e.g., N.Y. C.P.L.R. 302.
  49. See Alton v. Wang, 941 F. Supp. 66, 67-68 (W.D. Va. 1996) (finding that the Virginia long-arm statute extends to the limits of federal Due Process, but that the statute limits jurisdiction by only providing jurisdiction in specific circumstances). For example, the statute may provide for jurisdiction over foreign parties because of their forum activities or based on the effect that their actions outside of a state have on the state or its residents.
  50. See Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328 (E.D. Mo. 1996) (finding that a website produced an effect within the forum so that even if the website operator's actions were interpreted as occurring outside the forum, the contacts satisfied the long-arm statute); Inset Systems, Inc. v. Instruction Set, Inc., 937 F. Supp. 161 (D. Conn. 1996) (finding that a foreign party's defendant's website constituted a continuous advertisement which could be accessed by forum residents, satisfying the "solicitation of business" provision of the Connecticut's long-arm statute).
  51. See Bensusan Restaurant Corp. v. King, 937 F. Supp. 295 (S.D.N.Y. 1996), aff'd, 126 F.3d 25 (2d Cir. 1997) (holding that the creation of a website with a telephone number to order an allegedly infringing product is not an offer to sell the product in the forum state within the meaning of the New York long-arm statute); Hearst Corp. v. Goldberger, No. 96 Civ. 3620, 1997 Dist. LEXIS 2065, *14, *26, *29 (S.D.N.Y. Feb. 26, 1997) (holding that the nonresident's website, e-mails with the media in the forum, and use of a disputed e-mail address did not constitute "transacting business" or "committing a tortious act" in New York under its long-arm statute).
  52. Bensusan, 937 F. Supp. at 300; see Hearst, 1997 LEXIS 2065 at *44-49.
  53. Heroes Inc. v. Heroes Foundation, 958 F. Supp. 1 (D.D.C. 1996) (finding that a nonresident's web page which solicited contributions and provided a toll-free telephone number for that purpose provided the court with jurisdiction within the ambit of federal Due Process); Panavision Int'l, L.P. v. Toeppen, 938 F. Supp. 616, 620 (C.D. Cal. 1996) (finding that because the California long-arm statute permits courts to assert jurisdiction to the extent of federal Due Process, the court need only examine whether jurisdiction meets the requirements of Due Process); Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1122 (W.D. Pa. 1997) (finding that even if the situation does not satisfy a specific provision of the long-arm, the long-arm provides for jurisdiction to the extent of federal Due Process).
  54. See Helicoptoros Nacionales De Columbia, S.A., 466 U.S. at 413-14 (1984).
  55. See id. at 414; International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)).
  56. See Federal Civil Rules Handbook, supra note 41, 2.4.
  57. See Helicopteros, 466 U.S. at 414 (quoting Shaffer v. Heitner, 433 U.S. at 204); see also Federal Civil Rules Handbook, supra note 41, 2.5.
  58. Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 447 (1952). See generally James Wm. Moore, Moore's Federal Practice (3d ed. 1997).
  59. Perkins, 342 U.S. at 447-48.
  60. Helicopteros, 466 U.S. at 418.
  61. See California Software, Inc. v. Reliability Research, Inc., 631 F. Supp. 1356 (C.D. Cal. 1986) (finding that the use of a nationally-disseminated, computer-based information service and regular communications with forum residents through that service did not establish the minimum contacts necessary to support general jurisdiction). Another court found it unnecessary to consider the issue. See Edias v. Basis, 947 F. Supp. 413, 417 (D. Ariz. 1996) (finding that because all of the nonresident's contacts with the forum via the Internet gave rise to the suit, it was unnecessary to consider whether the nonresident's ongoing business relationship with a forum resident, involving sales, visits, and communications into the forum, supported general jurisdiction).
  62. McDonough v. Fallon, No. 95-4037, 1996 U.S. Dist. LEXIS 15139 (S.D. Cal. Aug. 5, 1996).
  63. Id. at *6-7.
  64. Id. at *7.
  65. Id. at *8.
  66. Id.
  67. Id. at *11.
  68. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-77 (1985); International Shoe Co., 326 U.S. at 316.
  69. World-Wide Volkswagen, 444 U.S. at 295 (holding that the New York distributor and retail dealer of an automobile is not subject to the jurisdiction of Oklahoma, the location of a collision involving an automobile purchased from the dealer).
  70. Id.
  71. Id. at 298.
  72. Id. at 297-298.
  73. Keeton v. Hustler Magazine, 465 U.S. 770, 774 (1984).
  74. Id.
  75. Burger King, 471 U.S. at 479-80.
  76. Id.
  77. "Pull" technology, such as a web browser, requires an Internet user to actively do something in order for the information to be transmitted from a foreign party's website to the user's computer. "Push" technology downloads data and other communications to a user's computer via the Internet without the user having requested the information, such as unsolicited e-mail communications and advertisements.
  78. Burger King, 471 U.S. at 482-86. See also Asahi Metal Industry Co., 480 U.S. 102.
  79. Burger King, 471 U.S. at 482-83.
  80. Id.
  81. Id. at 484.
  82. Kulco v. Superior Court, 436 U.S. 84, at 96-98 (1978) (finding that commercial contacts with a forum are more likely to give rise to jurisdiction than personal and domestic relations).
  83. California Software, Inc. v. Reliability Research, Inc., 631 F. Supp. 1356 (C.D. Cal. 1986).
  84. Id. Electronic messages sent from RRI in Vermont to corporations in Washington, New York, and Ontario, Canada via the forum Computer Reliability Forum provided one basis for jurisdiction.
  85. Plus System, Inc. v. New England Network, Inc., 804 F. Supp. 111 (D. Colo. 1992).
  86. Id. at 119.
  87. Resolution Trust Corp. v. First of America Bank, 796 F. Supp. 1333, 1334-35 (C.D. Cal. 1992).
  88. Id. at 1336.
  89. Id. at 1338.
  90. Pres-Kap, Inc. v. System One, Direct Access, Inc., 636 So.2d 1351 (Fla. Dist. Ct. App. 1994).
  91. Id.
  92. Lexis and Westlaw are two popular computer research databases.
  93. Inset Systems, Inc. v. Instruction Set, Inc., 937 F. Supp. 161 (D. Conn. 1996).
  94. See Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 418 (9th Cir. 1997).
  95. CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996).
  96. Id.
  97. Id. at 1265.
  98. Id.
  99. Id. Turning to the second factor in the minimum contacts analysis, the court also held that jurisdiction did not offend traditional notions of fair play and substantial justice. Although it may be burdensome for Patterson to defend a suit in Ohio, he was not a mere consumer but rather an entrepreneur who should have anticipated the possibility of being subject to jurisdiction when entering into the CompuServe relationship. The court held that Ohio and the plaintiff, CompuServe, both had a strong interest in adjudicating the dispute. Id. at 1267-68.
  100. Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328 (E.D. Mo. 1996).
  101. Edias Software International, L.L.C. v. Basis International, Ltd., 947 F.Supp. 413 (D. Ariz. 1996).
  102. Id. at 420.
  103. Minnesota v. Granite Gate Resorts, Inc., No. C6-95-7227, 1996 WL 767431 (Minn. Dist. Ct. Dec. 11, 1996), aff'd, 568 N.W.2d 715 (Minn. Ct. App. 1997) and aff'd, 576 N.W.2d 747 (Minn. 1998). See also Banned in Kansas City -- Missouri Residents Need Not Apply, 21st Century Banking Alert No. 97-7-11, July 11, 1997; State of Minnesota Presses Jurisdiction Over Out-of-State Web Page. 21st Century Banking Alert No. 96-12-20.1, Dec. 20, 1996, available at <http://www.ffhsj.com/bancmail/bancpage.htm>.
  104. Granite Gate Resorts, 1996 WL 767431, at *6.
  105. Id. at *9.
  106. Telco Communications Group, Inc. v. An Apple a Day, Inc., 977 F. Supp. 404 (E.D. Va. 1997).
  107. Va. Code Ann. 8.01-328.1(A)(3), (4).
  108. Id. 8.01-328.1(A)(4).
  109. Id. 8.01-328.1(A)(3).
  110. GTE New Media Services, Inc. v. Ameritech Corp., 21 F. Supp.2d 27 (D.D.C. 1998).
  111. Vitullo v. Velocity Powerboats, Inc., 1998 WL 246152 (N.D. Ill. 1998).
  112. Hasbro, Inc. v. Clue Computing, Inc.,994 F. Supp. 34 (D. Mass. 1997).
  113. Mieczkowski v. Masco Corp.,997 F. Supp. 782 (E.D. Tex. 1998).
  114. Park Inns International v. Pacific Plaza Hotels, Inc., 5 F. Supp.2d 762, 764-65 (D. Ariz. 1998).
  115. American Network, Inc. v. Access America/Connect Atlanta, Inc.,975 F. Supp. 494 (S.D.N.Y. 1997).
  116. Heroes, Inc. v. Heroes Foundation, 958 F. Supp. 1 (D.D.C. 1996).
  117. Digital Equipment Corp. v. AltaVista Technology, Inc., 960 F. Supp. 456 (D. Mass. 1997).
  118. Panavision International v. Toeppen, 141 F.3d 1316 (9th Cir. 1998).
  119. Bensusan Restaurant Corp. v. King, 937 F. Supp. 295 (S.D.N.Y. 1996), aff'd, 126 F.3d 25 (2d Cir. 1997).
  120. Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1123 (W.D. Pa. 1997).
  121. See, e.g., Patriot Systems, Inc. v. C-Cubed Corp., 21 F. Supp.2d 1318 (D. Utah 1998); SF Hotel Company v. Energy Investments, 985 F. Supp. 1032 (D. Kan. 1997); Weber v. Jolly Hotels, 977 F. Supp. 327, 333 (D.N.J. 1997); Smith v. Hobby Lobby Stores, Inc., 968 F. Supp. 1356 (W.D. Ark. 1997); IDS Life Ins. Co. v. SunAmerica, Inc., 958 F. Supp. 1258, 1268 (N.D. Ill. 1997), vacated in part on other grounds, 136 F.3d 537 (7th Cir. 1998); No Mayo-San Francisco v. Memminger, 1998 WL 544974 (N.D. Calif. 1998); CFOs 2 Go, Inc. v. CFO 2 Go, Inc., 1998 WL 320821 (N.D. Calif. 1998); Transcraft Corp. v. Doonan Trailer Corp., 45 U.S.P.Q.2d 1097, 1997 WL 733905 (N.D. Ill. 1997); Graphic Controls Corp. v. Utah Medical Products, 1997 WL 276232 (W.D.N.Y. 1997), aff'd, 149 F.3d 1382 (Fed. Cir. 1998); Hearst Corp. v. Goldberger, 1997 WL 97097 (S.D.N.Y. 1997).
  122. See Gary Scott International, Inc. v. Baroudi, 981 F. Supp. 714 (D. Mass. 1997) (jurisdiction based on sales of infringing products to Massachusetts retailer in addition to web site advertising); Heroes, Inc. v. Heroes Foundation, 958 F. Supp. 1, 3-5 (D.D.C. 1996) (jurisdiction based on web site and advertisement in local newspaper soliciting donations).
  123. See Compuserve v. Patterson, 89 F.3d 1257 (6th Cir. 1996); Thompson v. Handa-Lopez, Inc. 998 F. Supp. 738 (W.D. Tex. 1998) (defendant operated casino-type arcade game through its web site and entered into contract with plaintiff to play the game); Zippo, 952 F. Supp. at 1125-26 (defendant contracted with approximately 3,000 individuals and several Internet access providers in the forum state).
  124. Hearst v. Goldberger, No. 96 Civ. 3620, 1997 U.S. Dist. LEXIS 2065 (S.D.N.Y. Feb. 26, 1997).
  125. N.Y. C.P.L.R. 302. The court did note, however, that the defendants contacts with New York would not meet the requirements of "doing business" as set forth in N.Y. C.P.L.R. 301. Hearst, 1997 U.S. Dist. LEXIS 2065, at *24.
  126. Edberg v. Neogen, 17 F. Supp.2d 104 (D. Conn. 1998).
  127. E-Data Corp. v. Micropatent Corp., 989 F. Supp. 173 (D. Conn. 1997).
  128. Weber v. Jolly Hotels, 977 F. Supp. 327 (D. N.J. 1997).
  129. Scherr v. Abrahams, 1998 WL 299678 (N.D. Ill. 1998).
  130. CD Solutions v. Tooker, 965 F. Supp. 17 (N.D. Tex. 1997).
  131. Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 (9th Cir. 1997).
  132. Ballard, 65 F.3d at 1498.
  133. Millennium Enterprises, Inc. v. Millennium Music, LP, Civ. No. 98-1058-AA, 1999 WL 27060 (D. Ore. Jan. 4, 1999).
  134. Burger King, 471 U.S. at 472-73, 475.
  135. Id. at 476.
  136. Helicopteros, 466 U.S. at 414, 418.
  137. See Donnie L. Kidd, Jr., Casting the Net: Another Confusing Analysis of Personal Jurisdiction and Internet Contacts in Telco Communications v. An Apple a Day, 32 U. Rich. L. Rev. 505, 541 (1998).

This article originally appeared in Pike & Fischer Internet Law and Regulation. For more information, please see http://internetlaw.pf.com. For print and/or CD Rom, please call 800-255-8131.

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